Weekly Spotlight: Final Rules on Crypto-Assets Activities Issued by Bahrain’s Central Bank

Bahrain’s Central Bank has issued the final rules on various activities related to Crypto-Assets, including licensing, governance, minimum capital, control environment and risk management. The Rules are the first of their kind in the region and are aimed at ensuring Crypto-Asset activities are regulated effectively. They also cover anti-money laundering and anti-terrorist financing, business conduct standards, avoiding conflicts of interest, reporting and cyber security for these activities.

In addition, there are provisions on supervision and enforcement standards including those provided by a platform operator as a principal, agent, portfolio manager, adviser and a custodian in or outside Bahrain.

Those licensed by the Central Bank as crypto-asset exchanges will have additional regulatory requirements to comply with. These additional requirements relate to order matching, pre and post-trade transparency, measures to avoid market manipulation and market abuse and conflicts of interest. They also state there is a need for enhanced due diligence when onboarding new clients, requirements to ensure no encrypted safe custody accounts or ‘wallets’ are maintained which cannot be retrieved, a mandate to ensure keyman risks are adequately managed including by having the necessary insurance covers and clients are educated and given clear instructions on using safe custody wallets.

Weekly Spotlight: Bahraini Electricity and Water Authority Loses VAT Legal Case

This week the spotlight is on tax and finance developments in Bahrain, where VAT came into force on 1 January 2019. Elsewhere, a Bahraini lawyer brought a claim against the Electricity and Water Authority before the High Civil Court requesting the annulment of a VAT decision issued by the Authority.

The lawyer benefits from water and power services for non-commercial purposes who sent a utility bill requesting payment of 5% VAT on these services. He cited Article 9 of Bahrain Decree Law No. 48/2018 on VAT which says the Authority cannot charge VAT if it was offering the service as a sovereign body. They can only charge VAT if it is offering commercial activities like those offered by the private sector.

The court accepted the lawyer’s arguments and said the Authority didn’t have the right to charge nationals VAT for power and water if it is for non-commercial activities. The court requested the Authority cancel the decision and pay legal costs.

Weekly Spotlight: Bahraini VAT Law Approved

This week the spotlight is on tax developments in Bahrain, where the Kingdom’s Parliament has voted to approve a Decree-Law to impose 5% VAT on goods and services in a special joint session. They will become the third GCC member to join the GCC-wide VAT agreement. It will potentially come into effect on 1 January 2019, according to a schedule laid out by the Finance Minister in February. However, the Finance and Economic Committee of Bahrain’s Parliament had reportedly recommended the law be rejected.

In addition, a Bahraini newspaper has published the list of products to be zero-rated for VAT. Customers will not be charged VAT on the goods although they will still be VAT taxable for accounting purposes. The list includes 34 types of meat and fish, including tuna, lamb, camel and chicken. It includes 37 types of fruit and vegetables, including potatoes, onions, garlic, lettuce, carrots, cucumbers, peas, zucchini, okra, parsley, apples, oranges, pomegranates and apricots. Eight types of coffee and tea are also included as well as grains, sugars, dairy products, water, oil and other foodstuffs. The Implementing Regulations for the VAT Law are expected to be published next week.