SETTING UP BUSINESS IN BANGLADESH 2024

SETTING UP BUSINESS IN

General Aspects

Bangladesh is situated in South East Asia, bordering mostly by India & few miles by Myanmar. Monitory Unit is Bangladeshi Taka (BDT). With about 148,460 square kilometres Bangladesh is one of the growing economy in this region. The total population is around 169.4 million. The official language is Bangla and majority people are Muslims.

Legal Forms of Business Entities

Legal form Feature

Branch Office Foreign companies wishes to set up their presence in Bangladesh can form a Branch or Liaison office in Bangladesh. The office have no separate legal entity and can not operate any economic activity without the permission of BIDA(Bangladesh Investment Development Authority).

Sole Proprietorship

Partnerships

The simplest way of business structure in Bangladesh. There is no separate legal status of the business. Only a business address is required to operate activity. Any Bangladeshi Citizen over 18 year can apply for starting this type of business. A Trade License is the only required legal document. There is no specified permitted limit of capital invested.

Partnership Business a form of business organization created through voluntary agreements of minimum two and maximum 20 persons Their liability for the partnership’s debts and liabilities is generally unlimited and personal, including all private assets.

There are the following partnerships in Bangladeshi law:

General Partnership All the partners or one on their behalf operates the business with unlimited liability. General partnership is subdivided into voluntary & specific depending upon the duration of activity specified in the contract.

Limited Partnership

Where the liabilities of the partners are limited to the proportion of capital contribution.

Remarks

Suitable for foreign companies looking for a presence in Bangladesh to initiate business or maintain contacts with business partners, especially in cases of uncertain success.

There is no special formalities and not suitable for foreigners.

No minimum share capital is required and the accounting and publication obligations are less extensive than those for corporations.

Voluntary Partnership

Duration of the business activity is not stated in the agreement of partnership.

Appropriate for small or new companies. A written agreement is not necessary but recommended. Although registration is not mandatory but recommended because registration make the partnership eligible to enjoy some legal benefits.

Suitable company form for small and medium-sized businesses.

Formation & verification of necessary laws and regulations are under process and in few cases, only the partnership deed could be registered with RJSC through an application. But that does not limit liability of partners indeed.

Suitable for medium-sized companies seeking additional startup capital from persons who prefer a limitation of liability.

Specific Partnership If a partnership firm is established for a specific period and to achieve certain objective, the partnership would be called specific.

A legal form specifically designed for the joint exercising of professional freelance activities.

There are the following corporations in Bangladeshi law:

Limited Liability Company Company formation is not a complex process in Bangladesh. Office of the Registrar of Joint Stock Companies and Firms (RJSC) is the authority for giving the registration. After application with Government fee, we get a name for the business and prepare the Memorandum & Articles of Association.

Private Limited Company Separate legal entity with minimum 2 to 50 shareholders with 2 directors. Registration fee payable depending on Authorized capital on different slabs rates by the government. Some other fees are also required.

Public Limited Company Minimum 7 to max (unlimited) shareholders depending upon the size of capital with at least 3 directors(max 15). Registration fee payable depending on Authorized capital on different slabs rates by the government. Some other fees are also required.

One Person Company (OPC) Recently , 22nd September 2020 an amendment to the Companies Act 1994 has been proposed with a view to including one person companies(OPCs) within its ambit.

The most popular legal form for corporations, with high flexibility and relatively few obligations.

Tax return and annual accounts submission is mandatory

Tax return and annual accounts submission is mandatory. Must comply with corporate governance code.

The amendment defines a ‘one person company’ as a company that only has one natural person as its shareholder. As per the newly added section 11A(c), such one person companies must include the words One Person Company or OPC at the end of their names.

Organizational Questions

Topic Feature

Commercial Register Office of The Registrar of Joint Stock Companies and Firms(RJSC) performs the duties of registering commercial entities. Head office situated at Kawran Bazar,Dhaka.It also has divisional and wide range of district wise service points. All commercial entities must register under RJSC except proprietorship ,some partnerships & Freelance professionals.

Trade Register Notification

Although there is no clear rules for giving notification from RJSC, commercial entities are not eligible to perform business without using the RJSC registration number in places like Securities and Exchange commission, Tax authority and Export/Import authority.

Remarks

Electronic access to the informations,documents ,Forms & Fees are possible through http://www.roc.gov.bd/

Name clearence,Submission of MOU & AOA,Opening a Bank account & filing other documents and license are simple steps relevant to registration.

Bank Account To open a bank account individuals need a valid National ID Card (NID) and a reference from any person who has bank account in any branches of the said bank. An initial deposit required ranging from BDT 100 – 500.

Transfer of Goods and Machinery

Transfer of goods and machineries are governed by section XI A of Income Tax Ordinance 1984 in Bangladesh. The law has been activated from first July,2014.

Transfer of Capital With the exception of a few reserved sectors, foreign investors are free to make investments in Bangladesh in industrial enterprise. An industrial entity may be set up in collaboration with local investors or may even be wholly owned by the foreign investors. No permission is needed to set up such enterprises if the entrepreneurs use their own funds. However, to avail of facilities and institutional support provided by the government, entrepreneurs/sponsors are advised to apply for registration with the Bangladesh Investment Development Authority (BIDA). For items in the control list, the office of the Chief Controller of Imports & Exports (CCI & E) prescribes the basis and conditions of import entitlement.

Visa and

Residence permit

Transaction limits are set during the filing of account opening form & documents. Anything beyond reported limit / source is subject to further verification and authorization.

Determination of income , arm’s length price, maintenance & submission of statements and documents, taking care of important dates to avoid penalty is required.

Non resident Bangladeshi (NRB’s) are eligible to invest to form business with the permission of Investment board and can also invest in shares in both public & private limited companies.

Capital gain is Taxed @ 15% in Bangladesh.

For a Visa of Bangladesh one need to apply in Bangladesh consulate of relevant country. On-Arrival visa is permitted for foreign investors coming from countries with no Bangladeshi Embassy subject to verification of proper documents and invitation.

Those who invest $5,000,000.00 (U.S.) in an industrial or commercial project in Bangladesh or those who transfer $1,000,000.00 to any recognized financial institution of Bangladesh may apply for Bangladeshi citizenship. This amount is non-repatriable.

Those who invest $75,000.00 in Bangladesh may apply for permanent residency.

Employment

Topic Feature

Work permit

Work permit is mandatory for every foreign national seeking employment in Bangladesh. Three government authorities issue work permit in Bangladesh.

For private sector industrial enterprise, branch office and liaison office, outside of Export Processing Zone (EPZ)

Bangladesh Investment Development Authority (BIDA).

For employment of foreign national in the EPZ

Bangladesh Export Processing Zones Authority (BEPZA). For employment of foreign national in any NGO NGO Affairs Bureau.

Remarks

PI Visa(Private Investor Visa) is applicable for investors whose name is on the shareholders list. The process of PI visa and work permit is almost similar to E visa and work permit.

Labour law Employment law in Bangladesh is governed by the Labor Act, 2006 (“Act”) and the Labor Rules, 2015 (“Rules”).Normal working hour per week is 40-48 hours. Normal office hour 9am- 5pm. Friday & Saturday government holiday .Any dispute arising regarding employment is settled as per provision of work permit agreement and with the help of Labor Court.

Social system Pension contribution, insurance coverage are applicable as per employment agreement. Personal contribution to any private pension fund is permitted.

Participation in registered pension fund and insurance premium are tax exempted.

Taxation

Companies in Bangladesh are usually taxed on two levels: On the first level, corporations are subject to corporate income tax (Körperschaftsteuer), whereas partnerships and sole proprietorships are subject to personal income tax (Einkommensteuer). Both taxes are levied by the federal government. On the second level, all business operations are subject to the trade tax (Gewerbesteuer), which is imposed by the municipalities, where the company is based.

Tax Feature

Remarks

Sur charge is applicable on Net Asset @10% - 35% for amount exceeding from 30m – 500m.

All enterprises with a gross income above BDT 5 million (with the exception of mobile operators, producers of cigarettes and tobacco products) are subject to an alternative minimum tax of 0.6% on gross receipts, if the amount due is higher than corporation tax. This rate is reduced to 0.1% for manufacturing companies in their first three years of operation.

To avoid double Taxation Bangladesh has double Taxation agreement with 36 countries including UK ,Singapore,Sweeden,South-Korea, Canada,Pakistan, Romania,SriLanka,France,Japan,Malayasia,India,Germenay,Netherlands, Italy,Denmark,China,Belgium,Thailand,Poland,Philipin,Vietnam,Turkey,Norway, USA,Indonesia,Switzerland,KSA,Mauritious, Belarus, Nepal, Oman, United Arab Emirates, Bahrain, Kuwait & Myanmar.

Personal Income Tax Up to BDT 350,000 @ 0% tax free.

Next 100,000 @ 5%

Next 300,000 @ 10%

Next 400,000 @ 15%

Next 500,000 @ 20%

Rest @ 25%

For Non residents @ 30%

Personal Income Tax-partnerships

Tax free limit for women = BDT 400,000

Tax free limit for Person with disability = BDT 450,000

As partnerships are not separate legal entities but associations of partners, the partners themselves generally are subject to the personal income tax, with the individual tax rate applicable to each shareholder.

Double Taxation

Consumption Taxes

Tax incentives for foreign companies

Excise duties have been abolished on all products except on bank deposits and airline tickets (exemptions are provided for disabled soldiers). An additional duty of 20%, 30%,45%,60% & 100% or more are levied on certain products, the highest being on beer (250%), alcohol and cigarettes (350%) Cylinder different cc upto (500%)

If the individual income tax rate is less than 25%, the taxpayer can request that his individual tax rate has to be applied.

Bangladesh provides for tax incentives for foreign companies investing in special economic zones and hi-tech park zones (in the form of gradually decreasing tax discounts). Qualifying industrial undertaking set up between 1 July 2019 and 30 June 2024 are also entitled to gradual tax discounts, with rates varying from one region to another.

Value Added Tax (VAT) Basic rate is 15%.

Certain products and services are exempt from VAT (foodstuffs, agricultural supply, public transport, pharmaceutical products, educational services), and some have a reduced rate: 7.5% for restaurants without air conditioning, 5% on electricity supply, information technology services, online business services (as of 2020), 10% on photography and Automobile garages, 5% on goldsmiths, 7.5% on construction, etc. Bangladesh is expected to introduce a new VAT regime by 2021, with two standard reduced VAT rates of 7.5% and 5%.

Real Estate Transfer Tax

Property Holding Tax

At present, property registration cost includes: 4 percent gain tax, 3 percent stamp fee, 2 percent registration fee, 2 percent local government tax and 3 percent VAT.

The rate of holding tax in two city corporations of Dhaka is only 12 per cent while it is 17 per cent in Chittagong and 27 per cent in Rajshahi.

As per tax rule, the annual holding tax is fixed on the basis of house rent. As there is no effective house rent control act, most of the city corporations fix holding tax on their estimate of probable house rent.

Capital Gains Taxation

Non-resident Taxation

Capital gains arising from the disposal of listed shares are subject to a 10% tax whereas those arising from the transfer of other types securities are taxed at 15%. Non-residents are exempt from tax on their capital gains arising from the disposal of listed shares if they enjoy a similar exemption in their country of origin (otherwise they are taxed at the standard rates).

Non-residents are taxed at a flat rate of 30%. Salaries and allowances for expatriate employees in foreign aid projects based on an agreement between the government of Bangladesh and a foreign government are exempt from tax.

This guide has been prepared by ASHRAF UDDIN & CO, an independent member of Antea

ASHRAF UDDIN & CO.

3rd & 4th Floor, 142/B, Green Road 1215, Dhaka, Bangladesh

Tel.: +880 1819490550

Mohiuddin.fca@aucbd.com

Web: www.aucbd.com

Mallorca, 260 àtic

08008 – Barcelona Tel.: + 34 93 215 59 89 Fax: + 34 93 487 28 76 Email: info@antea-int.com www.antea-int.com

This publication is intended as general guide only. Accordingly, we recommend that readers seek appropriate professional advice regarding any particular problems that they encounter. This information should not be relied on as a substitute for such an advice. While all reasonable attempts have been made to ensure that the information contained herein is accurate, not Antea Alliance of Independent Firms neither its members accepts no responsibility for any errors or omission it may contain whether caused by negligence or otherwise, or forany losses, however caused, sustained by any person that relies upon it.