In recent years, record high oil prices has fueled extensive growth in Bahrain's economy. This in turn, has allowed the economy to become more diversified, thus providing an excellent market for foreign investors keen on operating in a whole range of different industries, including service and manufacturing sectors amongst others.

Bahrain ranks 16th in the Heritage Foundation's 2009 Index of Economic Freedom, especially for its business, trade and fiscal freedom. Making Bahrain company formation an ideal option for the todays entrepreneur. Consequently, foreign investors can expect to freely conduct international business. For example, a limited liability company is able to remit capital, profits and dividends freely from Bahrain.

Bahrain aims to attract increasing foreign direct investment into its economy. To this end, the government offers various benefits to companies incorporating in Bahrain. These include:

i) 100% Foreign Ownership– A Bahrain Exempt Company can be 100% foreign-owned, and shareholders and directors can be a resident anywhere in the world. Meanwhile, a Bahrain Limited Liability Company can be 100% foreign-owned if the company plans to enter selected sectors including manufacturing; tourism; business services and private healthcare.

ii) Exemption from export duties and tariffs– A Limited Liability Company is exempt from customs duty on capital goods as well as goods for re-export, raw materials for manufacturing, semi-finished commodities imported for further processing, imports required for development projects, and initial import of capital goods by a manufacturing company.

Despite the above, international entrepreneurs considering Bahrain company formation may find the Bahrain unattractive. Some of the reasons for this sentiment are:

i) Unless eligible for 100% foreign ownership (see above), a limited liability company must have a minimum 51% shareholding by Bahraini citizens Both an Exempt Company and limited liability company require a minimum of two shareholders and directors. A Bahrain Exempt Company can be 100% foreign owned, however it is not allowed to conduct any business in Bahrain, but must maintain an office in Bahrain.

i) Bahrain company formation is expensive. A Limited Liability Company is required to deposit a minimum of 20,000 Bahrain Dinars (approx US$53,000) in the Central Bank prior to incorporation. Additionally an LLC requires a Bahraini shareholder, with nominees charging up to US$10,000 annually.

i) Bahrain company formation can be a challenging process due to inconsistent regulations and a slow-moving bureaucracy. Bahrain is negatively ranked as the 46th least corrupt country in the world according to the 2009 Corruption Perceptions Index by Transparency International, a global measure of corruption amongst public officials and politicians. However, in 2010, Bahrain is also ranked 20th by the World Bank with regards to the ease of doing business.

Another important consideration to be noted; Bahrain has signed no Double Taxation Treaties with any other country, although as mentioned above it does not impose any personal income tax, withholding tax, or value added tax. Although Bahrain Exempt Companies are not generally regarded as a tax avoidance vehicle, businesses that are particularly concerned with their image are likely better off incorporating in countries such as Singapore or Hong Kong.