By Anika Mardiah Chowdhury
Bangladesh has strict foreign exchange control laws; under the laws, remittance of money outside Bangladesh is allowed only for specific circumstances and is required to be supported by appropriate documentation. The Foreign Exchange Regulation Act 1947 “FER””) was formulated to provide the legal basis for regulating certain payments and dealings in foreign exchange as well as securities. Meanwhile, Bangladesh Bank, the central bank of Bangladesh, is responsible for administering foreign exchange transactions in Bangladesh.
This year, in January, Bangladesh Bank published a gazette for capital account transaction rules titled’‘Capital Account Transaction (Equity Investment Abroad) Rules 202”. The Rules are formulated under section 27 of the Foreign Exchange Regulation Act of 1947. Through these Rules, many entrepreneurs are allowed to invest abroad, and exporters will be able to invest equity abroad from their retention quota accounts, which was one of the requests from businesspersons for a long time.
In Capital Account Transaction (Equity Investment Abroad) Rules 2022, under section 2, some definitions are given. For example, applicant means any company as defined under the Company Act, 1994. Section 3 states which countries will get priority regarding investment and also mentions which countries are not able to invest, such as with whom Bangladesh has no diplomatic relationship and the UN, EU, and others.
Then, section 4 states the conditions and qualifications. The applicant’s credit rating grade, as per the guideline on risk-based capital adequacy mapping, should be at least two. Further, the applicant’s investment would need to be supportive or complementary to the investment, and the investment would need to be economically sustainable. Also, all the proposals have to have specific potential for increasing export and employment creation for citizens.
As per the Rules, an applicant can apply for an equity investment proposal under section 5 subject to the qualifications mentioned in section 4 and has to apply to the Bangladesh Bank through the authorized dealer bank and the required documents as per attached Form 1-5 of the Rules.
Under section 6, there shall be a selection committee with fifteen members to set up or scrutinize the applications. The governor of the Bangladesh Bank will chair the committee. The functions of the committee are to notify the approved dealer bank, and if approved, a copy of the letter will be given to the applicant organization.
Then section 7 of the following Rules states that any applicant can invest from their reserved quota if enough amount remains there; the applicant will be able to invest 20 percent of their average annual export earnings for five years or less than 25 percent of the net assets shown in the latest audited annual financial report as equity abroad. Section 8 mentions some conditions for the dealer bank, subsidiary company, and others.
Section 13 of the following Rules states that any Bangladesh company can open a branch and run their company as per section 24 of chapter 10, vol-1 of the Guidelines for Foreign Exchange Transaction 2018. Their report shall be submitted as per the Appendix before Bangladesh Bank within 30 days before the end of the fiscal year. It is to be mentioned that at any time, the government, Bangladesh Bank, and the National Revenue Board can inspect. Section 12 states about the transfer or sale of any share by a subsidiary company.
As under section 16, all the debts of the company formed abroad, such as profit or dividend, interests, proceeds of the sale of shares, balance due to liquidation of investment, salary, royalty, technical knowledge fee, consultation fee, commission, etc. must be remitted to Bangladesh within 30 days of receipt. If anyone fails to remit or fails to notify Bangladesh Bank regarding any investment refused by the company, that investment misuse will be treated as money laundering under the Prevention of Money Laundering Act, 2012.
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It is to be mentioned that if anyone fails to perform any other rules as mentioned in other presiding sections, then that will be an offense under section 23 of the Foreign Exchange Regulation Act.
Lastly, it is to be mentioned that any dispute that arises shall be resolved as per their contract.
The rules contain detailed information regarding the formation of companies abroad. Hence, it is expected that Bangladeshi exports will see further momentum and new job creation will be possible by utilizing the advantages of the policy.
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