Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

KINGDOM OF BAHRAIN

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of December 31, 2006)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: March 20, 1973.
Exchange Measures
Restrictions and/or multiple currency practicesNo restrictions as reported in the latest staff report as of December 31, 2006.
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)Measures have been taken 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 Central Bank of Bahrain (CBB) has required all licensed banks to ensure diligence in examining their financial dealings with certain persons and organizations.
Other security restrictionsYes.
References to legal instruments and hyperlinksn.a.
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 CBB does not deal with the public.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketThe CBB monitors the forward exchange transactions of commercial banks through the open position of banks’ monthly returns.
References to legal instruments and hyperlinksn.a.
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
OperativeA free trade agreement was signed with the United States on January 11, 2006.
Regional arrangementsBahrain is a member of the GCC Customs Union.
Administration of controlThere is no exchange control legislation. Effective September 7, 2006, the CBB came into existence and operates as a successor of the Bahrain Monetary Authority (BMA). The CBB and Financial Institution Law replaced the BMA Law of 1973 and the Insurance Law (Legislative Decree No. 17 of 1987).
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)
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 CBB 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 CBB for further investigation.
References to legal instruments and hyperlinksCBB and Financial Institution Law.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency held abroadNo.
Accounts in domestic currency convertible into foreign currencyYes.
References to legal instruments and hyperlinksn.a.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsNo.
References to legal instruments and hyperlinksn.a.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for imports
Domiciliation requirementIf 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 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.
State import monopolyNo.
References to legal instruments and hyperlinksn.a.
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.
References to legal instruments and hyperlinksn.a.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
References to legal instruments and hyperlinksn.a.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsProceeds from invisibles from Israel are prohibited.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsNo 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.
Repatriation requirementsNo.
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsGCC nationals are allowed to own up to 100% and non-GCC nationals 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: Arab Banking Corporation, Bahrain International Bank, Investcorp Bank, Bahrain Middle East Bank, Taib Bank, Shamil Islamic Bank, and Arab Insurance Group. Purchases, sales, and ownership of shares are subject to the requirements of the Anti-Money Laundering Law.
Sale or issue locally by nonresidentsAlthough residency in Bahrain is not required, local sales and issues by nonresidents are subject to CBB regulations, the 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 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 CBB regulations 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 these transactions.
Controls on derivatives and other instrumentsNo.
Controls on credit operationsNo.
Controls on direct investmentDirect investments are regulated in accordance with the Commercial Companies Law, CBB 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. Non-GCC nationals are allowed to own up to 100% of the shares of domestic (locally incorporated) companies and branches of foreign incorporated companies, with the exception of a small number of activities contained in the “negative list,” and those restrictions that apply to the ownership of publicly listed companies. Disclosure standards require listed companies to notify the CBB 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 CBB 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%).
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 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.
References to legal instruments and hyperlinksCouncil of Ministers Regulation No. 5/2001; Commercial Companies Laws; BSE Law; Anti-Money Laundering Law; CBB regulations.
Provisions Specific to the Financial Sector
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.
References to legal instruments and hyperlinksn.a.
Changes during 2006
Arrangements for payments and receiptsJanuary 11. A free trade agreement was signed with the United States.
September 7. The CBB came into existence and operates as a successor of the Bahrain Monetary Authority (BMA). The CBB and Financial Institution Law replaced the BMA Law of 1973 and the Insurance Law (Legislative Decree No. 17 of 1987).

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