Annual Report on Exchange Arrangements and Exchange Restrictions 2005
Chapter

KINGDOM OF BAHRAIN

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2005
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(Position as of December 31, 2004)

Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: March 20, 1973.
Exchange Arrangement
CurrencyThe currency of the Kingdom of Bahrain is the Bahrain dinar.
Exchange rate structureUnitary.
Classification
Conventional pegged arrangementThe dinar is pegged to the dollar at the rate of BD 1 per $2.659. The Bahrain Monetary Agency (BMA) provides daily recommended rates to banks for transactions involving amounts up to BD 1,000 in dollars. The BMA does not deal with the public. In their dealings with the public, commercial banks are required to use the BMA’s rates for dollars. The banks’ rates for other currencies are based on the BMA’s dollar rates and the New York market rates against the dollar.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketThe BMA monitors the forward exchange transactions of commercial banks through the open position of banks’ monthly returns.
Arrangements for Payments and Receipts
Prescription of currency requirementsAll settlements with Israel are prohibited. Otherwise, no requirements are imposed on exchange payments or receipts.
Payments arrangements
Bilateral payments arrangements
OperativeOn September 14, 2004, the Kingdom of Bahrain signed a free trade agreement with the United States that has not yet come into force.
Regional arrangementsBahrain is a member of the GCC Customs Union.
Administration of controlThere is no exchange control legislation.
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)Measures have been imposed to combat the financing of terrorists and terrorism, including the freezing of assets of certain individuals and organizations pursuant to UN Security Council resolutions, and the BMA has required all licensed banks to ensure diligence in examining their financial dealings with a list of persons and organizations.
In accordance with UN sanctionsYes.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)
Controls on external tradeImports of gold jewelry are subject to a 5% customs duty, but gold ingots are exempt. Brokers doing business in gold and other products must obtain BMA approval before they can register with the Ministry of Commerce.
Controls on exports and imports of banknotesThe Directorate General of Customs maintains records on detections of imports and exports of currency or negotiable instruments exceeding the permitted limits and forwards the information to the BMA for further investigation.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency held abroadNo.
Accounts in domestic currency convertible into foreign currencyYes.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsYes.
Domiciliation requirementsIf such documents are not available, imported goods may be released with a written promise to submit the documents at a later date.
Import licenses and other nontariff measures
Negative listLicenses are required for imports of arms, ammunition, and alcoholic beverages. All imports from Israel are prohibited. Imports of a few commodities are prohibited from all sources for reasons of health, public policy, or security. Imports of cultured pearls are prohibited.
Other nontariff measuresMandatory government procurements give preference to goods produced in the Kingdom of Bahrain and member countries of the GCC, provided that the quality and prices of these goods are within specified margins of the prices of imported substitutes (10% for goods produced in Bahrain and 5% for goods produced in member countries of the GCC).
Import taxes and/or tariffsAll imported goods with the exception of vegetables, fruits, fresh and frozen fish, meat, books, and magazines are subject to a customs duty of 5%. Ad valorem rates of 100% apply on tobacco products and 125% on alcoholic beverages, although evaluations based on quantity or weight may result in higher specific duties instead.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsIn accordance with the GCC Common Customs Law, exports of goods are subject to documentation requirements.
Export licensesAll exports to Israel are prohibited.
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsProceeds from invisibles from Israel are prohibited.
Capital Transactions
Controls on capital transactionsYes.
Controls on capital and money market instrumentsNo exchange control requirements are imposed on capital receipts or payments by residents or nonresidents, but transactions in money market instruments are regulated to prevent and prohibit money laundering. Payments may not be made to or received from Israel.
On capital market securities
Shares or other securities of a participating natureGCC nationals are allowed to own up to 100% and non-GCC nationals are allowed to own up to 49% of the listed shares of a Bahraini joint-stock company. The percentage of ownership by non-GCC nationals may be increased, subject to approval from the Minister of Commerce and Industry. However, non-GCC nationals may purchase, sell, or own up to 100% of the shares of the following seven companies: the Arab Banking Corporation, the Bahrain International Bank, Investcorp Bank, the Bahrain Middle East Bank, Taib Bank, Shamil Islamic Bank, and the Arab Insurance Group. Purchases, sales, and ownership of shares are subject to the requirements of anti–money laundering regulations.
Sale or issue locally by nonresidentsAlthough residency in Bahrain is not required, local sales and issues by nonresidents are subject to BMA regulations, the Bahraini Commercial Companies Law, the Bahraini Stock Exchange (BSE) Law, and the law on prevention and prohibition of money laundering.
Purchase abroad by residentsThere are no restrictions on these transactions, provided that the regulations of the foreign jurisdiction concerned are satisfied.
Sale or issue abroad by residentsThe regulations governing purchases abroad by residents apply.
Bonds or other debt securitiesThe issuance of bonds and other debt securities is subject to the BMA Law and the Commercial Companies Law. Sales of listed bonds and other debt securities are subject to the BSE Law.
Sale or issue locally by nonresidentsThe regulations governing the sale or issue locally of shares or other securities of a participating nature by residents apply.
Purchase abroad by residentsThe regulations governing the purchase abroad of shares or other securities of a participating nature by residents apply.
Sale or issue abroad by residentsYes.
On money market instrumentsControls apply to all transactions in money market instruments.
Controls on derivatives and other instrumentsAll transactions in these instruments are subject to controls.
Controls on credit operationsNo.
Controls on direct investmentDirect investments are regulated in accordance with the Commercial Companies Law, BMA regulations, the BSE Law (subject to the field of investment), and the Anti–Money Laundering Law.
Inward direct investmentGCC nationals are allowed to own up to 100% of the shares of domestic enterprises, and non-GCC nationals are allowed to own up to 100% of offshore, closed joint-stock, and limited liability companies and 49% of other companies, with the exception of a few strategic sectors.
Controls on liquidation of direct investmentNo.
Controls on real estate transactions
Purchase locally by nonresidentsThere are no restrictions on ownership of real estate by GCC nationals (either natural or juridical persons). Nonresidents (both natural and juridical persons) are allowed to own buildings and property only in locations specified in the Council of Ministers Regulation No. 5/2001, which include most of the prestigious and tourist areas. Commercial, tourism, and industrial companies, as well as banking and financial institutions that are licensed to operate in Bahrain, may own real estate without restriction.
Controls on personal capital transactionsNo.
Provisions specific to commercial banks and other credit institutionsBanks are subject to special rules regarding the payment of dividends and the remittance of profits without exchange control restrictions. Licensed offshore banking units may engage freely in transactions with nonresidents, although transactions with residents are not normally permitted.
Lending to nonresidents (financial or commercial credits)Yes.
Differential treatment of deposit accounts in foreign exchange
Reserve requirementsYes.
Differential treatment of deposit accounts held by nonresidents
Reserve requirementsYes.
Open foreign exchange position limitsBanks are allowed to set their own individual limits.
Provisions specific to institutional investorsNo.
Other controls imposed by securities lawsEffective January 1, 2004, disclosure standards require listed companies to notify the BMA of developments or changes in their paid-up capital, including (1) when one holder’s ownership of the issued and paid-up capital reaches 5% or more; (2) when ownership reaches 10% or more (this requires prior BMA approval); or (3) when ownership reaches 10% or more and the holder wishes to purchase more shares (this also requires prior approval and is subject to a limit of 20%).
Changes During 2004
Arrangements for payments and receiptsSeptember 14. A free trade agreement was signed between Bahrain and the United States.
Capital transactions
Other controls imposed by securities lawsJanuary 1. Disclosure standards required listed companies to notify the BMA of new developments or changes in their paid-up capital.

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