A Guide to Obtain License from CBB, Bahrain for a Crypto-Asset Business

Bahrain is a regional leader in crypto-asset regulation, offering a clear, robust, and internationally recognized licensing regime under the Central Bank of Bahrain (CBB).

1. Regulatory Framework And Authorities

• • Regulator: Central Bank of Bahrain (CBB)
• • Rulebook: CBB Rulebook Volume 6 – Crypto-Asset Module (CRA, updated April 2023)
• • License: Crypto-Asset Service License (CASL), issued by CBB

2. Permitted Crypto-Asset Activities

Licensed entities may conduct, subject to CBB approval and license category:

• • Operating a crypto-asset exchange (Category 4)
• • Brokerage/dealing in crypto-assets (Category 3)
• • Crypto-asset custody services (Category 2)
• • Advisory/portfolio management (Category 1)
• • Digital token advisory and offerings
• • Other CBB-approved activities (case-by-case)

Excluded Activities:

• • Creation/mining of crypto-assets
• • Software development for crypto-assets
• • Loyalty programs

3. Key Licensing Categories And Minimum Capital

Capital must be deposited in a Bahraini bank before final approval.

License Fees: The application fee is BHD 2,000, and the annual fee is BHD 4,000, but the CBB also states that a license renewal fee is equivalent to 0.25% of the operating expenses and can range between BHD 2,000 and BHD 6,000.

4. Registration And Licensing Process

A. PRE-APPLICATION & FORMATION

• 1. Eligibility: Must be a Bahraini B.S.C., W.L.L., or a registered branch of a foreign company. 100% foreign ownership is permitted.
• 2. Professional Advisor: Engage a local consultancy or legal expert familiar with CBB licensing.
• 3. KYC: Gather KYC/due diligence documents for all directors, shareholders (5%+), and UBOs (Ultimate Beneficial Owners).
• 4. Formation: Reserve the name with MOICT and submit the entity registration application.
• 5. Capital Deposit: Open a corporate bank account in Bahrain and deposit the minimum required capital before the final CBB review.

B. APPLICATION TO CBB

• 1. Application Dossier: Prepare a comprehensive business plan, risk management framework, AML/CFT policy, KYC manual, IT/cybersecurity policy, and operational manuals.
• 2. Key Management: The Chief Executive/General Manager and Compliance Officer/MLRO must be CBB-approved and are typically required to be resident in Bahrain.
• 3. External Auditor: Appoint a CBB-approved external auditor at the time of application.
• 4. Insurance: Obtain Professional Indemnity Insurance coverage as required by CBB.

C. CBB REVIEW AND APPROVAL

The CBB conducts rigorous due diligence on shareholders and management, scrutinizes the financial position and source of funds, and performs a thorough review of the IT, cybersecurity, and AML/CFT systems. A successful review leads to the issuance of the Crypto-Asset Service License (CASL).

D. POST-LICENSING AND COMMENCEMENT

• 1. Readiness Assessment: Before commencing operations, the licensee must contract their External Auditor to perform a Readiness Assessment covering risk management, capital adequacy, IT, and operational readiness.
• 2. Launch: Operations must commence within six months of CBB approval, or the license may be revoked.
• 3. Maintain Substance: Maintain a real office, core management, and full records in Bahrain.

6. Ongoing Regulatory And Compliance Obligations

• • AML/CFT Compliance: Ongoing transaction monitoring, suspicious activity reporting, and staff training.
• • Segregation of Client Assets: Client funds and crypto must be fully segregated.
• • Record-Keeping: Retain records in Bahrain for at least 10 years.
• • Annual Audit: Submit audited financials and compliance reports to CBB.
• • Technology/Cybersecurity: Annual security audits, incident reporting, and resilience reviews.
• • Fair Client Treatment: Transparent disclosures, risk statements, and complaint handling.
• • Notification: Promptly report material events, management changes, or breaches to CBB.

7. Fees And Monetary Requirements

• • Application Fee: BHD 2,000 (~USD 5,300)
• • Annual License Fee: BHD 4,000 (~USD 10,600)
• • License Renewal Fee: Calculated annually as 0.25% of the prior year's operating expenses (Min: 2,000 / Max: 6,000)
• • Professional Indemnity Insurance: Required
• • Other Costs: Ongoing compliance, audit, and reporting

8. Key Documents Checklist

• • Company incorporation documents (MOICT)
• • Memorandum & Articles of Association
• • Board resolutions
• • KYC documents (directors, shareholders, UBOs)
• • Business plan and risk management framework
• • AML/CFT and KYC/Customer Due Diligence policies
• • IT and cybersecurity policy
• • Organizational chart and operational manuals
• • Proof of capital deposit
• • Professional indemnity insurance policy
• • Appointment letter for external auditor
• • Readiness assessment report (post-approval)
• • CBB application forms

Taxation Overview

1. Corporate Income Tax Treatment

Corporate Tax Rate: Standard rate of 0% corporate for most businesses.

Taxability of Digital Assets:

• • No corporate income tax on digital asset gains for companies outside the oil and gas sector
• • Digital asset trading, holding, and mining are not subject to additional income tax
• • Licensing under CBB still requires firms to maintain proper valuation and reporting records for regulatory audits

2. Other Tax Considerations

Withholding Tax: No withholding tax applies in Bahrain, including on cross-border payments

Value Added Tax (VAT):

• • Standard VAT rate is 10%
• • Payment tokens and asset tokens are considered financial services and are exempt from VAT
• • Utility tokens may be taxable depending on their function (e.g., voucher-like services)
• • Hybrid tokens are assessed case-by-case for VAT applicability

Compliance Notes & Filing Deadlines

• • Companies dealing with digital assets must maintain complete records of all transactions, including fair market value at the date of each transaction
• • Digital asset-related income and expenses must be accurately reflected in accounting records

1. Annual Corporate Income Tax Return: Due within 15 months of the end of the accounting year (only for oil & gas sector firms)

2. VAT Returns (if registered): Due quarterly with the National Bureau for Revenue (NBR)

3. Financial Reporting:

• • Companies licensed by the CBB must comply with ongoing financial reporting, audit, and AML obligations
• • Digital asset service providers must maintain auditable logs, wallet details, and valuation records