Bahrain Economy Overview

Currency

Bahraini Dinar (BHD)

Working hours

48 hours/week

Public/bank holidays

15 public holidays

Capital

Manama

Languages

Arabic

Population

1.5 million

Minimum hourly salary

27.22 BHD

Tax year

1st Jan – 31st Dec

Date format

DD/MM/YYYY

Misclassification penalties

Misclassifying an employee as an independent contractor can lead to legal and financial repercussions for businesses in Bahrain.

Fun fact

Bahrain is the smallest country in the Middle East and is Asia’s third smallest country, covering an area of only 295 square miles.

The Kingdom of Bahrain is a small island nation of just 1.62 million people. It consists of one large island and another 50 smaller islands in the Persian Gulf between Qatar and Saudi Arabia, to which it is linked by a 15.5-mile (25km) causeway.

Since independence from Britain in 1971, Bahrain has developed substantially, becoming a high-income country with a very high human development index (HDI). In 1980, the nominal GDP of Bahrain was just $3.59 billion, but this amount has increased more than 12-fold to $44.67 billion in 2023. This growth is expected to continue at 3.5% in 2024 and roughly the same for the next two years after that. While hydrocarbon wealth (oil and gas) produces roughly 60% of the nation’s budget revenues, it’s diversification of non-hydrocarbon industries that has been driving growth in recent years.

If you’re thinking about getting into business in Bahrain, now might be a good time to add to this growing diversification. Find out more about the pros and cons of doing business in Bahrain below.

Overview of Bahrain's Economy

Bahrain uses its own currency, the Bahraini dinar (BHD), which is one of the highest-valued currencies in the world. It’s officially pegged at 1 BHD = 2.65 USD.

Bahrain’s economy has grown quite consistently for decades, taking significant dips only during the 2008 financial crisis and in 2020 due to the global pandemic. This is an economy fueled by hydrocarbons, tapping both the nation’s limited local oil and gas reserves and, more importantly, refining imported hydrocarbons. However, global instability in oil and gas prices has limited income from hydrocarbons in recent years.

Economic Sectors Driving GDP Growth

  • Banking and other financial services
  • Tourism
  • Retail
  • ICT
  • Heavy industry

The Bahraini economy continues to grow, and incomes are high. While the private sector minimum wage is set at 300 BHD/month (about 795 USD), the average salary is closer to 800 BHD/month (about 2,120 USD). This is much lower than in the US, for example, which has an average salary of around $5,000/month. This can make hiring Bahraini employees quite affordable.

Foreign direct investment (FDI) is a major part of Bahrain’s economy.

FDI Indicator Value
FDI Inflows (2023) $6.8 billion
Total Inward FDI Stocks $43.1 billion

These inflows come largely from Kuwait, Saudi Arabia, and the United Arab Emirates and are dominated mostly by electricity, gas, steam, and air conditioning supply, manufacturing, and financial and insurance services. This large amount of foreign investment has helped to stabilize the Bahraini economy and promote growth.

Taxes

Employer Tax: 17%

Old Age, Disability & Death Insurance (GOSI)

14% Local workers/3% Expat workers

Ministry of Health, Healthcare fee

BHD 22.5 per annum for Bahraini workers/BHD 72 per annum for non-Bahraini workers

Employee Tax: 9%

Insurance against old age, disability & death (applicable only to Bahraini employees)

8% Local workers/4% Expat workers

Insurance against Unemployment Injuries

1%

Income tax

There is no individual income tax in Bahrain

Business Regulation in Bahrain

Opening a business in any country can be challenging. However, because so much of its economy is tied to the global prices for hydrocarbons, Bahrain’s leadership has wisely promoted diversification and foreign investment. The Bahraini government has made efforts to make the country attractive for foreign businesses.

Of course, there is still much regulation needed, including:

Registration and Compliance

To register a business, you must apply to the Ministry of Industry and Commerce. You must choose a unique name for your business and decide on an appropriate business structure. Among those possible are with limited liability companies (WLL), closed or open Bahrain shareholding companies (BSC), limited partnerships, limited by shares companies, or branches of foreign enterprises.

Once registered, your business will need to obtain a value-added tax (VAT) number. You’ll also need to find a commercial space for your business to register an address and open a bank account.

Taxes and Investments

VAT increased from 5% to 10% on most goods and services in 2022. Employers also pay 15% of workers’ salaries toward social security.

However, other than these two taxation systems, there are few other taxes for companies to worry about in Bahrain. No corporate income tax is charged except for 46% on oil and gas companies. Bahrain also does not impose capital gains tax, withholding tax, or personal income tax.

Employment Laws

Workers in Bahrain are protected by strong local laws and Bahrain’s commitment to various international agreements. Employees in Bahrain work eight hours a day and 40-48 hours per week, which is limited to six hours a day during Ramadan. They should receive at least on 24-hour period of rest per week and an annual paid leave of 30 days.

Bahrainis are also entitled to 12 paid public holidays per year spread over eight national and religious celebrations. Maternity leave is granted for up to 75 days, the first 60 of which are fully paid, and paternity leave for only one day. Employees are allowed 15 days of fully paid sick leave, 20 at half-pay, and 20 more unpaid per year.

Notice periods of 30 days, as well as severance pay based on seniority, are generally necessary for terminations of employees except in cases of gross misconduct. 

Intellectual Property

Bahrain has extensive intellectual property laws to protect companies’ and individuals’ rights. As in many jurisdictions, trademarks can be registered here for ten years and then renewed. Copyrights last for the author’s life plus 70 years, and patents last for 20 years.

Benefits of Doing Business in Bahrain

When deciding whether or not to do business in Bahrain, it’s important to look at the comparative advantages of setting up there. These benefits include:

  • Golden License incentives and streamlined services for large enterprises investing over $50 million.
  • No corporate income tax (except for 46% CIT on companies that explore for, produce, or refine hydrocarbons). Bahrain does not impose capital gains taxes or withholding taxes.
  • No personal income tax.
  • Access to regional markets.
  • Relatively low wages for workers.
  • Companies established in special free trade zones can be 100% foreign-owned and have reduced customs duties.

Business Expansion Options in Bahrain

If you’re thinking about expanding your business or setting up a new one in Bahrain, you’re not alone. The government has worked hard to promote foreign investment and business set-up in the country. Here are the most common ways to expand into the Bahraini market:

Bahrain Employer of Record (EOR)

The Bahrain EOR becomes the official legal employer of your Bahrain team. This method is fast and efficient, making it perfect for companies that need to quickly deploy staff on the ground. 

An EOR handles payroll, benefits, taxes, and compliance with local labor laws, allowing businesses to focus on their core activities. They may also provide additional services, such as Bahrain talent acquisition and visa support.

LEARN MORE

Recruitment Agencies

Recruitment agencies in Bahrain help businesses expand by connecting them with skilled local talent across various industries.

Remote People provides recruitment solutions that simplify hiring and ensure compliance with Bahraini labor laws.

For businesses looking to grow in Bahrain, Remote People offers the expertise and resources needed to build a local workforce quickly and effectively, making it a practical solution for market expansion.

LEARN MORE

Bahrain Professional Employer Organization (PEO)

A third option is to hire Bahraini employees through a professional employment organization (PEO) or employer of record (EOR). These service providers use their own entities in Bahrain to hire employees who are then contracted to work for you. In this way, you don’t need to register a local entity to start working with Bahraini employees.

LEARN MORE

Subsidiary Incorporation

It’s possible to open a subsidiary in Bahrain that is entirely or partially owned by your company. Common structures selected for Bahrain entities include limited liability companies, Bahrain shareholding companies (BSC), limited-by-shares companies, and limited partnerships.

Subsidiaries can open local offices and perform local operations, but are banned from insurance, investment, and banking activities. They must have 1-50 shareholders, need no minimum capital investment, and can be 100% foreign-owned.

BSCs (essentially corporations) can also be 100% foreign-owned and can be either publicly or privately held. The minimum capital investment for a public BSC is 1 million BHD, and for a privately held one, it is only 250,000 BHD. 

Limited by shares, companies need 20,000 BHD in capital, cannot be more than 49% foreign-owned, and are barred from banking and finance.

Limited partnerships do not need initial capital, but at least one partner has unlimited liability for the company’s obligations. These, too, can be 100% foreign-owned.

Branch Registration

It’s also possible to set up a branch of a foreign company registered outside of Bahrain. A branch office is an extension of the parent company, which has full liability for it. It can do business on behalf of the parent company.

However, it must still keep its own books and prepare its own annual financial statement. Normally, a Bahraini in the same industry must act as a sponsor.

Business Opportunities in Bahrain

Thanks to diversification and foreign investment initiatives, Bahrain’s economy continues to grow and be a great place for new businesses. As a hub for trade and finance in the Gulf region, Bahrain has been actively promoting foreign investment and fostering a supportive ecosystem for businesses across various sectors. Some of the most promising opportunities include:

Business Opportunity Reason
Financial Services Bahrain’s established banking sector, supportive regulations, and expanding fintech ecosystem create opportunities for financial institutions, insurance providers, and fintech companies.
Manufacturing Competitive operating costs, a skilled workforce, and access to regional markets support growth in industries such as aluminum, petrochemicals, and food processing.
Tourism and Hospitality Bahrain’s cultural attractions, modern infrastructure, and growing visitor numbers create opportunities for hotels, resorts, entertainment venues, and tourism services.
Logistics and Transportation The country’s strategic location, efficient customs processes, and strong transport infrastructure make it a regional hub for logistics and distribution businesses.
Information and Communication Technology (ICT) Government support, a growing startup ecosystem, and increasing digital adoption provide opportunities in software development, e-commerce, and digital services.

These opportunities align with Bahrain’s Economic Vision 2030, which aims to diversify the economy, create jobs, and attract foreign investment. The government offers various incentives for businesses, such as 100% foreign ownership in most sectors, tax exemptions, and streamlined business registration processes.

If you’re looking to start working in Bahrain, you have many options to help you gain a foothold in this strong local and regional economy.