Foreign Investment in Bangladesh
We prepared this article with a view to assist foreign individuals and companies who are considering investing in Bangladesh. We will provide you with a brief idea about the types of business organization available to foreign investors and repatriation of profit, two of the primary concerns of the foreign investors. We will also cover funding of business in Bangladesh.
ENTRY OPTIONS INTO BANGLADESH
When a foreign investor decides to set up a business in Bangladesh, there are three options:
- Liaison Office (which does not have legal personality itself):
- Branch Office (which does not have legal personality itself); and
- Locally registered company (being a separate entity with legal personality).
LIAISON OFFICE
Foreign companies may open their Liaison Offices in Bangladesh (subject to obtaining specific approval from Bangladesh Investment Development Authority) for undertaking liaison activities on their behalf. These Liaison Offices act as a communication channel between the foreign companies and the Bangladeshi customers. Such offices are normally established by foreign companies to promote their business interests in the country by spreading awareness of their services/products and exploring their opportunities for setting up a permanent presence. A Liaison Office also requires registration with the Registrar of Joint Stock Companies and Firms.
A Liaison Office is not allowed to undertake any business activities therefore, cannot earn any income in Bangladesh, under the terms of approval granted by the Bangladesh Investment Development Authority (BIDA). All setup and operational costs including salaries of the expatriates and local employees of the Liaison Office will have to be borne by the parent company abroad through inward remittance of foreign exchange. No outward remittances of any kind from Bangladesh will be allowed except the amount brought in from abroad (the unspent part).
A Liaison Office in Bangladesh is permitted to undertake the following activities:
- maintain liaison/ coordination between principal and local agents, distributors/exporters’ institutions through correspondences, personal contracts and other electronic media.
- collect, compile analyze and disseminate business information related to its field of activities as mentioned in the approval letter.
Just to avoid confusion, both Representative Office and Liaison Office refers to the same thing in Bangladesh.
BRANCH OFFICE
A Branch Office is a 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 broader scope of activities subject to prior approval of BIDA.
A Branch Office cannot undertake any activity in Bangladesh that is not explicitly permitted by BIDA. A Branch Office is also required to register itself with the Registrar of Joint Stock Companies and Firm and comply with certain procedural formalities prescribed under the Companies Act.
A Branch Office provides the advantages of ease in operation and an uncomplicated closure. However, since the operations are strictly regulated by exchange control guidelines, a Branch May not provide a foreign company with the most optimum structure for its expansion/diversification plans.
LOCALLY REGISTERED COMPANY
Foreign investors can setup 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.
In most sectors, prior approval of the government or any government agency is not required. Depending on the nature of activities, prior approval of the government may be required.
In comparison with Branch Office or Liaison Office, a subsidiary company provides maximum flexibility for conducting business in Bangladesh.
The subsidiary company incorporated under the laws of Bangladesh will be as domestic company for tax purposes.
RESTRICTION AND PRIOR APPROVAL
As we mentioned above, foreign investment is allowed in most sectors. In certain sectors, all kinds of investment are prohibited, whereas in some sectors prior approval of government is required.
Local as well as foreign investment is restricted in the following four sectors:
- Arms and ammunitions and other military equipment and machinery;
- Nuclear power;
- Security printing and minting; and
- Forestation and mechanized extraction within the boundary of reserved forest.
There are 17 controlled sectors which require prior clearance/ permission from the respective line ministries/authorities. These are:
- Fishing in the deep sea
- Bank/financial institution in the private sector
- Insurance company in the private sector
- Generation, supply and distribution of power in the private sector
- Exploration, extraction and supply of natural gas/oil
- Exploration, extraction and supply of coal
- Exploration, extraction and supply of other mineral resources
- Large-scale infrastructure project (e.g. flyover, elevated expressway, monorail, economic zone, inland container depot/container freight station)
- Crude oil refinery (recycling/refining of lube oil used as fuel)
- Medium and large industry using natural gas/condescend and other minerals as raw material
- Telecommunication service (mobile/cellular and land phone)
- Satellite channel
- Cargo/passenger aviation
- Sea-bound ship transport
- Sea-port/deep sea-port
- VOIP/IP telephone
- Industries using heavy minerals accumulated from sea beach
FUNDING OF BANGLADESHI BUSINESSES
EQUITY SHARE CAPITAL
Issuing equity shares is the conventional means of funding a local Bangladeshi subsidiary. The amount of equity capital a company can issue is limited by the authorized capital specified in the Memorandum of Association of a company. A company can increase its authorized capital only if permitted by its Articles of Association. Equity capital can be repatriated on liquidation or on transfer of shares.
BORROWINGS
Companies may borrow money from both local and foreign sources. Borrowing from foreign sources may require prior approval of Bangladesh Bank or BIDA.
REPATRIATION OF FUNDS
Foreign capital invested in Bangladesh is generally allowed to be repatriated along with profit, if any, after the payment of taxes due on them.
DIVIDENDS:
Profits and dividends earned in Bangladesh are repatriable after the payment of taxes due on them. No permission of Bangladesh Bank is necessary for effecting remittance, subject to compliance with certain specified conditions. No prior approval is required to remit profits earned by Bangladeshi branches of companies (other than banks) incorporated outside Bangladesh to their Head Offices outside the country.
ROYALTY, TECHNICAL KNOWHOW OR TECHNICAL ASSISTANCE FEES, OPERATIONAL SERVICES FEES, MARKETING COMMISSION ETC.
Bangladeshi companies can enter into agreements for royalty, technical know-how or technical assistance, operational services, marketing with foreign companies. These companies are permitted to remit payments towards technical know-how and royalty under the terms of the foreign collaboration agreement, subject to certain limits.
TRAINING AND CONSULTANCY SERVICES
Bangladeshi companies producing for local markets may remit up to a certain limit of annual sales as declared in their previous years’ income tax return to meet the costs of training and consultancy services as per relevant contract with the foreign trainer/consultant. Source: ogrlegal.com
