DOING BUSINESS IN BANGLADESH

BANGLADESH is one of south Asia’s leading investment destinations for companies relocating and developing their global business. Here are some of the reasons why:

  • Bangladesh is a World leader in RMG innovation
  • It is one of the easiest places to set up and run a business in World
  • There is a low tax rate environment for foreign investors
  • It has one of the most flexible labour markets in the World
  • Bangla is mother language and English is the international language of business
  • Outstanding transport links

MAIN TYPES OF UK BUSINESS ENTITIES

The most common way of doing business in Bangladesh is through a private and public limited company. Few public companies are publicly traded. Private/Public limited companies are owned by shareholders (individuals or other legal entities) and run by directors. They must be registered at Registrar of Joint Stock Companies & Firms (RJSCF) and meet the regulatory requirements detailed below.

To set up a limited company you need to:

Partnerships are very flexible. No formal agreement between partners is required although an agreement that indicates the individual’s profit sharing ratios is advisable.

Limited Liability Partnerships are run by members and not partners (as the title might suggest), they are governed by a member’s agreement. LLP’s are required to register with Joint Stock Companies & Firms (RJSCF)and prepare annual accounts in accordance with the Companies Act.

The easiest way to start a business in Bangladesh is to become a ‘sole trader’. This means that only you own the business and you can work alone or employ other people.

AUDIT AND REGULATORY ENVIRONMENT

Bangladesh law requires companies to keep adequate accounting records and to prepare accounts for each financial year which have to be filed at Joint Stock Companies & Firms(RJSCF), Tax & VAT authority, Bangladesh Securities & exchange Commission(BSEC) and Stock Exchanges.

In Bangladesh, all companies other than partnership and sole trader ship firm must have their accounts audited. For publicly listed companies, they need additional audit on corporate governance compliance.

Businesses offering financial services are subject to a regulatory system established by the Bangladesh Bank. Banking services are regulated by Bank Companies Act 1991 amended in 2013 and Non-Banking Financial Services are regulated by NBFI’s Act 1993 amended in 2013. Insurance services are regulated by Insurance Regulatory Authority and Bangladesh Insurance ACT 2010.

The Money Laundering Prevention Act 2012 came into force in May 2012. The regulations apply to a number of different sectors including financial and credit businesses, accountants and estate agents (please refer to https//www.bb.org.bd for more information)

The Data Protection Act 1998 requires every organization processing personal data to register with the ICO, unless they are exempt (please refer to http://ico.org.uk/for_organisations for more information).

The Prevention of Corruption Act 1947 creates a offence under section 4 which can be committed by commercial organizations which fail to prevent persons associated with them from bribing another person on their behalf.

INDUSTRY INCENTIVES

Fiscal Incentives

  • Corporate tax holiday: 5 to 7 years for selected sectors and areas
  • Tax holiday for infrastructure investment: upto 10 years
  • Accelerated depreciation on cost of machinery for new industries in lieu of tax holiday
  • Avoidance of double taxation under bilateral tax convention
  • Tariff concessions on import of capital machinery
  • Tariff concessions on import of raw materials of the export oriented industries
  • Bonded warehousing facility

Cash & Other Incentives

  • Cash incentives and export subsidies ranging from 5% to 20% on the FOB value of selected products:
  • Low interest rate Funds (LIBOR+/- 2.50%) for export promotion, export credit guarantee scheme, permission for domestic sales up to 20% by export-oriented companies outside EPZ.
  • Remittance of royalty, technical know-how and technical assistance fees
  • Citizenship by investing a minimum of US$ 5,00,000
  • Permanent resident permits on investing US$ 75,000
  • And many more .....

Financial incentives:

  • Businesses exporting 80% or more of goods or services
  • Reduced import duty on machinery & spares(1% for export oriented industries and 3% for other industries)
  • Export credit guarantee scheme
  • Domestic market sales up to 20% allowed to export-oriented companies outside EPZ (relevant duties apply)
  • Cash incentives and export subsidies (on the FOB value)
  • 5% for export oriented local textiles (instead of duty drawback and custom bond), 5% in ship building, SME in textile industry, 10% on frozen shrimp, 7.5% for Jute thread, 10% for jute products, light engineering products, 10% PET flex, 15% for export of bone powder, 12.5% frozen fish, potato, 15% - 20% for hand made products using straw, sugarcane extract, 15% for leather products, and 17.5% for bicycles. 20% for agro-processing and agricultural produce, 20% on potato export, handicrafts made of straw sugarcane straw0, 20% for halal meat.

Tax-related benefits

Customs

  1. 0% and 1% customs duty rate is in force for the import of industrial capital machinery and spare parts. (SRO-135 of 2015)
  2. Special concessionary customs duty rate applies to the import of raw materials for industrial sectors like Ship-Building Industry (SRO-150 of 2013 and 137 of 2015), Pharmaceuticals Industry (SRO-122 of 2014 and 140 of 2015), Textile Industry (SRO-178 of 2010 and 159 of 2015), Toys Manufacturing Industry (SRO-145 of 2015), Telecommunication Industry (SRO-158 of 2008 and 143 of 2015), and Handloom Industry (SRO-146 of 2015).
  3. Raw materials, machinery and spare parts of poultry and dairy farms are exempted from customs duty. (SRO-160 of 2012, and 147 of 2013, SRO-138 and SRO 139 of 2015)
  4. Raw materials, machinery and spare parts of Solar Panel Manufacturing Plants are exempted from customs duty.(SRO-155 of 2004)
  5. Import of raw materials by Generator Producing and Assembling Industry is exempted from customs duty.(SRO-80 of 2007)
  6. Raw materials, machinery and spare parts imported by power generation plants are exempted from customs duty. (SRO-73 of 1997 and SRO-144 of 2015)
  7. Exemptions from customs duty are in force for raw materials, machinery and spare parts imported by Oil and Gas exploration and extraction companies, and also by CNG filling station. (SRO-146 of 2009 and SRO 176 of 2012)
  8. Medical equipments and medication materials are exempted from customs duty. (SRO-137 of 2009)
  9. Technical grades imported by the pharmaceutical raw materials producing industries are exempted from customs duty (SRO-261 of 2009).
  10. Specific utility goods imported by textile industry are exempted from customs duty. (SRO-145 of 2014 and 148 of 2015).
  11. Import of De-inking chemicals and waste paper by newsprint paper manufacturing industries is exempted from customs duty. (SRO-325 and 326 of 2000, and SRO-147 of 2015).
  12. Special concessionary customs duty rate is in force for the machineries and materials imported for the construction of residential hotels for the development of tourism sector. (SRO-50 of 2014 and 157 of 2015).
  13. Special concessionary customs duty rate is in force for the import of chemical materials by the leather industries. (SRO-169 of 2005 and 156 of 2015).
  14. Imports undertaken by 100% export-oriented industries are exempted from customs duty (First Schedule: Bangladesh Customs Tariff).
  15. Exports from Bangladesh are free from customs duty (First Schedule: Bangladesh Customs Tariff).
  16. Bonded facilities are available for 100% export-oriented industries, Deemed export-oriented industries, 100% Export-Oriented and Deemed export-oriented industries located within the limits of Govt. and Non-Government Export Processing Zones. (Bonded Warehouse Licensing Rules-2008).
  17. Apart from the cases mentioned above, all kinds of industrial imports enjoy special concessionary tax rates compared to commercial imports where a higher duty rate is in force. (First schedule: Bangladesh Customs Tariff)
  18. Government may offer other Customs duty related incentives to the investors by Gazette Notification.

VAT (Value Added Tax)

  1. Import of industrial capital machinery is exempted from VAT. (Customs SRO-135 of 2015)
  2. VAT exemptions are in force for the import of raw materials and machineries used in the production of Refrigerators, Freezers, and Motor Cycles. (VAT SRO-213 of 2010 and VAT SRO-332 of 2013).
  3. Glass tubes, Power saving bulb and its raw materials are exempted from VAT at the production stage. (VAT SRO-214 of 2010 and SRO-127 of 2015).
  4. VAT exemption is in force for raw materials and machineries of air-conditioners at the production stage.
  5. Iron materials imported by LP Gas cylinder manufacturing industries are exempted from VAT. (Customs SRO-179 of 2014)
  6. VAT is exempted on the import of raw materials for industrial sectors like Ship-Building Industry (Customs SRO-150 of 2013 and 137 of 2015), Textile Industry (Customs SRO-178 of 2010 and 159 of 2015), Toys Manufacturing Industry (Customs SRO-145 of 2015), and Handloom Industry (Customs SRO-146 of 2015).
  7.  Raw materials, machinery and spare parts of poultry and dairy farms are exempted from VAT. (Customs SRO-160 of 2012, and 147 of 2013, Customs SRO-138 and SRO 139 of 2015)
  8. Raw materials, machinery and spare parts of Solar Panel Manufacturing Plants are exempted from VAT.( Customs SRO-155 of 2004)
  9. Raw materials, machinery and spare parts imported by power generation plants are exempted from VAT. (Customs SRO-73 of 1997 and Customs SRO-144 of 2015).
  10. Exemptions from VAT are in force for raw materials, machinery and spare parts imported by Oil and Gas exploration and extraction companies, and also by CNG filling station. (Customs SRO-146 of 2009 and Customs SRO 176 of 2012).
  11. Medical equipments and medication materials are exempted from VAT. (Customs SRO-137 of 2009).
  12. VAT exemption is in force for the machineries and materials imported for the construction of residential hotels for the development of tourism sector. (SRO-50 of 2014 and 157 of 2015).
  13. Export-oriented industries are entitled to draw back the amount of VAT paid at the import stage of raw materials (The Value Added Rules, 1991).
  14. 0% VAT rate is applicable to exports from Bangladesh (Article-3 of Value Added Tax, 1991).
  15. Government may offer other VAT related benefits to the investors by Gazette Notification.

PRINCIPAL TAXES

The main business taxes that are levied in the Bangladesh are dealt with in turn below:

Individual Tax:

Individuals pay Income Tax on their earnings from all sources of income. Taxable sources of income are primarily from employment, self-employed income, income from partnerships, dividend income, bank interest and other investment income. Individuals that are Bangladesh resident pay tax on their worldwide earnings although their domicile status may affect the taxation of non-Bangladesh earnings. Generally individuals that are non-Bangladesh resident pay tax on their Bangladesh source income only.

Income tax is dealt with on a fiscal year basis that runs from 1st July to 30th June each year. Tax is collected at source from employment income and bank interest whilst other forms of income need to be reported annually on a tax return. Tax returns need to be filed by 30th November following the end of the tax year which is also the payment date.

Resident/Non-resident Bangladeshi Assesse:

Taxable Profits2015-20162016-20172017-2018 onwards
1st BDT 1 - 250,0000%0%0%   For Male
1st BDT 1 - 300,0000%0%0%  For female and above age 65 years
1st BDT 1 - 375,0000%0%0%   For handicapped person
1st BDT 1 - 425,0000%0%0%   For freedom fighters
Next BDT 400,00010%10%10%
Next BDT 500,00015%15%15%
Next BDT 600,00020%20%20%
Next BDT 3,000,00025%25%25%
Balance30%30%30%

Minimum Tax Limit:

Dhaka North & South City CorporationBDT 5,000,
Other City CorporationBDT 4,000,
Assesse other than city corporationBDT 3,000

Surcharge:

For individual assessee whose net wealth/assets/Net worth exceeds BDT 22,500,000 is liable to pay surcharge in addition to tax payable as per following rates:

Non-resident foreign Assess:

Taxable Profits2015-20162016-20172017-2018 onwards
Total Taxable Profit30%30%30%
Net Assets/Wealth/WorthRate of Surcharge
Up to BDT 22,500,0000 % of tax Liabilities,
More than BDT 22,500,000 upto BDT 50,000,00010 % of tax Liabilities
More than BDT 50,000,000 upto BDT 100,000,00015 % of tax Liabilities
More than BDT 100,000,000 upto BDT 150,000,00020 % of tax Liabilities
More than BDT 150,000,000 upto BDT 200,000,000 25 % of tax Liabilities
On next balance assets25 % of tax Liabilities

Corporation Tax

Taxable Profits 2015-2016 2016-2017 2017-2018 onwards
Publicly traded companies other than BFI’s, Cigarette manufacturer and mobile operating company 25% 25% 25%
Publicly traded BFIs 40% 40% 40%
Listed/Non-listed public company or private company cigarette manufacturer and mobile operator 45% 45% 45%
Publicly traded/private merchant bank 37.50% 37.50% 37.50%
Non-listed public company or private limited company or local authorities other than BFI’s, Cigarette manufacturer and mobile operating company 35% 35% 35%
Non-listed Public/private BFIs 42.50% 42.50% 42.50%
Co-operative society income 15% 15% 15%
Knitwear/Woven garments 35% 12% 15%
Textile Industries 15% 15% 15%

Poultry/Shrimp/Fisheries/Hatchery Industries: On 1st BDT 1,000,000

On Next BDT 2,000,000

On next Balance

3% 3%

3%

10% 10% 10%
15% 15% 15%
Private sector power generation company will setup by 2020 Exempted upt 15 years of production
Dividend Tax 20% 20% 20%

Read more…

Corporation Tax is levied on the taxable profits of companies that are incorporated in Bangladesh or non-resident companies that trade in Bangladesh via some form of permanent establishment (such as a branch). Bangladesh resident Companies pay Corporation Tax on their worldwide income (which can be subject to double tax relief) whilst non-resident companies will only pay tax on income arising in Bangladesh.

Corporation Tax rates are set on a fiscal year basis that runs from 1 July to 30 June each year. A summary of the rates over recent years and as set for future years (albeit potentially subject to change) are indicated in the table above.

Taxable profits are accounts profits as adjusted for tax legislation. The above bands are reduced where there are companies under common control to avoid an advantage being gained by establishing multiple companies.

An assesse being a company or individual earned taxable profit more than BDT 600,000 has to pay advance tax on the basis of latest assessed income payable in four equal quarterly instalments on the 15th day September, December, March and June. Bangladesh follows uniform income year end(June 30) for all companies other than BNF’s and Insurance Companies (December 31). All companies are required to submit their Corporation Tax returns by tax day (January 31) after the end of the accounting period. For individual tax return are required to submit by November 30

Any company making a taxable loss can carry the loss back 12 months to recover tax previously paid and any losses that are not carried back can be carried forward to set against future income from the same source upto 6 years.

Indirect Tax (VAT or Sales Tax)

  • Standard rate 15%
  • Reduced rate 3% to 7.50%
  • Turnover threshold currently BDT 1,5000,000 Read more…

Value Added Tax (VAT) is a tax that is ultimately levied on consumer expenditure as businesses registered for VAT must charge VAT on their sales but can recover VAT that they have suffered themselves (such that the end consumer suffers the net cost). Bangladesh established businesses are not required to register (and therefore account for) VAT unless their taxable turnover exceeds the registration threshold, which is currently set at BDT 1, 5000,000. Non Bangladesh businesses that trade in the Bangladesh may also need to register but must do so immediately and cannot wait until they exceed the threshold.

The current standard rate of VAT in the Bangladesh is 15% which applies to most goods and services (although there are a small number of items that qualify for a reduced rate of 3% to 7.50%). There are a number of categories of items that are either zero rated or exempt from VAT, in either case no VAT is charged. A seller making entirely zero rated sales may recover the VAT on their purchases whilst someone making exempt sales will not necessarily be entitled to recover all VAT suffered.

Sales outside the Bangladesh are likely to have no VAT charged as VAT is a tax that essentially operates across Bangladesh. Sales across Bangladesh borders are subject to complex place of supply rules.

Assessee Types Rate of CGT
For Company 15%
For individual-transferred property after 5 years of acquisition General rate or 15% whichever is lower
For individual-transferred property before 5 years of acquisition General rate

              

Read more…

Individuals/companies gains and losses made from the sale of capital assets (for example property and shares) are dealt with Income Tax) rules. Individuals have to retain fixed assets upto five years after acquisition to get threshold capital tax rate 15%, otherwise capital gain should be taxed according to individual general tax rates.

Capital gains in the hand of a company will be taxed as a block of income separate from other income of the assesse company at a flat rate of 15% regardless of the period of holding of the asset from the date of its acquisition.