Laws & Policies of Investment in Bangladesh

Bangladesh actively seeks foreign investment, particularly in apparel, power, oil and gas, and infrastructure projects. It offers a range of investment incentives under its industrial policy and export-oriented growth strategy with few formal distinctions between foreign and domestic private investors.

Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Four sectors, however, are reserved for government investment:

• Arms and ammunition and other defence equipment and machinery;
• Forest plantation and mechanized extraction within the bounds of reserved forests;
• Production of nuclear energy;
• Security printing.

The Bangladesh Investment Development Authority (BIDA) is the principal authority tasked with promoting supervising and promoting private investment. In addition to BIDA, Bangladesh Export Processing Zone and Bangladesh Economic Zone Authority are also vested with the same roles and authorities, within their Export Processing Zone and Economic Zone.

For foreign direct investment, there is no limitation pertaining to foreign equity participation and except few sectors, 100% foreign equity is allowed.

Right to issue and transfer shares-

No permission of the Bangladesh bank is needed to set up such ventures if the entrepreneurs use their own funds. Prior permission of Bangladesh Bank is not required for issue of shares in favour of non- resident against foreign investment in Bangladesh. Shares may be issues against freely convertible foreign exchange brought in from abroad through the banking channel or against the import of capital machinery or combination of both. Foreign exchange thus brought in must be enchased in taka before issuance of shares except in the case of Type A ( fully foreign owned)  and Type B units ( Joint Venture) of EPZ’s and EZs wherein equity in FC bright from abroad may be retained in FC accounts of the units concerned. 

Transfer of Bangladeshi shares and securities from one shareholder to another shareholder irrespective of their nationality/ residency would not require Bangladesh Bank Approval. In case of transfer of shares in a private/ public ( not listed) between resident- non-resident or vice versa, a general intimation to Bangladesh Bank is required through Authorised Bank within 14 days of such transaction.

Prior approval of Bangladesh Bank is required for repatriation of sales proceeds of non- residents equity investment in private/public ltd co (not listed). There being no established market price for such investment, Bangladesh Bank will accept a fair value of the shares as on the date of sale based on an appropriate combination of three valuation approaches (NAV; FMV and DCF), depending on the nature of the company. 

Full repatriation of Dividend, Investment and Income-

Full repatriation of capital invested from freeing sources will be allowed. Similarly, profits and dividend accruing to foreign investment may be transferred in full. If foreign investors reinvest their reparable dividends and/or retained earnings, those will be treated as a new investment. Foreigners employed in Bangladesh are entitled to remit up to 50 per cent of their salary and will enjoy facilities for full repatriation of their saving s and retirement benefits.

Laws for the Protection of Foreign Investment in Bangladesh

The government assures protection against nationalization and expropriation through the Foreign Private Investment Act of 1980 which inclusively assures the repatriation of capital and dividend for foreign investors. Bangladesh has also made adequate legislative provisions to protect intellectual property rights.

In supplement to the Foreign Private Investment Act of 1980, the government has established an FDI Policy (Foreign Direct Investment Policy) advocating a simple yet efficient mechanism for investing in Bangladesh. The policy eases setting-up businesses by simplifying the process of leasing and buying private land, incorporating an entity, allowing a corporate tax holiday for 7 years (15 years in the power sector) and implementing an exemption of income tax of foreign employees for up to 3 years in some respects.

Visa, Work Permit, Citizenship-

Prospective international investors may apply for visas for periods ranging from one month to five years. Foreign workers must obtain a work permit from BIDA/BEZA/BEPZA.  The number of expatriate employees in an industrial enterprise cannot exceed the ratio of 1:20 (foreign: local) for industrial settings and 1:5 (foreign: local) for commercial establishments. Citizenship is possible, subject to an investment of USD 1 mln or fixed deposit of USD 2 mln in a scheduled bank. It is also possible to obtain NO Visa Requirement for Investors for investments of more than USD 10 mln.

Dispute Settlements-

In cases of disputes, alternative dispute resolutions are possible under the Arbitration Act of 2001. Bangladesh has signed the International Convention for the Recognition and Enforcement of Foreign Arbitral Awards. Bangladesh is also a member of the International Centre for Settlement of Investment Disputes (ICSID). The current legislation also allows the enforcement of foreign arbitral awards without much hindrance. Although venturing in a business may be daunting, Bangladesh offers investors a stable and resourceful environment suitable for the establishment or expansion of any business, and after much consideration, it can be stated that Bangladesh is, in fact, a “dream investment destination.”[1]

Avoidance of Double Taxation          

Bangladesh has executed Avoidance of Double Taxation Agreements (DTA) with many countries including China. According to Article 4(2) of the DTA, if someone is a habitual in both contracting States ( Bangladesh & China) or in neither of them, he shall be deemed to be a resident of the contracting state of which he is a national and the competent authorities of the contracting states shall settle the question by mutual agreement.

Business Profit: The profit of an enterprise of a contracting state shall be taxable only in that state unless the enterprise carries on business in the other contracting state through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profit of the enterprise may be taxed in the other contracting state, but only so much of them as is attributable to that permanent establishment. (Art 7 of avoidance of double taxation agreement)

Dividends: Dividends paid by a company which is a resident of a contracting state to a resident of the other contracting state may be taxed in that other state. However, such dividend may also be taxed in the contracting state of which the company paying the dividends is a resident and according to the laws of that state but if the recipient is the beneficial owner of the dividend the tax charged shall not exceed 10% of the gross amount of such dividends. (Art 10 of avoidance of double taxation agreement)

Interest: Interest arising in contracting state and paid to a resident of the other contracting state may be taxed in the other state. However, such interest may also be taxed in the contracting state in which it arises and according to the laws of that state, but if the recipient is the beneficial owner of the interest, the tax so charged shall not exceed 10% of the gross among of the interest. (Art 11 of avoidance of double taxation agreement).

Capital Gain: Gains derived by a resident of a contracting state from the alienation of immovable property referred to in Art 6 and situated in the other contracting state may be taxed in that other contracting state. (Art 13 of avoidance of double taxation agreement)

Art 23 Elimination of Double Taxation

In China double taxation shall be eliminated as follows:

a) Where a resident of China derives income from Bangladesh, the amount of tax on that income payable in Bangladesh in accordance with the provisions of this agreement may be credited against the Chinese tax imposed on that resident. The amount of credit, however, shall not exceed the amount of the Chinese tax on that income computed in accordance with the taxation laws and regulations of China.

b) where the income derived from Bangladesh is a dividend paid by a company which is a resident of Bangladesh to a company which is resident of China and which owns not less than 10% of the shares of the company paying the dividend, the credit shall take into account the tax paid to Bangladesh by the company paying the dividend in respect of its income.

Bilateral Investment Treaties

Bangladesh has signed Bilateral Investment Treaties (BIT) and Trade Agreements (TA) with many nations, including with China. Typical provisions found in BITs are clauses on the standards of protection and treatment of foreign investments, usually addressing issues such as fair and equitable treatment, full protection and security. Provisions on compensation for losses incurred by foreign investors as a result of expropriation or due to war and strife usually also form a core part of such agreements. Most IIAs additionally regulate the cross-border transfer of funds in connection with foreign investments. BITs also include a provision on investor-State dispute settlement. Usually, this gives investors the right to submit a case to an international arbitral tribunal when a dispute with the host country arises. Common venues through which arbitration is sought are the International Centre for Settlement of Investment Disputes (ICSID), the United Nations Commission on International Trade Law (UNCITRAL) and the International Chamber of Commerce (ICC).