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Foreign Direct Investment

The Kingdom of Bahrain is very open to foreign investment and has one of the highest FDI stock-to-GDP ratios in the region. According to UNCTAD's World Investment Report 2024, FDI to Bahrain increased by 147.8% y-o-y in 2023, reaching a record level of USD 6.8 billion. At the end of the same period, the FDI stock reached USD 43 billion, around 96.4% of the country’s GDP. Data from Bahrain’s Information & eGovernment Authority show that the leading contributors to Bahrain’s FDI stock are Kuwait (36%), Saudi Arabia (23%), and the United Arab Emirates (10%). In 2024, the Bahrain Economic Development Board (EDB) attracted direct investments totalling BHD 680 million (USD 1.804 billion) into the national economy, with the industrial sector receiving the largest share, followed by the information technology, tourism, and financial services sectors.

Bahrain enjoys an open and attractive economic and regulatory environment for international companies looking for a gateway to Gulf and Middle East markets. The country has the lowest corporate and personal taxes in the Gulf, without any restrictions for free trade zones. Foreign business ownership is fully permitted in most economic activities, eliminating the need to resort to a local partner in most cases. There are no limitations on the repatriation of capital, profits, or dividends, except for income generated by companies in the oil and gas sector, which are subject to a 46% tax rate on profits. The excellence of the country’s logistical infrastructure is also a major factor of attraction. Moreover, Bahrain offers a large, highly skilled pool of financial workers, a regulatory structure that is both advanced and internationally well-regarded, and a physical connection to Saudi Arabia – by far the largest economy in the Gulf. Besides strong regional competition, FDI in Bahrain has been limited by the slow advancement of the privatisation programme and a rigid labour market. The absence of true reconciliation between the Sunni monarchy and the predominantly Shiite opposition constitutes a hindrance to FDI. Moreover, new emerging trade centres in the Gulf increased the competition to become a regional financial crossroad. Overall, Bahrain is a significant economic hub in the Gulf Cooperation Council (GCC) area and offers one of the most accommodating investment climates to draw in foreign companies. The national currency is freely transferable and tied to the U.S. dollar. On 17 October 2024, Bahrain amended foreign ownership conditions, effective from 18 October 2024. Decision Number 53 of 2024 allows foreign companies to sell certain goods without a local partner and fully own their business if they operate in at least ten countries or earn over EUR 750 million annually. Companies dealing in valuable goods still need government approval. Additionally, companies with foreign partners must have at least 51% Bahraini ownership to be authorized distributors. The minimum capital for foreign-owned companies in Bahrain has also been reduced from BHD 2 million (~EUR 5 million) to BHD 100,000 (~EUR 240,000). Moreover, Bahrain has introduced a 15% Domestic Minimum Top-Up Tax (DMTT) on profits for large multinational enterprises (MNEs) with consolidated revenues exceeding €750 million, effective from January 1, 2025. This measure aligns Bahrain with international tax standards under the OECD's Base Erosion and Profit Shifting (BEPS) framework. The Kingdom ranks 72nd among the 133 economies on the Global Innovation Index 2024 and 55th out of 184 countries on the latest Index of Economic Freedom.

 
 
Foreign Direct Investment 202020212022
FDI Inward Flow (million USD) 1,0211,7791,951
FDI Stock (million USD) 31,70533,48435,436
Number of Greenfield Investments* 243030
Value of Greenfield Investments (million USD) 1,0441,0072,242

Source: UNCTAD - Latest available data.

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

Country Comparison For the Protection of Investors Bahrain East Asia & Pacific United States Germany
Index of Transaction Transparency* 8.0 5.9 7.0 5.0
Index of Manager’s Responsibility** 4.0 5.2 9.0 5.0
Index of Shareholders’ Power*** 5.0 6.7 9.0 5.0

Source: Doing Business - Latest available data.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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What to consider if you invest in Bahrain

Strong Points
The advantages of Bahrain in terms of attracting FDI include:
-A largely English-speaking educated and skilled population;
-A tradition of cultural openness based on trade and the country's strategic location in the northern Gulf, with good communications links with Saudi Arabia and an easy access to other Gulf markets;
-Operating costs among the most competitive in the region;
-The most attractive tax regime in the Gulf;
-A solid reputation in the regulation of financial services;
-Excellent quality of life;
-Relatively (in a regional context) diversified economy, with oil, manufacturing (including aluminum and petro-chemicals) and financial sectors;
-Financial and other support from larger regional states, particularly Saudi Arabia.
Weak Points
The potential factors hindering foreign investment include:
- The period of political and civil upheaval that hit in Bahrain in February 2011 and resulted in sporadic outbreaks of unrest fueled by demands for political and social reforms and questions such as housing, employment and sectarian discrimination, all based on tensions between the ruling Sunni minority and the Shia majority;
- Regional instability, including potential for contagion stemming from events in Iran, Iraq and/or Syria;
- The use of official travel bans, which prohibit an individual from leaving the country until a business project or a dispute is resolved; periodically, foreign companies have also experienced difficulties in obtaining work permits and residence visas for expatriate employees due to the policy of promoting the employment of Bahraini citizens;
- Corruption or government intervention in tenders and disputes can be an impediment to FDI;
- Despite economic diversification, there is still a high dependence on oil revenues, directly (own output) and indirectly (regional influence);
- Sharply deteriorated public finances since 2015.
Government Measures to Motivate or Restrict FDI
The Government of Bahrain has a generally liberal approach to foreign investment and actively seeks to attract investors and foreign companies in a competition to be the most attractive country in the Middle-East. Various measures have been taken in this direction, such as the formation of a Supreme Council for privatization in the spring of 2001, the creation of the Bahrain Mumtalakat Holding Company in 2006, whose role is to manage all public investment, and the creation of the Bahrain Investors Center (BIC), designed as a "one stop shop" and providing all business services, licensing and registration. However, the labour policy of "Bahrainization", a quota system which requires employers to hire a minimum percentage of Bahrainis, can cause potential delays and confusion when issuing work permits and renewals.

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