New Reporting Requirements For Issuance Of Shares To Non-Residents

By Rounak Zaman

As per Bangladeshi law, the issuance of shares in favor of foreign investors requires that the equity amount be brought into Bangladesh before the issuance of shares. However, foreign investors often raise significant queries regarding the specific legal provision that mandates this requirement. Although this regulation has been in place for a long time and was previously communicated ambiguously, it has become increasingly challenging to provide foreign investors with precise documentation to satisfy their concerns.

In some cases, foreign investors willing to invest in Bangladesh faced difficulties obtaining approval from their relevant regulatory authorities regarding the proper channeling of their funds. Recognizing these challenges, Bangladesh Bank has taken a visionary step by issuing a public circular that clarifies this matter clearly. This circular explicitly outlines how shares can be issued to foreign investors, ensuring transparency and facilitating compliance with regulatory requirements.

Reporting Requirement:

• As per Paragraph 2(A), Chapter 9 of the Guidelines Transactions (GFET)-2018, Volume 1 for Foreign Exchange, companies must report any issuance of shares to non-residents within 14 days of issuance.
• AD banks will now be responsible for scrutinizing the relevant documents before issuing shares worth up to BDT 1 million (10 lakh) to non-resident investors.
• A declaration letter (Annexure A) must be submitted to the Foreign Exchange Investment Department (FEID), Bangladesh Bank, within 14 days of issuance.

1. Compliance:
   • Foreign exchange must be brought in before shares are issued.
   • The investment must come through the banking channel and be in freely convertible foreign currency.
   • ADs must verify the purpose of the remittance as an equity investment and ensure compliance with applicable regulations.
   • ADs must maintain encashment certificates per Appendix 5/39 or 5/40 with the Foreign Exchange Transaction Reporting ID from Bangladesh Bank’s Online Inward Remittance Monitoring System.
   • ADs must verify the resident status of shareholders and the source country offunds from relevant documents.
2. When the Issuance Exceeds BDT 1 million:
   • If the total issuance value for a non-resident shareholder (or all non-resident shareholders combined) exceeds BDT 1 million, ADs must report the issuance to FEID, Bangladesh Bank.
3. Issuance Against Imported Capital Machinery:
   • If shares are issued against imported capital machinery, ADs must submit an application to Bangladesh Bank for approval.
4. Handling of Discrepancies:
   • If discrepancies arise or further clarifications are needed, ADs should forward the case to Bangladesh Bank.
5. Declaration Letter Format & Documentation:
   • A standard declaration letter format (Annexure A) has been introduced.
   • This declaration letter must be prepared in three copies for record-keeping as follows:
   • First Copy – To be preserved by the AD bank.
   • Second Copy – To be submitted to FEID, Bangladesh Bank.
   • Third Copy – Bangladesh Bank will return this copy to the AD bank with official endorsement.
6. On-Site Inspection:
   • All related documents must be readily available for inspection by Bangladesh Bank officials.

Should you require any further clarification on this, please get in touch with [email protected]  or +8801886119800