2 Chapter Investment Environment
1 Chapter Basic knowledge
2 Chapter Investment Environment
3 Chapter Establishment
4 Chapter Corporate Laws
5 Chapter Accounting
6 Chapter Tax
7 Chapter Q&A
The World Bank and the International Finance Corporation (IFC) have jointly announced the current status of planning business environment for the year 2015 in October 2014.
The country of Bangladesh ranked 173rd in 189 countries where it slightly loitr due to the 2014 edition, Bangladesh was ranked 170th.
The highest ranking for each item was “the protection of investors" at number 43 that mainly evaluated by disclosing information to shareholders, protecting minority shareholders, and the extent of the responsibilities of directors.
On the other hand, it is pointed out that the ranking of "performance of contract" is the loitst due to it takes a lot of time and effort for judicial proceedings, and "electricity supply" also ranks as low as "performance of contract".
【Business Environment Ranking】
■ Trends in overseas business development by Japanese manufacturing companies
Japan Bank for International Cooperation (JBIC) release a questionnaire survey on November 2014 entitled, "Investigation report on overseas business development of Japanese manufacturing companies (26th / 2014th edition)".
This questionnaire is conducted every year since the year 1989 with the aim of grasping the current situation, problems and future prospects of overseas business development by Japanese manufacturing companies that have a proven track record in overseas business.
The Bangladesh was ranked in the 15th place in 2011 but it is not include to the latest survey in the year 2014.
It can see that the Bangladesh is expecting from the textile companies, enterprises and consumer goods in terms of “inexpensive labor”, “disposal of risk dispersion in other countries,” and “export base”.
■ Direct finance (stock) market
There are two exchanges in Bangladesh, the Dhaka Stock Exchange and the Chittagong Stock Exchange and the indices are DSE, DSEX, DSES and DS30.
The Dhaka Stock Exchange Ltd. (DSE: Dhaka Stock Exchange Ltd.) is located in the center of Dhaka City. It was founded in 1954 and the trading began in 1956 and as of May 20, 553 the issues are being handled and 332 companies are listed.
The Dhaka Stock Exchange General Index increased by more than 80% in 2010, and on December 5, 2010, it was recorded the highest historical value of 8918.51 points.
Hoitver, as of April 2015 it is 4345.89 points.
The average value from 1990 to 2015 is 1938.57 points (the maximum value is 8918.51 points in 2010 above, the loitst value is 282.43 points in 1991).
Chittagong Stock Exchange Ltd. (CSE: Chittagong Stock Exchange Ltd.) was founded in 1995 as the second securities exchange in Bangladesh and the stocks are traded as of May 2015.
The Bangladesh has adopted a floating exchange rate system from May 31, 2003. The Bank of Bangladesh carries out market intervention and manages the market for extreme exchange rate fluctuations to avoid adverse effects on the domestic economy.
The currency appreciation is gradually progressing, and the rapid currency appreciation (depreciation of the yen) is proceeding with 0.7 yen / haw in October 2008, 1.5404 yen / hawk as of April 2015.
For the past 15 years, the Foreign Direct Investment (FDI) has played an important role in the modernization of the economy.
The FDI in the country has reached $1,599,913,000 US dollars in 2003 and $666 Million US Dollars in 2007 where it is the highest rate ever. The amount was ranked 78th from the 192 countries but the Direct Investment outflow is $32.27 Million US dollar which was ranked 98th out of 178 countries.
【Charts of Foreign Direct Investment Amount during 1980 ~ 2013】
[Foreign investment receipts by country]
The Foreign Direct Investment in Bangladesh has continued to expand along with the development of the textile industry.
Recently, the income level is increasing and Bangladesh – as a consumer has been drawing attention for domestic demand.
The top 10 countries in Bangladesh's Foreign Direct Investment in FY2012 are Korea (29%), Saudi Arabia (22.3%), the United States (21.6%), the United Arab Emirates (11.2%), the UK (10.5%), Norway 7.6%), Malaysia (7.4%), Japan (5.8%), Singapore (4.6%), the Netherlands (3.9%).
In Asian countries, countries that have been investing from China, South Korea, Hong Kong etc. at an early stage are increasing their presence.
[Major Investment Countries] ※ Based on Investment Agency Registration Source: Board of Investment (2013)】
On the other hand, the interest in Bangladesh is increasing in recent years and investing rate is raising but it cannot determine due to it’s already late. The current investment amount is also big difference because Japanese companies mainly invested in production bases for export, there are still differences that Chinese enterprises are investing in Bangladesh domestic market and industries are diversified such as production of plastic products and taxi vehicles.
[Amount of Foreign Investment Accepted by Industry]
According to the Foreign Direct Investment (FDI) in Bangladesh (January - June 2014) it was announced by the Bangladesh Bank, that out of the US $ 822.1 million in foreign direct investment in the first half of 2014, the textiles and apparel are US $ 247.9 million (29.90%), banks are US $ 138.65 million (16.72%), telecommunications is US $ 135.8 million (16.37%), investment in textiles, clothing industry and infrastructure industry is the majority I am occupying.
■ State of Japanese companies entering the market
The expansion of the Japanese companies are accelerating from the latter half of the year 1990s due to the decreasing of the market rate in the country, appreciation of the yet, increasing in the production cost and etc.
The sewing industry and major fastener makers (YKK) started the local production in 2002. It was also a big hit due to the establishment of the well known UNIQLO (FAST RETAILING CO., LTD.) in 2008 and started procurement and production in Bangladesh.
In April 2010, The H.I.S. Established a local subsidiary for the first time as a Japanese-affiliated company of travel industry.
On top of that, in the year 2011, Mt Mukitake, a major producer of mushrooms, established a joint of venture with the Grameen Banking Group and Kyushu University as a social business, and started cultivating forces as a source of sprouts in rural areas in Bangladesh.
Even in the pharmaceutical industry, Nipro has established a joint venture company for manufacturing and sales.
It is expected that enterprises in the same industry will expand in the future, and industries will also diversify as a result of seeking new production bases and markets to replace China.
The Japanese companies, mainly in the textile industry, have 181 Japanese companies entering the country (April 2014) and double in the past 4 years.
In Bangladesh, the improvement of infrastructure is underway with the support of Japanese ODA, World Bank and others. However, the lack of fundamental infrastructure such as roads and electric power has become an obstacle to the economy, and the development of infrastructure in Bangladesh is regarded as the most important issue.
The traffic jams in Bangladesh is popular especially in the capital city of Dhaka where it is so problematic that it is said to be the most intense in the world and was ranked as 2nd on the "top 10 hard-to-live cities" by the UK economist magazine following the capital city of Syria, Damascus.
It is not just the passenger cars and buses are passing through the roadway but also the rickshaws which is one of the factors of traffic jams and the shortage of the parking lots and other illegally parked vehicles that is overflowing the road. Also, it is so problematic that it will take an hours for it to reach the destination even if it’s only 10 kilometers long.
In one study stated that approximately 8.15 Million hours of time was loss due to traffic jams. Annually, the total will be 260 Billion hours.
Regardless, the construction plans such as the Subway, elevated road, elevated high-speed railroad etc. are currently being promoted by the Bangladesh government and each country's support project to help to decrease the problems of traffic.
The power shortage is one of the problematic factors of the said country where in Dhaka, blackouts occur every day that is why in house power plants are placed at offices and factories just in case for power outages.
The generation capacity in the country is equivalent to 1/30 of Japan's 7,000 megawatts, and even though the population is larger in Bangladesh, it is significantly lacking in demand.
In rural areas, 42.49% of people can use electricity and 90.10% in urban areas. The electrification rate of the whole country is 55%. (JETRO survey: December 2012)
Furthermore, due to stable economic growth, not only electric power for factory operation but also power consumption due to improved standard of living is expected, and demand for electricity of more than 8% annually is expected to increase.
As of 2011, the Awami government that is headed by Prime Minister Hassina has manifested "Vision 21" where it is one of the most important fields of securing the electricity and energy. With this, by the year 2017, it will be up to 7,000 megawatts and approximately by the year, 2021 it will reach 20,000 megawatts.
The Bangladesh is aiming to raise the level of supply but unfortunately some of it didn’t reach the capacity of needs of the said project whereas on November 2013, the megawatts reached 1,021 MW and by 2020, it is aimed to reach 2,250 MV of which 200 MW is nuclear power generation).
Using mobiles phones have been spreading rapidly in the country of Bangladesh. In the year 2012, the number of mobile phone subscribers is approximately 97 million, and the mobile penetration rate is 63.8%.
The price range can be purchased with 4,000 to 10,000 taka such as Nokia, but does not include charging method, SIM card which cost 100 to 200 taka.
In Bangladesh, is has three shareholders: Grameen Phone, Athiata, and Olascomand.
The NIT Docomo acquired 30% of shares of Asia in June 2008 but on the other hand, the penetration rate of the Internet usage is low, and it is only about 1 million lines as of 2010.
Instead, there is a wireless connection using the radio waves of the mobile phone, and it can be used in the place where the radio wave of the mobile phone enters.
Recently, WiMAX services are offered by each company, and it is possible to connect to wireless internet mainly in urban areas.
However, since the monthly fee is as high as 3,000 Taka and the speed is about 1 Mbps, it is expensive for many citizens and the speed is slow, so future improvement is desired.
Either way, it seems that communication infrastructure is improving as compared to roads and electricity.
■ Human resource
The characteristic of the population of Bangladesh is that mostly, the average age is 21.2 years (Japan 43.8 years old) where statistically, 77% or more is a itng generation or under 40 years old. The rate of 65 years and above, however is only 5%.
Regarding with the labor, the weng workers can be collected easily while in the market side, a weng entrepreneur is highly motivated to consume.
According to the statistic measures, it was estimated by the United Nations, that the population of Bangladesh in 2030 is predicted to reach 200 million people, which means that the population advantage is high.
【Bangladesh Population Pyramid (2015)】
Source: U.S. Census Bureau International Data Base
In "International Cooperation Bank 2010 Foreign Direct Investment Questionnaire", one of the promising reasons for Bangladesh was "inexpensive labor".
The following figure compares monthly average wages of local workers in the manufacturing industry based on JETRO's questionnaire targeting Japanese companies.
Even in comparison with Asian countries, Bangladesh secures unwavering superiority in terms of supplying inexpensive labor.
The following figure compares the monthly wages of the minimum wages of major cities around the world.
In January 2014, the minimum wage was raised to 77% from 3,000 Taka per month to 5,300. The Bangladesh's wage for the first time increase in three years since July 2010.
However, it can still be said that it is more competitive than other countries in the sense of supplying inexpensive labor.
The Bangladeshi are generally patriotic, sociable, friendly, and have a generous character. When it comes to work, there is a tendency not to act voluntarily, but it is said that there are many people who respond properly to instruction.
Additionally, it has a thorough character and contributes to quality control at the factory. Even though Japan is the largest ODA country, it is also advantageous for Japanese companies that many of the people are friendly.
[Benefits of Bangla Investment]
Bangladesh has a population of 150 million people, and recent economic development has led to an increase in per capita GDP, and the middle class has already been increased to more than 10%, which is expected as a huge potential consumption area.
According to the 2010 Household Income and Expenditure Survey (HIES) that was released by the Bangladesh Statistical Office, the poverty rate, which was 40% in 2005, improved to 31.5% in 2010.
The monthly income per household also rose by 37% from 7,203 taka in 2005 to 11,480 taka in 2010.
Business people ·
Many intellectuals are proficient in English and attract the attention as a developing country for English talent. Although the official language is Bengali, major government agencies and financial institutions publish materials in English and is widely used as a substantial second language.
If personnel expenses continue to soar in India, Bangladesh's utilization of human resources will be attracting attention since about 90% of Bangladeshi citizens are moderate (Sunni) and are more tolerant of Islam and other religions, religious conflicts are relatively few and the country risk in the religious field is low.
Furthermore, because it is geographically relatively close to Southeast Asia, the Middle East, and Europe, the potential as a global trade base is also expected.
[Disadvantages of Bangla Investment]
Many companies entering Bangladesh will enter into the country with a low appreciation for cheap personnel expenses, but in reality, there are cases where the costs other than personnel expenses such as raw material procurement costs and transportation costs are expensive and it is not possible to obtain the expected merit.
The figure that was shown from above is a graph comparing container shipping costs from Asian countries to Japan.
Compared with China, the transportation cost of Bangladesh is about 4 times. Same goes with Chittagong Port, which is the main port of exporting products, frequent congestion occurs, it is difficult to manage the schedule of transportation, and complaints are coming from companies.
Due to the legal system where it is underdeveloped, the administrative procedures are very late and there are cases where bribes are sought. Also, due to differences in interpretation by personnel, it often takes a lot of time and labor to confirm and it is harmful when it comes to business.
Bangladesh also has a lot of precipitation during the rainy season from May to September, where floods are likely to occur, which is a big obstacle to the country's economic development.
The following figure compares rainfall between Bangladesh and Japan. It can be inferred on how the flooding is likely to occur, even though rainy season in Bangladesh is almost twice as much as rainy season in Japan.
Furthermore, cyclones will occur at the turn of the dry season and rainy season from April to May and from October to November, which will spur flood damage.This situation has been undertaken by the Bangladesh government as a problem and it are beginning to develop infrastructure, but at this moment the results are still not satisfactory and improvement is desired.
【On Bangladesh's current economic growth】
The Economic growth in the current fiscal year (June 2016 July to 2017) has become IMF (the International Monetary Fund) ADB 6.9% in the prediction of the (Asian Development Bank), and 6.8% in the prediction of the WB (World Bank).
This figure slightly less than the economic growth rate of 7.05% of last year where the Bangladesh achieved a growth rate of 7% and entered the middle income group, and it was widely reported in the country.
The Bangladesh government has set the target growth rate for this fiscal year to 7.2%, and it has raised the 7% growth rate for the second consecutive year.
The IMF stated that the further economic growth of Bangladesh requires the government to increase investment in education, technology and technology, infrastructure, and increase productivity.
During the current fiscal year, terrorist attacks of restaurants by ISIS occurred in July that resulted concerns of the economic growth.
Industries affected by terrorism are mainly service industries such as retail and restaurant where the sales seems had fallen to less than 50 percent of the same period of the previous year and that made drop due to the national elections of 2013 - 2014.
On the other hand, the impact on other industries is limited although the export of 2016 July in terms of clothing became the loitst level in the past nine months, due to overlapping the Eid holiday whereas the Islam has a long vacation and the effects of the terrorism.
Currently, there are textile manufacturing companies that have increased orders for garment manufacturing to Bangladesh as before. Although security situation cannot be said to be nice, there are many companies that find business opportunities for cheap and abundant labor.
【Bangladesh 2016 (July) - 2017 (end of June) National Budget Proposal】
2016 (July) - Bangladesh GDP growth rate of 2017 (the end of June) is expected to be 7.05%, and the national income per capita is expected to increase 1,466USD.
It has maintained a growth rate of about 6% over the last 10 years, and it are expecting even greater growth this term. In accordance with the 7th Five-Year Plan, the goal is to achieve sustainable economic growth, poverty reduction and employment creation. It are establishing a continuous growth strategy with the goal of having a name in advanced countries by 2041.
- Agriculture · Food
The agricultural sector has grown steadily and has become an industrial structure that can expect high returns at low cost.
In the previous year, it was achieved to 2.6% growth, and it have larger shipping and processing centers even in terms of nutrition supply, the supply of milk, eggs, meat has increased and the health level has also increased.
The technology of food storage has also improved and it has become possible to supply it to food shortage areas.
- Power and Energy
By May 2016, the electricity supply is 14,539 MW (371 KW electricity supply per capita, 76% of the country's residents are receiving electricity supply).
But unfortunately, the maintenance of the power transmission system is in a state of failure to catch up, and areas that are not adequate and stable power supply are also listed as issues.
- Transportation, infrastructure
Development of the transportation network is cited as the top priority in the country.
The delay in the development of the transportation network with respect to the increase in imports and exports has delayed logistics and the economic development accompanying it.
The government is also promoting the construction of bridges, aging transportation networks on highways, and construction. The main progress is that the construction of the Padma Bridge has proceeded and it was opened in part, and the improvement of the road connected to Myanmar with the country was started.
In addition, in February 2016, the railway covering 64 km started to operate. Last year's achievement, the construction of 12 new bridges and the repair of 58 bridges was completed.
By April 2016, the mobile phone users and used of Internet has increased to 130 million, 62 million respectively. A system to personally register SIM / RIM has also begun, and countermeasures against Internet crime have also begun.
The school was established in 1,125 villages. 34,895 faculty members are assigned to the primary public schools, and 3,000 new teachers will be newly adopted.
There are 13 million students receiving scholarships, about 3.8 million scholars in VI class (secondary education) and 75% of whom are female.
- Health · Family
The Health care service on mobile phone "health portal" is a free service. There are 13,126 clinics and hospitals in the country and are currently conducting operations and are planning to open 235 new facilities.
- Improve efforts for women and children
From the attention of women participating in economic activities, training of micro credit and various occupations is increasing, there are about 120,000 women working while raising children are paid allowances.
For the first time in 2015, a report on a child titled 'Thoughts on Child Budget' was submitted. This year, information will be sent from seven related ministries in the title 'Blooming Children: Prosperous Bangladesh'.
Child labor under 14 years old is said to exist from 150 to 2 million people. Many of them engage in informal sectors and family business, but take the following actions to improve this situation.
· Actual condition survey
· Free food supply to children
· Escape from child labor, grant educational opportunities
- Social protection
The government is starting grasping the current situation of socially vulnerable people.
According to the survey and database of persons with disabilities conducted so far, there are people with handicapping of less than 1.5 million by March 2016.
- Environment · Climate
The government established the 'National Environmental Policy 2016' and tackles the environmental issues and contamination issues.
New technology is introduced to 4,000 brick factories to reduce air pollution. In addition, 1,000 waste disposal facilities are in operation, and 500 facilities are also being built.
The Bangladesh is planning of investing 1 billion TK in tourism sector and to make tourism and entertainment facilities a international standard in Cox bazaar.
The project also includes the construction of a five-star hotel, aiming to build a quality service under PPP.
Establish an incentive of 45 billion TK for exports from the country and encourage export. Among them, the sewing and ready-made industries will continue to be a driving force in the industry of the country, and thus incentives of 5 billion TK will be given.
A city planning (Detailed Area Plan) in the capital city of Dhaka from 2016 to 2035 has begun.
Currently there are 24,697 houses are under construction and 18,732 homes for middle and power strata are under construction at Uttara in Dhaka.
Currently, only 5% of civil servants as a whole, only 8% of the remaining 95% receive pensions. In the future, it plan to apply contribution pension to all workers, but concrete plans have not been issued yet and it have not made progress.
(Statistics Bureau) * Until April 2016
The Foreign direct investment is expected to grow due to expansion to infrastructure development. Usually, exports are particularly large in the USA and Europe.
In addition, a rise in real wages due to a gradual decline in the inflation rate (inflation rate) and a remittance from overseas workers in Bangladeshi country to the country will dramatically increase domestic consumption and the economy will grow more and more It is expected. The target for GDP growth rate in 2016 - 2017 is set to 7.2%.
The state budget for 2016 - 2017 predicts an increase of 28.7% of the previous year's budget at about 3.4 trillion TK.
However, in June 2016, there was a downward revision of 230 billion TK in the previous fiscal year, and some estimate that the budget is slightly overestimated.
(Ministry of Finance)
Among the national budget, it is allocated to the annual development program framework where overall increased by 21.6% compared with the previous fiscal year, but in the education / health sector, transportation and infrastructure, the budget is increased to 39%.
The target of the government of this year can also be read from how to put the weight of this budget.
(Ministry of Finance)
As detailed in the top ranking of allocation of national budgets including the annual development program to ministries and agencies, the government's efforts to education, transportation and infrastructure are strengthened.
- Labor situation
According to the Bangladesh Bureau of Statistics, 4.7 million people are newly hired between the year 2010 and 2015.
Although the salary gap between men and women employees has decreased, the number of workers in the workforce is still small especially for women, who only has 34.1% have been working.
Over the next five years, female employees will increase by 10%, which is believed to contribute 1% GDP growth each year.
- Private Sector Investment Status
By the year 2021, Bangladesh is planning to achieve the 24,000 MW of electricity supply by 2021.
In Dhaka by 2019, complete installation of highway and bridges to several important points. Develop Bus Transit (Bus Rapid Transit), Metro. The Public-Private Partnership Act, 2015 was enforced, and six projects (total of 1.5 billion US $) are already in operation.
Five new PPP projects are scheduled this fiscal year. A total of 46 new special economic zones have been established, and investment from domestic and overseas already has already begun at several of these. In addition, it have secured the site of special economic zones for Japan, China and India.
- Main changes on tax rate and tax compliance
· There was an amendment to unify the fiscal year from July 1st to June 30th in the revised tax law in July 2015, but with the amendment on June 29, 2016, foreign enterprises are exempt from fiscal year unification It was made.
· Tax on tobacco related business was changed from 45%.
· The corporate tax has been changed from 35% to 20% for ready-made garment industries leading the country's economy and producing a lot of employment.
· Withholding tax on revenue from service provision such as royalties changed from 10% to 12%. When it comes to paying Japan, the bilateral tax treaty will be applied and it will be 10%.
· Reducing the withholding tax rate for taxpayers who purchase narrow housing, due to insufficient living space due to population inflows to urban areas.
· The maximum amount of tax exemption is applicable to small and medium enterprises and has been changed from 3 million TK to 3.6 million TK.
· Tax return filing date has been changed from 30th September to November 30th every year.
· The new value-added tax law established in 2012 will come into effect on July 1, 2017, and the VAT rate will be 15%.
· VAT exemption measures such as biscuits, breads, shoes, travel agency business.
· Production of refrigerators, air conditioners, VAT incentives for cooking oil shall be extended until 2017.
· VAT is exempted from business related to fiber dyeing, printing and polishing processes.
· The tax rate of 22 services to which the VAT bound rate applies is changed. For example, the construction industry changed from 5.5% to 6%, the transportation related petroleum products from 2.25% to 4.5%, the other transportation from 7.5% to 10%, the office leasing, installation service changed from 9% to 15% .
· The import tariff of rice was changed from 10% to 25%.
· The supplementary tax on information related services of mobile phones has been changed from 3% to 5%.
Supplementary tax on milk-related transactions has been changed from 20% to 10%.
· Supplementary taxes in related sectors of motorcycle assembly changed from 45 to 20% (with a 2 year restriction).
[Cancellation of Injunction Cancellation of Specified Service Industry]
In 2012 the Bangladesh Supreme Court issued an injunction against the registration of eight industries in the following service industry, but it was canceled in March 2016.
Apparel procurement office, freight forwarder, import agent, delivery (courier) service agent, shipping company, educational institution for profit purpose, advertising agency, agency for aviation / railway agency
Unlike industries that promotes the Bangladesh economy with large-scale investment such as construction industry, hotel restaurant industry, insurance, computer related enterprises, there’s a small direct investment of about 1,000 USD to 10,000 USD in the aforementioned eight industries Investigation was stopped because many cannot be said that Bangladesh's employment promotion and economic growth are always benefiting.
Although the foreign capital restriction had cancelled, it can be said to be beneficial for Japanese companies, the impact of this cancellation of the injunction is considered to be limited. Regarding the educational institution for profit purpose, it was not possible to describe the project purpose such as "Academic" or "school" from 2012 onwards, but in practice, the articles of incorporation are registered for business purposes such as "Consulting" or "Culture Center" , There are foreign companies that are engaged in education related projects (Japanese language schools, cram schools, etc). Regarding procurement offices and import agencies, registration in "Buying House" used in the meaning of "apparel trading company" in the field was not possible, but if it use similar words such as "Import and Export" Registration was possible, so in fact it is a situation in which the injunction suppression was not functioning.
Regarding the procurement office of apparel, restrictions on LC establishment and settlement are separately established, and there are still various entry barriers to entering in the form of a trading company.
Also in the notice of cancellation of injunction, it was suggested that a minimum capital of 50,000 USD to service industry is suggested, but in Bangladesh, the foreign nationals have a remittance of 50,000 USD when obtaining foreign work permit because it is required to present a document, in fact it is mostly the case to invest over 50,000 USD.
As a result of the cancellation, there is a possibility that Japanese companies will accelerate the advancement of Japanese companies, mainly by freight forwarders. Nevertheless, as stated from above, the effect of cancellation of injunction is limited and the influence of terrorism in July 2016. There are also many cautious companies currently direct investment, so it seems that it will not lead to significant foreign investment promotion.
For the development of economy and technology, the Bangladesh Government will actively attract foreign investment such as setting up an export processing zone (EPZ) that eliminates complicated procedures for investment and can receive preferential treatment such as exemption from corporate tax.
Meanwhile, in order to protect the industries of their own countries and secure the employment, it has to establish the regulated industries and strictly stipulate employment obligations of local people. Thus, by establishing certain regulations, the Bangladesh Government is trying to promote the introduction of foreign capital, achieve both industrial development and employment securing in its own country, and link it to the development of the Bangladesh economy.
■ Related regulations
[1980 Foreign Private Investment (Promotion and Protection) Act]
The 1980 Foreign Private Investment (Promotion and Protection) Act of 1980 was formulated for the protection and promotion of foreign private investment in Bangladesh.
Under this law, the "foreign capital" subject to protection and regulation is defined as "capital invested in Bangladesh by a foreign national or a company established in a country other than Bangladesh". However an investment by foreign governments and agencies is excluded.
[Other related regulations]
Those who do business in Bangladesh must also conduct activities in compliance with the following laws (and regulations).
■ Regulation by Industry
Investment by foreign capital in the following industries is prohibited.
· Military equipment, nuclear power, timber logging by the mechanical method of afforestation
· Forest preservation district, banknote printing
Currently, there is no regulation regarding with the industry but the Bangladesh Investment Authority (BOI) respond to the question on regulated industries that is very ambiguous and there are some cases it may decide in negotiation by both parties. In order for the requirements and such, it is necessary to have the latest information.
The following requirements the Government approve beforehand.
Fishery in the deep sea, banking or finance industry, insurance industry, electricity-related, natural gas, petroleum, Essential oil, coal related, other mineral resources related, large scale infrastructure business, medium and large scale enterprises using gas and mineral resources as raw materials, Communication service, satellite broadcasting service, air passenger / transport industry, shipping industry, port construction, Void / IP telephone service, industries utilizing heavy metals collected in coastal areas, etc.
Industry in which the investment ratio is regulated
Regarding with the marine transportation or logistics industry, there are restrictions on contribution of the amount and equity ratio. The marine transportation is 49%, logistics industry is 49% investment cap.
Industry with the lowest capital restriction
In principle, there is no regulation regarding with the minimum capital however, for the financial industry, the minimum capital provision is established as follows.
Even private companies, if its paid-in capital exceeds to 400 million Takasu, it had to be changed to a public company and it took place within 6 months from the day when paid-in capital reached 400 million Taka.
Regulated industry by Ministry of Commerce
Apparel procurement office, freight forwarder, import agent, delivery (courier) service agent, 8 shipping companies, educational institutions for profit purposes, advertising agencies, agencies for aviation and railway sales agencies are subject to regulated industries (subject to invalidation invalidation).
In the case of applicable industries, it is necessary to consult with the commercial register in advance. 100% foreign capital and getting the approval of establishing a local affiliate of a joint venture has become very difficult.
[Regulation by Land Ownership]
A foreign company can own a land if it is a corporation however, for the export processing zone and the land acquisition is not done, it will be in the form of paying usage fee and acquiring usage rights.
In addition, the following procedure is required when purchasing land.
· Purchase revenue stamp equivalent to 5.0% of total land
· Tax delivery equivalent to 5.0% of total land
· Deposit equivalent to 4.5% of total land as registration fee
The usage fee for each EPZ is as follows.
■ Regulation by Foreign Exchange Regulation Order
[Legal basis for foreign exchange management]
In Bangladesh, the "Restrictions on Foreign Exchange Regulations in 1947" is centered on, "Export Policy Ordinance 2009 - 2012", "Import Policy Ordinance 2009 - 2012", as regulations established by the Bangladesh Bank issued guidelines.
Foreign exchange and foreign securities transactions, import and export of currency and money are prescribed.
[Foreign Currency Brought in]
The foreign currency can be freely brought in Bangladesh in less than US $ 5,000.
It can also bring in over 5,000 US dollars by declaring to the customs authorities at the time of entry by foreign currency declaration form (FMJ format).
Foreign currency brought in can be withdrawn freely by declaration.
[Foreign currency deposits]
The companies that open foreign currency accounts to deposit foreign currencies, and account balances can be remitted overseas. Also, it can freely open and operate a Taka account.
Foreign exchange rate limit
Companies other than the export processing zone can deposit only 50% of the foreign currency obtained by export into a foreign currency denomination account. Although, products with a high import ratio (domestic added value), commodity export (such as sewn products and electronic products) can only be held at 10%, service providers can only hold up to 5%.
Companies in the export processing zone can hold 100% of the foreign currency obtained by export in a foreign currency-denominated account.
[Transfer to overseas]
Regarding with the remittance of the overseas dividends to foreign countries, the prior approval by the Bangladeshi Bank is unnecessary.
In case of remitting the dividends to nonresidents, it will apply to the bank with the application form. (Bangladesh Bank Foreign Exchange Transaction Guideline 30).
Listed below is the requirements:
· Certified copy of the company establishment certificate (only for the first time)
· Audited balance sheet and income statement
· Copy of the meeting of the Board of Directors who made the dividend resolution
· List of non-resident shareholders to pay
· Auditor's certificate that taxes on dividends are deducted
· Auditor's certificate on tax payment ability
· In the case of receiving final tax assessment order, the final tax assessment order
Overseas remittance of branch profit
According to Foreign Exchange Transaction Guidelines of 27, when it comes to remitting the branch office profit of a foreign company to overseas, it can remitted without prior approval from Bangladesh Bank.
Nonetheless, it is said that it is difficult to remit the benefits acquired by branches at the present time, and unclear points remain in practical operation.
Overseas remittance such as royalties, know-how charges
When it comes to concluding a contract to remit royalty, know-how fee, technical support fee, etc., if any of the requirements below are met the requirements that needed, it has to submit the application form to the BOI with attached contract and related documents. It must obtain the approval and if not applicable, it can forwarded the money without the approval of BOI.
· In the new project, the sum of service fees, etc. Related to royalties, know-how fee and technology transfer exceeds 6% of imported machine's CIF.
· If the total annual expenses of royalties, know-how fees, technical support expenses, marketing expenses and other related expenses exceeds 6% of the enterprise's previous year's tax return.
Other overseas remittances
In addition, regarding with the remittance to overseas, the necessity of pre-approval by Bangladesh Bank is as follows.
Foreign loans (Foreign Loans)
Companies in Bangladesh (local companies, foreign companies, joint ventures) can borrow from overseas with prior approval of BOI.
The pre-approval is not required if the following requirements are met.
· The effective interest rate should not exceed LIBOR + 4%
· Repayment period is over 7 years
If this does not apply, submit a copy of the foreign loan agreement (Foreign Loan Agreement) signed by both parties to the BOI. Payment of interest for borrowing approved by BOI and remittance for repayment of principal and interest can be made through the bank without the prior permission of the Bangladesh Bank.
Companies within the EPZ are also given benefits and can borrow foreign currency from overseas banks and financial institutions without prior approval by BOI or Bangladesh Bank.
Domestic borrowing (Local Borrowings)
Companies operating in Bangladesh can borrow working capital and long-term borrowings in local currencies based on ordinary customer relationship (banker-customer relationship) regardless of manufacturing or non-manufacturing industries.
A joint venture in the EPZ can receive loans in local currency up to the amount of short-term foreign currency financing obtained from abroad.
■ Other regulations
[Employment obligation of local people]
If a foreign national works in Bangladesh, it must apply for a work permit to BOI. There is an examination standard on the employment obligation of the local people but as a guide in the manufacturing industry, it is necessary to employ more than 20 staff members per expats and in the service industry, there’s more than 5 local staff for one expat.
Private enterprises wishing to employ foreigners in Bangladesh need to obtain permission from BOI in advance.
The guidelines for employment of foreigners are as follows.
· Citizens of the country permitted by Bangladesh will be allowed to hire
· Employment of foreigners is limited to industries permitted by authorities
· Employment of foreigners is limited to occupations where local experts cannot be secured and those under the age of 18 are not eligible for employment
· New employment and contract extension will be determined by the company's board of directors
· Pass the person's examination by the Ministry of the Interior pass
· Acquisition of work permit for expatriate working at EPZ (If it have established a company in EPZ, apply to EPZ, otherwise apply for work permit to BOI)
[Labor Law Relationship]
The manufacturers that is employing more than 10 employees will need to review and register the factory inspector (The Office of the Chief Inspector of Factories) in accordance with the 2006 Labor Law.
The Labor Law is to ensure safety at the factory and regulates working conditions, and there are many other laws such as wage payment law and factory law.
■ Investment incentives
The Bangladesh government has established laws to encourage the domestic investment and implements policies.
As the basic law, there are Foreign Private Investment Act of 1980 and The Industrial Policy of 2009, which stipulates exemption of taxes and protection of investors.
It also regulates the Export Processing Zone Act that defines investment for export processing zone. As for preferential treatment object and contents, responses are often different depending on the person in charge, so it is difficult situation to grasp systematically, and information which is known at the present stage is stated.
[Investment incentive measures in export processing zone (EPZ)]
There are currently eight export processing zones (EPZ: Export Processing Zone) in Bangladesh, and 32 countries have invested in existing EPZ so far.
The EPZ is a special area developed by the Export Processing Zone Bureau (BEPZA) to promote domestic and foreign investment in export-contributed industries, and currently there are eight EPZ established in Bangladesh.
Here, it provides the infrastructure suitable for corporate production activities, provide incentives such as exemption of tariffs on imports and exports and exemption from income tax for 10 years, and provide administrative and support services to investors.
Through the Bangladesh Export Processing Zone Office (BEPZA), it can obtain the latest information on investment in the Export Processing Zone (EPZ).
In order to move into the EPZ, it must have BOI approval for the investment case. At the present time, the agricultural products processing industry such as textile industry, spinning industry, textile machine manufacturing industry, clothing manufacturing industry, clothing industry, leather goods, IT industry, pharmaceutical industry, light industry, ceramic products, melamine products, plastic products, hygiene industry.
It is said to cover supplies, steel, computer hardware, petrochemical, agricultural machinery, chemicals, shipbuilding, etc. If it is judged to be beneficial to Bangladesh, the possibility of getting approval by investment content there is.
There are currently eight EPZs on the right. It is officially announced that there will be no further EPZ expansion in the future.
Preferential treatment content
1. Reduction of corporate tax
Investments made before January 1, 2012 are eligible for a 10-year tax exemption. For investments to be held after January 1, 2012, the first two years will receive a 100% tax exemption, and from then on until the fifth year, it can receive the following exemption / reduction.
2. Other benefits
For corporations in the EPZ, by reducing the corporate taxes, the following benefits will be given.
In addition, various administrative procedures are easier than usual, and the fact that the infrastructure is in place is also a great merit in operating in Bangladesh.
· Exempt import tax on construction materials
· Exemption of import tax such as machinery, office furniture, spare parts etc
· Import / export exemption for raw materials and finished goods
· Double taxation exclusion
· Exemption from payment of dividends
· Use of the general preference tariff system (GSP)
· Increase depreciation of machinery and factories
· Remittance of royalties and technical fees
· 100% capital can be repatriated
· Bank of Bangladesh borrowing in foreign currency No preliminary approval required
Investment preferential treatment regardless of whether it is EPZ or not
Industries that is encouraging the investment in Bangladesh are labor-intensive industries such as export-oriented industries, high-tech industries, industries that utilize domestic natural resources, industries that depend on domestic raw materials, and other industries that are thriving in the country, also that creates industries is recommended, especially for export oriented industries, there are incentives such as reduction and exemption of tariffs on imported capital machinery.
[Content of preferential treatment]
Reduction of corporate tax
It can apply the incremental amortization for new investments. On the first year of the investment, it reached 50% of the value of factory buildings and machinery equipment while on the second year, it reached 30% and in third year, it reached 20%.
 BOI in Bangladesh: Exchange Controls and Remittances (Broken Link)
 BOI in Bangladesh: Export Processing Zones (Broken Link)
 BOI in Bangladesh: Fiscal and Non-Fiscal Incentives (Broken Link)
 BOI in Bangladesh: Investment Incentives (Broken Link)
 BOI in Bangladesh: Expatriate Living Conditions (Broken Link)
 JETRO · Dhaka office "Bank of Bangladesh Bank Foreign Exchange Transaction Guidelines" (Broken Link)
 Support Report on Internationalization of SMEs (Broken Link)