A Brief Guide - ACE Advisoryaceadvisory.biz/wp-content/uploads/2018/07/3-ACE... · ACE Advisory, a partnership firm registered in Bangladesh. Disclaimer The content of this guide

ACE Advisory, a partnership firm registered in Bangladesh.

Setting up in Bangladesh

A Brief Guide

2018


Disclaimer

The content of this guide is based on the legislation in operation andinformation available at July 2018, which may subsequently have changed.Whilst every care has been taken in its production, no responsibility can beaccepted for any action undertaken or refrained from as a consequence of thismaterial. Translation of laws, in the appropriate cases, from Bengali to Englishin this book has not been authenticated by any competent authority. A greateffort was made to ensure literal translation of the laws which have beenpublished in Bengali only. Specific professional advice should always beobtained based on personal circumstances or specific case. If there is anycontradiction on any issue of this guide with that of the official publications ordecision of the competent authority of the Bangladesh Government, the latershall prevail. Author accepts no responsibility whatsoever for any actionundertaken or refrained from as a result of the information contained herein.

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Contents

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Details Page Number

Firm Profile – ACE Advisory………………………..…………………………….…….4-5

Introduction – Bangladesh ……………………………………………………………...6

Foreign Investment……………………………………………………………………….…7

Forms of Business Enterprise…………………………………………………………8 – 13

Foreign Exchange Controls……………………………………………………………14 – 15

Reserved Industries………………………………………………………………………..16

Taxation………………………………………………………………………………………17 – 23

Countries having DTA with Bangladesh................................................24

Contact Details..................................................................................25


Firm Profile

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ACE Advisory is a leading provider of advisory, consulting, outsourcing and

local professional services. We focus on providing an integrated set of

multidisciplinary services with our deep local knowledge.

Our 3 core services support clients of various sizes with Expansion to

Bangladesh & BPO, Offshore BPO, & Advisory & Consulting on Corporate

Registration Services and Tax. Whether a client wants to setup in

Bangladesh or outsource its payroll function, we provide the support by

combining deep sector expertise, local insight and technology.

We provide a single point of contact to coordinate continuous management

of outsourced operations across our 3 business services.


Firm Profile contd..

Our range of services include:

1. Expansion to Bangladesh & BPO

– Local Entity Setup

– Other Local Registrations

– BPO - Finance & Accounting

– BPO - Payroll & HR

– BPO - Corporate Secretarial

– BPO – Tax Compliance

2. Offshore BPO

– General Accounting

– Procure to Pay

– Order to Cash

– Record to Report

3. Advisory & Consulting

– Accounting Advisory

– Management

Consultancy

– Process Advisory

– Tax Advisory

– International

Expansion

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For more information on above services please visit our website at www.aceadvisory.biz.

http://www.aceadvisory.biz/


Introduction – Bangladesh• Bangladesh became independent in 1971 and is a member of the United Nations

(UN), the South Asian Association for Regional Co-operation (SAARC), theCommonwealth, the World Trade Organization (WTO) and Organization for IslamicCountries (OIC).

• The economy of Bangladesh is a rapidly developing market-based economy.According to the International Monetary Fund, Bangladesh ranked as the 30th

largest economy in the world in 2018 in PPP terms and 43rd largest in nominalterms. The economy has growth at the rate of above 7% per annum over the pastfew years.

• More than half of the GDP is generated by the service sector; while nearly half ofBangladeshis are employed in the agriculture sector. Other goods produced aretextiles, jute, fish, vegetables, fruit, leather and leather goods, ceramics, ready-made goods. Exports of textiles and garments are the principal source of foreignexchange earnings. Shipbuilding and pharmaceuticals have become a major force ofgrowth, while the jute sector is re-emerging with increasing global demand forgreen fibers.

• Transportation, communication, water distribution, IT and energy infrastructure arerapidly developing. Bangladesh is limited in its reserves of oil, but recently there hasbeen huge development in gas and coal mining. The country's main endowmentsinclude its vast human resource base, rich agricultural land, relatively abundantwater, and substantial reserves of natural gas, with the blessing of possessing theworld’s only natural sea ports in Mongla and Chittagong, in addition to being theonly central port linking two large burgeoning economic hub groupsSAARC and ASEAN.

• The economic position of the country is GDP (2017 est.): $246.2 bn (PPP: $686.2bn), growth rate 7.1%, per capita $1,734 (PPP: 4,561), inflation 6.9% and GDPcomposition by sector is (2017 est.): agriculture – 15.1%, industry - 28.6% &services – 56.3%. The potential sectors of Bangladesh are Agribusiness, Ceramics,Electronics, Frozen Foods, Garments & Textiles, ICT & Business Services, Leather &Leather Goods, Light Engineering, Power Industry and Life Science.

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Foreign Investment

Overview

• There is no general restriction on equity participation or acquisition of property for a

foreign entity.

• There is no limitation on equity participation for foreign companies in Bangladesh; wholly

owned investment is allowed in all industries except reserved ones.

• Foreign investors may invest in shares and securities quoted on local stock exchanges with

foreign currency sent or brought into Bangladesh.

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Protection of Foreign Investment

The Foreign Private Investment (Promotion and Protection) Act of 1980 guarantees protectionagainst expropriation. If a foreign investor becomes subject to a legal measure that has theeffect of expropriation, adequate compensation will be paid and it will be freely repatriable.The amount of the compensation will be determined in accordance with the market value ofthe investment immediately before the measure went into effect. Since the passing of this Act,there has been NO instance of expropriation in Bangladesh.


Forms of Business Enterprise

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Sole Proprietorship

Overview

• More commonly known as a sole trader ship.

• Owner assumes all risks and has unlimited

liability

• Such a business form has no legal entity

• Preferred due to ease in setting up, managing

and winding up.

• Foreign investors are restricted from this nature

of business enterprise.

Principal Legislation

All legislation applicable to individuals are applicable to sole proprietorships.

Requirements

• Trade license from local city corporation

• Taxpayer’s Identification Number (TIN)

• VAT Registration (if applicable)

• Import Registration Certificate (if applicable)

• Export Registration Certificate (if applicable)

• Bank Account – in name of individual

• Other licenses/permissions – where

applicable



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Partnership Firm

Overview

• Form of business organization betweenminimum 2 and maximum 20 willing persons(maximum 10 if banking business) .

• Institutions or associations cannot be amember of a partnership.

• Registration of a partnership is notmandatory.

• If unregistered, one partner cannot bring asuit to enforce a right against the firm or co-partners.

• Unregistered firm cannot file a suit or initiatelegal proceedings.

• Limited Liability Partnership (LLP) form doesnot exist in Bangladesh and therefore thepartners liability in all cases is unlimited.

• Foreign investors are restricted from thisnature of business enterprise.

Principal Legislation

The Partnership Act 1932

Requirements

• Partnership Deed• Minutes of a Partner’s Meeting• Rental agreement for registered address• Trade license from local city corporation• Taxpayer’s Identification Number (TIN)• VAT Registration (if applicable)• Import Registration Certificate (if applicable)• Export Registration Certificate (if applicable)• Bank Account – in name of individual• Other licenses/permissions – where

applicable



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Branch & Liaison Office

Overview

• Foreign entities not registered (with no legal presence) in Bangladesh can setup in the formof a Branch or Liaison Office.

• Activities of Branch and Liaison offices are restricted to those stated in the BIDApermission.

• Such offices are allowed to carry out principal business activities of the parent entity.• Inward remittance of minimum US$ 50,000 must be brought in within 6 months to meet

operational expenses.• Local revenue earning is prohibited unless special waiver is applied for.• Outward remittance is prohibited.• Quarterly returns of receipts and payments must be filed with relevant authorities.• Annual tax return must be filed.

Principal Legislation• The Investment Board Act 1989• Rules & Regulations of the Bangladesh Investment Development Authority (BIDA)• The Companies Act 1994• The Foreign Exchange Regulation Act 1947.



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Branch & Liaison Office - Requirements

Bangladesh Investment Development Authority (BIDA)

Application for BO/LO to be made with following:• Prescribed application form• Memorandum & Articles of Association of Principal Company.• Certificate of Incorporation of Principal Company.• Name and nationalities of Directors/Promoters of Principal Company.• Effective board resolution to open BO/LO in Bangladesh.• Audited financial statements of immediately preceding financial year.• Proposed organogram of the BO/LO.• List of activities of the proposed BO/LO.

All above documents of Principal Company must be attested by Bangladesh Embassy/HighCommission at origin.

Bangladesh Bank (BB)

Once BIDA permission is received, Central Bank registration must be obtained.



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Branch & Liaison Office - Requirements

Other Requirements• Trade license from local city corporation• Taxpayer’s Identification Number (TIN)• VAT Registration• Bank Account• Work Permit for expatriate employees subject to maintaining 5:1 local to expatriate ratio• Permission to receive funds locally for Branch Office• Other licenses/permissions – where applicable



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Limited Liability Company

Private Limited Company

• Rights to transfer shares are restricted

• Limits the number of members tominimum 2 and maximum of 50.

• Institutions (local and foreign) andassociations are eligible to subscribe toshares of private limited companies.

• Invitation to public to subscribe to sharesor debentures is prohibited.

• Entitled to commence business from dateof incorporation.

Public Limited Company

• A public limited company offers shares anddebentures to the public through aprospectus which complies with therequirements of the Companies Act 1994and the Securities and ExchangeCommission Act 1993.

• Minimum of 7 members and no maximumlimit.

• Must have at least 3 Directors.

• A private limited company can beconverted into a public limited company.


Foreign Exchange Controls

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Overview

• On March 24, 1994 the Bangladesh Taka was declared convertible for current accounttransactions in terms of Article VIII of the IMF Articles of Agreement.

• Other than a few reserved sectors foreign investors are free to make investments inBangladesh in industrial enterprises either wholly owned or in collaboration with localinvestors.

• Non-residents (individual & institutions) are free to investment in shares listed on localstock exchanges with foreign exchange brought into Bangladesh.

• Shares in private limited companies may also be allotted to foreign investors.• Non-resident shareholders can freely transfer shares to other non-residents.

Remittance of Profits/Dividend/Capital Gains

• Branch offices of foreign companies including banks and insurance companies are freeto remit their post tax profits to country of origin without prior approval of the centralbank. Other Branch offices require specific approval.

• Dividend income and capital gains on shares listed on a stock exchange is can befreely remitted if such investment was made through a Non-Resident Investors TakaAccount.

• Remittance of sale proceeds of private limited companies require prior central bankapproval. Dividend remittance to foreign shareholder does not require prior approval.


Foreign Exchange Controls contd.

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Remittance of Royalty/Technical Know-How Fees

• Such fees may be remitted without prior approval if total fees and other expenses ifthey do not exceed:

a) 6% of the previous year’s sales as declared in the tax return, orb) 6% of the cost of imported machinery if it is a new project.

• Such agreements must be pre-registered and approved by the Board of Investment.

Remittance of Training & Consultancy

• Such fees may be remitted without prior approval of the central bank upto 1% of theirsales as declared in the previous years tax return.

Remittance by Shipping Lines/Airlines/Courier Companies

• Such entities may remit funds collected in Bangladesh towards freight and passageafter adjustment of local costs.

Remittance of Salaries & Savings by Expatriate Employees

• Foreigners employed in Bangladesh may freely remit 50% of their salary and actualsavings and admissible retirement benefits without prior approval.


Reserved Industries

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Foreign investment is not encouraged in the following fiveindustries:

a) Arms, ammunitions and other defence equipment and machinery.b) Production of nuclear energy.c) Forest plantation and mechanized extraction within bounds of

reserved forests.d) Security printing (currency notes) and minting.e) Air transportation and railways.

Foreign investment may be possible with prior approval/clearance ofthe government.


Taxation

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Income Tax

Individuals/Sole Proprietorship/Partnerships

• Deemed to be resident if one stays intaxable territory:o For 182 days or more in an income yearo 365 days consecutively within previous

4 years and a minimum of 90 days incurrent income year.

• Non-residents are required to pay flat rateof 30% on total income and are notentitled to any tax rebates.

• Tax year stretches from 1 July to 30 June.• Returns must be filed by 30 November.

Companies

• Generally all companies incorporated inBangladesh are deemed to be resident. Acompany whose control and managementis situated wholly in Bangladesh will beresident for tax purposes.

• Tax return must be filed within six monthsfrom end of accounting year or following15 July whichever is later.

• Returns must be accompanied by auditedfinancial statements.

• Foreign source income of companiesresident in Bangladesh is included intaxable income but credit is given for taxpaid outside Bangladesh.

• Foreign source income of non-residentcompanies are not taxed in Bangladesh.


Taxation

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Income Tax Rates - Individual

• First Tk. 250,000 for resident males is tax free.• First Tk. 300,000 for resident female and taxpayers over 65 years is tax free.• First Tk. 400,000 for disabled taxpayers is tax free.• Minimum tax payable is Tk. 5,000

Resident

Total Income Tax Rate

First Tk. 250,000 Nil

Next Tk. 400,000 10%

Next Tk. 500,000 15%

Next Tk. 600,000 20%

Next Tk. 3,000,000 25%

On the balance 30%

Non -Resident

30% Flat Rate


Taxation

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Income Tax Rates - Companies

DetailsTaxRate

Companies listed with a local stock exchange (other than banks, insurance companies, financial institutions, jute, textile, garment industries and mobile phone operators)

25%

Private limited companies including branch offices (other than banks, insurancecompanies , financial institutions, jute, textile, garment industries and mobile phoneoperators)

35%

Banks, insurance companies and other financial institutions other than merchant banks 40%

Banks, insurance companies and other financial institutions other than merchantbanks, if publicly listed and obtained approval from government after 2013.

37.5%

Merchant Banks 37.5%

Cigarette Manufacturers 45%

Mobile phone operators (unlisted) 45%

Mobile phone operators (listed in Bangladesh by issue of at least 10% shares topublic)

40%


Taxation

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Income Tax Rates – Reduced rates applicable to certain companies

DetailsTaxRate

Textile Industries (valid till 30 June 2019) 15%

Jute Industries (valid till 30 June 2019) 10%

Co-operative societies, registered under Co-operative Societies Act 2001 15%

Private Universities, medical colleges, dental colleges, engineering colleges engaged inimparting education and co-operative society registered under Society Act 2001.

15%

Software & IT Enabled Companies (member of BASIS) (valid till June 2024) Exempt


Taxation

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Capital Gains Tax

Details Tax Rate

Capital gain from transfer of stocks and shares of public limitedcompanies listed with stock exchange except listed govt. securities:• For companies and firms

• Sponsor shareholders or directors

• Other shareholders holding 10% or more at anytime during the year

• Capital gains tax for non-resident shareholders

10%

5%

5%

10%

In case of company, regardless of period of holding of asset 15%

In case of individual:• If asset is transferred before expiry of 5 years from date of acquisition the capital gains will be

taxed at the usual rate applicable to the total income including the capital gains.• If asset is transferred after expiry of 5 years from date of acquisition the capital gains will be

taxed at the usual rate applicable to the total income including the capital gains or at the rateof 15% on the amount of capital gains whichever of the two is lower.


Taxation

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Tax on Dividend/Remittance of Profit

Details Tax Rate

Withholding tax rate on dividend payable to another company 20%

Withholding tax rate on dividend payable to a resident other than acompany (subject to individual having E TIN number)

10%/15%

Withholding tax rate on dividend payable to non resident individual 30%

Branch Office remitting profit to Head Office shall withholdDepends on

DTA

Dividend payable to a shareholder resident in a country with whichBangladesh has signed a double taxation treaty, the rate mentioned inthe treaty will apply.


Taxation

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Value Added Tax (VAT)

• VAT is imposed on goods and services at stages of import stage, manufacturing, supply,and trading.

• VAT is imposed on services provided in Bangladesh and also on the services renderedfrom outside Bangladesh.

• A uniform VAT rate of 15% is applicable for both goods and services;

• A registered person is entitled to claim back the VAT paid on purchase of inputs subjectto compliance with the provisions of VAT laws.

• 15% VAT is applicable for all business or industrial units with an annual turnover of Tk. 8million and above, except in the cases specified.

• Turnover tax at the rate of 3% is leviable where annual turnover is less than Tk. 8million.

• Truncated rate also applied in the cases specified by VAT laws which has beendetermined on the basis of assumed percentage of value addition.


Countries having DTA with Bangladesh

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1. UK2. Singapore3. Sweden4. Republic of Korea5. Canada6. Pakistan7. Romania8. Sri Lanka9. France10. Malaysia11. Japan12. India13. Germany14. The Netherlands15. Italy16. Denmark

17. China18. Belgium19. Thailand20. Poland21. Philippines22. Vietnam23. Turkey24. Norway25. USA26. Indonesia27. Switzerland28. Oman (air traffic only)29. Mauritius30. Myanmar31. United Arab Emirates

ACE Advisory, a partnership firm registered in Bangladesh. 25

ACE Advisory House – 540/5, Road – 12 (West) Baridhara DOHSDhaka – 1206 Bangladesh Tel :+88 019 5550 8855

:+88 096 1382 1010Web : www.aceadvisory.biz

Contact

Seezan Choudhury Montakim Ahmed Partner PartnerTel : +880 19 2929 6262 +880 173 035 7157 Email : [email protected] [email protected]

mailto:[email protected]

mailto:[email protected]

Documents

A Brief Guide - ACE Advisoryaceadvisory.biz/wp-content/uploads/2018/07/3-ACE... · ACE Advisory, a partnership firm registered in Bangladesh. Disclaimer The content of this guide