Bangladesh is becoming one of the fastest-growing economies in South Asia. It keeps drawing foreign investors due to its strategic location, low-cost labor force, and a developing local market. Bangladesh has a population of over 170 million and an emerging middle class with the potential to invest in small and large-scale ventures. For a foreign investor, it is essential to know about the Foreign Direct Investment (FDI) system and the entire process.
legaladvicebd.com is here with the foreign investors’ guide to Bangladesh! Let’s start!
Understanding FDI in Bangladesh
Foreign Direct Investment (FDI) is an investment made by a company or an individual in one country in a business in another country. In Bangladesh, FDI is promoted in the areas including:
- Clothing and textile production
- Infrastructure and building
- Information and Communication Technology (ICT)
- Green energy and energy production.
- Agro-based industries
- Medical and pharmaceuticals
Legal Framework
The governing policies concerning FDI in Bangladesh are:
BIDA Act, 2016: Eases approvals, incentives and investor services.
Companies Act, 1994: Governs registration and governance of the companies.
Foreign Exchange Regulation Act, 1947: Governs both the inward and outward remittances through the Bangladesh Bank.
Income Tax Ordinance, 1984: Contains tax regulations and incentives towards investments.
Tax holidays, duty exemptions, and an investment guarantee are enjoyed by foreign investors depending on the sector and the scale of the investment.
Categories of Foreign Investments
The foreign investors can set up their business in Bangladesh by:
A. Joint Venture Company
- Collaboration with a local company.
- Local market expertise
- Shared risks and profits
B. Wholly Owned Foreign Enterprise
- 100% foreign ownership allowed
- Full operational control
- Needs the approval of BIDA and Bangladesh Bank
C. Branch Office
- Expansion of the parent company abroad
- Authorized to conduct business by BIDA
- The parent company is not absolved
D. Liaison Office
- Cannot earn revenue locally
- Mainly to carry out market research, communication, and coordination.
E. NGO or Non-Profit Office
- Applicable for charitable works, learning, or socialization.
- Has to register NGOAB in case of foreign donations.
How to Set up a Company
Step 1: BIDA Approval
Before investing, the foreign investors are required to clear through BIDA. Required documents include:
- Profile and incorporation certificate of the parent company.
- Board resolution accepting investment.
- Business plan and allocation of capital proposed.
- Name of directors and signatories.
Processing Time: 2-4 weeks in the non-sensitive sectors.
Step 2: Company Registration
Incorporate the company in the Registrar of Joint Stock Companies & Firms (RJSC). Required documents:
- Memorandum and Articles of Association.
- Name clearance certificate
- Shareholders and directors list.
- Office address proof
- Original capital declaration.
Time Taken: 10-15 working days.
Step 3: Local Permissions and Trade License
Get a trade license from the City Corporation or Municipality. Other permits might be needed on:
- Environmental compliance
- Sector-specific licenses
- Import/export permissions
Step 4: Bank Account Setup
A corporate bank account is necessary in:
- Introducing foreign investment.
- Local payments and payroll
- Vendor payments
Branch offices are required to send at least USD 50 000 to meet the regulations of the Bangladesh Bank.
Step 5: Tax Registration
Foreign companies need to acquire:
- Taxpayer Identification Number (TIN).
- VAT registration (where necessary)
- Corporate income tax (Most foreign companies, 32.5% compliance)
Tax holidays are subject to application by investors depending on the sector and location.
Step 6: Work Permits and Staffing
To employ foreign employees, it will need:
- Work permits through BIDA
- Compliance with labor laws
Most industries are required to have at least 80 percent local workforce.
Investment Incentives for Foreign Investors
Bangladesh offers the following incentives to FDI:
Tax Holidays: 3-10 years according to industry.
Importation of Capital Machinery the duty-free.
Profit Repatriation: Repatriation is permitted in full according to the Bangladesh Bank regulations.
Special Economic Zones (SEZs): Tax preferences and infrastructure.
Double Taxation Avoidance Agreements (DTAA): It does not pay taxes twice.
These incentives assist in lowering the cost of operation and maximizing the profits.
Profit Repatriation
Repatriation of profits, dividends, royalties, and capital can be done by foreign investors through the due legal and banking process.
Steps:
- Have audited financial statements by a Bangladesh auditor.
- Pay all the corporate and income taxes.
- Send the bank used to transact foreign transactions a repatriation request.
- Registry certificate of BIDA.
- Audited accounts
- Repatriation board resolution.
Timeline: Takes place during 2-4 weeks as per bank and regulatory procedures.
Challenges for Foreign Investors
Delays in Regulations: Depending on the approval of the BIDA, Bangladesh Bank, or sector-specific bodies, it can be time consuming.
Foreign Exchange Compliance: This must be very strict in respect to the remittance laws.
Infrastructure Limitations: Depending on the region, power and logistics can be different.
Labor Skill Gap: Skilled labour force might need further training.
Bureaucracy: There are several approvals and pieces of paper required.
These challenges can be overcome by hiring local legal and financial advisors.
Key Sectors for Investment
- Textiles and Garments: The Biggest export Industry with high demand.
- ICT and Software: New outsourcing and innovation center.
- Energy and Power: Renewable energy and conventional energy prospects.
- Infrastructure and Real Estate: increasing urbanization demand.
- Healthcare and Pharmaceuticals: Middle-class demand.
- Agro-Based Industries: Food processing incentives and technology-oriented agriculture.
Selecting an appropriate sector is in line with the incentives provided by the government and the maximization of returns.
Compliance Checklist
Foreign investors are expected to keep:
- Annual audited accounts
- Corporate tax filings
- Indirect tax compliance VAT.
- Labor law adherence
- Sector-specific permits
- Major financial decision board resolutions.
- BIDA and foreign transactions reporting by Bangladesh Bank.
Failure to comply will result in fines, suspension or repatriation restrictions.
Advantages of Raising funds in Bangladesh
- Strategic Positioning: The gateway to South Asia and other regional markets.
- Expanding Market: Population growth and middle-class spending.
- Cost Competitiveness: Low prices of labor and operation.
- Government Incentives: Tax holidays, SEZs, and guarantees on investments.
- Bilateral Agreements: Trade agreements and DTAA help in foreign investment.
- Export Opportunities: The availability of world markets through ready-made garments exports and trade agreements.
These benefits give Bangladesh a good business attraction to foreign investors in their search for growth and profitability.
Conclusion
Bangladesh is an investor-friendly foreign market with a lot of growth opportunities. Legal framework, selection of the suitable business structure and adherence to banking, tax, and reporting have been found to be major factors in investment success. With appropriate planning and working with professional advisors, it is possible to streamline the process and reduce the risks involved as well as have the investors maximize their returns without undergoing any risk to their full legal and regulatory protection.
Hopefully, this ‘Foreign Investors’ Guide to Bangladesh: FDI, Company Setup & Profit Repatriation’ has been insightful!