Bahrain has emerged as a leading Middle Eastern crypto hub with progressive regulations from the Central Bank. The country offers streamlined licensing and a supportive regulatory environment for blockchain innovation.

The Central Bank of Bahrain (CBB) regulates crypto assets. Crypto exchanges and wallet providers must obtain licenses.

Licensing for crypto-asset businesses is mandatory and governed by the CBB's CRA Module, which defines Regulated Crypto-Asset Services and categorizes licenses based on the scope of activities. The regulated services include operating a crypto-asset exchange, dealing as a principal or agent, portfolio management, crypto-asset custody, and investment advice. The licensing structure is tiered into four categories, each with a specific minimum capital requirement, which must be paid-up share capital, unimpaired by losses, and deposited in a retail bank in Bahrain. The minimum capital requirements are: Category 1 (BHD 25,000) for advisory and transmission services without holding client assets; Category 2 (BHD 100,000); Category 3 (BHD 200,000); and Category 4 (BHD 300,000), typically for operating a crypto-asset exchange. The application process involves a detailed review of the business plan, governance structure, risk management, and compliance with CBB's stringent requirements, including those for technology governance (CRA-5) and AML/CFT (CRA-7).

Bahrain is considered a tax-friendly jurisdiction for cryptocurrency activities. The country currently imposes no personal income tax on individuals, meaning capital gains or income derived from crypto trading or investment by individuals are not subject to taxation. Similarly, there is generally no corporate income tax on companies operating in Bahrain, including licensed crypto-asset service providers, unless they are involved in oil and gas production or exploration. The standard Value Added Tax (VAT) rate in Bahrain is 10% (effective January 1, 2022). However, the National Bureau for Revenue (NBR) has issued guidance on the VAT treatment of crypto-asset transactions. The general principle is that the supply of cryptocurrencies is treated as a financial service and is exempt from VAT. This exemption applies to the exchange of crypto for fiat or other crypto. Nonetheless, explicit fees, commissions, or other charges for services provided by a licensed CASP may be subject to the standard 10% VAT. There are no specific reporting requirements for individual crypto holdings or transactions beyond standard financial reporting for licensed entities.

Banking access for licensed crypto businesses in Bahrain is generally favorable, largely due to the Central Bank of Bahrain's proactive and clear regulatory stance. The CBB's framework mandates that the minimum capital for licensed crypto-asset service providers (CASPs) must be deposited in a retail bank licensed to operate in Bahrain, indicating a formal acceptance of the sector by the traditional financial system. Several local and international banks are known to be crypto-friendly, facilitating bank accounts for licensed CASPs. For instance, the licensed crypto exchange Rain allows users to easily link their local bank accounts for fiat on/off-ramps. Furthermore, institutions like Bank ABC have been involved in blockchain-based payment initiatives in partnership with the CBB, signaling a broader integration of distributed ledger technology within the banking sector.

https://www.cbb.gov.bh/