Up Again Bahrain: Government Relief and Tax


1. What is the position with respect to the applicability of emergency tax measures , including

a. what they are and apply to;

b. when they are expected to be phased out on or following a return to business; and

c. whether any transitional periods are likely to apply.

No emergency tax measures have been implemented yet.

2. Are there specific steps that businesses should take to prepare for these tax measures being phased out – for example new timing of

a. payment obligations (and therefore likely pressure on cash flow); and/or

b. filing of returns?

Not applicable.

3. Should the impact of emergency tax measures be reconsidered by businesses – e.g. are there certain legal transactions (such as sales or reorganisations) that parties should preferably postpone or accelerate?

Not applicable.

4. Are there any additional measures proposed, in particular any that are targeted at particular sectors (e.g. aviation)?

No further measures are proposed at the moment.

5. Are there any sectors or interest groups that are now putting forward, or may in the near future request, special tax measures?

This is unknown at this stage.

6. Which taxes might be increased to address the financial burden caused by the crisis, for example,

a. are there political commitments or policy trends that might indicate the likely focus of any tax increase in the future (e.g. to maintain low corporation tax, but to increases taxes on personal wealth)

b. measures to broaden the tax base, such as digital services taxation and a pre-emptive response to the OECD/ G20 Inclusive Framework on BEPS (“BEPS 2.0”)

No tax increases have been announced in Bahrain yet.

7. Are there other actions that ought to be considered by businesses in your country e.g.

a. revisit past tax filings to claim carry back of losses;

b. revise or update preliminary tax assessments;

c. claim bad debt relief for VAT output tax



8. What do you need to consider in terms of your funding requirements for returning to business and are there any return to business financial assistance packages being made available by government?

If your business has temporarily closed, there is likely to be a delay between the incurrence of costs to restart your business and the consequent receipt of income. You should consider whether you have sufficient working capital during any interim period.

In particular, if you have any credit remaining available under any revolving credit facility, there will likely be a drawstop on new funding if a default (or occasionally event of default) is continuing.

The government of Bahrain announced a BHD4.3 billion economic stimulus package to support the country’s citizens, residents and businesses. The economic stimulus package includes:

  • the payment of salaries of private sector Bahraini employees for three months (starting from April 2020) in line with the Social Insurance Law;
  • the payment of all individuals’ and businesses’ Electricity and Water Authority utility bills for three months (starting from April 2020) up to the costs incurred during the same period in 2019;
  • exempting all individuals and businesses from municipal fees for three months (starting from April 2020);
  • exempting the tourism-related industry from tourism levies for three months (starting from April 2020);
  • doubling the Liquidity Support Fund to BHD200 million; and
  • increasing the Central Bank of Bahrain’s loan facilities to BHD3.7 billion to allow debt instalments to be deferred and extra credit to be extended.

The Ministry of Labour and Social Development announced that the government has extended its support to pay 50% of the salaries of Bahraini employees working in the following sectors for three months, starting from July:

  • travel and aviation
  • hospitality and restaurants
  • personal services (i.e. salons, gyms, games and entertainment halls)
  • industrial
  • health
  • transportation
  • rehabilitation (including kindergartens)
  • retail (other than food)
  • administrative (i.e. public relations, media and event organisation)
  • real estate and contracting
  • local newspapers and magazines
  • any other affected sectors (excludes financial sector, telecommunications sector, science, technical and professional activities, and universities and schools).

In addition, the Labour Market Regulatory Authority has reduced all fees relating to the issuance and renewal of work permits and monthly fees payable to the Labour Market Regulatory Authority by 50% for three months, starting from July.

The Labour Market Regulatory Authority has exempted employers in the following sectors from paying the fees levied on issuing or renewing work permits and the monthly fees payable to the Labour Market Regulatory Authority for three months, starting from July:

  • travel and aviation
  • hospitality and restaurants
  • personal services (i.e. salons, gyms, games and entertainment halls)
  • transportation
  • rehabilitation sector (including kindergartens)
  • retail (other than food)
  • administrative (i.e. public relations, media and event organisation)
  • local newspapers and magazines
  • any other affected sectors (excludes financial sector, telecommunications sector, science, technical and professional activities, and universities and schools).

9. How will funding a return to business, including taking on additional indebtedness, impact on your financial or other covenants?

A borrower should consider:

  • whether any new funding arrangements are permitted under the terms of its existing finance documents and whether any consents or subordination arrangements are required;
  • how any additional indebtedness (and any finance costs associated with it) will be treated in financial covenant calculations and whether any amendments or waivers to financial covenants are required; and
  • whether any equity issuances (and the terms of them) are permitted by its finance documents.

Particular considerations regarding financial covenants include:

  • the decrease in revenue/EBITDA over the restrictions period;
  • any likely tapered increase in revenue/EBITDA as restrictions are relaxed;
  • costs for restarting the business;
  • payment of any deferred payments (e.g. rental payments, business rates); and
  • incurrence of any additional indebtedness.

Note also, given the negative impact on financial condition on a number of businesses, if the applicable margin you pay under a loan is subject to a ratchet, it will likely increase if your financial condition deteriorates (as leverage increases), and that margin is usually set at the highest level if an event of default is continuing.

10. Are there any remedies such as equity cure or margin ratchets that you should be checking on to provide liquidity to prevent a default or improve their financial position?

In some circumstances, it may not be possible to agree a waiver or amendment to your financial covenants, so it may be prudent to review now any equity cure rights in your credit agreement.

For example, if you have a net leverage maintenance financial covenant, it might be beneficial to contribute additional shareholder capital ahead of the next testing date, as such additional cash in the business (as at the testing date) will usually be taken into account (sometimes as a pre-cure) when determining net debt for the purpose of testing net leverage.

It's also worth checking the number of times that a breach of a financial covenant can be cured and the frequency with which the cure right can be exercised by sponsors/shareholders.

11. What practicalities do you need to consider in relation to audit requirements?

Businesses should ensure they can meet the timeframes for delivering audited financial statements to their financiers under their reporting obligations in their finance documents.

Businesses should take into account whether social-distancing/work-from-home measures will hamper the audit process, and engage with lenders on the expected timetable for when the audited financial statements can be published.

12. What is the process if I need any amendments made or waivers given under my loan documentation (including in respect of financial covenants)?

Debtors should engage with their lenders to explore whether they are amenable to waive or amend the terms of existing finance documentation. The documentation will set out the different lender consent thresholds required. Amendments to financial covenants generally require consent of majority lenders (typically 66.6%).

As a practical point, in our experience, lenders tend to be more receptive to requests for amendments and waivers if a borrower presents to them well thought-out and reasoned plans to address any issues in the business, supported by appropriate evidence and relevant forecasts.

If the requisite consent is obtained, the changes can be documented through an amendment and restatement agreement or amendment and waiver letter (depending on the level of changes and their complexity).

13. Dealing with creditors, including amendments and waivers – Bonds

a. If I can’t comply with the terms of my bond covenants who do I need to notify?

If a default has occurred or is likely to occur, communication with bondholders or certificate-holders will often be required through a combination of:

  • public announcements filed on the exchange where the bonds or sukuk are listed and the website of the issuer or obligor;
  • notification to the relevant Bahrain authorities in the case of bonds or sukuk that have been offered to the public;
  • with simultaneous notice to the trustee, delegate or fiscal agent (as determined by the governing document of the bonds or sukuk).

Key default concerns in the near-term for bonds or sukuk are likely to be:

  • inability to file necessary reports (which may include accounting certifications that may not be made);
  • failure to report timely on any material developments (if the documentation requires such reporting); and
  • inability to pay principal or interest (i.e. coupon or periodic distributions).

b. If I need to ask for a waiver or amendment to the terms of bonds issued by my business what steps do I need to take?

The terms and conditions applicable to the bonds and sukuk will usually have a detailed waiver and amendment procedure spelled out, with the majority applicable to the relevant waivers and amendments.

It should be expected that consent from bondholders/certificate holders representing a simple majority of principal amount outstanding will be required for amendments to non-economic terms (such as ability to incur additional debt), but that economic terms (e.g. maturity, rates of return, payment dates currency) or changes to security package will likely require 90% to 100%, depending on the terms and conditions.

As a priority, an issuer or obligor should have its legal counsel review the amendments and waivers section of the documentation, and obtain legal advice on prudent public communications under applicable securities laws and regulations.

c. What is the process for contacting bondholders and holding meetings to agree changes in the terms of my bond documents?

Bondholder or certificate holder meetings, if required, will be governed by a combination of the bond or sukuk governing documents and the rules of the relevant clearing systems.

14. Is the availability of any return to business funding or relief either (a) conditioned on the use of proceeds for green or social purposes or (b) linked to sustainability-related outcomes? If so, what are the applicable purposes or outcomes?

There is no return-to-business funding or relief available in Bahrain.