Legal Update: Permissible Business Activities for Companies with Foreign Capital

Hisham Almansoor ([email protected]) – Associate

The Kingdom of Bahrain regulates the permissible commercial activities for companies with foreign capital pursuant to the Cabinet’s Resolution No. 40/2021 Determining Commercial Activities Which Foreign Capital Companies May Be Licensed to Practise (as amended). This framework may be considered against: (i) companies with 100% foreign capital and (ii) companies which require at least one Bahraini partner and (iii) companies which require at least 51% (majority) Bahraini capital.

100% Foreign Ownership

Cabinet Resolution No. 53/2024 has amended provisions of Resolution No. 40/2021 in relation to companies with 100% foreign capital.

Criteria for Full Foreign Capital Companies

Pursuant to Article 5 (as amended by the recent Resolution), in order for a company to practise the business activities specified under Schedule 4 to the Resolution (reproduced below) it must satisfy the following criteria:

1. Minimum share capital of BHD 100,000 or its equivalent in other currencies.
2. Minimum of EUR 750 million revenues by the parent company or its equivalent in BHD.
3. Established in 10 markets globally (noting that prior to the amendment, the requirement was at least three markets globally)

Authorised Distributors

Pursuant to Article 4 bis (as amended by the recent Resolution), companies with both full and partial foreign capital may be exempt from the requirement of a majority-share Bahraini partner to practise the ‘Authorised Distributor’ business activity if:

1. An existing company in Bahrain with at least 51% Bahraini capital practises the authorised distributor activity in respect of the same goods in the Kingdom (i.e. – the company seeking exemption will not be an exclusive distributor).
2. The company owning the mark of the products under distributorship satisfies the Article 5 criteria (considered above).
3. The company seeking exemption has acquired the right to distribute the goods of a mark of economic value subject to obtaining Cabinet approval.

The amendments introduced by the recent Resolution strike a balance by ensuring that although the Authorized Distributor activity is open to companies with foreign capital, this may not be at the expense of diluting participation of companies with Bahraini partners in the relevant industry that is the subject of a distributorship. This is most evident by the fact that the company seeking an exemption will not be an exclusive distributor, and that the Article 5 criteria have been heightened in raising the revenue threshold and requiring the presence in more global markets.

Overview of Classifications

We reproduce below those Schedules of the Resolution that are relevant to the Resolution’s amendment (Schedules 2 and 4).

Schedule 2 to Resolution No. 40/2021 specifies the business activities where a majority of Bahraini capital is required (at least 51%) as follows:

Schedule 3 specifies 178 business activities which companies are permitted to practice provided there is at least one Bahraini partner, whose share may be determined by the company.

Schedule 4 specifies 62 business activities which companies with 100% foreign capital are permitted to practice subject to satisfying the Article 5 criteria, which we considered above.

For more information, please contact us on [email protected].

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