Trade in Services

Under Negotiation

1. Australia-GCC FTA: Negotiations with the GCC commenced in July 2007. These negotiations were preceded by bilateral FTA negotiations with the United Arab Emirates, which were abandoned following a decision by GCC ministers to only negotiate FTAs as a group. To date, there have been four rounds of Australia-GCC FTA negotiations, with the last one held in June 2009. Australia and the GCC share a significant economic relationship, encompassing trade and investment across a broad range of goods and services. The GCC is a key market for agricultural exports such as livestock, meat, dairy products, vegetables, sugar, wheat and other grains. The agreement provides an opportunity to address a range of tariff and non-tariff barriers. An Australia-GCC FTA would provide an opportunity to reduce barriers to trade in mineral commodities and automotive parts. Provisions on investment would encourage inward investment from the GCC and enhance security for Australian investments in GCC countries themselves, including in such areas as mining or the development of educational campuses. No progress is expected on an FTA with the GCC while the intra-Gulf tensions, which commenced in June 2017, remain unresolved.
    
2. Mainland China-GCC FTA: In July 2004, the launch of Mainland China-GCC FTA negotiations was announced. Thus far, the two parties have held nine rounds of negotiations and have reached an agreement on the majority of issues concerning trade in goods. Negotiations on trade in services have also been launched. Greater trade liberalisation will help to develop the industrial and service sectors.
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3. India-GCC FTA: The agreement is expected to remove restrictive duties, push down tariffs on goods and pave the way for more intensive economic engagement between the nations. More than 50% of India's oil and gas comes from GCC states.

Postponed/Suspended

Japan-GCC FTA: This agreement will seek to reduce tariffs and the liberalisation of services trade and investment. Japan mainly imports aluminium, natural gas, liquid natural gas and petroleum products from the GCC, while Japan mainly exports electronics, vehicles, machinery and other industrial products to the GCC.​​​​​​​

Sources: WTO Regional Trade Agreements database, European Commission, Australian Government Department of Foreign Affairs and Trade, BH-US Free Trade Agreement, State Department, United States Trade Representative, UNCTAD, Fitch Solutions

Foreign Direct Investment Policy

1. The government actively encourages investment in sectors that are export oriented and do not compete with established local companies. Bahrain provides a free, open and transparent environment for businesses and has a globally competitive value-creation story that focuses on sustainability, skills and good governance. There is no requirement for foreign businesses to gain local sponsorship in order to be able to gain entry into the domestic market.
    
2. State-owned enterprises only dominate the oil and gas market, and the Bahraini government encourages private investment in all other critical sectors through significant tax breaks, various special economic zones (SEZs) and industrial parks, and a sound legal environment. There is an increasing trend towards privatisation. No industry is closed to foreign investors.
    
3. To carry out any commercial activity in Bahrain, a legal vehicle should be established in accordance with the Bahrain Commercial Companies Law No. 21 of 2001. Foreign investors are able to establish a 100% foreign-owned entity in Bahrain under certain conditions. However, for some business activities (such as trading) there is a limitation on foreign ownership and a local partner would be required. Since 2001 the kingdom has been heavily inclined towards increasing privatisation across all sectors, with the state holding company being mandated to reduce its shares in any company to less than 50%. If an international company wishes to establish a branch office in Bahrain, no local sponsor or partner is required.
    
4. There are no exchange control restrictions on converting or transferring funds. Bahrain has no withholding or thin capitalisation rules in relation to the financing arrangements in Bahrain.
    
5. Bahrain has signed the Gulf Cooperation Council (GCC) VAT Framework Agreement in relation to implementing a VAT from 2018, and in January 2019 Bahrain introduced VAT at a standard rate of 5%. Previously, VAT was not applicable to goods and services in Bahrain with the exception of hotels, short-term lease apartment rental rates and certain restaurants, which were subject to a 10% tourism levy on the gross income and a 12% sales tax on gasoline included in the price.
    
6. Foreigners and nationals of other GCC states are permitted to own land and real estate in areas designated by the Bahraini government. The areas designated are all located within significant commercial or manufacturing or residential districts, specialised industrial zones or near key transport hubs.
    
7. The Bahraini government prohibits foreign business ownership in press and publications, Islamic pilgrimage services, clearance offices, and workforce agencies.
    
8. The Bahraini government maintains complete ownership over all oil reserves, refineries and related services. Private investment is allowed and encouraged in other state-dominated industries, such as transport, aluminium manufacturing, telecommunications and construction.
    
9. Tax rates in Bahrain, as in the rest of the GCC, continue to be highly favourable because the country does not charge any corporate tax for companies in non-oil sectors. There is no personal income tax for residents and non-residents in Bahrain and there are no capital gains or estate duty taxes.
10. In January 2019, the Bahrain Economic Development Board announced that it had attracted investments worth US$830.0 million in 2018.

Source: WTO – Trade Policy Review, Bahrain Economic Development Board, Fitch Solutions

Localisation Requirements

The Bahraini government is attempting to increase the employment of its citizens in the private sector. This is known as the Bahrainisation policy and employers have to pay fees in order to obtain employment visas for their foreign employees. Currently, the fee for a two-year employment visa is BHD200. All public and private companies are required to pay a monthly levy with respect to each expatriate that is employed. The levy is charged at a rate of BHD5 per employee for the first five expatriate employees and BHD10 for each expatriate employee thereafter. Since January 2015, an additional fee of BHD72 for health insurance when issuing or renewing a visa for an expat has been introduced. This fee may not be applicable if the employer provides compulsory health insurance for the employee.

Businesses are expected to prioritise the employment of Bahraini nationals. Some sectors have various ratios of local to foreign worker numbers with which they must comply. The Bahraini public sector has been one of the larger employers of Bahraini nationals in the past, but with state revenue significantly decreased, the government is enforcing stronger compliance of its Bahrainisation policy in order to account for the shortfall. This is demonstrated by the recent proposal by Bahrain's parliament to make amendments to Article 11 of the 2010 Civil Service Law, which stipulates who is eligible to hold a government job. The proposal is to have 100% Bahrainisation in the public sector. This includes all companies in which the Bahraini government owns a majority stake (51% and above). Some members of parliament called to have all expats currently holding public sector positions replaced by Bahrainis by October 2019. Longer-serving members of parliament have suggested that replacement take place over a four-year period to allow for adequate skills transfer. On implementation, firms in the public sector will not be able to hire foreign workers, limiting their skills and production potential in the future. The online Bahrainisation Calculator enables employers to check if they meet the minimum threshold for the employment of Bahrainis in their establishment.

Visa/Travel Restrictions

All business visitors to Bahrain who are not nationals of other GCC states need to obtain a visa to visit the country. This can be done on arrival or in advance. Although visitors to the country who have stamps in their passports from Israel will experience less trouble when attempting to enter Bahrain than in other Gulf States, it is up to Bahraini officials to determine whether that visitor is permitted to enter the country.

Bahrain claims to have the most flexible visa policies in the region, with residence permits easy to obtain for anyone establishing a company in the country. A visa on arrival can be issued to citizens from 67 countries and 114 nationalities are eligible for online visas.

Religious/Cultural Barriers

The Bahraini labour authorities strictly regulate female participation in the workplace for various cultural and religious reasons. In certain cases, women are not allowed to work at night (determined on a case-by-case basis) and the labour authority is allowed to prohibit certain types of work for women.

Kafala Sponsorship System

In 2009 Bahrain announced that it would begin dismantling the sponsorship system known as the kafala system that governs foreign labourers. Bahrain established the Labour Market Regulatory Authority and said that new legislation would permit migrant workers in Bahrain to change employers without their employer's consent. However, while the system has been improved, in practice it is still difficult for migrant workers to change employers. For example, an amendment that was made in 2011 – in response to recruitment agencies lobbying against the changes – means that a worker needs to wait one year before legally being able to change to a new employer. This means that it may be easier for employers to recruit foreign workers from outside Bahrain rather than recruit from the country's large pool of migrant workers.

Sources: Labour Market Regulatory Authority, Migrant Forum in Asia, Nationality, Passports & Residence Affairs, Bahrainisation Calculator, Fitch Solutions

Fitch Solutions Risk Summary

ECONOMIC RISK

The implementation of a VAT and tighter government finances will weigh on private consumption and fixed capital formation; however, the effects will soon dissipate. Growth is expected to moderate in the near term owing to constrained government spending and weaker household spending growth, while volatile oil prices cloud the outlook. Nonetheless, financial support from Gulf allies, the completion of Alba’s Line 6 expansion project and continued infrastructure spending will underpin growth. Bahrain's heavy reliance on regional peers such as Saudi Arabia and the United Arab Emirates as key export markets is a vulnerability, as these markets are highly exposed to fluctuations in crude prices. Economic growth will likely accelerate in 2020 owing to support from the country’s Gulf allies, the expansion of the non-oil sector and low interest rates. Moreover, the commencement of operations at Bahrain’s first LNG regasification terminal should provide the energy sector with some impetus, although potential sharper OPEC+ production cuts are a downside risk.

OPERATIONAL RISK

Bahrain is one of the top GCC and Middle East and North Africa regional outperformers in terms of its operating environment. The kingdom's key strengths lie in its logistical profile and trade and investment environment. With Bahrain's modern and well-connected utilities and transport infrastructure, businesses and their supply chains will find few risks of any type of utilities shortages or outages or poor-quality transport systems causing them headwinds. Bahrain has a relatively streamlined regulatory framework while allowing 100% foreign ownership in most sectors. The absence of a national minimum wage, low labour contributions and flexible labour regulations offer firms a low-cost labour environment and improve the ability of companies to adjust their labour in response to market shocks. However, Bahrain has a small pool of local labour, both skilled and unskilled, thus necessitating the import of foreign workers in a broad range of industries. Overall, with good availability, the low cost of utilities, and a highly receptive trade and investment environment, Bahrain is one of the least expensive places in the world to set up certain business ventures.

Source: Fitch Solutions
Date last reviewed: May 31, 2020

Fitch Solutions Political and Economic Risk Indices ​​​​​​​

Exchange Rate HK$/US$, average
7.75 (2015)
7.76 (2016)
7.79 (2017)
7.83 (2018)
7.77 (2019)

Treaties and Agreements between Hong Kong and Bahrain

• There is a BIT between Bahrain and Mainland China that entered into force on April 27, 2000.
• Bahrain has a Tax Treaty with Mainland China that has been applicable since January 1, 2003.
• In April 2019, Hong Kong and Bahrain signed an Investment Promotion and Protection Agreement.

Sources: Inland Revenue Department, Hong Kong Trade and Industry Department

Chamber of Commerce (or Related Organisations) in Hong Kong

Arab Chamber of Commerce & Industry
The Arab Chamber of Commerce & Industry (ARABCCI) was established in Hong Kong in 2006 to promote commercial ties between Hong Kong, Mainland China and the Arab World.

Address: 20/F, Central Tower, 28 Queens Road, Central, Hong Kong
Email: info@arabcci.org, secretariat@arabcci.org
Tel: (852) 2159 9170
Fax: (852) 2159 9688

Source: The Arab Chamber of Commerce & Industry, Hong Kong

Bahrain Consulate in Hong Kong
Address: 22/F, Chevalier Commercial Centre, 8 Wang Hoi Road, Kowloon Bay, Hong Kong
Email: info@bahrainconsulate.org.hk
Tel: (852) 3171 1199
Fax: (852) 2368 2399

Source: Visa on Demand

Visa Requirements for Hong Kong Residents

A Bahrain tourist visa is required for HKSAR passport holders. Nine visa types are available, with a one-year, multiple-entry visa permitting stays of up to 90 days.

Source: Visa on Demand
Date last reviewed: May 31, 2020