Laws & Policies of Foreign Investment in Bangladesh

Bangladesh actively seeks foreign investment, particularly in apparel, power, oil and gas, and infrastructure projects. It offers a range of investment incentives under its industrial policy and export-oriented growth strategy with few formal distinctions between foreign and domestic private investors.

Foreign investment policy

Comparing Bangladesh to other South Asian countries, Bangladesh offers an exceptional investment climate. The following are the main aspects of Bangladesh’s present investment climate:

• strategic location,
• regional connectivity and worldwide access;
•  strong local market and growth;
• large and low-cost labour force;
• fiscal incentives export competitiveness
• easy access to the global Market;
• public-private partnership (PPP) and
• export processing zones.

Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Four sectors, however, are reserved for government investment:

• Arms and ammunition and other defence equipment and machinery;
• Forest plantation and mechanized extraction within the bounds of reserved forests;
• Production of nuclear energy;
• Security printing

With no limitations on equity involvement or the repatriation of profits and income from the majority industries, Bangladesh’s FDI policy is the most liberal in South Asia. However, all enterprises in these five reserve industries have opened their doors to private investment:    

• arms, ammunition and other defence equipment and machinery;
• production of nuclear energy;
• forest plantation and mechanized extraction within the bounds of reserved forests;
• security printing (currency notes); and
• minting

For foreign direct investment, there is no limitation pertaining to foreign equity participation and except few sectors, 100% foreign equity is allowed.

Bangladesh permits non resident foreign directors and does not require a nominee local director to operate the Company.  

Bangladesh permits private investments in several industries

In Bangladesh, private investments are allowed in the production of electricity and the discovery of natural gas, but complete foreign ownership of the marketing and distribution of petroleum is not. The amount of foreign ownership in broadcast telecommunications has been set at 60% or 70% for tower sharing. The following seventeen industries require ministerial approval to operate: aviation; banks and financial institutions; coal, petroleum gas, and mineral exploration, extraction, and supply; unrefined petroleum refining; deep sea fishing; insurance firms; enormous scope framework projects; power generation, supply, and distribution; satellite channels; seaports; as well as VOIP/IP Telephone.

Foreign Direct Investment (FDI)

The Bangladesh Investment Development Authority (BIDA) must be notified of any foreign direct investment (FDI) in industrial or construction projects.

In March 2023, Bangladesh’s Foreign Direct Investment (FDI) increased by 1.2 billion dollars, compared with 1.5 billion dollars in the previous quarter. According to Bangladesh’s most recent figures, the current account had a surplus of 41.9 USD Million in April 2023. In December 2022, Bangladeshi direct investment abroad increased by 0.6 million dollars. In the same year, its foreign portfolio investment decreased by 77.9 USD million. In June 2022, the nation’s nominal GDP was estimated to be 460.2 USD billion.

BIDA

The Bangladesh Investment Development Authority Act 2016 established the organization, formerly referred to as the Investment Board, to address FDI-related concerns and encourage investment in Bangladesh. BIDA is the principal authority tasked with promoting supervising and promoting private investment. In addition to BIDA, Bangladesh Export Processing Zone and Bangladesh Economic Zone Authority are also vested with the same roles and authorities, within their Export Processing Zone and Economic Zone.

Three more organizations encourage investment in their respective areas in addition to BIDA:

BEPZA

The government has implemented an “Open Door Policy” to attract foreign investment to Bangladesh in order to promote the rapid economic growth of the nation, notably through industrial development. The BEPZA is the recognized government body responsible for encouraging, attracting, and facilitating foreign investment in the EPZs.

BEZA

BEZA aims to develop 100 special economic zones that will generate or export $40 billion in goods and provide ten million employment opportunities by 2030.

BHTPA

Promotes the development of the IT/ITES sector and tech-based employment.

Bangladesh Bank grants general permission for non-resident shares against foreign investment, subject to certain conditions:

• The industrial venture will need approval for its capital issue from the Bangladesh Securities and Exchange Commission (BSEC) and the Registrar of the Joint Stock Companies and Firms (RJSCF).
• Shares can either be issued against freely convertible foreign currency through banking channels or abroad against the importation of capital equipment. Payment in reverse. Such imports must be made from abroad. But foreign exchange should be brought in this way. In the case of Type A and Type B units of EPZ, is cash in Taka and EZ before the issue of shares whereas the equity of FC brought from abroad can be deposited in the FC account of the unit.
• Shares may be issued in the name of non-residents by debiting non-resident Taka accounts maintained by ADs (Authorized Dealer Banks) in the names of their overseas branches and correspondents in exchange for remittances received in convertible currencies. To verify payments made from such an account for a purchase of shares in Bangladeshi firms, ADs may thus issue certificates. When issuing certificates to beneficiaries, ADs must follow the formats in Appendix 5/40 for payments made using inward remittances in foreign currencies and Annexure 5/39 for payments made from non-resident Taka accounts.
• Foreign Exchange Investment Department, Bangladesh Bank Head office must be informed through the concerned AD about the issue of shares to non-residents pursuant to a & b above with mentioning

Transfer of Bangladeshi shares and securities from one shareholder to another shareholder irrespective of their nationality/ residency would not require Bangladesh Bank Approval. In case of a transfer of shares in a private/ public (not listed) between a resident- non-resident or vice versa, a general intimation to Bangladesh Bank is required through Authorized Bank within 14 days of such transaction.

Repatriation of sales proceeds of non-residents equity investment

For the Repatriation of sales proceeds from non-residents’ equity investments, Bangladesh Bank’s prior consent is necessary:

1. Private limited companies; and
2.  Public limited companies that are not listed on the stock exchange.

There being no established market price for such investment, Bangladesh Bank will accept the fair value of the shares as of the date of sale based on appropriate combination of three valuation approaches (NAV; FMV and DCF), depending on the nature of the company. 

Full repatriation of Dividends, Investment and Income

Full repatriation of capital invested from freeing sources will be allowed. Similarly, profits and dividends accruing to foreign investment may be transferred in full. If foreign investors reinvest their reparable dividends and/or retained earnings, those will be treated as new investments. Foreigners employed in Bangladesh are entitled to remit up to 50 percent of their salary and will enjoy facilities for full repatriation of their savings and retirement benefits.

Laws for the protection of foreign investment in Bangladesh

The Foreign Private Investment (Promotion & Protection) Act. 1980, which guarantees legal protection for foreign investment in Bangladesh against nationalization and expropriation, serves as the foundation for Bangladesh’s foreign investment strategy.

In supplement to the Foreign Private Investment Act of 1980, the government has established an FDI Policy (Foreign Direct Investment Policy) advocating a simple yet efficient mechanism for investing in Bangladesh. The policy eases setting-up businesses by simplifying the process of leasing and buying private land, incorporating an entity, allowing corporate tax holidays for 7 years (15 years in the power sector) and implementing an exemption of income tax of foreign employees for up to 3 years in some respects.

Visa, Work Permit, Citizenship-

Prospective international investors may apply for visas for periods ranging from one month to five years. Foreign workers must obtain work permits from BIDA/BEZA/BEPZA.  The number of expatriate employees in an industrial enterprise cannot exceed the ratio of 1:20 (foreign: local) for industrial settings and 1:5 (foreign: local) for commercial establishments. Citizenship is possible subject to investment of USD 1 mln or a fixed deposit of USD 2 mln in a scheduled bank. It is also possible to obtain NO Visa Requirement for Investors for investments of more than USD 10 mln.

Dispute Settlements-

In cases of disputes, alternative dispute resolutions are possible under the Arbitration Act of 2001. Bangladesh has signed the International Convention for the Recognition and Enforcement of Foreign Arbitral Awards. Bangladesh is also a member of the International Centre for Settlement of Investment Disputes (ICSID). The current legislation also allows the enforcement of foreign arbitral awards without much hindrance. Although venturing into a business may be daunting, Bangladesh offers investors a stable and resourceful environment suitable for the establishment or expansion of any business, and after much consideration, it can be stated that Bangladesh is in fact a “dream investment destination.

Avoidance of Double Taxation          

Bangladesh has executed Avoidance of Double Taxation Agreements (DTA) with many countries including China. According to Article 4(2) of the DTA, if someone is habitual in both contracting States (Bangladesh & China) or in neither of them, he shall be deemed to be a resident of the contracting state of which he is a national and the competent authorities of the contracting states shall settle the question by mutual agreement.

Business Profit: The profit 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 aforesaid, the profit of the enterprise may be taxed in the other contracting state, but only so much of them as is attributable to that permanent establishment. (Art 7 of avoidance of double taxation agreement).

Dividends: Dividends paid by a company which is a resident of a contracting state to a resident of the other contracting state may be taxed in that other state. However, such dividends may also be taxed in the contracting state of which the company paying the dividends is a resident and according to the laws of that state but if the recipient is the beneficial owner of the dividend the tax charged shall not exceed 10% of the gross amount of such dividends. (Art 10 of avoidance of double taxation agreement)

Interest: Interest arising in the contracting state and paid to a resident of the other contracting state may be taxed in the other state. However, such interest may also be taxed in the contracting state in which it arises and according to the laws of that state, but if the recipient is the beneficial owner of the interest, the tax charges shall not exceed 10% of the gross among of the interest. (Art 11 of avoidance of double taxation agreement).

Capital Gain: Gains derived by a resident of a contracting state from the alienation of immovable property referred to in Art 6 and situated in the other contracting state may be taxed in that other contracting state. (Art 13 of avoidance of double taxation agreement)

Art 23 Elimination of Double Taxation

In China double taxation shall be eliminated as follows:

a) Where a resident of China derives income from Bangladesh, the amount of tax on that income payable in Bangladesh in accordance with the provisions of this agreement, may be credited against the Chinese tax imposed on that resident. The amount of credit however shall not exceed the amount of the Chinese tax on that income computed in accordance with the taxation laws and regulations of China.

b) where the income derived from Bangladesh is a dividend paid by a company which is a resident of Bangladesh to a company which is a resident of China and which owns not less than 10% 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 in respect of its income.

Remittance

Without the Bangladesh Bank’s prior approval, authorized dealers may be used to remit the profits of foreign firm/company branches, dividends/capital gains, expatriates’ salaries and savings, royalties and technical fees, training and consultancy fees, and receivables from shipping and airline companies for freight and passage. Therefore, foreign entrepreneurs are entitled to the same benefits as domestic business entrepreneurs in terms of tax exemptions, royalties, technical know-how fees, etc.

Tax Rate

BIDA has proposed lowering Bangladesh’s tax rate in comparison to other countries in order to draw in foreign direct investments (FDI). The following is a summary of the main taxes:

The individual taxpayer – Tax-free income threshold

• An increase in the tax-free income threshold for taxpayers who are female and over 65 from BDT 350,000 to BDT 400,000;  
• An increase in the tax-free income threshold for taxpayers who are physically challenged and taxpayers of third gender from Tk 4.5 lakh to Tk 3.5 lakh to Tk 4.75 lakh;
• From 4.75 lakh to 5 lahks, the tax-free income threshold for war-wounded Gazette Freedom Fighters.

For parents or other legal guardians of physically challenged children or dependents, the income tax exemption threshold will increase by Tk. 50,000 for each dependent or child.

Minimum Tax

A resident of Dhaka North City Corporation, Dhaka South City Corporation, or Chittagong City Corporation is now subject to a minimum tax of Tk 5,000, for residents of other city corporations Tk 4,000 and Tk 3,000 for residents of other areas.

Prior to this fiscal year (2020–21), the government increased the amount of income exempt from taxes to Taka 3 lakh.

Corporate Tax

• A publicly traded company that transfers more than 10% of its paid-up capital through an Initial Public Offering (IPO) is 20%. In the case that the specified condition fails to be fulfilled, 22.5%
• A publicly traded company that transfers ten per cent or less than ten per cent of its paid-up capital through IPO is 22.5%. In the case that the specified condition fails to be fulfilled, 25%
• The tax rate of One Person Company (OPC) is 22.5%. In the case that the specified condition fails to be fulfilled, 25%
• The tax rate on non-publicly traded company is 27.5%. In the case that the specified condition fails to be fulfilled, 30%

Bilateral Investment Treaties (BITs)

Bilateral Investment Treaties, or BITs, provide investors of both contracting parties with a number of assurances, such as fair and equal treatment, protection against expropriation, and the free transfer of property in addition to complete protection and security.

• Bilateral Investment Treaties (BITs) facilitate international dispute settlement between investor states.

Moreover, The BITs also include an investor-states provision to make it easier for Bangladesh and other investor states to resolve international disputes. Usually, this gives investors the right to submit a case to an international arbitral tribunal when a dispute with the host country arises. Common venues through which arbitration is sought are the International Centre for Settlement of Investment Disputes (ICSID), the United Nations Commission on International Trade Law (UNCITRAL) and the International Chamber of Commerce (ICC). Bangladesh has signed BITs with thirty different countries as of now.

• International Agreements: Bangladesh has reached bilateral agreements with the countries that follow to prevent double taxation in investment treaties and promote and protect investment
• Parties to Bilateral Agreements: Belgium, Canadian, Chinese, Denmark, France, Germany, India, Italy, Japan, Poland, Romania, Singapore, South Korea, Sri Lanka, Sweden, Thailand, The Netherlands, and the United Kingdom (including Northern Ireland) are all parties to bilateral agreements. The United States, the Islamic Republic of Iran, the Philippines, Qatar, Australia, Nepal, Turkey, Indonesia, Cyprus, Norway, Finland, and Spain are all the focus of continuing negotiations.
• Investment Treaty: Belgium, Canada, France, Germany, Iran, Italy, Japan, Malaysia, Pakistan, Philippines, Poland, Republic of Korea, Romania, Switzerland, Thailand, The Netherlands, Turkey, United Kingdom, USA, and Indonesia. Moreover, India, Hungary, Oman, Moldova, DPRK, Egypt, Austria, Mauritius, and Uzbekistan all those involved in current negotiations. Additionally, Bangladesh is a member of the Standing Committees on Industrial Property Development Cooperation of the WIPO (World Intellectual Property Organization), US OPIC (Overseas Private Investment Corporation), ICSID (International Center for Settlement of Investment Disputes), and MIGA (Multilateral Investment Guarantee Agency).