In accordance with Article of the IMF Articles of Agreement, the Bangladesh Taka was deemed convertible on March 24, 1994. The Bangladesh Taka becoming convertible for current account operations in 1994 means that it could be used for international financial transactions such as imports and exports.
This change made it easier for foreign businesses to invest in Bangladesh and for Bangladeshi companies to do business internationally. It was a big step forward in the country’s economic development.
Business Options For Foreign Investors In Bangladesh
There are three alternatives available to foreign investors who choose to launch a business in Bangladesh:
For the purpose of conducting liaison activities on their behalf, foreign businesses may operate Liaison Offices in Bangladesh. These liaison offices serve as a conduit for communication between foreign businesses and Bangladeshi clients.
These offices are typically opened by foreign businesses to further their commercial interests in the nation by raising awareness of their services and goods and looking into the possibility of establishing a long-term presence.
According to the requirements of the Bangladesh Investment Development Authority’s (BIDA) permission, a liaison office is not permitted to engage in any commercial operations and cannot, therefore, generate any money in Bangladesh.
The parent firm abroad will be required to cover all startup and ongoing expenses, including the wages of the local and international staff members of the Liaison Office, through the inbound transfer of foreign exchange. Except for money brought in from abroad, no remittances from Bangladesh would be permitted.
The following tasks are permissible for a liaison office in Bangladesh
- Sustain communication and coordination via mail, personal contracts, and other electronic channels between the major and regional agents, distributors, and exporters’ organizations.
- As specified in the approval letter, gather, assemble, analyze, and disseminate business data relating to its sphere of activities.
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A branch office is set up in Bangladesh as an outpost of a foreign business. It is possible for foreign businesses to establish branches in Bangladesh. Branch Offices, as opposed to Liaison Offices, are permitted to carry out a wider range of tasks with BIDA’s prior consent.
Any activity carried out by a Branch Office in Bangladesh must be expressly authorized by BIDA. It also needs to register with the Registrar of Joint Stock Companies and Firms and follow certain procedures outlined in the Companies Act. These steps ensure that the Branch Office is in compliance with local laws and regulations.
The benefits of a branch office are ease of operation and simple closing. However, a branch may not offer a foreign company the best structure for its expansion objectives because the operations are rigorously governed by exchange control standards.
Locally Registered Company
Bangladesh allows foreign investors to set either private or public limited corporations as their subsidiary enterprises. The majority of industries accept foreign ownership at 100 percent. Foreign investors may establish joint ventures with local or international partners.
The majority of industries do not require prior consent from any government body.
A subsidiary company provides more options for conducting business in Bangladesh than a branch or liaison office.
Limitations and Approval
Foreign investment is permitted in the majority of sectors. All forms of investment are restricted in some industries, whilst government authorization is needed in other industries. The following four sectors have restrictions on both domestic and foreign investment.
- Weapons, ammunition, and other military machinery
- Nuclear power
- Printing and minting of currency
- Logging and mechanized extraction inside the boundaries of designated forests.
There are a few restricted sectors that need approval in advance from the corresponding line ministries or authorities. They are:
- Hunting fish in the deep sea
- Private sector banks or financial institutions
- The discovery, exploitation and provision of additional mineral resources
- Private-sector electricity production
- Supply and distribution of natural gas and oil extraction
- Large-scale infrastructure undertaking
- Telecommunications services
- Medium-sized and big industries that use mineral and natural gas as basic materials
- Refineries for crude oil that recycle or refined lubricating oil for use as fuel
FOREIGNER’S CAPITAL AND PROFIT REPATRIATION IN BANGLADESH
Foreign investors can repatriate funds invested in industrial ventures in Bangladesh with government clearance, along with any capital gains, with authorization from Bangladesh Bank.
Profits and dividends can also be distributed with fewer restrictions. The process of repatriation of funds must be done through the investor’s bank and must be authorized by Bangladesh Bank. Taxes on the income must have been paid before remittance.
PROCESS FOR OUTWARD REMITTANCES OF DIVIDENDS AND PROFITS
- Non-resident shareholders can receive dividends through an authorized dealer, provided that the necessary application is submitted in the required format and is certified by an auditor. In compliance with Bangladesh Bank’s FE Circular No.29, remittable dividends may be credited directly to non-resident shareholders’ foreign currency accounts.
- Through an approved dealer, Bangladesh-incorporated branches of international corporations can transfer post-tax profits to the parent company.
- BIDA and Bangladesh Bank authorization is required for branch offices other than banks and insurance companies to remit profits.
Remittance of an employee’s salary, retirement benefits, and savings:
- After deducting all allowable expenditures, saving, and allowable retirement benefits, foreign workers employed in Bangladesh are permitted to transfer 75% of their monthly earnings through a licensed dealer.
INCENTIVES FOR FOREIGN INVESTORS IN BANGLADESH
The fact that Bangladesh has implemented bilateral investment agreements, double taxation treaties, and other measures to protect the interests of foreign investors will encourage them to choose Bangladesh as their next investment destination. The following incentives for investing in Bangladesh will also be available to investors.
- Tax Exemptions: Usually between five and seven years. However, an exemption is permitted for electricity generation for 15 years.
- Duty: Duty-free imports are available to industries focused on exports. Ad valorem is at 5% for all other industries.
- Tax law: On the basis of bilateral agreements, double taxation can be avoided in the case of foreign investors. For expatriate employees working in the industries listed in the applicable schedule of the Income Tax Ordinance, income tax is exempted up to three years.
- Remittance: Facilities for the complete repatriation of the invested money. Profit and dividends.
- Exit: An investor may end their interest by an AGM or EGM decision. After obtaining the necessary authorization from the Central Bank, a foreign investor can repatriate the sales proceeds after completing the necessary procedures to leave the country.
- Ownership: Foreign investors may establish businesses either as 100% foreign-owned or in joint ventures with local partners.
Foreign investment in Bangladesh has seen significant growth in recent years, with the country’s economic development and political stability being major factors in attracting foreign investors. Overall, while there are certain challenges, the government has put in efforts to improve the investment climate to attract more foreign investors and drive economic development.