Doing Business in Bangladesh

Bangladesh, growing rapidly over a decade, is on its way to becoming the next Asian Tiger. Currently 41st largest economy, Bangladesh continues to be one of the fastest growing economies in the world and targeting to be the 25th largest economy by 2035. Economic and political stability are driving its journey towards the future.

Bangladesh has the most liberal investment regime in the region, characterized by a wide array of facilities, attractive incentive policies and consistent reforms.

Bangladesh’s economy expanded by a remarkable 5% in 2021 and 6.4% in 2022 (as per IMF). Bangladesh has a GDP of USD 357.1 billion in 2021 and GDP of USD 396.54 billion in 2022 and was ranked 41st by IMF, GDP (PPP) of USD 1000.1 billion. it has a GDP per capita income of 2360 USD and GDP (PPP) per capita of 6630 USD.

Total remittance inflow was USD 21.03 billion as of 2021-22 and major countries were Saudi Arabia (22%), USA (16%), UAE (10%), UK (10%), Malaysia (8%), Kuwait (6%) and Oman (5%) (BB). Remittance is a major source of earnings for the country and is in 7th position globally based on amount.

Doing Business in Bangladesh

A business can be set up within a very short space of time. If an investor wants to set up a limited company, then this entity requires to be registered with the Registrar of Joint Stock Companies and Firms (RJSC) which may take 20-25 days. On the other hand, if an investor wants to set up a Branch/Liaison/Representative Office then it may take 25-30 days to get approval from Bangladesh Investment Development Authority (BIDA). Based on the approval Registrar of Joint Stock Companies and Firms (RJSC) will provide the incorporation certificate which can be used to open a bank account and other licenses.

To register a branch, representative, or liaison office of a foreign company, in Bangladesh, it will be necessary to get permission from Bangladesh Investment Development Authority (BIDA) as a foreign entity.

Setting Up Business in Bangladesh

The following types of structure are commonly used:

# Company
# Branch/representative/liaison office of a foreign company

There are different types of companies:

# Private Company limited by shares/ Subsidiaries company of foreign/local company
# Public Company limited by shares.
# Joint Venture

Considerable structure

There are some popular types of legal entities for doing business in Bangladesh: Limited Company, Branch Office of a Foreign Company. Liaison Office of a Foreign Company.

A. Limited Company- Private/Public

Foreign investors can set up their subsidiary companies in the form of private/public limited companies in Bangladesh. In most sectors, 100% foreign ownership is allowed. Foreign investors may also setup JV with local or foreign partners. There is no limitation on equity participation for foreign companies in Bangladesh; wholly owned investment is allowed in all industries except some special industries. The Foreign Private Investment (Promotion and Protection) Act of 1980 guarantees protection against expropriation. If a foreign investor becomes subject to a legal measure that has the effect of expropriation, adequate compensation will be paid, and it will be freely repatriable. The amount of the compensation will be determined investment immediately before the measure went into effect. Since the passing of this Act, there has been NO instance of expropriation in Bangladesh.

There is No minimum paid up or authorized capital requirement. Investors are free to choose their desired authorized capital limit and paid-up capital amounts and the government fees payable on incorporation will be calculated accordingly.

B. Branch Office

A Branch Office is setup as an extension of a foreign company in Bangladesh. Foreign companies may open branch offices to conduct business in Bangladesh. Unlike a Liaison Office, a Branch Office can perform a broader scope of activities subject to prior approval of BIDA.

C. Liaison Office

Foreign companies may open their Liaison Offices in Bangladesh subject to obtaining specific approval from Bangladesh Investment Development Authority (BIDA) for undertaking liaison activities on their behalf. These Liaison Offices act as a communication channel between foreign companies and Bangladeshi customers.

A limited company might be a better choice if you want broader access to operate business in Bangladesh.

LEGAL REQUIREMENTS:

Legal requirements for setting up a business

# Select a Business Structure
# Register the Business
# Open a Business Bank Account
# Obtain Licenses (Trade License, TIN, BIN, IRC, ERC, Bond license etc.) from the regulators (NBR, City Corporation, etc.)
# Create a Compliance Plan

WHAT ARE THE MAIN LAW REQUIREMENTS FOR EMPLOYMENT IN BANGLADESH

The Labour Act 2006 is the main law regulating the employment of "workers". The Labour Act 2006 is equally applicable to local and foreign employees, and its provisions apply regardless of any choice of law in the employment contract. Employee relations are governed by individual contractual terms and conditions using employment contract. The EPZ workers Association and Industrial Relations Act 2010 applies to the companies situated within the EPZs. The International Labour Organization conventions also apply. To employ a foreign expert in Bangladesh, investor must employ 5 local employees against 1 foreign national in case of the commercial sector. In case of the industrial sector, initially, investor must employ 10 local employees against a foreign national and 20 local employees in the operation stage against a foreign national (as per the requirement of BIDA).

A Foreign employee is required to obtain work permit to work in Bangladesh. In addition, he/she needs to obtain Taxpayer’s Identification Number (TIN) and subsequently requires submitting Income Tax return.

Taxation requirements

In Bangladesh there are two types of Tax levied: Direct Tax and Indirect Tax. Income Tax (corporate and individual), Gift Tax etc. are categorized under Direct Tax. On the other hand, Indirect Tax includes Value Added Tax (VAT), Customs Duty, Excise Duty, and Supplementary Duty.

Individual Income Tax

In Bangladesh, income tax is payable yearly, and the rate of tax is progressive based on the slab income. The tax rate for foreigners is straight 30%.

Corporate Income Tax

Businesses are required to pay corporate tax annually at 22.5% to 30% on income subject to nature and fulfillment of criteria. Annually income tax return submission is also required according to the relevant law in Bangladesh.

Value Added Tax (VAT)

As per VAT law, a business organization is required to file a VAT return on monthly basis. Businesses practice different types of VAT rates based on the nature of goods and services. The standard VAT rate in Bangladesh is 15% and the rate for exporting businesses is 0%.

Import Duty

At the time of import goods from abroad, the business must need to pay the import duty. The import duty consists of customs duty, regulatory duty, supplementary duty, value-added tax, advance income tax, and advance tax (VAT). Here, value-added tax, advance income tax, and advance tax (VAT) are recoverable and not related to cost. The other duties will be treated as expenses. The below list of the regulators of taxes to whom the reporting is required to be done is the bare minimum and the same can increase depending upon the business activities of the investors:
• Income Tax Authority (NBR)
• Value Added Tax Authority (NBR)
• Customs Authority (NBR)

What is the minimum investment needed?

Foreign investors can set up a limited company with a hundred percent ownership with a very minimal share capital, even as low as 1 Bangladeshi Taka. In addition, a foreigner can also be an investor by taking only 1 share of a company.

On the other hand, an investor can register a branch, representative, or liaison office with an initial investment of USD 50,000.00 as establishment cost and 6 months of operational.

Is there anything else that I should know?

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