Expats and Employment Law in Bangladesh

Expats and Employment Law in Bangladesh: A Comprehensive Legal Guide

With Bangladesh’s growing economy and increasing foreign investments, the employment of expatriates has become more common across various sectors, including manufacturing, banking, IT, and infrastructure. While Bangladesh offers significant opportunities for expats, employment laws regulating their stay, work permits, and rights are governed by multiple statutes and regulatory frameworks.

This article provides an in-depth analysis of employment laws for expatriates in Bangladesh, covering legal requirements, work permits, taxation, dispute resolution, and relevant case laws, while ensuring compliance with Bangladesh’s Labour Act 2006, Foreign Exchange Regulation Act 1947, Income Tax Ordinance 1984, and other key legal provisions.

Legal Framework for Expatriate Employment in Bangladesh

1. Work Permits and Visa Requirements

Foreign nationals intending to work in Bangladesh must obtain the necessary legal documentation, including work permits and visas. The key regulations governing expatriate employment include:

• Work Permit: Governed by the Bangladesh Investment Development Authority (BIDA), the Bangladesh Export Processing Zones Authority (BEPZA), and the Bangladesh High-Tech Park Authority (BHTPA), depending on the employment sector.
• Visa Requirements: Expats require an E (Employment) visa, issued by the Department of Immigration & Passports, with an initial validity of three months and extendable up to two years.
• Security Clearance: Approval from the Ministry of Home Affairs is mandatory for specific sectors such as NGOs and security-sensitive organizations.

Key Provisions Under Bangladesh Investment Development Authority (BIDA) Rules:

• Employers must apply for an expatriate’s work permit through BIDA Online System.
• The application must be supported by company incorporation documents, job descriptions, and justification for hiring a foreign national.
• Maximum Ratio: Industrial sector companies are allowed to employ 1 foreign worker per 20 local workers (1:20 ratio), while commercial sector firms are allowed 1:5.
• Employment Period: Expatriates are generally allowed to work for up to five years in industrial enterprises and three years in commercial enterprises.

2. Labour Laws and Rights of Expatriates in Bangladesh

Expatriates working in Bangladesh are subject to both their employment contract and local labor laws. However, Bangladesh Labour Act, 2006 (BLA 2006) mainly applies to local workers, and foreign nationals are typically governed by the terms of their employment contracts.

Key Labour Law Provisions Affecting Expats

• Employment Contracts: Expat contracts must comply with Bangladeshi laws and include provisions regarding salary, benefits, termination, and dispute resolution.
• Minimum Wage and Salary Payment: Expats are generally paid in foreign currency or BDT as per contract. Salaries must comply with the Foreign Exchange Regulation Act, 1947.
• Working Hours: Standard work hours apply, with 8-hour workdays and 48-hour workweeks. Overtime compensation applies based on contract terms.
• Leaves and Benefits:
• Annual leave: 21 days per year
• Sick leave: 14 days per year
• Public holidays: 11-13 days
• Maternity benefits apply only to female expatriates as per BLA 2006.
• Termination and Severance: Employment can be terminated based on contractual terms. Severance pay may apply depending on the contract’s terms, as the BLA 2006 severance pay provisions generally do not cover expatriates.

3. Taxation and Social Security Obligations for Expatriates

Expatriates working in Bangladesh must comply with Bangladesh’s tax laws, particularly the Income Tax Ordinance, 1984, and tax rates applicable to foreign workers.

Income Tax for Expatriates

• Residency Status: Expats residing in Bangladesh for more than 182 days in a financial year are considered tax residents and taxed on their worldwide income.
• Non-Residents: Expats staying less than 182 days are taxed only on Bangladesh-sourced income.
• Tax Rates:
• 0% on annual income up to BDT 3,00,000 (for residents)
• 10% to 30% on subsequent income slabs
• Non-residents are subject to a flat 30% tax on income earned in Bangladesh.

Social Security Contributions

• Bangladesh currently has no mandatory pension scheme for expatriates.
• Employers may offer gratuity funds or provident funds voluntarily as per employment contracts.
• Expats are eligible for health insurance and other benefits as per their employer’s policy.

4. Dispute Resolution and Legal Protections for Expats

Expatriates working in Bangladesh are entitled to legal protections against wrongful termination, discrimination, and contract breaches.

Labour Court Jurisdiction

• Expats can seek recourse through the Labour Court under the Bangladesh Labour Act, 2006, if their contracts incorporate local labour provisions.
• In contractual disputes, expats can file cases in the Civil Court or opt for arbitration under the Arbitration Act, 2001.

Common Dispute Areas for Expats

• Unlawful Termination: Expats must receive contractually agreed notice periods or severance.
• Salary and Benefits Disputes: Employers must honor agreed salary packages under contract law and BIDA regulations.
• Visa and Work Permit Issues: Disputes may arise from denied renewals or deportation risks.
• Intellectual Property (IP) Rights: Expatriates involved in IT, research, or creative sectors should ensure IP protections in their contracts.

5. Repatriation of Earnings and Foreign Exchange Regulations

Expats can repatriate their salaries, bonuses, and savings under Bangladesh’s Foreign Exchange Regulation Act, 1947.

Key Repatriation Rules

• Full Repatriation Allowed: Foreign nationals can transfer 100% of their net salaries and bonuses.
• Process: Requires submission of a Tax Clearance Certificate from the National Board of Revenue (NBR).
• Foreign Currency Bank Accounts: Expats can open Non-Resident Foreign Currency Deposit (NFCD) accounts to hold earnings in USD, GBP, or EUR.

6. Sector-Specific Regulations for Expat Employment

NGOs and Development Sector

• Expats must obtain clearance from NGO Affairs Bureau and Home Ministry.
• Salary Caps: Set by NGO guidelines, usually lower than corporate salaries.

Banking and Financial Sector

• Bangladesh Bank Approval: Mandatory for hiring foreign nationals in banks and financial institutions.
• Restrictions on Certain Roles: Expats are restricted from holding specific positions like CEO of local banks.

Manufacturing and Export Zones

• BEPZA Approval: Required for employment in Export Processing Zones (EPZs).
• Income Tax Exemptions: Some EPZ employers offer tax-free salaries for expatriates for a limited period.

1. Salary Inclusive of Social Security and Income Tax

Yes, you can agree to pay an employee a gross salary that includes social security premiums and income tax, meaning the employee bears the responsibility for their own tax payments. However, as an employer, you still have a legal obligation to ensure that taxes are deducted at source (TDS) and paid to the National Board of Revenue (NBR) on behalf of the employee.

• Under the Income Tax Ordinance, 1984, employers must withhold and remit income tax (TDS) from salaries before disbursing them.
• If the employer does not withhold tax and instead includes the total amount in the salary (leaving the employee responsible for paying taxes), the employer could still be liable for non-compliance in case the employee fails to pay their taxes.
• Recommendation: It is safer and more compliant to deduct income tax at source and deposit it directly with the NBR.

2. Liability for Tax Evasion if the Employee is Responsible for Paying Their Own Income Tax

Yes, there is a liability risk for the employer if taxes are not deducted at source. Even if the employee agrees in writing to pay their own taxes, the employer may still be held jointly liable under Bangladeshi tax laws.

• Legal Risk: Under Section 50 of the Income Tax Ordinance, 1984, employers must deduct tax at source (TDS)on salaries. Failure to do so could result in tax evasion charges against the employer.
• If the NBR audits your company and finds that taxes were not deducted from employee salaries, they may impose penalties and backdated tax liabilities on the employer.
• Best Practice: It is advisable to withhold tax at source and remit it to the NBR to avoid compliance risks.

3. Validity of the Probation Period Clause

Yes, a probation period is legally valid and binding under Bangladesh Labour Act, 2006 (BLA 2006).

• Probation Duration:
  • 6 months for general workers.
  • 1 year for employees in supervisory or managerial roles.
• During probation, an employer can terminate the employee without notice or severance, provided that the termination follows the terms specified in the employment contract.
• After successful completion of the probationary period, the employee is entitled to full employment benefitsunder Bangladeshi labour laws.

Recommendation: Ensure the probation clause is clearly defined in the contract, specifying the duration, evaluation criteria, and grounds for termination.

4. Obligation for Leave Pay Beyond Salary

No, there is no legal obligation to provide additional leave pay beyond the employee’s salary.

• Under Bangladesh Labour Act, 2006, employees are entitled to specific types of leave with pay (such as annual leave, sick leave, and public holidays), but there is no mandatory requirement to provide additional leave pay beyond these.
• If leave pay is not explicitly stated in the employment contract, the employer is not obligated to provide any additional leave compensation.

Conclusion: You can structure salary payments without additional leave pay, as long as you comply with minimum statutory leave entitlements.

Final Recommendations

• Income Tax: It is legally mandatory for employers to deduct tax at source and remit it to NBR to avoid liabilities.
• Social Security: Bangladesh does not have a mandatory social security contribution system for expatriates, so it can be included in gross salary.
• Probation Period: Legally valid as per BLA 2006, but must be clearly stated in the contract.
• Leave Pay: No extra leave pay obligation beyond what is mandated in BLA 2006.

Application of Section 26(1)(a) for Executive-Level Employees

As executive-level employees will be hired on a permanent basis with an initial 12-month term, the provisions of Section 26(1)(a) of the Bangladesh Labour Act, 2006 (BLA 2006) apply. Under this provision:

• Executive-level employees who have completed their probation period are classified as permanent workers.
• If an employer terminates such an employee without cause, the company must provide 120 days’ notice (or equivalent salary in lieu of notice).
• In contrast, if the employee resigns, they must give 60 days’ notice (or pay an equivalent amount to the employer in lieu of notice).
• If termination is due to misconduct, an inquiry is required before dismissal, and termination without notice may be possible.

Thus, in cases of contractual termination, the company must adhere to the statutory notice periods outlined under Section 26(1)(a) to avoid legal complications.

Festival Leave Entitlement for Executive Employees

Festival leave is a key aspect of employee benefits in Bangladesh, and Section 118 of the BLA 2006 mandates that all employees, including expatriates, are entitled to 11 days of paid festival leave annually. The employer has the discretion to decide which holidays will be granted based on company policy while ensuring fairness for employees from different religious backgrounds.

• If an employee works on a festival holiday, they are entitled to:
  • Double payment for that day, or
  • A compensatory day off on another date.

Employers must carefully define festival leave policies in employment contracts to align with statutory compliance and operational needs.

Taxation and Employer’s Obligations in Bangladesh

Employer’s Responsibility in Income Tax Deductions

Income taxation for expatriate executives is regulated under the Income Tax Ordinance, 1984, which mandates that employers must deduct tax at source (TDS) and remit it to the National Board of Revenue (NBR). Even if the employment contract states that taxes are inclusive within the salary, the employer remains responsible for ensuring compliance with tax laws.

• Section 50 of the Income Tax Ordinance, 1984, explicitly states that employers must withhold income tax at source before disbursing salaries.
• If an employer does not deduct tax and the employee fails to pay, the company may be held liable for tax evasion, facing penalties and backdated tax liabilities.
• To comply with tax obligations, the safest approach is to:
  • Deduct income tax at source (TDS) before salary disbursement.
  • Issue a Tax Deduction Certificate to the employee for their records.
  • Maintain monthly tax deposit records with the NBR.

Merely including a clause requiring employees to submit self-paid income tax slips does not fully mitigate employer liability. If the tax authorities find non-compliance, the employer may still face enforcement actions.

Social Security Contributions and Employer’s Obligations

Unlike many countries, Bangladesh does not have a government-mandated social security system for expatriates. However, some employers offer provident funds, gratuity schemes, or health insurance as part of executive compensation.

• If a provident fund or gratuity is offered, its contributions and withdrawal terms must be clearly defined in the employment contract.
• Employers who voluntarily include social security benefits should ensure:
  • Proper documentation of contributions.
  • Legal clarity on payout terms for departing employees.

Since there is no mandatory government social security scheme, expatriate executives do not need to submit social security payment slips unless contractually required by the employer.

The employment of expatriates in Bangladesh is governed by multiple legal frameworks, requiring compliance with labour laws, tax regulations, work permit guidelines, and foreign exchange rules. Employers hiring foreign nationals must ensure proper BIDA/BEPZA permits, taxation compliance, and contractual protections to avoid legal complications.

For expert legal advice on expatriate employment in Bangladesh, TRW Law Firm provides comprehensive services, including visa processing, contract drafting, dispute resolution, and compliance advisory.

Potential Blacklisting of a Company for Non-Compliance with Expatriate Employment Laws in Bangladesh

If a company fails to comply with the regulations governing the employment of expatriates, including visa, work permit, and tax obligations, it could face serious legal and financial consequences, including potential blacklisting. Below are the key risks and conditions under which a company might be blacklisted.

1. Non-Compliance with Work Permit and Visa Regulations

Under Bangladesh Investment Development Authority (BIDA) regulations, expatriates must have a valid work permit and E Visa before commencing employment.

Potential Blacklisting Triggers:

✅ Employing an expatriate without a valid work permit
✅ Failure to renew the expatriate’s visa and work permit
✅ Employing more expatriates than the legally permitted ratio (1:20 for industrial, 1:5 for commercial sector)
✅ Using an E Visa for work beyond the legally permitted period without renewal

Consequences for the Company:

❌ BIDA may revoke the company’s approval for hiring expatriates
❌ Future work permit applications may be denied
❌ Blacklisting from BIDA, BEPZA (for EPZ companies), or other regulatory bodies
❌ Deportation of expatriates employed illegally

2. Failure to Deduct and Remit Income Tax for Expatriates

Under Section 50 of the Income Tax Ordinance, 1984, companies must deduct income tax at source (TDS) from employees’ salaries and deposit it with the National Board of Revenue (NBR).

Potential Blacklisting Triggers:

✅ Failing to deduct and remit income tax on an expatriate’s salary
✅ Misreporting employment of foreign nationals in tax filings
✅ Allowing expatriates to self-pay their taxes without employer oversight (violating tax withholding laws)

Consequences for the Company:

❌ Fines and penalties imposed by NBR
❌ Company may be flagged for tax evasion, affecting business licenses
❌ Risk of being blacklisted by the NBR, leading to banking and transaction restrictions

3. Violations of Labour Laws and Employee Rights

Although Bangladesh Labour Act, 2006 primarily applies to local employees, certain provisions affect expatriate employment.

Potential Blacklisting Triggers:

✅ Wrongful termination of expatriates without proper severance or notice period (as per Section 26 of BLA 2006)
✅ Non-payment of salaries or benefits agreed upon in the employment contract
✅ Failing to provide mandatory leave entitlements (such as festival leave or annual leave if specified in the contract)

Consequences for the Company:

❌ Legal claims from expatriates, leading to labor court actions
❌ Damaged reputation in the business community and with regulatory authorities
❌ Possible blacklisting by the Ministry of Labour for repeated violations

4. Foreign Exchange Violations for Salary Repatriation

Under the Foreign Exchange Regulation Act, 1947, expatriates must receive their salaries in compliance with Bangladesh Bank’s repatriation and remittance rules.

Potential Blacklisting Triggers:

✅ Paying expatriates in cash or through unauthorized foreign transactions
✅ Illegally repatriating salaries without proper tax clearance
✅ Non-disclosure of expatriate salaries in company financial records

Consequences for the Company:

❌ Heavy fines from Bangladesh Bank and NBR
❌ Company’s bank transactions flagged for foreign exchange violations
❌ Potential blacklisting from financial authorities, affecting import/export operations

How to Avoid Blacklisting?

To ensure compliance and avoid blacklisting, companies employing expatriates should:

✅ Obtain and renew all required work permits and visas through BIDA/BEPZA
✅ Deduct and remit income tax at source (TDS) for expatriate employees
✅ Ensure legal termination procedures and employment contract compliance
✅ Follow Bangladesh Bank regulations for salary repatriation
✅ Conduct regular internal audits to verify expatriate employment compliance

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