Authorised Distribution Activities

The Bahrain Ministry of Commerce and Industry (“MOIC”) recently passed Decision 29 of 2024 concerning the conditions and controls for practicing the activity of the authorised distributor (“Decision”) which provides amongst other things that (i) all qualifying distribution agreements should be registered in the new register maintained by the MOIC in Bahrain; and (ii) that local distributors must include in the authorized commercial activities appearing on their  Commercial Registrations (CRs) the relevant authorised distribution commercial activity (in addition to any relevant sale/trade commercial activities relating to the goods they sell).

The Decision impacts on foreign principals and local distributors in Bahrain who have entered into distributorship arrangements in any sector whereby the local party undertakes authorised distribution activities. The Decision provides that:

• entities in Bahrain that engage in the activity of ‘authorised distribution’, must be owned at least fifty one percent (51%) by Bahraini nationals (or fifty one percent (51%) owned by an entity which is established in Bahrain, and which is in turn owned one hundred percent (100%) by Bahrani nationals);
• entities that engage in the activity of authorised distribution, must include in their list of approved commercial activities (on their Commercial Registration (CR)): the activity of ‘Authorised Distribution’ (ISIC4 Code 4699) together with the appropriate commercial activity related to the nature of the sale of the products themselves (i.e. a trade, retail or wholesale activity which extends to and includes the type of products concerned);
• the distribution agreement(s) in question should be registered by the appointed local distributor in the Authorised Distributors Register maintained by the MOIC; and 
• if the foreign principal terminates the distribution agreement signed with a distributor with fifty-one percent (51%) Bahraini ownership and enters into an arrangement with a distributor having non-Bahraini ownership exceeding forty-nine percent (49%), such foreign principal will be required to present reasons for termination to MOIC.

In terms of what would constitute a distribution agreement or arrangement, there is no definition of a distribution agreement in the Decision. However, in broad guidance terms, taking from the language of the Decision as well as the description of the Authorised Distribution commercial activity appearing under ISIC4 Code 4699, the Decision can generally be considered as applying to distribution type arrangements whereby a local entity provides goods and/or services to customers with reference to an agreement/contract with the principal company that owns the relevant trademark.  

Early indications suggest that for entities that solely sell their own brand, and no other brands, the requirement to add the authorised distribution commercial activity is not a mandatory requirement.   As such, if you hold an active Commercial Registration (CR) with the appropriate ‘sale/trade’ activities and do not sell any other branded products other than your own branded products, then there is no mandatory requirement to add the authorised distribution commercial activity.

The MOIC do, however encourage entities to add the activity for various beneficial reasons, including potential future privileges to be published by way of an official decision for entities that have the authorised distribution commercial activity on their Commercial Registrations (CRs).

Separately, Decision No. 22 of 2024 Amending Certain Provisions of Order No. 40 of 2021 specifying the Commercial Activities that Foreign Capital Companies may be Licensed to Practice (“Commercial Activity Decision”), provides that foreign entities may be exempted for the need to include the said authorised distributorship commercial activity on their Commercial Registration (CR)  (without being required to meet the 51% Bahraini ownership requirements provided for in the Decision), under any of the following circumstances:  

1. There is an active sole proprietorship or company whose capital is owned by Bahraini partners at a percentage of at least fifty-one percent (51%) that practices the activity of authorised distribution of the same trademarked product in Bahrain;
2. The company that owns the international brand distributes its products within Bahrain; and
3. The company must be of economic importance according to the criteria determined by the Minister of Commerce, after the approval of the Council of Ministers. Kindly note that the decision relating to the criteria for economic importance has not been published as of yet.

What should you do next?

1. If you have already received a letter from the MOIC flagging the potential need to add the said authorised distribution commercial activity to your Commercial Registration (CR), you may reach out to Al Tamimi & Company to determine the applicability of the Decision to your Commercial Registration (CR).
2. If your Bahrain entity engages in the activity authorised distribution as set out above, your Bahrain-based entity should:
   1. Determine and confirm the extent of applicability of the Decision and/or its exemptions to your local entity;
   2. If relevant, take steps to add the ‘authorised distribution’ commercial activity to your Commercial Registration (CR) and register the relevant distribution agreement to the MOIC via its online portal; and
   3. Ensure that your Commercial Registration (CR) is free of other violations and that it is renewed and active at the time of the submission of the distribution agreement.
3. Alternatively, if you are a foreign principal with a locally appointed distributor, it is advisable to take steps to satisfy yourselves that your local distributor is in compliance with the requirements of the Decision. 

How can Al Tamimi & Company help?

As the leading law firm in the Middle East & North Africa Region and with strong corporate structuring experience across all industry sectors in the region, Al Tamimi & Company is well placed to assess the impact of the Decision on your organisation and assist you in complying with the Decision, including working with you to determine whether you or your local distributor need to add the authorised distribution activity to your or their Commercial Registration (CR) respectively.

If you would like to further discuss the contents of this update, and find out what it means for your business, please contact Al Tamimi & Company in Bahrain.