US embassy cable - 04MANAMA484

UNCLAS SECTION 01 OF 02 MANAMA 000484 
 
SIPDIS 
 
DEPT FOR NEA/ARP, EB/TPP AND EB/CBA 
DEPT PASS USTR JBUNTIN 
COMMERCE FOR EWHITEMAN AND CLOUSTAUNAU 
 
E.O. 12958: N/A 
TAGS: ECON, BA, ETDR 
SUBJECT: BAHRAIN'S RESPONSE: FEATURES OF FREE ZONES 
 
REF: STATE 27837 
 
 
Answers are keyed to questions in reftel.  Answers to 
questions a, b, and e were provided by the Director 
General of Customs, Ali AlMahmeed. Questions c, d, f, g, 
h, i,and j were answered by the Advisor for Industrial 
Planning at the Ministry of Industry, Abdul Aziz AlKaabi. 
 
 
a) Does the country have any type of customs free zone, 
free trade zone, foreign trade zone, export processing 
zone, freeport or manufacturing bonded warehouse? 
There are Duty Free Zones in the towns of Hidd and Sitra 
hosting export processing and trans-shipment businesses. 
The only planned free zone including ports and industry 
will be located in Hidd following its completion in 2006. 
The Customs Directorate facilitates bonded warehousing 
for storage of goods only under the authority of Customs 
and if the company seeks to use Bahrain as its trade hub. 
 
How many zones are there currently? 
1 in its final stages of completion (Hidd). 
 
Are there geographic limitations as to where they can be 
located? 
Only 1 is being developed so far; however some 
authorities refer to Bahrain as duty free due to Customs' 
case by case approach to dealing with duties.  They also 
cite that no duties are levied on exports or on goods 
temporarily imported before trans-shipment. Additionally, 
all raw materials and equipment for manufacturing in 
Bahrain gain duty relief under the Protection and Support 
Law. Exemptions are also available on goods stored in 
bonded warehouses. 
 
Are they successful? 
Not yet evident. 
 
b) How is the zone authority structured? 
The zone authority for Hidd port is yet to be formed. 
However, according to Customs, the zone will be under a 
Director General of Free Zones, which will be under the 
authority of the President of Customs, Ports, and Free 
Zones, who works for the Ministry of Finance and National 
Economy. 
 
Is it part of the Customs Administration, or is it a 
separate government or non-government agency? 
The zone will be part of the Customs Directorate. 
 
Is this zone federally or locally administered? 
It will be administered through the Customs Directorate 
under the Ministry of Finance and National Economy. 
 
Are they considered enclaves that are outside of the 
country or are they Customs-controlled? 
The zone will be operated within the rules and regulation 
of the Customs Directorate. 
 
c) Is a license or other type of authority required for 
each manufacturing activity in the zone? 
Yes, a license will be required from the Ministry of 
Industry for manufacturing activities in the Hidd 
Industrial Park. 
 
If so, roughly how long does the process of obtaining a 
license take? 
The Ministry of Industry in conjunction with Supreme 
Economic Council has promoted a one-stop-shop formula for 
industries seeking to establish operations in Hidd's 
industrial park. Officials from the ministry note that 
80% of all licenses can be processed and verified within 
approximately 24 hours, however the remaining 20% 
represent other licenses that are classified as strategic 
for which verification may take slightly longer. 
 
d) Can businesses manufacture products in the zone? 
Yes businesses will be able to manufacture in the 
industrial park. 
 
Can they manufacture using both foreign and domestic 
inputs? 
Unclear, yet to be defined. 
 
Can the merchandise be sold in the home market? 
Industries will be export oriented, but yet unclear if 
goods can be sold in the home market. 
 
e) What are the Customs benefits related to manufacturing 
or processing in the zone? 
Duty free export and transit; dity-free import of raw 
materials. 
 
Can merchandise be imported and re-exported duty-free? 
Yes. 
 
Is duty payable on manufactured merchandise upon leaving 
the zone for the home market? 
No. 
 
If so, is duty payable on the entire value of the product 
or are there exemptions for domestic components and 
domestic value added? 
Unclear, yet to be defined. 
 
When a product that is manufactured in the zone is 
brought into the home market, does the manufacturer pay 
duties at the rate that applies to the finished product 
or at the rates that apply to the components that where 
brought into the zone? 
Unclear, yet to be defined. 
 
Or, does a manufacturer have a choice between the two 
rates? 
Unclear, yet to be defined. 
 
Is capital equipment used for zone manufacturing activity 
permitted entry free of duty? 
Yes. 
 
f) Are there any special provisions for small and medium- 
sized businesses? 
Provisions for small and medium-sized business are a work 
in progress, but will fall under the authority of a new 
department dealing with small industries and crafts. 
 
Or, for new foreign direct investment? 
Yes, but yet to defined. 
 
g) Are there any tax exemptions? (i.e., exemptions from 
tax on merchandise, income, real property) 
Bahrain levies neither personal nor orporate income 
taxes.   There is no VAT, nor property tax. 
 
h) Are there any other financial incentives? (loans 
funding for infrastructure or facilities, subsidies on 
rent, utilities) 
Yes, subject to WTO commitments, Bahrain will offer 
financial incentives, including duty-free raw materials, 
subsidized utilities (NOTE: Bahrain subsidizes power and 
water to all consumers.  END NOTE), and assistance with 
funding facilities through development banks and the 
Bahrain Business Incubator.  Bahrain is a major financial 
center, so low-cost capital is readily available. 
 
i) Are there exemptions from other laws or regulations? 
(environmental, labor laws, nonproliferation export 
controls) 
Legal regulatory exemptions may be dealt with in a case- 
by-case basis. 
 
j) Are there any restrictions or requirements, such as 
export requirements, local content requirements, or 
ownership requirements? 
Ministry of Industry will assess restrictions and 
requirements on a case-by-case basis but will remain 
flexible. 
 
#FORD