- Facilities for foreign investors [As of 01 July 2019 (Updated)]
Government of Bangladesh provides a lot of incentives for foreign investors. These are, in brief, as follows:
01. Protection of foreign investment and its repatriation
As per the Foreign Private Investment (Promotion and Protection) Act, 1980, protection of foreign investment from expropriation by the state is fully ensured. Moreover, full repatriation of capital invested from foreign sources is allowed. Similarly, post-tax profits and dividend accruing to foreign investors are allowed to be transferred in full. Remittance of approved post-tax royalties, technical know-how and technical assistance fees is also allowed upon permission from Bangladesh Investment Development Authority (BIDA). Foreigners employed in Bangladesh are permitted to make monthly remittance to the country of their domicile out of their current savings up to 75% of their net income. They are also entitled to remit their entire retirement benefits.
02. Fiscal incentives
(a) Tax treaty: Avoidance of double taxation is ensured on the basis of bilateral tax treaties. So far Bangladesh has tax treaties with 34 countries.
(b) Research and development: Expenditure on scientific research expenditure is deductible from business/Professional income.
(c) Tax rebate for manufacturing companies: Qualifying manufacturing companies located in places other than city corporation areas may enjoy tax rebate up to 20% for a period up to 10 years.
(d) Tax rebate for initial public offering: A 10% total tax rebate is available to non-publicly traded companies that transfer 20% or more shares of its paid-up capital through Initial Public Offering (IPO). This rebate is available in the year of transfer.
(e) Reduced tax rate on capital gains arising from transfer of shares: 10% tax rate on capital gains of firms and companies from transfer of shares of public companies listed with stock exchanges. For sponsor shareholders and directors of banks, financial institutions, insurance companies, merchant banks, leasing companies, portfolio management companies, stock dealers or stock brokers the rate is 5%. For other individuals such gains have been exempted from tax. Any capital gain from the transfer of stocks or shares of a publicly listed company made by a non-resident assessee is exempt from tax if such assessee is entitled to similar exemption in the country in which he is resident.
(f) Tax Holiday: Tax Holiday for 5/10 years is available to defined sectors of industry set up by a company incorporated in Bangladesh in defined regions and for 10 years to defined physical infrastructure facilities at prescribed rates on fulfillment of certain conditions.
(g) Concessionary rate of import duty for import of capital machinery: Concessionary import duty (1% in general) and exemption from VAT and Supplementary Duty are available in case of import of capital machinery subject to certain conditions. to certain conditions.
(h) Incentives to Private Sector Power Generation companies: Power Generation Companies (other than coal-based electric generation companies) that commence its commercial production from 01 January 2020 to 31 December 2024 and follow Private Sector Power Generation Policy of Bangladesh, will enjoy tax holiday for 10 years-@100% for the first 5 years, @50% for the next 3 years and @25% for the remaining 2 years.
Coal-based Private Power Generation companies that would enter into contract by 30 June 2020 for setting up electric plants and start commercial production by 30 June 2023 would enjoy tax holiday for 15 years. Tax exemption of income of the expatriates engaged in power generation companies for three years from their date of arrival. Interest from foreign borrowings, royalties, technical know-how and technical assistance fees, as well as capital gain will be exempted from tax.
(i) Public Private Partnership (PPP): Business income of PPP company shall be exempted from tax for ten years. Company formed as per section 22 of the Public Private Partnership Act 2015 shall get exemption from tax on capital gain from transfer of share, royalty, technical know-how, technical assistance fee from PPP project for ten years. 50% salary income of expatriate technician of PPP projects shall be exempted from tax for three years if the employee is appointed within five years of the commencement of commercial production of the company.
(j) Special incentives to Oil and Gas sectors: In compliance with Production sharing contract (PSC) with the Government, Government holds and keeps the contractors of oil & gas exploration harmless from all present and future Bangladesh taxes except where specifically provided to the contrary.
(k) Liquefied Natural Gas (LNG): Excelerate Energy Bangladesh Limited (EEBL) was exempted from tax on its income from FRSU for 15 years. Expatriate employee's salary is exempted from tax for 3 years. Royalties, technical know-how fee, technical assistance fee, interest on foreign loan and capital gain from transfer of shares is exempted from tax. The Government has allowed Excelerate Energy Bangladesh Limited (EEBL) exemption on Value Added Tax (VAT), Supplementary Duty (SD) and Advance Trade VAT (ATV) on goods and services for implementation of Floating Storage Regasification Unit (FSRU) and services rendered by FSRU. The company also enjoy tax holiday for 15 years and would enjoy exemption of income tax of the expatriates for three years from their date of arrival, interest from foreign borrowings, royalties, technical know-how and technical assistance fees, as well as capital gain from transfer of share.
(l) Hi-tech park: Company operating in Hi-Tech Park for providing goods or services shall get exemption from tax on income from the said business at varying rates for 10 years. Company appointed as developer by Section 20 of Bangladesh High-Tech Park Authority Act, 2010 shall get exemption from tax on business income of developers of High- Tech Park for 10 years @ 100%, for 11th year @ 70% and 12th year @ 30%.
(m) Rooppur Nuclear Power Plant Project: Income of Atomstroyexport, a Russian company and contractor of the project, from contractor's bill of the project and income of foreign employees and consultants shall enjoy exemption of tax on its income. Sub-contractor bill of the project shall be exempted form tax. Import of goods, machinery, services and documents for the project are also exempted from tax.
(n) Facilities for export-oriented industries: Import of capital machineries and parts thereof is allowed on nominal duty of 1%. Besides the facilities of Bonded Warehouse, Back to Back Letter of Credit and Duty Draw Back in case of export-oriented industries.
(o) Additional facilities in the Export Processing Zones: There are several additional benefits for industries set up in the Export Processing Zones. If these are set up in Dhaka and Chittagong divisions (other than the three Hill Track districts) on or after 01 January 2012, these would enjoy tax holiday for 5 years, 1st two years @ 100%, and next two years @ 50% and the last year @ 25%. However, if these are set up in other divisions and the three Hill Tract districts, these would enjoy tax holiday for 7 years; 1st 3 years @ 100%, next 3 years @ years 50% and the last year @ 25%. Further facilities include duty-free import of machinery, equipment and raw materials, off-shore banking facilities, freedom from customs formalities, provision of electricity, water, gas and telecommunication connections.
(p) Special Export Processing Zones (SEPZ): Company operating in Special Export Processing Zones (SEPZ) and company developing economic zone shall also get exemption from income tax at different rates for 10 years.
- Tax structure and rates of different taxes [As of 01 July 2019 (updated)]:
0.1. Income tax
(a) Corporate income tax: Resident companies, which are companies registered in Bangladesh and companies whose management and control are in Bangladesh, are generally subject to tax on their worldwide income. Non-resident companies are generally subject to tax on their Bangladeshi source income, subject to the relevant terms of tax treaty. The corporate income tax rates are as follows:
• Publicly traded companies 25%;
• Non-publicly traded companies 35%;
• Publicly listed banks, insurance companies and financial institutions (excluding merchant banks) 37.5%;
• Other banks, insurance companies and financial institutions (excluding merchant banks) 40%;
• Merchant banks 37.5%;
• Manufacturers of tobacco products 45%;
• Publicly traded mobile phone operators 40%;
• Other mobile phone operators 45%.
A minimum tax applies on gross receipts of companies. The minimum tax rate is –
• for tobacco products manufacturing companies is 1% of gross receipts;
• for mobile phone operator companies is 2%of gross receipts.
• for other companies is 0.60% of gross receipts.
However, such minimum tax rate for an industrial undertaking engaged in manufacturing of goods shall be 0.10% of gross receipts for the first three income years since commencement of its commercial production.
Taxable capital gains are generally subject to tax at the rate of 15%. Dividends received by a resident company from another resident company are generally subject to tax at the rate of 20% by way of withholding.
Subject to restrictions on business loss carry forwards in certain specific circumstances, in general unutilized business losses can be carried forward for not more than six successive assessment years. Unutilized capital losses exceeding BDT 5,000 can generally be carried forward for not more than six successive assessment years for offset against future capital gains. Unutilized agricultural losses and unutilized speculation business losses can generally be carried forward for not more than six successive assessment years for offset against future agricultural income or future speculation business income (as applicable). There are no provisions for the carry back of losses.
Group tax consolidation is not available in Bangladesh; consequently, losses cannot be offset against the profits of another company in the same group.
The income year generally runs from 1 July to 30 June. The tax authority may allow taxpayers to use a different 12 months period as their financial year.
Tax returns are generally due for filing on the fifteenth day of the seventh month following the end of the income year or the fifteenth day of September following the end of the income year where the said fifteenth day falls before the fifteenth day of September.
Taxpayers whose total income in the preceding income year exceeded BDT 600,000 are generally required to make quarterly advance payments of corporate income tax on the 15th day of September, December, March and June. For taxpayers who have not previously been assessed, advance payments are required if total income for the income year is likely to exceed BDT 600,000. Any remaining corporate income tax due is payable with the submission of the corporate tax return.
(b) Personal income tax: Resident individuals are generally subject to tax on their worldwide income. Non-resident individuals are generally subject to tax on their Bangladeshi source income, subject to the terms of any relevant tax treaty. Resident individuals and non-resident Bangladeshis are generally subject to personal income tax on their taxable income at progressive rates ranging from 10% to 30%. The following minimum taxes apply: For individuals living in Dhaka and Chittagong City Corporation areas - BDT 5,000; For individuals living in other City Corporation areas - BDT 4,000; and. For individuals living in any other area - BDT 3,000.
Non-resident individuals (excluding non-resident Bangladeshis) are generally subject to personal income tax on their taxable income at the rate of 30%. Individuals with net assets exceeding BDT 30m are generally subject to a surcharge at varying rates.
02. Indirect Taxes:
Principal indirect taxes are Customs Duty, VAT and Supplementary Duty.
(a) Customs Duty
Customs duty has now six tiers. On capital machinery and spares the rate is 1%, on basic raw materials it is 5%, on intermediate raw materials it is 10% and on finished products it is 25%. PSI system has been made optional.
VAT is payable on production and services @15% if the annual turnover is above BDT 30 million. On imports, VAT is payable at the same rate of 15% irrespective of the quantum. In respect of several services VAT is imposed at truncated rates as fixed by the National Board of Revenue. If annual turnover of production and services exceed BDT 5 million but does not exceed BDT 3o million, Turnover Tax is payable at the rate of 4%. In specified cases, however, VAT is payable irrespective of turnover and in such cases VAT registration is mandatory.
(c) Supplementary Duty
This duty is imposed on the production and import of non-essential, luxury, harmful and socially undesirable goods. Except those exempted or rate of those otherwise specified, the common rate of Supplementary Duty is 20%. Considering however, the harmful effects on health and environment, the rates of a few goods are much higher varying from 10% to 500%.
03. Withholding income tax and VAT
The system of withholding tax is there both for income tax and VAT at varying rates. Withholding income tax rates vary from 0.05% to 30% depending on the source of income, nature of business and residential status of the taxpayer. Withholding VAT rates vary from 5% to 10% (i.e. 5%,7.5% and 10%) depending on the nature of services/supplies.
04. Other taxes that may affect foreign investors
Stamp Duty: Stamp Duty On transfer of property - 3% of the value of consideration. On transfer of shares of a company-1.5% on the value of consideration.
The Bangladesh Investment Development Authority (BIDA) (E-mail: email@example.com and Web: http://www.bida.gov.bd) and Bangladesh Export Processing Zone Authority (E-mail: firstname.lastname@example.org and web: http://www.bepza.gov.bd) are sponsoring agencies of the Government for foreign investment in Bangladesh. All foreign investors may contact these agencies to avail of all facilities and institutional support services as provided by the Government of Bangladesh.
05. Employment related costs and taxes:
(a) Fringe benefits: There is no separate fringe benefits tax. Unless specifically exempt, the taxable value of benefits-in-kind form part of the taxable income of individuals are subject to personal income tax.
(b) Social security costs: There are no compulsory employer or employee social security contributions in Bangladesh.
(c) Participation and welfare funds: Companies and establishments whose paid up capital or cost value of fixed assets meets or exceeds set limits on the last day of the accounting year, are required to establish a participation fund and a welfare fund for the benefit of employees. Owners are required to pay 5% of annual net profit into the established funds and into the workers' welfare foundation fund within nine months of the end of the accounting year (80% into the participation fund, 10% into the welfare fund, and 10% into the workers' welfare foundation fund). Two thirds of the amount deposited into the participation fund should be distributed to beneficiaries in equal proportion. The remaining one third should be invested in accordance with legislation. The amount deposited into the welfare fund should be utilized for purposes determined by the board of trustees in accordance with legislation. The Government must be informed of the decisions of the board of trustees.