FOREIGN INVESTMENT IN BANGLADESH
Foreign Investment in Bangladesh and entries to business
We wrote this essay to help foreign individuals and corporations who are considering investing in Bangladesh. We will provide you a brief overview of the several types of business organizations available to foreign investors, as well as profit repatriation, which is one of their key worries. We will also provide finance for businesses in Bangladesh.
ENTRY OPTIONS IN BANGLADESH
When a foreign investor wishes to establish a firm in Bangladesh, they have three options:
There are three types of offices: liaison offices, branch offices, and locally registered companies. Liaison offices lack legal personality, but branch offices possess.
LIAISON’S OFFICE
Foreign corporations may open Liaison Offices in Bangladesh (with appropriate approval from the Bangladesh Investment Development Authority) to conduct liaison activities on their behalf. These Liaison Offices serve as a communication link between foreign companies and Bangladeshi clients. These offices are typically formed by foreign corporations to promote their business interests in the country by raising awareness of their services/products and exploring prospects for establishing a permanent presence. A Liaison Office also needs to be registered with the Registrar of Joint Stock Companies and Firms.
Under the conditions of the Bangladesh Investment Development Authority’s (BIDA) permission, a Liaison Office is not permitted to engage in any business activity and hence cannot generate any money in Bangladesh. All setup and operational costs, including pay for expats and local staff at the Liaison Office, will be funded by the parent firm abroad via inward repatriation of foreign cash. No outgoing remittances from Bangladesh will be permitted, with the exception of the sum brought in from overseas (the unspent portion).
A Liaison Office in Bangladesh is permitted to carry out the following activities:
Maintain liaison/coordination with principal and local agents, distributors/exporters’ institutions via mail, personal contracts, and other electronic means.
gather, assemble, analyze, and publish business information relevant to its sphere of activity, as specified in the approval letter.
To minimize confusion, both Representative Office and Liaison Office mean the same thing in Bangladesh.
This article explains how to set up a Liaison Office in Bangladesh.
BRANCH OFFICE
A Branch Office is an extension of a foreign corporation in Bangladesh. To conduct business in Bangladesh, foreign corporations may build branch offices. Unlike a Liaison Office, a Branch Office can carry out a greater range of activities with BIDA’s prior clearance.
A Branch Office cannot carry out any activity in Bangladesh that is not expressly approved by BIDA. A Branch Office must also register with the Registrar of Joint Stock Companies and Firms and follow certain procedural requirements outlined in the Companies Act.
A Branch Office offers the advantages of ease of operation and simple closure. However, because operations are heavily governed by exchange control regulations, a Branch may not provide a foreign firm with the best structure for its expansion/diversification ambitions.
This article explains how to set up a Branch Office in Bangladesh.
LOCALLY REGISTERED COMPANY.
Foreign investors can establish subsidiaries in Bangladesh as private or public limited corporations. Most sectors allow for 100% foreign ownership. Foreign investors may also establish joint ventures with local or foreign partners.
Most sectors do not require prior clearance from the government or any government body. Depending on the nature of the operations, prior government approval may be required.
In opposed to a Branch Office or a Liaison Office, a subsidiary firm provides the most freedom for conducting business in Bangladesh.
The subsidiary company created under Bangladeshi legislation will be treated as a domestic corporation for tax purposes.
This article explains how to start a business in Bangladesh.
Restriction and Prior Approval.
As previously stated, foreign investment is permitted in most sectors. Certain industries forbid all types of investment, while others require prior government clearance.
Local and international investment are banned in the following four sectors:
This includes military equipment and machinery, nuclear power, security printing and minting, and forested areas with automated extraction.
There are 17 restricted sectors that require prior approval/permission from the appropriate line ministries/authorities. They are:
- Fishing in deep water
- Bank or financial institution in the private sector
- Insurance company in the private sector
- Private-sector power generation, supply, and distribution
- Exploration, extraction, and delivery of natural gas or oil
- The exploration, extraction, and supply of coal
- Exploration, exploitation, and production of additional mineral resources
- Large-scale infrastructure project (e.g., flyover, elevated highway, monorail, economic zone, inland container depot or container freightstation)
- Crude oil refinery (the recycling/refining of lubricating oil used as fuel)
- Medium and big industries use natural gas/condensate and other minerals
- as raw materials.
- Telecommunication services (mobile/cellular and landline)
- Satellite Channel
- Cargo/Passenger Aviation
- Sea-bound ship transport
- Seaport/Deep Sea Port
- VOIP/IP Telephone
- Industries using heavy materials gathered on the sea shore.
Funding for Bangladeshi Businesses through Equity Share Capital. - Issuing equity shares is the traditional method of funding a local
- Bangladeshi subsidiary. A company’s permitted capital is established in its
- Memorandum of Association, which limits the amount of equity capital it can issue. A company’s authorized capital can only be increased if its
- Articles of Association allow for it. Equity capital can be repatriated upon liquidation or transfer of shares.
BORROWINGS
Companies can borrow money from both domestic and overseas sources. Borrowing from international sources may require prior approval from Bangladesh Bank or BIDA.
REPATRIATION OF FUNDS
Foreign capital invested in Bangladesh is normally permitted to be repatriated, along with any profit, following the payment of applicable taxes.
DIVIDENDS:
Profits and dividends earned in Bangladesh can be repatriated after paying the applicable taxes. Remittances can be made without the need for Bangladesh Bank clearance, if certain conditions are met. Profits earned by Bangladeshi branches of corporations (except banks) incorporated outside Bangladesh can be remitted without prior clearance to their Head Offices outside the country.
ROYALTY, TECHNICAL KNOWHOW OR ASSISTANCE FEES, OPERATIONAL SERVICES FEES, MARKETING COMMISSION, AND SO ON.
Bangladeshi enterprises can enter into royalty, technical know-how or support, operational services, and marketing agreements with foreign companies. These companies are allowed to remit payments for technological know-how and royalties under the provisions of the international partnership agreement, subject to certain restrictions.
TRAINING AND CONSULTATION SERVICES.
Bangladeshi enterprises producing for local markets may remit up to a specified amount of annual sales as indicated in the previous year’s income tax return to cover the costs of training and consultancy services under the relevant contract with the overseas trainer or consultant.