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How to take Foreign loans in Bangladesh in 2023 | How to effectively process Overseas Financing for Bangladeshi Companies | Pioneering Bangladesh

How to take Foreign loans in Bangladesh in 2023 | How to effectively process Overseas Financing for Bangladeshi Companies | Pioneering Bangladesh

How to take foreign loans in Bangladesh in 2023 | Step by step process of getting loan from foreign entities

11 Jan 2023

Best Advocate Lawyer Barrister In Bangladesh

Tahmidur Rahman, Director and Senior Associate

This post will explain in details about Overseas Financing & Foreign loans for Bangladeshi Companies- How to take foreign loans in Bangladesh in 2023 . Here in this post we explain the Procedure & Guidelines for the required approval of foreign loans by Bangladeshi Companies.

Table of Contents

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

Foreign Loans

Overseas Financing by Bangladeshi Companies 

Over the last decade, obtaining a foreign loan by Bangladeshi entities or companies, have increasingly become a routine occurrence. Bangladeshi companies choose international loans for a variety of reasons, including lower interest rates and the ability to borrow a big sum from a single lender.

The Government of Bangladesh has been enabling foreign borrowing legally approved by the Scrutiny Committee in order to attract foreign investment in the private sector through simpler long-term financing of industrial projects at lower cost of funds and to relieve strain on foreign currency reserves.

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Obtaining  foreign Loans in Bangladesh in 2023

In 2023 , Short-term loans from parent corporations and shareholders are now available to foreign-owned service companies as operating capital. Overseas-owned enterprises operating in Bangladesh now have more flexibility in receiving foreign loans according to the Bangladesh Bank.

According to a notice released by the central bank’s Foreign Exchange Policy Department, foreign-owned service companies can now obtain short-term loans as working capital from their parent companies and shareholders for essential business needs (FEPD).

Previously, such loans were exclusively available to foreign-owned industrial businesses that participated in manufacturing. Such loans were not available to service or trading enterprises. However, service businesses can now take out such loans as well.

The central bank further stated that such a loan might be available in convertible foreign currencies for a maximum of six years from the start of manufacturing and/or service output operations, with the opportunity to renew or extend the term during that time. Borrowing businesses may pay interest at a maximum of 3% per year until additional instructions are issued, with all other relevant transaction directions remaining intact.

 What are the usual requirements to borrow?

Though each foreign lender has its unique set of criteria, the following is a summary of some of the most frequent requirements that a company may be expected to meet before acquiring the foreign loan.

 

  • Borrower possesses the necessary licences and permits to operate its business.
  • The borrower’s business records are up to date.
  • Borrower is a firm that is conscious about the environment.
  • All industry standard certifications have been obtained by the borrower (e.g. ISO certification).
  • Borrower is a company that follows all labour laws.
  • The borrower or the project has proper insurance.
How To Take Foreign Loans In Bangladesh 2023 _ Overseas Financing For Bangladeshi Companies_ The Most Complete Guideline For Foreign Loans_ Best Corporate Law Firm In Dhaka

Step by Step requirements and all the possible documents that you may need

When the documents are issued, they will be thoroughly reviewed by the BIDA Inter-Ministerial Committee. When the committee is content with the verification then they may give the approval or can obtain additional documentation. Hence it is important to carefully prepare the papers.

 

  • The Company’s Board of Directors approval for the proposed foreign loan.
  • Copy of the most recent BIDA registration form, duly attested by a First Class Gazette officer;
  • Original copy of the parties’ Loan Agreement; (For the lender, a copy of the detailed repayment schedule; original copy of the grade period;)
  •  CIB Inquiry Forms 1&2 duly completed, as well as an undertaking from its Sponsors or Directors;
  • Sponsors’ or directors’ credentials;
  • The company’s and its sponsors’ CIB certificates;
  •  Record of previous foreign loans/deferred payments (if available);
  • Audited previous year’s balance sheet;
  • Utilization Certificate from nominated bank;
  • Latest company credit rating report;
  • Latest financial analysis 
  • Updated feasibility report of the proposed project in detail;
  • Form-X, Form-XII and Form-XV from RJSC&F;
  • Certificate of Incorporation of commencement;
  • Memorandum & Articles of Association;
  • Proforma Invoice or Price Quotation (where applicable);
  • Original copy of the Bank Solvency Certificate;
  • Descriptive statement of the use of the loan;
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Criteria for foreign borrowing

Foreign lenders typically conduct extensive due diligence on the borrower. Financial due diligence is typically performed by the lender; however, for technical, environmental, and legal due diligence, the lender may hire external consultants. The borrower will be responsible for the costs of these consultants.

The lender may require the borrower to appoint a process agent in the country of its choosing,  an auditor affiliated with an international auditing firm; and a compliance manager. The auditor and compliance manager may require a timely report to be submitted directly to the lender following disbursement.

Other Relevant Criterias for Foreign Loans

i. Debt-to-equity ratio: The debt-to-equity ratio based on anticipated borrowing should be kept to a bearable level. While relatively higher debt levels may be warranted for long gestation infrastructure projects, total debt including the proposed borrowing should not breach 70:30 debt equity ratio even for these projects;

ii. Liabilities to the Government: There should be absolutely no liability to the government, either in Taka or in foreclosed property.

iii. Status of implementation and utilization report of authorized foreign borrowing: On a semi-annual basis, the borrowing firm must submit to the BOI the status of implementation and utilization report of the approved loan in the specified format.

iv) If capital machinery and equipment to be bought: Quality, price, and economic life; The capital machinery and equipment to be procured with the proposed borrowing should either be brand new or, if refurbished, have a sufficient useful life as specified by the Government’s Import Policy Order.

v) Validity of the approval: The Scrutiny Committee’s approval of foreign borrowing is valid for 6 (six) months from the date of the BOI’s permission letter. 

Vi) Common Terms:
a) The borrowing firm must follow Bangladesh Bank’s laws and regulations on the use and repayment of the loan, as well as the interest thereon.

Foreign Loans In Bangladesh

What are the due dilligence you may expect from your foreign lenders?

Foreign lenders typically conduct extensive due diligence on the borrower. Financial due diligence is typically performed by the lender; however, for technical, environmental, and legal due diligence, the lender may hire external consultants. The borrower will be responsible for the costs of these consultants.

The lender may require the borrower to appoint a process agent in the country of its choosing,  an auditor affiliated with an international auditing firm; and a compliance manager. The auditor and compliance manager may require a timely report to be submitted directly to the lender following disbursement.

How to get the BIDA Clearance for Foreign Loan in Bangladesh

After obtaining the prescribed application from BIDA, the applicant must submit the aforementioned documents, along with the applicable licence fee, to the Security Committee of Bangladesh Bank for review. If the committee grants clearance after reviewing the submitted documents, BIDA will grant the loan in accordance with their recommendation.

The official time limit for such a process will be entirely dependent on the Borrower for document collection and, to a lesser extent, on the Scrutiny Committee to conduct the meeting, and the fee schedule for approval will be tentatively between BDT 5k and BDT 100k depending on the amount of lending.

How to get a Trade License in Bangladesh?

Click here and go to the post, Tahmidur Rahman speaks in details about Trade License in Bangladesh | Fees, Processing and Renewal!

Regulatory Permissions from Bangladesh Bank and Board of Investment (BOI).

 

Foreign loans with a term of less than a year require Bangladesh Bank’s prior authorization. The Board of Investment must authorize all other foreign loans (including supplier credits, financial loans from institutions or individuals, and debt issuance in international capital markets) (BOI).

Borrowers in special economic zones, such as the EPZs, are eligible for certain concessions (Export Processing Zone).

It normally takes three to six months for the BOI to approve the application. The loan must be applied for using a stipulated application form, which, along with accompanying documentation, must clearly state the loan’s purpose and planned usage by the borrower, as well as the repayment schedule with dates and amounts, and interest payment dates and amounts.

The following documents must be supplied with the application as supporting documentation:

  • The term sheet, facility agreement, and security documents are all part of the loan documentation. These may be submitted in draft form:
  • The borrower’s corporate documents, such as the memorandum and articles of association; resolutions of the borrower’s Board of Directors approving the foreign loan on the terms and conditions reflected in the loan documentation and the application;
  • If the loan is to be used to import any equipment, a pro-forma invoice for that equipment;
  • Report covering key financial and commercial matters in in respect of the loan and related project.

Foreign loans from Multilateral Development Banks

Each of the major Multilateral Development Banks, including the Asian Development Bank and the World Bank, has a Commercial Liaison Office run by the Commercial Service.

These financial organizations lend billions of dollars to initiatives in developing nations like Bangladesh that aim to boost economic growth and social development by decreasing poverty and inequality, increasing health and education, and expanding infrastructure development.

The Commercial Liaison Offices assist American firms in learning how to participate in bank-financed projects and lobby on their behalf.

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General Questions that people ask about Foreign Loans in Bangladesh

 

Is it possible to receive international venture capital funding to launch a business in Bangladesh?

IFC and IDLC funding helped Chaldaal, a food e-commerce firm, raise US$ 5.5 million. This is a positive indicator since if the business thrives, additional financial institutions may be willing to invest in it. Sindabad, a B2B e-commerce, received US$ 4.2 million from Aavishkaar, an Indian Impact Fund. Handy Mama, C-work, Gaze, and Beatles are among the four start-ups that BD Venture has invested in. They joined other Angel Investors in a second round investment in Esoshikhi, an educational technology. The government has set aside Tk 1 billion in the budget for new business ventures. However, the specifics of how that cash will be used have yet to be determined. The cabinet recently approved the ICT Ministry's initiative to establish a venture capital business.

Can I take loan from foreign bank in Bangladesh?

A company can obtain a soft loan in one of two ways: automatically or through the government: The automatic method allows a borrower to get a loan from a foreign firm without first obtaining clearance from Bangladesh's Central Bank. The loan arrangement must, however, be recorded with the BIDA in this case.

How to determine the existing indebtedness structure and creditworthiness of the borrowing company?

(a) CIB report: A CIB report will be needed for all proposals to be processed. The CIB report will be collected by BOI from Bangladesh Bank.
(a) Bank certificate: Existing indebtedness structure and creditworthiness of the sponsors involved, duly confirmed by their bankers, will be required for foreign borrowing permission. The chosen bank will submit to BOI the required inquiry papers as well as an undertaking from the borrowing company's Sponsor Directors.

What are the funding programs for Bangladeshi Entrepreneurs?

Robi, a mobile telecom business, has overhauled its Accelerator program. They broadened the scope by allowing applications from anybody in Robi payroll. They expanded its coverage to include all of Bangladesh. They got almost 2200 applications, of which 56 were chosen for pitching. Finally, eight funds and incubation facilities were given. These programs were aired on television in order to raise awareness and encourage people about the notion of entrepreneurship. Grameenphone has renamed its Accelerator program GP Accelerator 2.0, which is divided into two parts: Pre-Accelerator and Accelerator. Pre-Accelerator is an 8-week program that provides training and coaching to assist verify their concept and get it to market. The accelerator is a 4.5-month program for teams with a Minimum Viable Product (MVP).

How to determine the Quality & Commercial viability of the project for Foreign Loan?

The following financial analyses are necessary to verify the quality/commercial viability of the project feasibility study;

a) The project's internal rate of return (IRR) b) The payback period c) The break-even point at what capacity and what time of year d) A sensitivity analysis in terms of IRR
d) Ratio of Debt Service Coverage (DSCR)

What are the challenges regarding overseas financing in Bangladesh?

Globally, governments that backed startups saw an increase in their GDP. In the fourth industrial revolution period, creativity and technology assistance are critical for competing in global marketplaces. As a result, startups should be at the top of everyone's priority list. It is a priority for our government, but it should be represented at all levels of policy making. Our entrepreneurs have difficulties in obtaining trade licenses, intellectual property rights, and other business licenses and permissions. Foreign investors are hesitant to invest in a company that lacks all necessary legal documentation. Foreign investors are likewise unconvinced about the ease with which they might abandon their investments. Regional centers such as Singapore and China have vast amounts of money to invest, yet we are unable to entice them to engage in our enterprises.

Can an individual from Bangladesh take loan in foreign currency?

Provided, however, that for sufficient reasons, the Central Bank may permit a person resident in Bangladesh to borrow or lend in foreign exchange from or to a person resident in or outside Bangladesh, and/or permit a person resident in Bangladesh to borrow or lend in BDT from or to a person resident outside Bangladesh.

Can a foreign director give loan to Bangladeshi company?

Yes, it is permitted.  But bear in mind, a company cannot lend to a director without paying taxes, while a director can lend to a company.

How do I record a loan repayment?

When your company records a loan payment, you debit the loan account to remove the liability from your books and credit the cash account. Repayments on an amortized loan are made over time to meet interest expenditures and principle reduction.

What are the 3 classification of loans in Bangladesh?

A loan is a sum of money borrowed from a lender by an individual or a business. It is divided into three types: unsecured and secured loans, conventional loans, and open-end and closed-end loans. Before any money crosses hands, the beneficiary and the lender must agree on the conditions of the loan. In some situations, the lender may compel the borrower to put up an asset as collateral, which will be specified in the loan agreement. Individuals, businesses, and governments can all get loans. The major reason for taking one out is to obtain funds to increase one's total money supply. The lender earns money by charging interest and fees.

Company Law practice in TR Barristers in Bangladesh 

The Barristers, Advocates, and lawyers at TRW Law chamber in Gulshan, Dhaka, Bangladesh are highly experienced at assisting clients in dealing with and registering branch offices in Bangladesh.   For queries or legal assistance to set up a branch office in Bangladesh, please reach us at:

E-mail: [email protected]
Phone: +8801847220062 or +8801779127165 or +8801708080817
House 410 Road 29 Mohakhali DOHS

 

How To Take Foreign Loans In Bangladesh 2023 _ Overseas Financing For Bangladeshi Companies_ The Most Complete Guideline For Foreign Loans_Best Company Law Firm In Bangladesh

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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, TR Barristers in Bangladesh

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.

Procedure Of Foreign Investment In Bangladesh.

If you want to know everything about Branch office registration in Bangladesh!

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).

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

Procedure Of Foreign Investment In Bangladesh

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; Tahmidur Rahman RemuraV and DCF), depending on the nature of the company in regards to the Procedure of foreign investment in Bangladesh.

 

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

Foreign Investment In Bangladesh

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.

 

 

 

Foreign Investment In Bangladesh_Trends In Foreign Investment In Bangladesh

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.

 

If you want to know everything about Immigration and Citizenship in Bangladesh read this articl

Foreign Investment In Bangladesh_Entering The Bangladshi Market

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.

 

Procedure Of Foreign Investment In Bangladesh

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.

Foreign Investment In Bangladedsh

 

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!

Foreign Investment In Bangladesh_All The Priority Sectors For Foreign Investment In Bangladesh

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.

Procedure Of Foreign Investment In Bangladesh

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).

Procedure Of Foreign Investment In Bangladesh

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.

Foreign Direct Investment in Bangladesh at TRW:

The Barristers, Advocates, and lawyers at TRW 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 TR Barristers in Bangladesh, 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:[email protected]
Phone:+8801847220062 or +8801779127165

House 410, Road 29, Mohakhali DOHS

 

FAQ

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.

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.

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.

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.

Have a Different Question?

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Mergers and Acquisitions process | How to efficiently acquire in simple steps in 2023

Mergers and Acquisitions process | How to efficiently acquire in simple steps in 2023

Mergers and Acquisitions in Bangladesh – Efficient steps in 2023 – M&A Process

Tahmidgoldenpicturebackground E1569742859700

Tahmidur Rahman
 Director and Senior Associate, TR Barristers in Bangladesh

27 Dec 2019

Updated in Jan 9, 2023

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 TR Barristers in Bangladesh, 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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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.

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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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Here is a table outlining the process of mergers and acquisitions in Bangladesh:

Step Description Relevant Law Figures
1. Pre-acquisition planning The acquiring company conducts due diligence on the target company and develops a plan for the acquisition. Companies Act 1994, Securities and Exchange Ordinance 1969, Bangladesh Competition Act 2010 The acquiring company may need to engage legal, financial, and other advisors to assist with the planning process. The cost of these services may be significant.
2. Negotiation and agreement The acquiring and target companies negotiate and agree on the terms of the acquisition, including the purchase price and any conditions that must be met. These terms may be set out in a letter of intent or a term sheet. Companies Act 1994, Securities and Exchange Ordinance 1969, Bangladesh Competition Act 2010, Contract Act 1872 The purchase price may be paid in cash, securities, or a combination of both. The terms of payment may be negotiated between the parties.
3. Regulatory approvals The acquisition may need to be approved by regulatory bodies, such as the Bangladesh Securities and Exchange Commission (BSEC) and the Bangladesh Competition Commission (BCC). Companies Act 1994, Securities and Exchange Ordinance 1969, Bangladesh Competition Act 2010 The BSEC may require the acquiring company to make a public announcement of the acquisition and provide certain information to the market. The BCC may need to review the acquisition to ensure it does not result in a substantial lessening of competition.
4. Shareholder approval The acquisition must be approved by the shareholders of both the acquiring and target companies. This may require a vote at a general meeting of shareholders. Companies Act 1994, Securities and Exchange Ordinance 1969, Bangladesh Companies Act 1994 The shareholders of the target company may be entitled to receive compensation for their shares in the form of cash, securities, or other assets. The amount of compensation may be determined by the purchase price negotiated between the parties.
5. Completion The acquisition is completed and the target company becomes a subsidiary of the acquiring company. Companies Act 1994, Securities and Exchange Ordinance 1969, Bangladesh Companies Act 1994 The target company’s assets and liabilities are transferred to the acquiring company, and the target company’s shares are cancelled. The acquiring company may also need to register the acquisition with the relevant authorities, such as the Registrar of Joint Stock Companies and Firms.
6. Integration The acquiring company integrates the target company’s operations, including its employees, systems, and processes. Companies Act 1994, Securities and Exchange Ordinance 1969, Bangladesh Labor Act 2006 The integration process may involve restructuring, cost-cutting measures, and other changes to the way the combined company does business
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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:

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

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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 Tahmidur Rahman & TRW 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

Is there any compulsory conversion from Private to Public companies in Bangladesh

According to the Bangladesh Regulation, a private company has to turn itself into a public company when due to an acquisition in the form of either an issue of new shares or some other restructuring of a private company’s paid-up capital is going beyond BDT 40 crore (unlisted, with seven shareholders).

If the paid-up capital of the company goes beyond BDT 50 crore, the company must then, by public offering, list itself on the stock exchange.

However, the Bangladesh Securities and Exchange Commission can decide, by stipulating an exemption period, to waive this requirement. In addition, for joint ventures and 100 percent foreign-owned firms, these provisions have now been exempted.

Are there any restrictions of share transfer in Bangladesh?

Shares are freely transferable in a private or public company in Bangladesh. However, by its articles of association, any transfer of shares by a shareholder in a private limited company may be prohibited. It must comply with the company’s articles of association in order for any transfer of shares to be legitimate.

Transfers can be refused by the board of directors of a public corporation only on restricted grounds, citing ‘sufficient cause,’ which has also been interpreted by the courts as implying non-compliance with legal requirements. It is also prevalent for private companies to include in their charters the pre-emption privileges given to shareholders.

Is foreign ownership of companies allowed in Bangladesh?

While Bangladesh has a controlled marketplace economy, foreign ownership, with the exception of certain licensed sectors such as freight forwarding, logistics, banking and insurance, is permitted in almost all sectors. In order to allow licenses to operate in sectors after incorporation, the limited sectors have a maximum foreign shareholding threshold.

Furthermore, there are a variety of other industries in which both local and international investors monitor private investment.

How to acquire a public company by acquisition of shares in Bangladesh?

An acquisition of shares may take place either through subscribing to a company’s future earnings growth or through buying existing equity from another shareholder in the venture. For mergers and acquisitions, by filing its most recent annual report, the company must keep up to date. Any transfer of shares must be registered at the Joint Stock Companies Registrar’s Office. (In 2019, the previous requirement to receive approval from the Bangladesh Security Exchange Commission for the issue of shares resulting in a particular threshold being crossed by the paid-up capital of non-listed companies was abolished.)

How amalgamation of companies work through a High court order in Bangladesh?

Following a court order, the target entity merges into the purchasing entity and the target is then disbanded. Both of the target company’s assets and liabilities vest in the buyer. Purchase compensation is paid to the owners of the target company by the purchaser, either by allocating shares or by paying cash for the value of their shares. Mergers under the head of amalgamations are primarily regulated by the Companies Act 1994. Such amalgamations are expected to be approved by the High Courts of Bangladesh. Following the approval of the amalgamation by the court and upon approval by at least 75% of the shareholders, the transferee may offer 21 days’ notice to acquire the shares. The transferee company can acquire the shares unless the opposing shareholders have otherwise applied to the court within 30 days of receipt of the notice. A appeal to the appropriate High Court for orders to convene meetings of shareholders and creditors to obtain their approval must be made for a merger. A majority representing 75 percent of the value of the shareholders and creditors present and voting at the meetings must approve the scheme. A petition must subsequently be filed with the High Courts requesting approval of the scheme.

What is the process of demerger in Bangladesh?

The object of this arrangement is to prevent tax inefficiencies resulting from a slump in revenue or an itemized selling of assets. Under a court order, the target company’s undertaking or division is de-merged from the target and then passed to the buyer. All of the undertaking’s assets and liabilities then vest in the buyer. The target company’s shareholders are either given shares in the purchaser or paid in cash. The target organization, unlike a merger, will continue to exist. It is important to follow the same procedure as with a merger.

How slump sale works in M&A of Bangladesh?

A slump selling is the sale of an undertaking for tax purposes, or, more generally, the sale of an undertaking as a continuing concern, where the undertaking of the target undertaking is sold through a court-sanctioned scheme along with its assets and liabilities.

As compared to assigning values to individual properties, the contract can contain the obligation to pay consideration in the form of a lump sum. However, if connected to liabilities, such a transaction will also require approval from the High Court’s original corporate jurisdiction.

How acquisition of assets is done in Bangladesh?

The Sale of Goods Act 1930 regulates purchases of movables. The Companies Act describes shares and debentures as movable assets and sets out the transfer process for them. Immovable property acquisitions are limited by the Transfer of Property Act 1882.

The different aspects of the sale are protected by these laws, such as the pre-requisites for legal transactions, the rights and responsibilities of the seller and the buyer, the implied conditions and assurances, the transfer of title and the danger of the properties.
The cost of transactions plays an important role in structuring the way assets are obtained and the recording of asset transfers. These expenses include stamp duty and taxes such as income tax and capital gains. No registration is required for the selling of movable assets, but the sale of immovable assets must be registered with the Office of the Sub-Registrar.

Joint Ventures in M&A of Bangladesh

Where a wholly owned company is not the preferred choice for an investor, a joint venture could be conducted for a foreign entity seeking to reach those industries with foreign equity ceilings, for example, as a joint venture (for example, aviation, pharmaceuticals, and garment manufacturing).
In other industries, considerations such as the pre-established marketing and distribution chain of the local partner and the availability of human capital play an important role in opting for a joint venture from a new entrant’s perspective.

The acquisition of a stake after the commissioning of the project helps to prevent multiple construction issues and risks in major projects requiring a lengthy and sometimes arduous development process.

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

At Tahmidur Rahman & TRW, 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?

There are three types of Mergers in Bangladesh.

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 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.

What Tahmidur Rahman & TRW 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.

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

The Barristers, Advocates, and lawyers at TRW in Gulshan, Dhaka, Bangladesh are highly experienced at dealing with Mergers and Acquisitions, In TR Barristers in Bangladesh, 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:[email protected]
Phone:+8801847220062 or +8801779127165

House 410, Road 29, Mohakhali DOHS

 

Have a Different Question?

Email us anytime : [email protected]

Or call — +8801847220062 or +8801779127165

Tahmidur Rahman | Law Firm in Dhaka

Affiliated with TR Barristers in Bangladesh, A full service multi-directional law firm in Dhaka.

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