How are online and home businesses regulated?
Our Associate, Hisham Almansoor’s elaborates on regulations & programs for home and online businesses.
It is undeniable that the rise of giant social media platforms has provided fertile grounds for the proliferation of online and home businesses, and Bahrain is certainly no exception. The online platform provides several advantages that renders this medium a far more attractive option to undertake business activities than traditional brick-and-mortar establishments. These benefits were clear well before the COVID-19 pandemic, but the harsh economic conditions have only brought them further into the spotlight.
Establishing an online or home business is financially attractive because the entrepreneur need not worry about rent expenses which are often substantial, or a commercial kitchen (in the event of a food or baking business), no labour expenses (and therefore no wages, accommodation, visa and LMRA fees) and no renovation and interior design costs given that the premises are either the entrepreneur’s home or the virtual platform. In addition, there is often far less risk in undertaking this type of business since little to no sales does not give rise to losses given the lack of fixed costs.
Instagram has become a highly embraced social media platform to establish and market entrepreneurs’ online businesses. Consumers today are faced with a myriad of options in relation to baked goods, home appliances, gift items, clothing and everything in between. In the light of a continuously evolving business climate, the past two decades have carried the need to adapt local regulations aimed at small online or home businesses. This article considers why regulation is necessary, how Bahrain has approached the regulation of online or home businesses to date, what caveats exist (if any), and what may be the way forward.
Why Regulate?
Regulation in this context encompasses not only legislation broadly aimed at e-commerce but also the implementation of an effective licensing system as well as enforcement. This article takes an interest in the latter, particularly on the coverage granted by the licensing system. Regulation is particularly important in combatting commercial fraud, the sale of counterfeit goods, and to instil consumer confidence in transacting online and whilst giving sellers more credibility and legitimacy.
In June of 2019, the Kingdom of Bahrain witnessed an incident in Sitra where three women lost their lives due to carbon monoxide poisoning while preparing Eid lunch as part of their home-based food business. The incident undoubtedly casts light on the need to establish a regulatory or licensing framework that is addressed to home business generally as well as food-based businesses as was the case here. Safety hazards may stem from the food products being prepared and the standard of hygiene (which poses a risk to the end consumer), or from the equipment that may be used in carrying out the activity of the home business. Therefore, regulation is not necessarily confined to issues of pricing and quality; it may be motivated by broader safety issues.
Regulation should not be conceived of in a negative sense in that it operates to inhibit and restrict certain business platforms. It could also take on an enabling role for Bahraini entrepreneurs who wish to pursue their hopes of engaging in business activities but do not have the financial means to do so. The Virtual CR Sijili portal by the Ministry of Industry, Commerce and Tourism epitomises precisely that.
Virtual Commercial Register (Sijili)
Sijili was introduced following Decision No. (152) of 2016 Allowing the Pursuit of Commercial Activities Virtually. It may be regarded as the Kingdom’s clearest attempt at addressing the pursuit of business activity away from the traditional brick-and-mortar platform.
Sijili is a commercial registration mechanism that allows entrepreneurs to practice 39 distinct business activities without the need to register an office address. These include professional, scientific and technical, information and communication, educational, recreational, art and leisure activities, simple manufacturing, administrative and support service activities. It therefore grants considerable flexibility both in practical terms as well as the types of business activity encompassed. In order to be eligible for the Sijili license, the applicant must satisfy the following conditions:
- Bahraini national of legal age
- Not an owner of a sole proprietorship
- Not a director or member of any business
- Conduct business as sole proprietorship only
- Must provide a permanent mailing address
An interesting caveat to Sijili’s list of business activities (purely by this Decision) is that it makes no mention of any food-related businesses (for instance, an individual who produces cakes, cookies and other desserts may have an Instagram account). However, that point has been addressed by recent Decisions by the Ministry of Industry, Commerce and Tourism to be examined later.
Khatwa Programme
In March of 2021, the Ministry of Labour and Social Development launched Khatwa. It is targeted at home-based family businesses with a view of enabling and empowering Bahraini entrepreneurs. It is a free scheme under which an entrepreneur could receive an identification card and license certificate to work from home, and professional or beginner-level training for the activity pursued by the entrepreneur. However, Khatwa seems to be motivated more by ‘encouragement’ and ‘enablement’ rather than a response to a gap in regulation. The Ministry of Industry, Commerce and Tourism has pursued this role with its recent developments in January 2021.
Ministerial Decisions
On 24 January 2021, the Ministry of Industry, Commerce and Tourism issued Decision No. (11) Regulating Culinary Activities on Sijili and Decision No. (12) Regulating Online Sales by a Virtual Business on Sijili.
Decision 11 of 2021
The Ministry of Industry, Commerce and Tourism issued this Decision owing to the fact that it has not exclusively addressed culinary-related activities. By virtue of Article 3, individuals who wish to obtain a Sijili license must always consider the following:
- Maintenance of high levels of hygiene at all stages of the food production process as well as the safe storage of ingredients and finished products. This is imperative in the interests of the end-consumer and it is therefore a welcome development. However, it is unclear if there is an effective enforcement and monitoring mechanism to accompany this, such as random (or short notice) visits of the premises. This may prevent serious accidents from occurring such as the 2019 Eid incident in Sitra. It is also interesting that the Decision does not impose an ‘obligation’ on the entrepreneur and rather that they should merely ‘consider’ the factors, which is far softer.
- Display the CR number on an electronic page. This may instill confidence in the consumer who deals with a new business.
- Selling directly to consumers or by contracting with restaurants, hotels, or others.
As the Decision supplements the 2016 Decision on the creation of Sijili, the entrepreneur would also need to satisfy the four conditions referred to earlier in this article. Furthermore, under Article 4 of Decision No. (11), the entrepreneur is prohibited from recruiting foreign workers.
Decision 12 of 2021
Article 2 of this Decision (as amended by Decision No. (61) of 2021) also imposes the same four criteria regarding Virtual CR eligibility with one further criterion: the establishment of a website or electronic page that belongs to that virtual shop. As was the case in Decision No. (11), the applicant is prohibited from employing foreign workers to pursue the commercial activity under that Virtual CR. The latest amendment approved in April allows traders to sell products that are bought from Bahrain as well as abroad. This was likely done in a bid to liberalise online trading as it was previously restricted to products from the local market.
The Appendix to the Decision lists twelve categories of products that cannot be sold online, which include medical equipment and products, pharmaceutical goods, industrial chemicals, oil and gas-based products and heavy machinery.
Penalties & Enforcement
Article 27 of Law No. (27) of 2015 Concerning the Commercial Register, as amended in 2018, prescribes a penalty of one year (maximum) imprisonment and/or a fine between BHD 1,000 and BHD 100,000 for practicing a commercial activity without obtaining a license. Prior to 2018, the maximum fine was BHD 5,000.
In light of the Ministry of Industry, Commerce and Tourism Decisions this year that accompany the 2016 Decision, selling products via social media without obtaining a CR or license falls within the ambit of this provision. Instagram account holders operating as unlicensed sellers have been fined since 2017 as reported by local media, which signals the effectiveness of recent regulatory efforts.
Concluding Remarks
Since the turn of the century, to say that the way of doing business has changed dramatically would be a serious understatement. This is substantiated by the rise of social media platforms, particularly Instagram the past decade, and their subsequent use a shop front for online business in Bahrain as well as globally. To accompany these virtual shop fronts, WhatsApp continues to be the leading channel of communication between these online or home business and the end consumer. However, new developments tend to create gaps and further potential for regulation.
This article cast a light on what direction Bahraini regulation of online and home businesses has taken in response to these gaps. Both the Ministry of Industry, Commerce and Tourism and the Ministry of Labour and Social Development have taken steps to address online and home businesses, though the Ministry of Industry, Commerce and Tourism’s approach is discernibly stronger in that it has some semblance to regulation. This was evident in the creation of Sijili as a platform as well as the issuance of Decision No. (11) and (12) of 2021 to fill in the gaps from the 2016 Decision.
It is anticipated that in this decade, and particularly in the wake of the COVD-19 pandemic, the benefits of these regulatory steps will become clear as consumers increasingly turn to virtual ways of transacting especially with the intention to support small, local businesses or perhaps a close friend or relative with a passion for baking or cooking.
Issuing fines to sellers operating on Instagram is not an attempt to dissuade people from selling and performing their business virtually, it simply deters traders from trying to escape the regulatory mechanisms in place. The Kingdom prides itself in being among the most business-friendly and diverse environments in the region, and the Ministry of Industry, Commerce and Tourism Decisions in the past six years has tried to uphold that reality.
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