Procedure of Foreign Investment in Bangladesh | Law, Policy, Direct, Angel, Rules, Policy- Everything you need to know in 21st century

Procedure of Foreign Investment in Bangladesh | Law, Policy, Direct, Angel, Rules, Policy- Everything you need to know in 21st century

Procedure of Foreign Investment in Bangladesh 2020| Law, Policy, Direct, Angel, Rules, Policy- Everything you need to know about Foreign Investment in 21st century Bangladesh

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Tahmidur Rahman
 Director and Senior Associate, Counsels Law Partners

17 Jan 2020

Procedure of foreign investment in Bangladesh: Leading up to initiating a major investment , investors needs to navigate the basic legal policies on investment law in Bangladesh. Bangladesh is one of the easiest countries in the world to do business with straightforward regulation, a well-respected legal system and low entry barriers. Entrepreneurship is also massively respected and encouraged in the country.

Despite this welcoming atmosphere and a lack of red tape, difficult choices and decisions need to be taken at an early stage, and this article describes everything you need to know about the Procedure of foreign investment in Bangladesh.

Foreign Investment Policy in Bangladesh & Procedure of foreign investment in Bangladesh

 

The Government of Bangladesh has put in place a wide range of policies aimed at bringing substantial socio-economic changes to the citizens of Bangladesh and, eventually, self-reliance to the country, which would in turn pave the way for seamless procedure of foreign investment in Bangladesh.

In recognition of the capacity of the private sector to contribute to the achievement of these objectives, the government has recently initiated a number of major policy reforms, which are planned to create a more transparent and competitive environment for foreign investment in Bangladesh.

In order to achieve the goal of accelerating industrial growth and increasing the share of industry in the Gross Domestic Product ( GDP) and to make industrial policy sensitive to changes in the global economy, the current government announced an Industrial Policy in 1999. 

 The core characteristics of the 1999 industrial strategy are as follows: 

  • To draw foreign direct investment in Bangladesh,  both export and domestic market-oriented industries to compensate for the lack of domestic investment opportunities and to acquire emerging technology and to gain access to export markets, so that the Procedure of foreign investment in Bangladesh bangladesh gets even easier.
  • To ensure the sustainable growth of industrial jobs by promoting investment in labour-intensive manufacturing sectors, including investment in productive small and cottage sectors.
  • Diversifying and increasingly increasing the production of manufacturing.
  • Coordinate economic and fiscal policies to inspire a growth in foreign investment in Bangladesh.
  • Promote the competitive strength of import substituting industries for catering to a rising domestic market.
  • To increase the production base of the economy by increasing the pace of industrial investment to ease the procedure of foreign investment in Bangladesh .
  • Promote the private sector to drive the development of industrial production and investment and making the Procedure of foreign investment in Bangladesh way easier.
  • Emphasis on the role of the government as a facilitator in creating an enabling environment for the expansion of private investment and the procedure of foreign investment in Bangladesh.

Investment Structures in Bangladesh and Procedure of foreign investment in Bangladesh

Bangladesh offers generous opportunities for investment under its relaxed Industrial Policy and export-oriented, private sector-led growth strategy. Except for the previously stated reserved sectors, foreign investors are free to make investments in Bangladesh in industrial enterprises.

In regards to Procedure of foreign investment in Bangladesh, Foreign companies wishing to do business or establish a presence in Bangladesh have a number of options.

1.  Foreign Direct Investment in Bangladesh

FDI (foreign direct investment in Bangladesh) in industrial or construction projects must be registered with the Bangladesh Investment Development Authority (BIDA).

BIDA, formerly known as the Investment Board, was formed by the Bangladesh Investment Development Authority Act 2016 to deal with issues related to FDI and to promote investment in Bangladesh.

The foreign direct investment (FDI) inflow at the end of June 2018 amounted to USD 2.58 billion (foreign investment in Bangladesh stats, Bangladesh bank).

The Bangladesh Investment Development Authority (BIDA) announced an impressive 13.34% rise in FDI in the third quarter of 2018, receiving proposals worth USD 3.23 billion over the same period, suggesting strong interest on the part of foreign investors.

The key objective of BIDA is to encourage domestic and foreign investment as well as improve Bangladesh’s international competitiveness. BIDA also provides the necessary facilities and assistance for the establishment of industries.

In regards to the Procedure of foreign investment in Bangladesh, determining the route of investment usually depends on the specific sector and the policy of the FDI adopted by the Government in regards to foreign investment in Bangladesh. 

2. Wholly owned subsidiaries in Bangladesh

Foreign companies are allowed to create wholly-owned subsidiaries in Bangladesh. Such companies may be known as private limited or public limited companies. Foreign equity ownership can be up to 100% in most sectors, including construction, information technology and production.

Foreign entities can acquire an existing Bangladeshi company or incorporate a new company that complies with the requirements of the Registrar of Joint Stock Companies and Firms (RJSC). Subsidiaries are entitled to remit dividends reported on income after tax.

3. Joint Ventures in Bangladesh (Foreign Investment in Bangladesh)

As with wholly-owned subsidiaries, international companies can have joint venture companies with Bangladeshi partners. The equity ownership of a foreign corporation would depend on the sector in which it is invested.

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4. Setting up a Branch or Liasion offices in Bangladesh for foreign investors

International companies can also create a presence in Bangladesh through a representative office, liaison office or branch office for the purpose of foreign investment in Bangladesh.

Typically foreign companies that do not have local earnings in Bangladesh may choose to set up representative offices, liaison offices or branches.

The operations of these organizations are limited to those set out in their BIDA approvals and are subject to strict compliance with the foreign exchange regulations.

Generally, no outward remittance of any kind from Bangladesh is allowed unless expressly approved by the Foreign Exchange Regulations or the Bangladesh Bank.

fSuch offices are expected to pay inward remittances of at least USD 50,000 within two months from the date of establishment as a cost of establishment.

One of the requisite approvals for the establishment is that security clearance must be obtained from the Ministry of Home Affairs of the Government of Bangladesh. (foreign investment in Bangladesh)

5. Option of Participating in an existing Bangladeshi company by purchasing shares (procedure of foreign investment in Bangladesh.)

In regards to foreign investment in Bangladesh, Foreign investors are free to invest in local companies in Bangladesh unless expressly prohibited (as stated above).

Shares can also be given to foreign investors against capital machinery brought by them to Bangladesh (subject to confirmation by the Customs and Excise Office of the import documents, Procedure of foreign investment in Bangladesh).

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  • Step by Step Process of Registering a Company in Bangladesh
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Right to Issue and Transfer Shares in Bangladesh – Procedure of foreign investment in Bangladesh.

 

There is no need for permission from the Bank of Bangladesh to set up such ventures if the entrepreneurs use their own funds. Prior approval of the Central Bank is not necessary for the issuance of shares in favor of non-residents against foreign investment in BD.

 

Shares may be issues relating to freely convertible foreign exchange brought in from abroad via the banking channel or to the importation of capital machinery or the combination of both.

 

Foreign exchange thus entered must be paid out in taka before the issuance of shares, except in the case of Type A (full foreign owned) and Type B (joint venture) units of EPZ and EZ, where FC ‘s foreign bright equity of be held in the FC accounts of the units concerned.

 

Transferring shares and securities in Bangladesh from one shareholder to another shareholder regardless of their nationality / residence does not require approval from Bangladesh Bank.

 

In the event of a transfer of private / public (non-listed) shares between resident-non-residents or vice versa, a general intimation to Bangladesh Bank is required by the Approved Bank within 14 days of such a transaction.

 

As there is no established marketplace for such investment in Bangladesh, Bangladesh Bank will accept fair value of the shares as on the date of sale based on a reasonable combination of three valuation approaches (NAV; FMV and DCF), depending on the nature of the company in regards to the Procedure of foreign investment in Bangladesh.

 

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Full Repatriation of Dividend, Investment and Income for foreign investors in Bangladesh.

It will enable complete repatriation of the capital invested from free sources in regards to the Procedure of foreign investment in Bangladesh. Profits and dividends accruing to foreign investment can likewise be transferred in full (Procedure of foreign investment in Bangladesh).

Those would be considered as new investment if foreign investors reinvest their reparable dividends and/or retained earnings. Foreigners living in Bangladesh have the right to remit up to 50 percent of their income and can enjoy facilities for complete repatriation of their savings and pension benefits. (Procedure of foreign investment in Bangladesh.) 

 

Laws for the Protection of Foreign Investment in Bangladesh

 

For a seamless procedure of foreign investment in Bangladesh, the government guarantees immunity from nationalisation and expropriation through the 1980 Foreign Private Investment Act that involves repatriation of capital and dividend for foreign investors.

In addition, to facilitate the Procedure of foreign investment in Bangladesh, Bangladesh has made ample legal provisions to secure intellectual property rights. In addition to the 1980 Foreign Private Investment Act , the government has developed an FDI Policy (Foreign Direct Investment Policy for the Procedure of foreign investment in Bangladesh), which supports easy but efficient investment mechanisms in Bangladesh.

 

The policy encourages the establishment of enterprises by simplifying the leasing and purchasing process of private property, forming an agency, enabling corporate tax holidays for 7 years (15 years in the power sector) and in some respects introducing an exemption of foreign employees’ income tax for up to 3 years.

 

 

 

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Disputes Settlement in regards to the procedure of Foreign Investment in Bangladesh

In dispute cases alternative conflict settlement is possible under the 2001 Arbitration Act. The Bangladesh International Convention on the Recognition and Compliance of Foreign Arbitral Awards was signed. Bangladesh is also a member of International Centre for Investment Dispute Settlement (ICSID).

The new law also provides for the implementation without much hindrance of international arbitral awards. Although venturing in a company may be overwhelming, Bangladesh offers investors a safe and resourceful environment suitable for establishing or expanding any company, and it can be said that Bangladesh is in fact a “dream investment destination,” after much consideration.

 

Visa, Work Permit, Citizenship in Bangladesh (Procedure of foreign investment in Bangladesh)

For periods ranging from one month to five years prospective foreign investors may apply for visas. Foreign workers must get BIDA / BEZA / BEPZA work permit.

In an industrial organization the number of expatriate workers can not exceed the ratio of 1:20 (foreign: local) for industrial settings and 1:5 (foreign: local) for commercial establishments.

Citizenship in a scheduled bank may be subject to investment of USD 1 million or a fixed deposit of USD 2 million. Investors can also get ‘NO Visa Requirement’ exemption for investment of more than USD 10 million.

 

If you want to know more in details about Visa obtaining process in Bangladesh

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Incentives offered to Foreign Investors in Bangladesh

Bangladesh is keen to boost the economy in a short time and turn the poverty-stricken economy into a developed one. Government investment strategy provides competitive stimulus packages to attract foreign investment. These incentives are updated annually and new incentives are announced, too.

These installations are subject to certain conditions and are issued by the BIDA. Moreover, Bangladesh gives international investors citizenship, permanent residency and multiple entry visas for their ease of business and ease of the Procedure of foreign investment in Bangladesh.

 

Investing in the Stock market in Bangladesh

International investors are eligible to engage in Initial Public Offerings ( IPOs) without regulatory restrictions. In addition , capital gains from listed securities are tax-exempt for private investors and lower tax rates apply to corporations and other organizations.

 

Import Duty exemption in Bangladesh (Procedure of foreign investment in Bangladesh)

No import duties are applicable for export-oriented sectors. There are duty exemptions also for some preferred sectors. General exemption of import duties is also available in respect of import of specific Plant & Machinery and spares.

 

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Allowance of Capital repatriation in Bangladesh

Full repatriation of invested capital, profits and dividends is allowed, subject to applicable taxes to make the process seamless in regards to the Procedure of foreign investment in Bangladesh.

 

Tax holiday facility in Bangladesh (THF) for seamless procedure of foreign investment in Bangladesh

Tax holidays are granted to industries subject to the relevant rules and procedures laid down by the National Revenue Board of Bangladesh (NBR). This may vary from 3 to 7 years depending on the location of the establishment. For example, industries located in the Dhaka and Chittagong Divisions (excluding three Hill Tract districts of the Chittagong Division) are exempted for a period of five years.

This tax holiday scheme, which was scheduled to end in 2015, was extended until June 2019 to create an investor-friendly atmosphere in Bangladesh. Tax holiday facilities are also available to manufacturing units and economic zone developers for a period of 10 years and 12 years respectively, and once again it makes it more seamless, the procedure of foreign investment in Bangladesh.

 

Special Tax Exemption for the foreign investors in Bangladesh

Tax exemptions are commonly permitted in the following cases:

  • There will be scope of tax exemption on royalties, technical know-how fees earned by any international partner, business, company and expert;
  • Reasonable income tax-upto-threeyearsforeign technicians working in industries as defined in the respective schedule of income tax regulations;
  • Relevant revenue of a private corporation conducting public infrastructure projects;
  • In regards to capital gains from the sale of shares of limited public company listed on the stock exchange;
  • NGO reported with the NGO Affairs Bureau;
  • Reasonable profits of companies and other sectors defined in the income tax Ordinance

Depreciation allowance in regards to Tax (Procedure of foreign investment in Bangladesh)

Depreciation allowance shall be allowed in respect of any house, equipment, factory, furniture, bridge, road or overhead used in any company or industrial undertaking in the measurement of income or gains.

The third schedule of the Income Tax Ordinance 1984 sets out a list of various types of properties and their corresponding depreciation allowance rates, which usually range from 10 % to 30% of costs.

The plan also sets out the overview of the usual rate of depreciation allowance, the original rate of depreciation allowance and the accelerated rate of depreciation allowance for various asset groups.

 

If you want to know more in details about tax submission in Bangladesh click here!

 

Avoidance of Double Taxation for Foreign Investors

 

Double taxation for international investors can be avoided on the basis of the Bilateral Double Taxation Avoidance Treaties (DTTs). NBR is responsible for negotiating Double Taxation Agreements (DTAs) with foreign countries to facilitate FDI in Bangladesh.

The DTA is an arrangement between two countries that aims to prevent double taxation by specifying the taxing rights of each country with respect to cross-border income flows and providing for tax credits or exemptions to remove double taxation for the ease of the Procedure of foreign investment in Bangladesh.

It also allows for the exchange of information between treaty partners on tax evasion. For instance, Bangladesh has double taxation treaties with  Denmark, France, Germany, Belgium, Canada, China, India, Italy, Japan, Poland, Romania, Singapore, South Korea, Sri Lanka, Sweden, Thailand, The Netherlands, The United Kingdom and other countries.

 

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Remittance of profits for foreign investors in Bangladesh

Remittance of income of subsidiaries of foreign companies / companies, dividends / capital gains, wages and savings of expatriates, royalties and technical fees, training and consulting fees, receivables obtained by shipping companies and airlines for freight and transit can be made by approved dealers without the prior approval of the Bangladesh Bank.

In addition to that the Procedure of foreign investment in Bangladesh are placed in such a way that global entrepreneurs are also entitled to the same facilities as domestic entrepreneurs with regard to tax holidays, dividends, technological know-how fees, etc.

Business profits and tax exemption for foreign investors in Bangladesh

The income 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 mentioned above, the benefit of the enterprise may be taxed in the other Contracting State, but only in so many cases as is due to that permanent establishment. (Article 7 of the Double Taxation Agreement).

Dividends and tax exemption for foreign investors in Bangladesh

Dividends paid by a company resident in a Contracting State to a resident in the other Contracting State may be taxed in the other State.

However, such dividends may also be taxed in the Contracting State in which the corporation paying the dividends is resident and in compliance with the laws of that State, but where the beneficiary is the beneficial owner of the dividend, the tax paid shall not exceed 10% of the gross sum of such dividends (Article 10 of the Double Taxation Agreement).

Interest arising from contract state for investors

Interest occurring in a Contracting State and charged to a citizen of the other Contracting State may be taxed in another State.

However, such interest may also be taxed in the Contracting State in which it exists and in compliance with the laws of that State, however if the beneficiary is the beneficial owner of the interest, the tax so paid shall not exceed 10% of the gross sum of the interest.(Article 11 of the Double Taxation Agreement).

Capital gain derived by a foregin resident in Bangladesh

Gains obtained by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other Contracting State. (Article 13 to prevent a double taxation agreement, Procedure of foreign investment in Bangladesh)

Foreign Investment In Bangladesh-Formal Sectors In Bangladesh

Repatriation of investment in Bangladesh – Foreign Investment Law in Bangladesh

Full restitution of the capital accumulated from foreign sources is permitted. Likewise, the gains and dividends accrued on foreign investment can be transferred in full.

If foreign investors reinvest their repatriable dividends and/or retained profits, they will be considered as new assets. Foreigners living in Bangladesh are required to pay up to 75% of their wages and will benefit from complete repatriation of their savings and retirement benefits.

In order to allow full repatriation of the capital invested, benefit and dividend, foreign investors will have to apply for repatriation approval from the Bangladesh Bank through an approved bank. 

Foreign Private Investment (Promotion and Protection) Act, 1980, section 8 also states:

(1)  In respect of foreign private investment, the transfer of capital and the returns from it and, in the event of liquidation of industrial undertaking having such investment, of the proceeds from such liquidation is guaranteed.

(2)  The guarantee under sub-section (1) shall be subject to the right which, in circumstances of exceptional financial and economic difficulties, the Government may exercise in accordance with the applicable laws and regulations in such circumstances.

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List of online portals for potential investors in Bangladesh (Procedure of foreign investment in Bangladesh)

Foreign direct investment (FDI)

 

www.bida.gov.bd

BIDA
Investing in economic zones www.beza.gov.bd  BEZA
Trade-related Information https://www.bangladeshtradeportal.gov.bd/ Bangladesh Government
Company name Clearance

http://app.roc.gov.bd:7781/psp/nc_ search?p_user_id=

 

Office of the Registrar of Joint Stock Companies and Farm (RJSC)

 

Registration of Company http://www.roc.gov.bd/

Office of the Registrar of Joint Stock Companies and Farm (RJSC)

 

VAT Registration http://www.nbr.gov.bd/

National Board of Revenue

 

Issuance of Certificate for using standard mark

http://www.bsti.gov.bd/Form_Online.html

Bangladesh Standards and Testing Institution (BSTI)

 

If you want to know how to Obtain a Trade License in Bangladesh click here!

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Elimination of Taxation treaty in Bangladesh

 

In double taxation the following shall be eliminated:

 

(a) If a resident of China receives income from Bangladesh, the amount of tax on that income payable in Bangladesh in compliance with the terms of this Agreement may be credited against the Chinese tax levied on that resident.

 

However, the amount of the credit shall not exceed the amount of Chinese tax on that income determined in accordance with China’s tax laws and regulations.

 

(b) where the revenue received from Bangladesh is a dividend paid by a company resident in Bangladesh to a company resident in China and holding not less than 10 per cent 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 for its revenue.

 

Bilateral Investment treaties in Bangladesh

Bangladesh has with many nations, including China, signed Bilateral Investment Treaties (BIT) and Trade Agreements (TA). Typical provisions contained in BITs are clauses on foreign investment protection and treatment standards which usually address issues such as fair and equal treatment, full protection and security.

Provisions on reimbursement for damages suffered by foreign investors as a result of expropriation or as a result of war and dispute are typically a central part of such agreements as well. Most IIAs also control the moving of funds across borders in connection with the Procedure of foreign investment in Bangladesh.

The BITs also contain a clause on dispute resolution between investor and state. Usually this allows investors the right to bring a lawsuit to an international arbitral tribunal if a dispute occurs with the host country (Procedure of foreign investment in Bangladesh).

The International Center for Settlement of Investment Disputes (ICSID), the United Nations Commission on International Trade Law ( UNCITRAL) and the International Chamber of Commerce (ICC) are common places in which arbitration is sought.

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Funding options for foreign investors in Bangladesh

Foreign entities can conveniently access funding for short- and long-term investments from local financial institutions, including working capital loans, syndication, and trade finance. In addition, some of the Foreign Institutions (FIs) at home and abroad have access to on-shore and off-shore funding.

There are currently 58 planned commercial banks in the financial sector, as well as a host of Non-Bank Financial Institutions (NBFIs) and specialized financial institutions.
In addition to raising debt-based funding, investors may also consider securing equity-based capital-market financing from the country.

Raising Capital from the Equity market in regards to the Procedure of foreign investment in Bangladesh

International companies can start raising capital from the stock market, subject to fulfillment of certain terms and conditions. The government is keen to increase the number of companies listed on the local stock exchange, and offers regulatory incentives to attract profitable businesses and facilitate the Procedure of foreign investment in Bangladesh.

Listed firms pay 25 per cent corporate taxes on non-listed entities, excluding those markets, compared with 35 per cent tax limit.
Formal approval from the Bangladesh Securities and Exchange Commission (BSEC) is required for the fundraising process. Companies may use either the fixed price, or the option of constructing books.

The appointed merchant bank and auditor help prepare a prospectus under the fixed-price process, valuing the business based on current assets and prospects for future growth. The indicative stock price is determined and has to be certified by the regulator.

The method of book building involves a designated merchant bank to prepare an indicatively priced prospectus. The contending business then holds a series of road shows in which institutional investors are invited to bid on their stocks. IPO share price is dependent on input from other institutional investors and their interests. 

The DSEX listing process has the mandatory requirement that an Issue Manager be employed or named (approved by the DSEX). The way IPOs are determined needs support from the approved Issue Manager.

The draft prospectus shall be prepared in compliance with the Regulations of an Issue Manager and the Securities and Exchange Commission (Public Issue for the Procedure of foreign investment in Bangladesh ), 2015. IPOs can be issued by either book building or fixed-price system.

Debt capital from local commercial Banks in Bangladesh

International investors have access to financing for the local debt. Trade finance, term loans, and working capital are readily accessible to large foreign investors, in particular.

Interest rates are low for such loans and between 9-16 per cent. Bangladesh has a very large number of  State and commercial banks (as stated in the preceding section), and bank loans can be obtained against collateral secured in regards to the Procedure of foreign investment in Bangladesh.

Private Foreign Commercial borrowing in Bangladesh

To secure long-term foreign currency loans, a request must be sent to BIDA, which will then be forwarded to the Central Bank for further review.
To secure the loans, a business case supporting the loan condition must be included in the application. The proposal, along with the business case, is submitted for evaluation and decision by a committee chaired by the Bangladesh Bank Governor including members from BIDA, PMO Ministry of Finance.

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Regulatory institutions facilitating investment in Bangladesh

The investment route depends on the business sector and on the FDI policy introduced by the Government of Bangladesh. The following government and trade agencies would oversee and encourage investment in most sectors;

The Bangladesh Investment Development Authority (BIDA), Formerly known as the Investment Board (BOI), has been set up to deal with local and foreign investment issues. All incoming investments must be pre-approved by BIDA.

The regulatory body aims to encourage domestic and foreign investment by simplifying the bureaucratic complexities of entering the Bangladesh market in regards to the Procedure of foreign investment in Bangladesh. 

Bangladesh Bank ( BB) is the central bank of the country. The central bank must be officially informed of any foreign transactions, including equity investments made on the stock market. All incoming investments shall be reported to BB via commercial banks.

Relevant trade bodies and chambers in Bangladesh

The Dhaka Chamber of Commerce and Industry (DCCI) is a non-profit, service-oriented chamber serving as the first point of contact for small and medium-sized enterprises. DCCI offers market-oriented inputs to imports , exports and investments throughout the government’s policy formulation period for the Procedure of foreign investment in Bangladesh.

The Chamber periodically publishes guidebooks to promote trade and investment. DCCI also has its own training facility to facilitate the growth of capability of professionals associated with member organizations.

The International Investment Chamber of Commerce and Industries (FICCI), founded in 1963, is made up of 188 members across the mining, service and manufacturing sectors. Classified as Class ‘A’ Chamber of Commerce, FCCI is affiliated with the FBCCI, the International Trade Center (Geneva) and the World Trade Organization (Paris).

The Metropolitan Chamber of Commerce and Industry (MCCI) is a leading chamber body made up of representatives of major local and multinational corporations. The MCCI maintains frequent ties with major international trade organizations and global private sector organizations. (procedure of foreign investment in Bangladesh)

Exit policy for foreign investors in Bangladesh

An investor can terminate an investment either by a decision of an annual or an extraordinary general meeting. Once a foreign investor has completed the formalities to leave the country, he or she can repatriate the net proceeds after obtaining proper authorisation from the central bank (Bangladesh Bank, Procedure of foreign investment in Bangladesh).

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Frequently Asked Questions about Foreign Investment in Bangladesh

In regards to Foreign Investment in bangladesh people also ask these questions frequently, hence this FAQ content block is dedicated to answering your questions.

General Questions about Foreign Investment in bangladesh

Which Countries invest the most in Bangladesh?

The country’s major investors are China, South Korea , India, Egypt, the United Kingdom , the United Arab Emirates and Malaysia. According to the most recent data available from Bangladesh Bank, FDI flows increased by 5.36% to USD 1.65 billion in July-October 2019 per year. -Procedure of foreign investment in Bangladesh

How is the Investment Scenario in Bangladesh in 2020?

Bangladesh is already recognized as a thriving investment hub, reflected in influxes of foreign direct investment ( FDI) from the region. Bangladesh ‘s FDI amounted to USD 2.58 billion at the end of June 2018.

According to the Bangladesh Investment Development Authority (BIDA), there was a 13.34% rise in FDI in the third quarter of 2018, with proposals worth USD 3.23 billion in the basket. Mega-projects by the government is seen as the primary explanation for significant FDI investments in  Transportation, transportation , and communications. Exports from the country are also growing amid domestic consumption.

What is an example of Foreign Direct Investment in Bangladesh?

Examples of foreign direct investment in Bangladesh include, but are not limited to, mergers, acquisitions, retail, utilities, logistics, and development. Foreign direct investment and the laws that regulate it can be critical to the growth strategy of a business.

What are the types of foreign Investment?

Examples of foreign direct investment in Bangladesh include, but are not limited to, mergers, acquisitions, retail, utilities, logistics, and development. Foreign direct investment and the laws that regulate it can be critical to the growth strategy of a business.

What is the current trend of foreign investment in Bangladesh?

35.4 per cent of the FDI came from the manufacturing industry in 2016-17. The country witnessed phenomenal Y-o – Y growth of 11 per cent 2017 In this area. Experts in industry are optimistic this development will be maintained in the years to come. The sectors of transport , storage and communications ranked second with FDI inflows of 25 per cent.

This may be due to the mega projects being initiated and executed by the government at the present time. Over the time, electricity, accompanied by gas and petroleum, attracted FDI of 19 per cent. Over the years, the power sector has steadily drawn foreign investments due to the Government ‘s attractive tax incentives. (Procedure of foreign investment in Bangladesh)

How Foreign investors can enter into Bangladeshi Market?

Foreign investors may either form a wholly / partially owned subsidiary, or set up a branch or liaison office for Bangladesh operations. The type of organization that was created will rely on the medium- and long-term strategy of the investor for market penetration. Hence the three conventional ways of entering the Market in Bangladesh:

  • Wholly owned subsidiaries
  • Limited liability by purchasing shares in an existing Bangladeshi company
  • Joint ventures
How to get work permit and visa as a foreign investor in Bangladesh?

For investors planning to become resident in Bangladesh by taking a full-time position or for the company’s expatriate employee, branch office, liaison office, work permit is required.

Upon arrival in Bangladesh for a short period of time under two types of visa, the person is required to apply for a work permit with BIDA and an extension from the Passport and Visa Department, subject to effective completion of the security clearance.

If not treated skillfully, the process can be very hectic, and time consuming. We help our customer make it easy and hassle-free. We also help our client locate commercial addresses needed for trade license and clearance of protection.

How to open a Liaison or Branch office in Bangladesh?

Opening Liaison office requires some critical preparatory work and documentation work which requires experience. We have significant experience of getting BIDA  registration for both liaison and branch office for several foreign principals.

Legal documentation involves authentication of parent company’s Memorandum and Articles of Association, list of directors etc. Often the authentication process is cumbersome.

We try our best to make the process smooth and hustle free. In recent time we have opened several branch and liaison offices for construction and engineering companies whose principal is located in Italy, UK, China, Singapore and other neighboring countries.

What is SEZ or Special Economic Zone in Bangladesh?

In Bangladesh, economic zone is a relatively new term. The government intended to establish 100 economic zones in various geographical locations.

However, as the land is still under development process, only a handful of economic zones are currently allocating property, or will do so in the near future. Mirsarai Economic Zone for example.

Our customer can take our service from the Bangladesh Economic Zones Authority (BEZA) to conduct due diligence on land in the economic zone. We also provide legal due diligence services for lands adjacent to the Mirsarai Economic Zone which is ready for immediate investment

How to get permits and consents as a foreign investor in Bangladesh?

Often the client carries out due diligence on the number of permits and approval necessary and the time period. The type of permits and consent required depends largely on the type of industry, the business venture, its location and the planned Bangladesh activity.

The Chambers offers all basic licensing services such as business registration, liaison office approval, branch office approval, trade authorization, export and import permit, chamber and trade membership, work permit, bank account opening, IRC, ERC, ad hoc IRC, BIDA registration, BIDA recommendation, etc.

We can help with other licenses or permits. We either do it ourselves or outsource it from our established service providers and vendors

What is EPZ or Export Processing Zone in Bangladesh?

Export Processing Zone is ideal for wholly owned export-oriented companies, if it is a Joint Venture, etc. 08 (eight) EPZs are geographically diversified in various locations within Bangladesh.

Depending on the nature of the company, availability of utilities, rental rates, transportation, availability of qualified man power, etc. Customer may choose acceptable EPZ to invest.

Interested customers can take advantage of our services to locate, lease, or move existing land leases from Bangladesh Export Processing Zone Authority (BEPZA).

How to do share acquisitions as a foreign investor in Bangladesh?

Share acquisition requires many paperwork works in an unlisted private and public corporation, e.g. signing Form 117, affidavits etc. In addition, in conjunction with the Memorandum and Articles of Association, several resolutions are required along with the drafting of the Share Purchase Agreements.

For the whole process, we counsel clients so that the transition is done smoothly. We also recommended buyer as well as seller to take over some businesses. We have also advised individual shareholder in the purchasing and sale of shares. Our service involves not only supporting documentation work, but also helping to actually record and receive a certified copy from RJSC

Foreign Direct Investment in Bangladesh at CLP:

The Barristers, Advocates, and lawyers at CLP in Gulshan, Dhaka, Bangladesh are highly experienced at dealing with foregin direct investment, where we assist clients in setting up of the complete business irrespective of whether it is within a specialized zone or any other part of Bangladesh. In Counsels Law Partners, our experience helps us to efficiently execute local and cross-border global transactions while helping you at all stages of the process and offering you cost-effective, realistic business solutions. In addition to handling various issues related to domestic clients on a regular basis, it also has experience in consulting and assisting numerous international clients with utmost care and attention throughout their legal exploration in Bangladesh. For queries or legal assistance in regards to the Procedure of foreign investment in Bangladesh, please reach us at:

 E-mail:tahmidur@counselslaw.com
Phone:+8801727983838

Address: House 39, Road 126 (3rd Floor) Islam Mansion, Gulshan 1, Dhaka.

 

Have a Different Question?

Email us anytime : tahmidur@counselslaw.com

Or call — +8801727983838

Tahmidur Rahman | Law Firm in Dhaka

Affiliated with Counsels Law Partners, A full service multi-directional law firm in Dhaka.

© 2018-2020 Tahmidur Rahman Matte IT Ltd.

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Mergers and Acquisitions process | A complete overview with 14 simple steps

Mergers and Acquisitions process | A complete overview with 14 simple steps

Mergers and Acquisitions in Bangladesh: A Complete guide with 14 steps

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Tahmidur Rahman
 Director and Senior Associate, Counsels Law Partners

27 Dec 2019

Our clients profit from a leading global M&A practice that has worked on more M&A transactions than any other law firm over the last 2 years. In Counsels Law Partners, our experience helps us to efficiently execute local and cross-border global transactions while helping you at all stages of the process and offering you cost-effective, realistic business solutions. This post explains in details about the mergers and acquisitions process in Bangladesh.

What are Mergers and Acquisitions? 

 

Mergers and acquisitions ( M&A) refer to transactions which are combined in some way between two entities. While the use of mergers and acquisitions ( M&A) is synonymous, they come with different legal symbolic meanings. Two similar-size businesses unite in a merger to form a new corporate company.

On the other hand, an acquisition is when a larger enterprise acquires a smaller enterprise, thereby absorbing the smaller business. M&A transactions can be friendly or aggressive, depending on the board approval of the target firm. (Mergers and Acquisitions in Bangladesh)

Types of Mergers and Acquisitions (M&A) Transactions

 

1.  Horizontal M&A

A horizontal merger occurs between two firms operating in related industries which may or may not be direct competitors.

2. Vertical M&A

A vertical merger takes place in the supply chain between a business and its supplier or a client. The business intends to shift up or down the supply chain, thus consolidating its role in the market.

3. Conglomerate M&A

This form of transaction is typically performed in different industries for purposes of diversification, and is between businesses.

Legal Framework of a  Mergers and Acquisitions (M&A) Transactions in Bangladesh

 

Bangladesh does not have a specific or a single piece of legislation dealing solely with mergers and acquisitions. Instead there are various statutes and by-laws in Bangladesh that govern acquisitions and mergers. The main laws are the Companies Act 1994, the Securities and Exchange Ordinance of 1969, the Bangladesh Securities and Exchange Commission Act of 1993, the Foreign Exchange Management Act of 1947, the Competition Act and the By-Laws rendered under those Statutes. Additionally , there are various rules that deal with particular aspects of mergers and acquisitions. For example,the Insurance Act 2010 for insurance companies and the Bangladesh Telecommunication Regulation Act 2001 for the telecommunication sector.

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Step by Step process for Mergers and Acquisitions  in Bangladesh

 

While contemplating game changing strategic transactions, companies regularly seek Counsel Law Partners to plan, negotiate and close their deals. As an integrated team, the mergers and acquisitions lawyers from our law firm work through the broad spectrum of practice areas involved in strategic M&A transactions. Our mergers and acquisitions lawyers are committed to attaining the ambitions of our clients and offering innovative ideas and industry-focused legal advice. And here are the conventional steps by steps procedure of a mergers and acquisitions in Bangladesh:

 

Step 1: Proposal of a Merger

Any company proposing to carry out merger first have to get suitable resolutions passed by their Board of Directors. By passing the resolution, the Board of Directors will agree in principle, to proceed in accordance with such resolution.

During the planning stage of the merger, key executives in both merging entities’ supply chain should create dedicated integration, project management office, and steering committee teams with specific job descriptions, meeting cadence, and coordinated deliverables and status updates templates.

A timely, detailed organizational viewpoint can be introduced into a phase of M&A integration where there is a collective participation of the supply chain leadership.

This partnership becomes possible at all levels of the organizations work together during the integration process; however, the position of the operations and production staff varies depending on the phase.

The resolution passed may be treated as Price-sensitive Information (i.e. the information if published is likely to materially affect the price of securities of the company).

Step 2: Negotiations

After producing some of the target company’s valuation models, the acquirer should have sufficient information to allow him to ensure a fair offer; once the initial offer has been made, the two companies will discuss terms in more detail

Step 3: Due-Dilligence for the Merger

To enable Bangladesh Bank to consider the effectiveness of merger, the transferee company have to seek prior approval to commence financial and legal due-diligence of itself and also of that company they are intending to merge with.

Due diligence is a systematic procedure that starts when the offer is accepted; due diligence seeks to validate or correct the acquirer ‘s estimation of the target company’s worth by conducting a thorough evaluation and examination of any aspect of the target company’s operations – its financial results, assets and liabilities, clients, human resources, etc.

In order to seek the approval for due diligence the transferee company need to submit certain documents.

Documents:

  1. Credentials of the company (background, resources, net worth etc.) and
  2. Information about the team of Lawyers, Financial Advisors, Chartered Accountants, Valuers etc. for conducting due-diligence of the asset and liability of both the companies.

    The transferee company have to ensure that none of the team members engaged in due diligence are actively dealing in shares or have any conflict of interest with either of the companies intending to merge together.

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If you want to know everything about Share Transfer process in Bangladesh!

Step 4: Disclosure and Confidentiality

a)Disclosure

Disclosure plans are an important part of any agreement involving merger or acquisition (M&A), and it is no exception in Mergers and Acquisitions in Bangladesh. The disclosure schedules include details provided by the acquisition agreement — typically a list of relevant contracts, intellectual property, employee records, and other specific matters, as well as exceptions or conditions to the selling company’s comprehensive representations and warranties in the acquisition agreement.

An incorrect or incomplete disclosure plan may result in the selling company or its stockholders being infringed by the purchase agreement and potentially serious liability. Whenever a person/company intends to own, acquire or control 10% or more voting shares in a company listed on any stock exchange in Bangladesh, there is a mandatory obligation of disclosure.  Meaning, both the companies are under an obligation to disclose information about the companies among themselves.

b)Confidentiality

However, there is also an obligation of confidentiality as well. Upon obtaining approval from Bangladesh Bank for conducting due-diligence, the transferee company shall submit an undertaking to Bangladesh Bank.

Such an undertaking confirms that all information, in particular all non-public domain information and documents etc. shall be kept strictly confidential. In addition, such confidential information shall not be disclosed to any person or organization unless advised by Bangladesh Bank or legally required or required to comply with the regulatory requirements. However, this confidentiality requirement does not apply for the due diligence team.

 In Mergers and Acquisitions in Bangladesh, it is to be noted that the members of the due-diligence team will also be bound under the aforesaid undertaking to keep the information, document etc. confidential. In addition, the due-diligence team shall not demand any information/observations made by Bangladesh Bank in relation to the affairs and the business of concerned companies from the transferee or transferor companies.

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Step 5: Due diligence report submission

Upon completion of the task of due diligence, the team will have to submit a copy of the report to Bangladesh Bank. (Mergers and Acquisitions in Bangladesh)

The due diligence report must include the following information:  

  • Debts that are secured and unsecured and in the case of secured debts particulars of the securities and their value.
  • The value of the property and the assets of the transferor and the transferee company calculated.
  • The seller’s M&A counsel also should endeavor to limit disclosures to lists of documents or matters rather than descriptions of the contents of documents or matters (such as requiring a list of pending litigation rather than a description of each pending lawsuit); again, this approach lessens the work involved in preparing the disclosure schedules.
  • The liabilities of the transferor and the transferee companies.
  • In view of the above clauses, the financial impact of the merger proposal on the two companies and their creditors, shareholders and depositors.

Step 6: Shareholders’ and creditors’ consent

The next step would be to prepare a scheme of merger by the transferor or transferee companies based on the due diligence report. The Board of Directors of the respective companies will have to pass a resolution in this regard.

While passing the resolution the scheme shall be considered as so drawn and then, in accordance to the provisions of Companies Act -1994, hold meetings of their respective members to consider and approve, the concerned scheme.

If a majority in number representing three-fourth in value of members present in the meeting, either in person or by proxy, approve the scheme, the same shall be deemed to have the approval of the members.

Mergers And Acquisitions In Bangladesh _Tahmidur Rahman

Step 7: Scheme Submission to Bangladesh Bank

Thereafter, an application will have to be submitted to Bangladesh bank by the transferee company.  In addition to the application, a copy of the Scheme of merger/amalgamation, together with such other documents will have to be submitted.

Other documents include:

  1. Name, address and occupation of the Directors of the transferee company as proposed to be reconstituted after the amalgamation,
  2. Details of the proposed Chief Executive Officer of the transferee company after the amalgamation,
  3. Post-merger Branch Plan, Technology Plan, Human Resource Plan and proposal to address Corporate Governance issues.

    Information relevant for consideration of the scheme and the swap ratio including the following:

  • Valuer Report explaining the method of valuation and the justification for it. If market value of shares has been considered in computation of swap ratio, the value so considered,
  • Last three years annual report of each of the companies,
  • Financial results, if any, published by companies covering the periods subsequent to the Annual reports
  • Significant anticipated changes in service and products.
  • Pro forma combined balance sheet of the transferee company as it will appear following the amalgamation,

    Computation based on pro forma balance sheets of the following items:

  • Tier I Capital
  • Tier II Capital
  • Risk weighted assets
  • Gross and net Non-Performing Loans
  • Ratio of tier I capital to risk weighted assets
  • Ratio of tier II capital to risk weighted assets
  • Ratio of tier I capital to total assets
  • Ratio of total capital to risk weighted assets
  • Ratio of gross and net NPLs to advances.

    Any other information or explanation as sought by Bangladesh Bank.

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  • Step by Step Process of Registering a Company in Bangladesh
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Step 8: Draft Scheme Examination

After receiving the draft Scheme, Bangladesh Bank will satisfy itself that the Scheme as proposed by the transferee company can be implemented successfully. In deciding such, Bangladesh Bank will consider various factors through examination of the scheme. The factors that may be considered are the capital of the merged entity, valuation of assets and liabilities, the impact on the profitability etc.

Step 9: Assets and liabilities valuation 

It is upon the merging companies to mutually agree the valuation of the assets. Bangladesh Bank does not generally interfere in this regard except where there are reasons to believe that the valuation is not fair and reasonable. If mutual agreement is not possible in relation to certain items then any of the parties to the merger can seek advice of Bangladesh Bank.

The Bangladesh Bank plays the role of a mediator and help resolve the differences. In case the mediation fails, the Bangladesh Bank will decide the value and the decision of the Bank in this regard shall be binding. The cost of obtaining such advice will be borne by the transferor company.

In a case where mutual agreement has not been possible in relation to certain items for example:

(a) valuation of a particular asset
(b) classification of any advance
(c) determination of any liability or any like issue, the bank / financial institution, shall highlight those areas and seek advice of Bangladesh Bank.

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Step 10: Transaction Price in Mergers and Acquisitions in Bangladesh

 Again the transaction cost/price is a matter to be mutually agreed between the transferor and the transferee on the basis of fair valuation of assets and liabilities proposed to be transferred.

Parties have the option to fix the price at a premium or discount to valuation. However, Bangladesh Bank have a right to be satisfied that the mutually agreed price is fair and reasonable. 

For this purpose, Bangladesh bank may ask for pricing rationale to examine the same and accept or suggest alteration. In order to do so Bangladesh bank will seek explanatory note on price mechanism along with supporting documents.

Step 11: Bangladesh Bank approval in Mergers and Acquisitions 

At this stage, Bangladesh bank will approve the Scheme as proposed if two conditions are satisfied. It can be implemented:

  • to the benefit of the company and/or the financial system of the country and
  • the scheme is not detrimental to the interest of the depositors

Thereafter, Bangladesh Bank may give its approval to the said Scheme with or without such modifications as deemed necessary.

Mergers And Acquisitions In Bangladesh _Best Corporate Law Firm In Bangladesh

Step 12: High court petition in regards to Mergers and Acquisitions in Bangladesh

After the scheme of merger/amalgamation has been permitted by Bangladesh Bank, the transferor and the transferee now must comply with other formalities required under the Companies Act 1994. As such they need to file an application before the High Court and submit the scheme for the merger/amalgamation.

In addition, the transferee company will mark a copy of the application as filed before the Court together with annexure, if any, to Bangladesh Bank and will keep the Bank informed from time to time as the progress in the matter.

If the company, after obtaining approval of the Scheme from the Bangladesh Bank, fails to take these steps within the next three months from the date of approval, the approval so granted lapses, unless otherwise extended on justifiable consideration.

The high court will hear the application for merger/amalgamation and considering the objections if any, raised by any of the stakeholders. As such, based on that the Court may with or without such modification as it deems fit approve the Scheme.

Step 13: File certified copy of High court order to RJSC

After the scheme of merger/amalgamation has been permitted by Bangladesh Bank, the transferor and the transferee now must comply with other formalities required under the Companies Act 1994. As such they need to file an application before the High Court and submit the scheme for the merger/amalgamation.

In addition, the transferee company will mark a copy of the application as filed before the Court together with annexure, if any, to Bangladesh Bank and will keep the Bank informed from time to time as the progress in the matter.

If the company, after obtaining approval of the Scheme from the Bangladesh Bank, fails to take these steps within the next three months from the date of approval, the approval so granted lapses, unless otherwise extended on justifiable consideration.

The high court will hear the application for merger/amalgamation and considering the objections if any, raised by any of the stakeholders. As such, based on that the Court may with or without such modification as it deems fit approve the Scheme. (Mergers and Acquisitions in Bangladesh)

Mergers And Acquisitions In Bangladesh

Frequently Asked Questions about Mergers and Acquisitions in bangladesh

In regards to Mergers and Acquisitions in bangladesh people also ask these questions frequently, hence this FAQ content block is dedicated to answering your questions.

General Questions about Mergers and Acquisitions in bangladesh

What sort of Experience does CLP have in regards to Mergers and Acquisitions in Bangladesh?
  • public company takeover bids and responses;
  • private company acquisitions and disposals; 
  • joint ventures; 
  • reorganisations including schemes of arrangement;
  • venture capital and private equity;
  • management buyouts; and 
  • share buybacks and capital reductions

Why we are considered as one of the best M&A firms?

We combine our transactional skills with specialist experience across a number of fields to advise our clients on M&A transactions, including employment, tax benefits, financial services, regulatory services, real estate, intellectual property and business. Given the often rapid speed of transactions, we appreciate the need to provide expert advice efficiently and expeditiously. Our sector teams work closely with our transaction lawyers to offer a streamlined service to clients. Good knowledge of the market, gained from many years of working with clients across our industries, enables us to bring a strategic approach to our work and a comprehensive understanding of the issues of the industry.

How many types of Mergers are there?

3.

The three main types of mergers are horizontal mergers that increase market share, vertical mergers that exploit existing synergies and concentric mergers that expand the product offering.

Why sometimes Mergers fail?
  • Mislead Investment Value – Investments on assets may look good on paper, but they may not be revenue-generating areas after the deal has been concluded.

  • Lack of clarity in the integration process – post-merger, disintegration of factors such as key employees, processes, major projects, policies, etc., leading to failure in the implementation process.

  • Mismatch in culture – If the M&A agreement fails to develop a strong strategy focused on the difference in the cultural aspects of the two companies, a low productivity of the employees of both companies is observed.

What happens to the Stocks after the Merger?

Companies in stock-for-stock mergers agree to exchange shares on the basis of a fixed ratio. For example, if companies X and Y agree to a 1-for-2 share merger, Y shareholders will receive one X share for each of the two shares they currently hold. Y shares will cease trading and the number of outstanding X shares will increase after the merger has been completed. The post-merger X share price will depend on the market assessment of future earnings prospects for the new entity.

What is a reverse Merger?

A reverse merger occurs when a public company — usually a shell company with limited operations — acquires a private company that secures access to capital markets without having to go through an expensive initial public offering process. Shareholders and managers of the acquired company exchange their shares for a controlling interest in the public company, hence the terms “reverse merger” or “reverse acquisition.”

What happens to the Cash-for stock after the Merger?

In the case of cash mergers or acquisitions, the acquiring company agrees to pay a certain dollar amount for each share of the shares of the target company. The target’s share price would rise to reflect the takeover bid. For example, if Company X agrees to pay 100 BDT for each share of Company Y, the share price of Y would increase to about 100 BDT to reflect the offer.

The price could rise even further if additional companies were interested in acquiring Y. However, the price of the X share could initially fall if investors are unconvinced about the strategic value of the merger. After the companies merge, Y shareholders will receive 100 BDT for each share they hold and Y shares will cease trading.

How long does a Mergers and Acquisitions normally take in Bangladesh?

Mergers and Acquisitions may take a long time to market, negotiate and close. Most mergers and acquisitions can take a long time from start-up to completion; a period of 3 to 6 months is not unusual.

What are the advantages of doing Mergers and Acquisitions?

 

1. Mergers and acquisitions can come with various tax advantages

2. New possibilities offered by a new market

3. Obtaining easier access to a skilled labor force

4. You can diversify your portfolio

5. Buying or merging with another company is usually cheaper

6. Better access to a larger market

7. Mergers and acquisitions can mean greater financial power and more influence

 

What Tahmidur Rahman CLP Lawyers will do in a M&A?
  • Negotiate and draft agreements – this will be done in conjunction with the client, the business that is being purchased or sold, other consultants and any financial institutions.
  • Carry out due diligence – this is an investigation to verify the accuracy of the information passed from the seller to the purchaser. It sets out the financial strength of the company; the complete ownership of all assets; whether there are outstanding debts or other claims against the company; any environmental or other liabilities that could reduce the value of the business in the future.
  • Arrange financing – this could come from banks or other types of investors; they would like to have some kind of investment security. e.g. participation in the shareholding, taking out a mortgage over property or other collateral.
  • Gather all parties to complete the transaction, ensuring that all assets have been properly covered by written documents that are properly signed and documented. Company law requires decisions to be taken at properly convened board meetings and recorded in written resolutions.
  • Finalize all registrations and procedures after completion.
How are Mergers Financed?

Mergers do get generally financed by Exchanging stocks. This is the most common way to fund a merger or acquisition. If a company wishes to acquire or merge with another company, it must be assumed that the company has a large stock and a solid balance sheet. Here, the buyer will receive more stock from the seller than if they had paid in cash.

What is the largest Mergers and Acquisitions deal in the history?

Vodafone and Mannesmann. This merger, which took place in 2000, was worth over $180 billion and is the largest merger and acquisition deal in history.

Mergers and Acquisitions in Bangladesh, M&A at CLP:

The Barristers, Advocates, and lawyers at CLP in Gulshan, Dhaka, Bangladesh are highly experienced at dealing with Mergers and Acquisitions, In Counsels Law Partners, our experience helps us to efficiently execute local and cross-border global transactions while helping you at all stages of the process and offering you cost-effective, realistic business solutions. In addition to handling various issues related to domestic clients on a regular basis, it also has experience in consulting and assisting numerous international clients with utmost care and attention throughout their legal troubles.  For queries or legal assistance, please reach us at:

 E-mail:tahmidur@counselslaw.com
Phone:+8801727983838

Address: House 39, Road 126 (3rd Floor) Islam Mansion, Gulshan 1, Dhaka.

 

Have a Different Question?

Email us anytime : tahmidur@counselslaw.com

Or call — +8801727983838

Tahmidur Rahman | Law Firm in Dhaka

Affiliated with Counsels Law Partners, A full service multi-directional law firm in Dhaka.

© 2018-2020 Tahmidur Rahman Matte IT Ltd.

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Business Visas in Bangladesh | Types, Eligibility and Requirements and how to get them | Immigration Law Firm in Dhaka, Bangladesh

Business Visas in Bangladesh | Types, Eligibility and Requirements and how to get them | Immigration Law Firm in Dhaka, Bangladesh

Bangladesh Business Law –  Top Commercial Law Firm in Dhaka Bangladesh

Business Visa in Bangladesh | Types and Requirements

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Tahmidur Rahman, Managing Partner

8 jan 2020

Table of Contents

Find the subsections below, If you want to jump through specific sections instead of reading the whole article.

Visa Application Process In Bangladesh_Best Immigration Law Firm In Bangladesh

Business Visa in Bangladesh

Business visa is valid for six months in Bangladesh and as it is a multi-entry visa. From up to three to five (3-5) years, you can extend your business visa to Bangladesh.

You don’t get a business visa to work in Bangladesh. If you’re going to get a job, you need a work permit.

Nevertheless, you can use your business visa to carry out activities such as:

 

  • Meeting your (potential) business partners or government officials
  • Visit different business sites
  • Conducting feasibility studies and market research
  • Meeting with employees
  • Establishing a company in Bangladesh
Business Visa Law Firms In Bangladesh

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Obtaining process of a visa in Bangladesh 

Bangladesh offers various types of visas to foreign nationals who want to use the current investment and work opportunities provided by the Bangladesh government. Visa from any foreign country is relatively easy to obtain, but there are no clear guidelines and the procedure of diplomatic missions in Bangladesh varies from mission to mission.

A visa to be obtained from the Bangladeshi diplomatic mission in the country of the visa applicant will be required for business visitors to Bangladesh. Depending on the political climate and other domestic issues, visa availability varies. It is generally recommended to obtain a visa before arrival in your home country.

General Requirement of visa (There will be additional requirement based on the type of visas)

  • Filled-in application form
  • Photographs (Size: 37mmX37mm and recent one): 02 copies
  • Valid passport and
  • Payment receipt of visa fee

Types of Visas:

 

Visa Types Law Firm In Dhaka Bangladesh

Here are the Visa Classifications in details:

 

 Business Visas in Bangladesh

 

Business visa is usually approved for business people who want to make use of the possibility of doing business in Bangladesh. For example, meeting various business people and government officials to make investments in Bangladesh, visiting factories and workers, testing legal barriers, contacting various staff to discuss possible business strategy in Bangladesh. However, the purpose of such a visit should be limited to the type of activities mentioned above and the person with business visa is not permitted to do any kind of business without the permission of the relevant authority (e.g. BIDA, BEPZA) or to engage in any kind of work without work permit.

  • Eligible individuals: entrepreneurs or their members.
  • Authorised length of stay: In general, B visa is granted with a fixed length of stay in each entry for a period of 3 to 6 months. The applicant must indicate the intent of the visa and how long the applicant wishes to stay in the application form in Bangladesh.
  • Indicative list of required documents: Endorsement from recognised chambers of commerce or local sponsor’s endorsement in Bangladesh and declaration of good standing / business credentials.

        Employment Visa in Bangladesh

A Bangladesh employment permit enables its holder to work and be employed in the country. It is a multi-entry visa and is valid for three (3) months in the beginning. Therefore, once it loses its value, you can also expand it. Note, however, that the period of validity depends on the duration of the contract of employment. The Department of Immigration and Passports will subsequently extend the validity of a multi-travel facility visa for a maximum period of 1 (one) to 2 (two) years at a time, based on the receipt of a work permit for employees, airlines, banks and insurance companies and on the recommendation of Bangladesh’s sponsors. 

Eligible persons:

(A) Govt-employed experts / consultants / employees. /Half Govt. Organization, organisations that are independent and similar.

(B) Local and Foreign Govt./Private, Industrial / Trading Organizations and Liaison Office, Branch Office employees and employees.

(C) Local and foreign workers and individuals. /Private undertakings and institutions of the same class.

Authorized duration of stay: The relevant Bangladesh Mission initially issues visa for a maximum period of 3 (three) months subject to submission of papers/documents in support of the appointment with application.

Indicative list of required documents: Letter of Appointment and Letter of recommendation from the concerned Ministry in Bangladesh / Bangladesh Investment Development Authority (BIDA) / Bangladesh Export Processing Zones Authority (BEPZA)

 

Us Embassy Visa Types

 

 Investment Visas in Bangladesh

 

The primary purpose of the Bangladesh investment visa is to allow the holder to attend business meetings and keep them. But these meetings will, of course, be linked to their domestic investments.

The initial duration of this visa is one (1) year with a maximum of three (3) months per year, which means that every three (3) months the investor has to leave and re-enter Bangladesh. The visa may be extended up to five (5) years if the investor decides to continue investing in Bangladesh.

Note that a letter of recommendation is required for this visa. It can be from either a local or a Bangladesh sponsor from abroad. Another prerequisite is that you need a BEPZA or BOI certificate to prove you have a Bangladesh investment.

In general, seven (7) working days are the process time for this visa. You must seek a visa from a foreign embassy in Bangladesh.

Recall also that the investment visa does not allow employment to be taken up. Therefore, if you are planning to be employed in Bangladesh by a corporation, you must also obtain a work permit.

FE VISA in Bangladesh

Eligible Individuals: spouse and other dependent members of the Principal Visa group E.

Authorized period of stay: the same length of stay as the Principal visa trip in the E category.

Indicative list of required documents: Relevant documents e.g. birth/ marriage certificates / letter from recommending authority

 

“Visa from any foreign country is relatively easy to obtain, but there are no clear guidelines and the procedure of diplomatic missions in Bangladesh varies from mission to mission.”

Visa on Arrival in Bangladesh:

 

Eligible people: HSIA may also apply for VOA from foreign investors and business persons. VOA may not be qualified for by all nationals. The issuance of this visa is the Bangladeshi immigration officer’s sole discretion.

Permitted length of stay: 30 days.

Required document indicative list:

a. The candidate for the LP / VOA must have a return ticket together with

b. Letter or identity certificate from various associations of export-oriented commercial / industrial organizations (i.e.–FBCCI / BGMEA) in their letterhead specifying the relationship between the claimant and the organization and the length of the relationship.

c. The VOA applicant must have US $500 or equivalent foreign currency endorsed in his/her passport, credit card, debit card, travellers’ cheque or in cash.

 

Visa Application Process Top Law Firm In Dhaka Tahmidur Rahman

 

 

➤ E1 Visa in Bangladesh –

 

Authorized length of stay: E1 visa is granted by the Embassy of the People’s Republic of Bangladesh of the country concerned for a maximum period of 6 (six) months, subject to the presentation of papers / documents in support of the appointment.

 

Eligible persons: Persons visiting equipment and software / project supervision supply / installation / maintenance etc. Indicative list of required documents: invitation from the local sponsor, copy of the agreement, recommendation from the Bangladesh Investment Development Authority (BIDA)/Bangladesh Export Processing Zones Authority (BEPZA)/department / agency.

 

 

 

➤ PI Visa in Bangladesh:

 

 

Eligible Persons: Investors in existing / new / under construction / new industrial / commercial entity in the private sector under a joint venture or a 100% foreign-owned company Authorized length of stay: PI visas shall be issued at the first application for a period of 3 months, if applied with the relevant documents.

Authorized duration of stay: PI visas are issued for a period of 3 months at the first application, if applied with relevant documents.

Indicative list of required documents: Certificate / Letter of BIDA / BEPZA (if applicable) certifying that the applicant is a genuine investor

 

 

 

➤ A3 Visa in Bangladesh-

 

Eligible Persons: Experts / advisers / officials / staff members / labors working in any project under the bilateral / multilateral agreement between Bangladesh government

and development partner agencies

Authorized duration of stay: The concerned Bangladesh Mission grant A3 visa for a maximum period of 3 (three) months subject to submission of appointment letter upon application.

Indicative list of required documents:

1. Recommendation from concerned Ministry / ERD / Govt. Organization and copy of agreement.

2. Security clearance from Ministry of Home Affairs.

 

 ➤FPI Visa in Bangladesh

 

 

 

Eligible Persons: Spouse and dependent members of the Principal travelling on PI category visa

Authorized duration of stay: same duration as Principal travelling on PI category visa.

Indicative list of required documents: Relevant documents e.g. birth/ marriage certificate / letter from recommending authority

➤FA3 Visa in Bangladesh:

 

 

Eligible Persons: Spouse and other dependent family members of A3 visa holders.

Authorized duration of stay: same duration as Principal traveling on A3 category visa.

Indicative list of required documents:

1. Recommendation from concerned Ministry / ERD / Govt. Organization/copy of agreement/MOU etc. with GOB.

2. Police Verification Report

 

 

➤ J visa in Bangladesh

Eligible Persons: Journalists of newspapers / magazines / TV or radio networks / news agencies / representatives of print, electronic or satellite media / freelance journalists etc.

Authorized duration of stay: usually 3 years

Indicative list of required documents: A clearance from the Ministry of Foreign Affairs ‘ External Publicity Wing is required for the issuance of J category visa. Usually it takes 21 days to process after the application has been submitted. The applicant must also apply, together with the visa application form, duly filled in FF-I and FF-II forms.

 

 

 

Visa Requirement In Bangladesh Law Firm In Dhaka

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How to Submit Taxes in Bangladesh | Income Tax, Customs Duties, VAT.

How to Submit Taxes in Bangladesh | Income Tax, Customs Duties, VAT.

How to do Tax Submission in Bangladesh | Complete Overview of Income Tax, Customs Duties, VAT.

Tax Lawyer In Bangladesh
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Tahmidur Rahman, Senior Associate

25 November 2019

Table of Contents

Find the subsections below, If you want to jump through specific sections instead of reading the whole article.

Tahmidur Rahman Tax Lawyer

Tax Submission in Bangladesh:

What are the process of Tax Submission in Bangladesh ( Personal Income Tax,  Corporate Income Tax, Custom Duties etc.) and what are the rules and regulations that relate to specific custom duties, supplementary duties, regulatory duties and their relationships with HS code and brand valuation and how to deal effectively with the issue? This post in details will provide a complete overview of Tax Submission in Bangladesh and will hopefully answer to your quries in regards to Tax Law in Bangladesh.

Taxation in Bangladesh 

 

In Bangladesh, the history of income tax submission dates back to 1860 when British rulers introduced it in this country under the title of the Income Tax Act, 1860. Many changes have occurred since then. Recently, taxation facilities have become one of the Bangladeshi business organization’s important and complex compliance issues. Tax levy and taxes were updated by the promulgation of the Finance Act almost every year. Tax facilities in Bangladesh are usually regulated by the 1984 Income Tax Ordinance.In Bangladesh, legal aid related to VAT, tax and customs is high in demand. Because of its complexity, particularly for businesses, new investors and entrepreneurs understanding the various formalities involving taxation is a big challenge.

With income tax in particular, different statutory requirements for e.g. income advance tax, source tax deduction, tax exemptions, tax rebate, procedures for filing annual tax returns along with their assessments, etc., and their correlation, which can be found difficult without proper knowledge. Here one by one, we will explain the procedures and regulations in regards to Tax Submission in regards to Bangladeshi Law.

Income Tax in Bangladesh 

One has to pay his or her income tax at the end of each fiscal year, and a number of Bangladesh taxpayers are doing the job quite successfully.But there are also many clashes with filing their tax returns because they have little or no idea of the process.Things seem to be rather difficult, particularly for the first time people who pay taxes.

Are you actually Suppose to Pay Income Taxes? Are you in the Bracket? Find out whether you are actually eligible for Tax Submission in Bangladesh First!

In accordance with the stipulation set out in the Finance Act, if any person earned more than Tk 220,000 during the 2013-14 income year, he / she must send his / her income return along with the source(s) of income. Nonetheless, the total non-taxable income limit will be Tk 275,000 for women and senior taxpayers aged 65 and above, Tk 350,000 for physically challenged mentally handicapped workers, and Tk 400,000 for war injured freedom fighters serving in the gazette.

Incometax Tahmidur Rahman Dhaka Law Firm

The following person must also submit his / her income tax return, however, if he / she did not earn much more than the maximum limit, if he / she:

(i) resides in a municipal corporation or paurashava or divisional headquarters (HQ) or district headquarters and owns a motor vehicle including a jeep / microbus or is a member of a VAT registered club;

(ii) runs a business or profession licensed and operates a bank account;

(iii) has registered as a doctor, dentist, lawyer, income tax practitioner with a recognized professional body;

(v)     is a candidate for an office of any paurashava, city corporation, or a Member of Parliament;

(vi)     assessed to tax for any of the three years immediately preceding the income year;

(vii)     participates in a tender floated by the Government, semi- Government, autonomous body or a local authority. In addition, any registered company/Non-Government Organisation (NGO) shall file a return of its income or the income of any other person for whom the company/NGO is assessable to the authority.

 

The tax rates during the assessment year 2014-15 for individual taxpayer other than female, taxpayers of 65 years and above, differently able person, retarded employee and gazetted war-wounded freedom fighter are as follows:

Tax Law Chart Tahmidur Rahman Law Firm In Dhaka

Income Tax Submission in Bangladesh

Income tax submission in Bangladesh/ Income Tax Return in Bangladesh

The income tax return is something that people are required to submit each year by November 30. And by that time, you will have to update your employment, property, and income tax data through a form. The main reason is that the data submitted for a fiscal year may vary from the information submitted a year earlier.

A taxpayer has to notify the state on its current status after using a TIN. Punitive measures are also in place to avoid taxes.

Every income tax payer is entitled to receive income tax return form free of charge from tax offices or NBR i.e. National Board of Revenue website. In addition, NBR has launched online tax calculator on www.nbrtaxcalculatorbd.org to promote the assessment of their taxes by assessees. Additionally, for small businessmen, doctors and lawyers, NBR offers spot assessment. Anyone who invests Tk 1000,000 as initial capital shall pay Tk 4000 and pay Tk 2000-4000 as income tax to those doctors and lawyers who have practiced their profession for 5-10 years.

For Tax Submission in Bangladesh, each assessee shall deposit the amount to the govt after assessing the amount of income tax. Exchequer by pay order, challan treasury or online via www.nbrepayment.gov.bd and submit duly signed and verified return form along with the necessary documents to the tax circle concerned.

For details of filing system, click here or in the image below-

 

Procedure Of Income Tax Online Return Tahmidur Rahman Law Firm In Dhaka

Time limit to submit the tax return in Bangladeh

Deadline for submitting a return A company / NGO shall submit an income tax return by the fifteenth day of July following the year of income or by the fifteenth day of July before the expiry of six months from the end of the year of income, before the expiry of those six months and in all other cases by the thirtieth day of September following the year of income. Nevertheless, with the permission of the Inspecting Joint Commissioner, the last date for the return can be extended by the DC of Taxes for up to six months. The state can also expand the time limit in addition to this.

Income Tax exemption in Bangladesh

Many individual classes enjoy tax holidays. For example, if you own savings certificates, invest in the stock market and have life insurance, a certain amount of your income tax will be waived.

For this purpose, income tax lawyers suggest savings tools as they are most risk-free and can be found at the National Savings Bureau, post offices, and banks.

Punishment for infringement of the tax rules in Bangladesh

An assessed person shall be guilty of an offense punishable by imprisonment for a term of up to three years, but not less than three months or for a fine or both, if he / she makes a statement in any confirmation, return or other document furnished in compliance with any provision of the ITO 1984 which is false or intentional and involves other persons.

In addition, an assessee shall be guilty of an offense punishable by imprisonment for a term that may extend to one year or a fine or both if he / she refuses to provide the return of income in due time without reasonable cause. In addition, the DC of Taxes will impose fine Tk 10 percent of the last estimated amount, but not less than Tk 1000, and will also impose fine Tk 50 late on each day.

Therefore, a person will be guilty of an offense punishable by imprisonment that may stretch to five years but may not be less than three months or fine or both if he disguises the information or intentionally gives false details of his earnings in regards to tax submission in Bangladesh .

The established income tax collection schemes are soft, complicated, time-consuming and are not yet taxpayers ‘ trouble-free. In this regard, the entire system of tax management should be effectively structured to prevent tax evasion.

Where to complain in regards to Tax Submission in Bangladesh

If you have a service allegation or other tax-related issues, you can file a written appeal to the tax commissioner detailing the problems.

The prosecutor must hold a hearing on it after receiving the petition, leading to its settlement.

If not, with his or her issues, the taxpayer should petition a jury. The person still has the option to move to the High Court as a last resort remedy in the event of a further failure to substantiate the complaint.

And last but not least, a taxpayer will know that whatever service they get is not safe. In fact, a taxpayer gets the services by paying money.

 

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Value Added Tax (VAT) in Bangladesh | Tax Submission in Bangladesh

All goods except those listed in the VAT Act’s First Schedule and all services except those specified in the Second Schedule are taxable goods and services. Originally, a comprehensive list comprising the list of services subject to VAT was the Second Schedule of the VAT Act. The First and Second Schedules now list respectively statutory exemptions to goods and services. The third schedule lists the goods and services subject to additional duties (SD) and their relevant statutory rates.

NBR has now listed the number of VAT-able products and their range clarified by a Statutory Regulatory Order (SRO) at 79. For various types for VAT–Gross-Product VAT, Income-Type VAT and Consumption-Style VAT–Bangladesh has adopted the consumption-type VAT and its invoice-based credit or credit-subtractive system for calculating VAT payable by a company in each tax cycle. By applying the tax rate to each individual sale and subtracting all input taxes previously paid on sales, company calculates the tax liability according to this process.

 

Rates of Vat in Bangladesh

 

Most of the countries that implement VAT worldwide operate a single standard VAT rate. Appendix 1 indicates certain countries ‘ VAT rates with the year in which they launched VAT. In regards to Tax Submission in Bangladesh, country’s VAT legislation provides a standard rate of 15 percent for home consumption goods and services in line with best international practice and a zero rate for exports. Under the rule, all taxable goods and services manufactured and sold for sale in the country are subject to VAT at 15%. For all goods and services to be exported and deemed to be exported from the country, a rate of 0 percent applies. In practice, however, there are some other rates  that emerged from different methods

Registration of  VAT in Bangladesh 

 

All importers, zero-threshold exporters and suppliers (manufacturers, dealers, wholesalers, retailers) of all taxable goods and services with an annual turnover limit of BDT 60 millions (BDT 6 million, equivalent to US$ 80,400) and above are required to be registered under VAT. The VAT law requires a divisional VAT office to issue a certificate of registration within 2 (two) working days of receiving a request.

 

Businesses below the threshold can opt for voluntary registration of VAT in Bangladesh, in line with international practice. The amount of VAT collected shows that the majority of VAT registered persons are optionally or voluntarily registered.

One of the reasons is that while the threshold has undergone upward revision quite a few times over the past 20 years, those with their existing threshold within voluntary VAT registration could not escape the net once the threshold was increased due to administrative convenience as well as external pressure.

The study of different VAT regimes, particularly those of developing countries, suggests that in a simpler procedure, despite the distortionary effects of the different treatment between undertakings above and below the threshold, many countries tax undertakings differently and at a much lower rate.

This is done primarily because of the administrative and compliance costs, equity and competitive advantages and disadvantages of the economically involved parties. In Bangladesh, this is no exception. Section 8 of the Act provides that undertakings whose annual turnover is below the VAT threshold and for which VAT registration has not been made compulsory are entitled to pay turnover tax @ 3% of declared and approved annual turnover without the possibility of claiming input tax credit. Nevertheless, most of the taxable products listed and a number of items are not eligible for turnover tax as they are required to register VAT.

The number of businesses registered under VAT system is 480,467, which is glaringly poor as compared to the number of total businesses in the country. According to the economic census of 2001 and 2003 the total number of businesses in different sectors was 3,674, 971 of which 1,127, 613 were registered with the trade licensing authorities

 

Vat Registration In Bangladesh

Vat Filling in Bangladesh | Vat Submission in Bangladesh

Compliance with taxes is ensured by submitting periodic returns. In Bangladesh VAT, a registered person is required to submit a return in a tax period in accordance with section 35 of the VAT Act. Submitted in a prescribed form –(Mushak 19) in duplicate to the local VAT office within 15 days of the following month, VAT returns are normally submitted on a monthly basis, although there are provisions for quarterly and semi-annual returns for certain companies. Compliance with taxes is ensured by submitting periodic returns. In Bangladesh VAT, a registered person is required to submit a return in a tax period in accordance with section 35 of the VAT Act. Submitted in a prescribed form –(Mushak 19) in duplicate to the local VAT office within 15 days of the following month, VAT returns are normally submitted on a monthly basis, although there are provisions for quarterly and semi-annual returns for certain companies.   The Bangladesh VAT filing scenario shows a huge difference between what’s being taught in the book and what’s being done.

Although Return should be the core of all VAT activities in an ideal VAT system, namely tax liability, input tax credit, drawback, and revenue statistics, VAT returns were not given the importance they deserve in Bangladesh. Return filing rate is very low. According to the latest statistics, out of 480,467 registered VAT-payers, the number of returning units in 2009-2010 was only 77,619, i.e. 16.15% (NBR, 2011).

 

Number Of Vat Return And Vat Registration In Bangladesh Law Firm In Dhaka

 

One of the reasons for weak return filing is that VAT is obtained at sources in the case of firms with more than 70% (estimated) registered individuals, such as construction firm, procurement provider. The lack of a culture of voluntary tax compliance is another reason for the unsatisfactory rate of return submission. Due to the lack of successful compliance, the situation is further compounded.

Until now, there has been no significant VAT system automation in Bangladesh. Although most VAT commissioners have data processing units with the VAT Information Management System (VIMS) computer program in place, returns are not processed systematically.

 

Vat Tax Customs Law Firm In Dhaka Bangladesh

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Custom Law in Bangladesh

 

Bangladesh is implementing the Harmonized Commodity Coding System. Import ProceduresDocuments required for importation include a letter of credit authorization form, a lading or airway bill, commercial invoice or packing list, and origin certificate. For certain imported items or services, the relevant government agencies require additional certifications or import permits related to health, safety or other matters. For the public sector, reduced documentation requirements are applicable.

Foreign companies must obtain permission from the Chief Import and Export Controller and submit the following documents: photocopies of an import registration certificate; photocopies of invoices, lading bills and import permits duly certified by the bank; a copy of the General Index Register (GIR) certificate; a certified copy of the last tax order; name and description of each impairment.

The following documents must be submitted by private sector importers: certificate of affiliation to a registered chamber of commerce and local industry or professional association established in Bangladesh; proof of payment of renewal fees for import registration certificates (IRC) for the tax year; copy of tax identification number (TIN) certificate; three copies of previou proof of payment.

A new Custom Law in Bangladesh

A new customs law is likely to soon be put in parliament under which the government will have to digitalize the associated environment, said National Revenue Board (NBR) officials.

The new draft law also implements various measures in line with global trends to promote the clearance of goods planned for export and import from ports to encourage international trade, they said.

“In view of international best practices, we have drafted the new law. The latest one is more up-to-date and more pragmatic, “a senior official of the NBR said, trying to remain unnamed as he was not allowed to speak to the media.

The new law includes various measures to promote faster trade, followed by advanced economies.

One of the clauses is the Advance Cargo Declaration, which provides companies with the ability to request customs-related import documentation prior to the arrival of goods in ports.

Under a mechanism called Post Clearance Audit, the new law will also open up the scope for compliant businesses to quickly clear goods.

According to the draft, compliant and honest traders will receive a green channel for importing and exporting goods as authorized economic operators.

 

Custom Law Firm In Bangladesh Tahmidur Rahman
Custom Law Firm In Dhaka
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Regulations of Microcredit & Financial Institutions in Bangladesh

Regulations of Microcredit & Financial Institutions in Bangladesh

Regulations of Microcredit & Financial Institutions in Bangladesh

 

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Tahmidur Rahman, Senior Associate

5 Aug 2019

What are the rules and Regulations of Microcredit & Financial Institutions in Bangladesh regarding incorporating and then managing a microcredit and microfinance institutions in Bangladesh? What are the regulatory compliances to maintain for an already established one? We explain everything in details in this post.

The concept of Microcredit and Microfinance

 

Before diving on to the rules and Regulations of Microcredit & Financial Institutions in Bangladesh, let’s recap the concept of microcredit and microfinance. Although the practice of lending small amounts of money for investment and consumption purposes has been popular in Bangladesh, modern structured, systemic, group-based and institutionalized micro-credit operations are Bangladeshi developments, pioneered by the Grameen Bank and replicated around the world with local modifications and adaptations. The system has experienced explosive growth here and elsewhere, and has given hope to millions of poor and lower middle class men & women and to generate income to get out of poverty. The Microfinance Management System has overcome the structural problems of targeting and providing financial services to millions of poor people.

The Societies Registration Act 1860, Companies Act 1994, Cooperative Societies Act 1984, Charitable and Religious Trust Act 1920 and Trust Act 1882 are the acts under which NGOs operating under microcredit programs may be registered. NGOs eligible to receive donations from different foreign sources must be registered with the NGO Office of International Contributions (Voluntary Activities) Regulation Ordinance 1978.

The MFIs was found to have transaction costs. Identifying and choosing target lenders and maintaining a high level of loan recovery are also expensive.

Before we deep dive into the details of Microcredit institutions in Bangladesh, if would like to know the rules for registration of a company in Bangladesh, visit the blog post below.

If you want to know how to open a company in Bangladesh or about company formation click here!

  • Step by Step Process of Registering a Company in Bangladesh

Microcredit in Bangladesh

The continued “double-dip” slowdown in the investment markets is impacting Bangladesh’s economies. In addition, recent over-indebtedness problems in several countries have shown that there is over-supply of micro-credit. In this context, Bangladesh’s microfinance sector has shown great resilience and continues to contribute to the improvement of macroeconomic development. Bangladesh has achieved a remarkable achievement in financial inclusion in Asia. Approximately 81% of its adult population, including both the formal and microfinance markets, has been put under financial inclusion under the guidance of Micro regulation authorities, i.e MRA and Bangladesh Bank.

According to a recent World Bank survey, Bangladesh is second amongst the Asian countries to Sri Lanka in terms of financial inclusion indicators. The report shows that 40% of Bangladesh adult’s accounts are in formal financial institutions, which is 35% in India and 10% in Pakistan. MFIs in Bangladesh are already working with remittance channeling banks and mobile money transfer software. Bangladesh has also made good progress in terms of consumer rights and empowerment. The total savings has also increased by 23.25 percent to BDT 63.3 billion in June 2011 compared to previous year from 26.1 million clients, over 93 percent of them are women.

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Regulations of Microcredit & Financial Institutions in Bangladesh

The Microcredit Regulatory Authority (MRA) was founded by the Government of the People’s Republic of Bangladesh under the Microcredit Regulatory Authority Act 2006 to promote and promote sustainable development of the microfinance sector by establishing an enabling environment for NGO-MFIs in Bangladesh. As the regulatory organ, MRA determines the rules and regulations of Microcredit & Financial Institutions in Bangladesh, i.e the NGO-MFIs. The Authority’s license is required to carry out microfinance operations in Bangladesh. MRA provides statistical information on the microfinance market on a regular basis. The NGO-MFIs provide operating data on the specified format twice a year and financial information on a yearly basis. The Government passed the Microcredit Regulatory Authority Act 2006 in July 2006 on the basis of suggestions made by the Committee. Under this Act, the Government established a separate Microcredit Regulatory Authority (MRA) and appointed its Board of Directors, chaired by the Governor of the Bank of Bangladesh. Under this new law, all operating MFIs will have to apply for a license from the Authority. No MFIs will be allowed to operate within the country without a license from the Authority. According to the legislation, all organizations that have a microcredit operation must separate their financial operations from other development works and keep their accounts separate.

The top three MFIs contribute 54% of the total outstanding loans as well as deposits of the microfinance sector in Bangladesh. Two of the largest MFIs, BRAC & ASA, each represent more than five million lenders. There are a few more of them evolving quickly. On the other hand, the smallest 428 NGO-MFIs contributed just 4 per cent of the total outstanding loan and 5 per cent of the total savings. The corporate dominance ratio is highly skewed in favor of large MFIs: only 22 companies hold 76% of the market share, while the three largest entities manage more than 50% of both the clients and the total financial portfolios.

On the other hand, Grameen Bank offers credit without collateral for a wide range of revenue generation and asset building activities. It also provides its members with housing loans. During the 2009-10 fiscal year, its cumulative microcredit disbursement amounted to Tk 91.9 billion, which was more than 28 per cent of the previous year. The number of its borrower members rose to 90,000, and 95% of them were women. It operates in over 45.000 villages. Several major micro-credit initiatives in Bangladesh that implement Grameen’s group-based approach include Brac, an NGO with more than 1 million members, and the Bangladesh Rural Development Board (BRDB), a government agency offering micro-credit to some 500,000 members.

Legal Requirements to be an NGO-MFI in Dhaka, Bangladesh

 

The organization/person willing to operate Microcredit activities in Bangladesh shall submit application to the Microcredit Regulatory Authority in Prescribed Form and Prescribed manner, which is available to access by legal entities in Microcredit Regulation Authority office (MRA) in Bangladesh. And that is only possible or applicable for the prospective applicant institutions after getting registration as an NGO under any of the following acts:

  1. The Societies Registration Act, 1860 (Act XXI of 1860);
  2. The Trust Act, 1882 (Act II of 1882);
  3. The Voluntary Social Welfare Agencies (Registration and Control) Ordinance, 1961 (Ordinance No. XLVI of 1961);
  4. The Companies Act, 1994 (Act XVIII of 1994).


 License Issuing Procedure of MFI-NGO’s in Bangladesh

 

(1) In order to obtain a license, a person shall apply to the Authority in the prescribed form set out in the given form by MRA.

(2) Upon receipt of the request in the following form, the Authority shall evaluate the information provided with the request and, upon satisfaction, request the payment of the required license fee. (Follow the figure below).

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(3) The Authority shall issue the license in the form set out in Annex B within 10 (ten) days of receipt by the applicant of the license fee referred to in sub-clause (2).
(4) If the application is denied, the Authority shall inform the applicant in writing within 30 (thirty) days of the rejection.
 


 License Issuing Procedure of MFI-NGO’s in Bangladesh

 

(a) The licensed entity shall abide by the law and all provisions of this Microcredit Authority Provisions 2010;

(b) the licensed organization shall not be able to operate its Microcredit Activities outside the area of operation approved by the Registration Authority;

(c) the full address of the Head Office and the Branch Offices of the company shall be notified to the Authority;

(d) any alteration in the area of operation permitted by the Registration Authority; 

(e) any change of address of the Head Office shall be notified to the Authority in advance;

(f) changes to the address of the Head Office or Branch Office shall be notified to the Customers and to all other relevant parties;

(g) the licensed organization shall pay the annual fees mentioned in the table beforehand;

(h)The licensed organization must provide all information as required by the Authority and extend all co-operation in carrying out any inspection and investigation by the Authority.

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Models of Lending in Bangladesh 

 

1. Grameen Bank Style Microfinance

 

For all practical purposes, existing regulations of Microcredit & Financial Institutions in Bangladeshis is regulated by working out the presented by the Grameen Bank’s simple group-based approach. The basic structure is as follows: poor women and men are grouped into classes or groups that meet once a week to deposit a small amount of savings to build up their own resources. The Bank or MFIs lends a one-year loan (some MFIs repay loans within 43-46 weeks) which the lender repays in equal weekly instalments along with interest. Once the lender repays one loan, it is entitled to obtain another loan normally of a higher amount within the total loan limit, which, of course, is adjusted upwards over time.

 

The methodology was found to be so reliable and efficient that almost the entire industry adopted this method with minor adjustments to savings / credit policies such as savings and loan interest, savings withdrawal rules, etc. Today, almost 33 million women and men are working on this basic system every week. With time, however, both the Bank and other MFIs have modified their processes to deliver more than one form of savings and credit products, as the complexity of demand has changed and MFIs have also learned to deal with more complex situations.

 

        2: Self Help group system

 

A handful of non-governmental organizations have attempted and are still pursuing the so-called self-help group approach to creating a financial service delivery system. In this case, the organizer or NGO organizes self-help groups with the goal of promoting the mobilization of savings among disadvantaged women and men. If the participating members need a loan, they can borrow from their samity, i.e. their own savings funds. If the funds are not sufficient, the self-help Samities may seek to borrow additional capital from banks or the NGO. The second option was tried in Bangladesh, but the first alternative was not possible.

 

        3: Individual Lending System

 

As the Regulations of Microcredit & Financial Institutions in Bangladesh are maintained by both the MRA and the Bangladsh Bank, the central issue in designing an individual system as opposed to a group-based system is to deliver flexible and demand-driven services to each client / borrower. The group-based system is seen as a’ one-size fits all’ system. The individual loan strategy, i.e. providing savings and credit services to each customer on the basis of the particular client’s request. Flexibility may occur in the form of the amount and frequency of the deposit of savings, the amount of the loan and the length of the loan, the repayment of the amount of the loan and the frequency of installments (no fixed schedule is considered flexible) etc.

Nevertheless, lending to individuals does not necessarily make it entirely’ flexible.’ For example, ASA and BRAC disburse loans to individual clients under their respective microenterprise loan programs but offer a fixed one-year loan and a fixed monthly repayment plan.

 

4.Fin-tech money lenders 

 

Although currently there’s no money lending MFI which is solely operating on FinTech-enabled payment processing and modelled their micro finance institutions according to that modern app based payment skeleton structure presented in other countries all around Asia, like Moneytap or koinworks. Implementing a credit based money lending through apps in bangladesh will play a huge role in modern era of lending credits. This  will also reduce the amount of cash needed for printing and distributing currency notes. In addition, it will help mitigate the risks of counterfeit currencies circulating in the country. Reduced cash requirements would help the central bank reduce costs and manage risks.

Currently in Bangladesh, specialized financial institutions for processing transactions are generally referred to as payment banks. Payments banks are especially useful for people who do not have a bank account but engage in payment activities. FinTech allows these banks to keep their operating costs to a minimum. Payments banks are exploiting mobile telecommunications infrastructure and their large subscriber base to remove the barriers to entry. They compete with cash transactions to provide their customers with a simpler, faster and cheaper alternative. FinTech will help to achieve all of this for payment banks. With the right kind of guidance from regulators, the payment sector in Bangladesh could grow rapidly.

5.Informal money lenders

 

Informal money lenders are another typical source of micro-loans that follows’ individual loans.’ No up-to-date information and research on their activities is available. Nevertheless, it is assumed, on the basis of anecdotal evidence and small studies, that rural poor are no longer dependent on money lenders for small loans due to the proliferation of MFIs. We have the potential to borrow from one or more MFIs for investment or, in some cases, for consumption purposes. Nevertheless, due to the lack of a large-scale agricultural loan from MFIs, money lenders can still be found borrowing for emergency loans to the poor and also for agricultural loans.

 

 

Screenshot 2019 10 17 At 7.06.56 Pm
Screenshot 2019 10 17 At 7.04.17 Pm

“Implementing a credit based money lending through apps in bangladesh will play a huge role in modern era of lending credits.”

Can fintech loan apps can mushroom in bd 

The four key elements of the Digital Bangladesh Vision Government are the creation of human resources, the participation of women, civil services and, finally, the use of technology in businesses. Since the use of technology in industry is one of the key elements of “Virtual Bangladesh Vision,” MFS has made the most significant improvement over the years. However, only 47% of the population is still financed. Meaning that only 47% of the population has access to useful and affordable financial products and services that meet their needs–transactions, payments, savings, credit and insurance–delivered in a responsible and sustainable manner.

 

Screenshot 2019 10 17 At 7.06.00 Pm

Fintech & Microcredit in Bangladesh

 

MFS still in its infancy has many downsides, for example: interoperability, limited service and withdrawal restriction among others. On the other hand, MFIs are currently facing competition from the finance and agent banking sectors. MFIs lack a comprehensive IT infrastructure that limits their ability to provide a variety of products and services to the financially excluded remote parts market. On the other hand, if we take a look at agent banking, we’ll see how both the collection of deposits and the disbursement of loans have grown. As of September 2018, the loan disbursement through the agent banking network amounted to BDT 150 crore, up 9.8% from a quarter earlier that year.

At the same time, the collection of deposits increased 28 per cent to BDT 2,577 crore, according to data from the central bank. As MFS and agent banking are more like an extension of traditional banks or in association with banks and mobile phone operators, they can easily remove customers from MFIs.
In fact, despite infancy in some cases, these MFS now even deliver savings to consumers, and they also have technical support. Nevertheless, social inclusion is not their main objective.
MFIs can use FinTech’s ability to address poverty in a pro-poor way by actively leveraging their large customer database.

Given all the benefits, the complete digitization of the microfinance sector will be strenuous as a number of challenges emerge.

First of all, the costs of developing virtual field applications are very high for MFIs. In a report published by UNCDF, one of the senior managers of a large MFI developed in Bangladesh suggested that hardware costs, for example: smartphone, tablets, would be too high for them.

One of the most difficult challenges for MFIs is to win customer trust. As most MFI clients are peasants, they lack financial and technical literacy. In fact, the TMSS Senior Manager stated that, if they ask their customers to apply for a loan.

 

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