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Foreign Investment in Bangladesh

  1. Foreign Investment in Bangladesh

The Government of Bangladesh has put in place a comprehensive array of policies aimed at bringing about significant socio-economic improvements to the people of Bangladesh and ultimately, self-reliance, for the nation. In recognition of the private sectors ability to contribute towards achievement of these goals, the government has recently implemented a number of significant policy reforms. These are designed to create a more open and competitive climate for foreign investment.

In order to achieve the objective of accelerating industrial growth and to gain a greater share of industry in the Gross Domestic Product (GDP) as well as to make the industrial policy responsive to the changes occurring in the global economy, the present government announced a new Industrial Policy-1999.

The main features of the Industrial Policy 1999 are as follows :

  • To expand the production base of the economy by accelerating the level of industrial investment.
  • To promote the private sector to lead the gorwth of industrial production and investment.
  • To focus the role of the government as a facilitator in creation an enabling environment for expanding private investment
  • To permit public undertaking only in those industrial activities where public sector involvement is essential to facilitate the growth of the private sector and/or where there are over riding social concerns to be accommodated.
  • To attract foreign direct investment in both export and domestic market oriented Industries to make up for the deficient domestic investment resources, and to acquire evolving technology and gain access to export markets.
  • To ensure rapid growth of industrial employment by encouraging investment in labor intensive manufacturing industries including investment in efficient small and cottage industries.
  • To generate female employment in higher skill categories through special emphasis on skill development.
  • To raise industrial productivity and to move progressively to higher value added products through skill and technology upgradation.
  • To enhance operational eficiency in all remaining public manufacturing enterprises through appropriate management restructuring and pursuit of market oriented policies.
  • To diversify and rapidly increase export of manufactures.
  • To encourage the competitive strength of import substituting industries for catering to a growing domestic market.
  • To ensure a process of industrialisation which is environmentally sound and consistent with the resource endowment of the economy.
  • To encourage balanced industrial development throughout the country by introducing suitable measures and incentives.
  • To effectively utilize existing production capacities.
  • To coordinate trade and fiscal policies.
  • To develop indigenous technology and to expand production based on domestic raw materials.
  • To rehabilitate deserving sick industries.

Reserved sector (public sector) industries :

      The following areas are reserved for public sector investment:

  1. a)   Arms and ammunition and other defence equipment and machinery
  2. b)   Forest Plantation and mechanized extraction within the bounds of reserved forests
  3. c)   Production of nuclear energy
  4. d)   Security printing (currency notes) and minting.

Private sector investment :

      The role of the Private sector has been recognised as a predominant one. Except reserved sectors, private sector investment has been kept open without any ceiling. Private investment both local and foreign or joint venture between local and foreign or with public sector is allowed.

Foreign investment :

  1. a)   Foreign investment, with particular preference to foreign direct investment will be encouraged in all industrial activities in Bangladesh  including service industries and toll manufacturing, excluding those in the list of “Reserved Industries” and ready made garments, banks, insurance companies and other financial institutions. Such investments may be undertaken either independently or through joint ventures, either with the local private or public sector. The capital market will also remain open for portfolio investment.
  2. b)   The policy framework for foreign investment in Bangladesh is based on Foreign Private Investment (Promotion and Protection) Act, 1980 which provides for;

–     non-discriminatory treatment between foreign and local investment

–     protection of foreign investment from expropriation by the state and

–     ensured repatriation of proceeds from sale of shares and profit.

  1. c)   For foreign investment, there will be no limitation pertaining to equity participation, i.e. 100 percent foreign equity will be allowed. Fully foreign owned firms or joint ventures will in no way be obliged to sell their shares through public issues, irrespective of the amount of their paid-up capital. However, foreign investors or companies with foreign investment will be eligible to buy shares through the stock exchange. Foreign investors on companies may obtain full working capital loans from local banks. The terms of such loans will be determined on the basis of bank client relationship.
  2. d)   Foreign entrepreneurs will enjoy the same facilities as the domestic entrepreneurs in respect of tax holiday, payment of royalty, technical know-how fees etc. A foreign technician employed in foreign companies will not be subjected to personal income tax upto 3 years, and beyond that period his/her personal income tax payment will be governed by the existence of non-existence of agreement on aboidance of double taxation with country of citizenship.
  3. e)   Full repatriation of capital invested foreign sources will be allowed. Similarly profits and dividend accruing to foreign investment may be transferred in full. If foreign investors reinvest their repatriable dividends and or retained earnings, those will be treated as new investment. 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.
  4. f)    The process of issuing work permit to foregin experts on the recommendation of investing foreign companies or joint ventures will operate without any hindrance or restriction. “Multiple entry visa” will be issued to prospective foreign investors for 3 years. In case of experts, “multiple entry visa” will be issued for the whole tenure of their assignments.
  5. g)   Foreign investment in “Thrust Sectors”, particularly in small industrial units, will be given priority in allocation of plots in BSCIC industrial estates.
  6. h)   Investment of non-resident Bangladeshis will be treated as par with foreign direct investment.
  7. i)    Measures will be taken to protect the intellectual property rights of new products and processes.
  8. j)    Investment guarantee and dispute settlement will be guided by international arrangements and provisions.

Facilitative role of the public institutions:

      The following is the investment framework for the development of the private sector:

  1. a)   All foreign investments shall be registered in the prescribed manner with the concerned promotional body before setting up an industry.
  2. b)   Prior clearance will be required for setting up of ready-made garments (RMG) units, banks, insurance companies and other financial institutions.
  3. c)   Bangladesh Small and Cottage Industries Corporation (BSCIC) will allot industrial plots to respective industrial units in its own industrial estates and estates developed by it under special orders. Similarly, Bangladesh Export Processing Zones Authority (BEPZA) will allot land in its own estates. Board of Investment (BOI) will recommend and pursue allotment of public land wherever available.
  4. d)   Concerned facilitating agencies will, after discussion with the relevant authorities, determine the time limit for receipt of power, gas, water, drainage and telecommunication connection as well as provide clearance relating to environment pollution. These facilities will be provided by the “One Stop Service” cell of the facilitating agencies.
  5. e)   BOI, BEPZA and BSCIC will approve, wherever necessary, the payment of any royalties, technical assistance fees and approve appointment and payment of remuneration of foreign personnels.
  6. f)    Private sector is allowed to set up export processing zones and develop industrial parks. Government will extend support to these zones and parks. Industries located in the private zones (EPZs) will enjoy the same facilities as those enjoyed by the units located in the public EPZs.

BOARD OF INVESTMENT (BOI)

      The Government of Bangladesh established the Board of Investment (BOI) in 1989 for accelerating private investment in Bangladesh. The Board, headed by the Prime Minister of the Republic is vested with necessary powers to take decisions for speedy implementation of new industrial projects and provide operational support services to the existing ones.

The major functions of Board of Investment (BOI) include the following :

*     Undertaking investment promotion activities at home and abroad

*     Providing all types of facilities for promotion of capital investment and rapid industrialization.

*     Registration of industrial projects as well as royalty, technical know-how and technical assistance agreements wherever required

*     Approval of payment of royalty, technical know-how and technical assistance fees to foreign nationals/ organisations beyond the prescribed limits.

*     Issuing work permit to expatriate personnel working in private sector industrial enterprises

*     Providing import facilities to industrial units in the private sector.

*     Approval of the terms and conditions of foreign private loan and suppliers credit

*     Allotment of land in the industrial areas/estates for industrial purpose

*     Conciliation of disputes relating to foreign investors and

*     Providing assistance to avail infrastructure facilities for industries.

One Stop Service Centre:

      The infrastructure and institutional support service that are available with the One Stop Service Centre are :

  1. a)   pre investment counselling
  2. b)   electric connection
  3. c)   gas connection
  4. d)   water and sewerage connection
  5. e)   telecommunication facilities
  6. f)    solution of problems in case of difficulties arising in clearing imported machinery under concessional rate of import duty and obtaining bonded warehouse license
  7. g)   environmental clearance

Courtesy service :

      The Board of Investment offers courtesy service to the visiting foreign investors. The service includes reception at airport, hotel booking, transport arrangement and drawing up itinerary in accordance with the need of the foreign investors visiting Bangladesh. To avail of the services the investors are advised to intimate BOI in advance.

Welcome service at airport:

      “BOI welcome service’ counter manned by BOI officials has been set-up to offer round the clock service to all foreign investors arriving at the Zia International Airport, Dhaka. Foreign investors are requested to avail the services on arrival.

PROCEDURE FOR OBTAINING FACILITIES AND SERVICE

      To avail of the facilities and services provided by BOI for setting up of industries, the procedure mentioned below are to be followed by the entrepreneurs:

  1. Registration of joint venture/100% foreign investment proposals in the private sector:

         For registration of the projects entrepreneurs/investors are required to apply in a prescribed form available in the One Stop Service Centre of BOI.

  1.     Registration of self-financed local investment projects including industries sanctioned/financed by financial institutions or commercial banks:

         The entrepreneurs/investors of such projects are also required to apply in prescribed form to BOI for registration.

  1. Permission for setting up joint venture industrial units with the public sector corporations:

         An entrepreneur, either local or foreign, can set up an industry with public sector corporation, Such joint venture is required to be registered with BOI if the private sector share holding is more than 50%, and in such case it is treated as private sector project. For any public sector which makes contribution out of their own fund needs approval of the concerned ministry. If the share holding of the corporation is 50% or above, it is treated as a public sector project. The public sector project is processed by the concerned ministry for approval of the Planning Commission.

Procedure of import of raw and packing materials and spare parts :

      No permission is required for import of free list items. For items in the restricted list, BOI, BEPZA and BSCIC will fix up the import entitlement and recommend to Chief Controller of Imports & Exports (CCI&E) for issuance of IRC (Import) Registration Certificate). CCI&E issues IRC in favour of the industrial enterprises within 30 days of receiving application. Items included in the banned list cannot be imported unless otherwise specified.

      In case of import of raw and packing materials of the pharmaceutical industry, the Drugs Administration Directorate under Ministry of Health and Family Welfare prepares Block Lists on half-yearly basis. BOI/BEPZA/BSCIC provides all other assistance relating to import in their respective jurisdictions. In this connection procedure followed by BOI is as under:

         On receipt of application in the prescribed form along with copies of (I) TIN certificate, (2) Trade License, (3) Membership Certificate of relevant trade association/chamber, (4) Certificate from the nominated bank regarding opening of account, (5) Incorporation Certificate, in case of limited companies and (6) Letter of registration with BOI, necessary field inspection is done to determine annual production capacity and half yearly/yearly import entitlement of raw & packing materials. The entrepreneur is then advised to deposit IRC fees (on the basis of annual import entitlement) by Treasury Challan to the Bangladesh Bank/Treasury. On receipt of the copy of treasury challan, recommendation is made to the office of the CCI&E for issuance of IRC. The entrepreneur will then approach the nominated bank for opening Letters of Credit for import.

Guide-lines for registration/approval of foreign loan, suppliers, credit, PAYE scheme, etc:

      Private investors arranging foreign loan, supplier’s credit, deferred payments, PAYE scheme etc. are required to obtain prior approval from BOI. Investors need to approach BOI in the prescribed application form for the purpose.

Remittance of royalty, technical know-how and technical assistance fees:

Royalty : Royalty fee is paid by the local manufacturer to its foreign  collaborator in consideration of

*     license to use the brand name and trade mark of the foreign manufacturer on the local product (s) and/or;

*     assignment of rights under inventions by the foreign company as well as current manufacturing experience.

Technical know-how and technical assistance fees :

      Technical know-how and technical assistance fee is paid by the local unit to its foreign collaborator in consideration of preparation of factory layout, engineering specifications of the project, assistance in selecting machine, supervision of civil construction and installation of machinery and equipment, know-how and assistance in production, testing, safety and quality control, assistance by way of making available patented process and /or know-how and right to avail of the technical information resulting from research and development, training of local personnel, technical assistance in management and marketing in deserving cases and assistance in other technical matters etc.

      No prior permission of BOI is required for entering into agreements for remitting fees for the purpose of royalty, technical know-how and technical assistance if the total fees and other expenses connected with technology transfer (service fee, marketing commission etc.) are within the following prescribed limits:

  1. a)   For new and existing projects such fees and other expenses should not exceeds an aggregate limit of 6% of the C&F value of respective imported machinery.
  2. b)   Within the agreement period recurrent annual fees for royalties and other expenses such as fees for technical know-how, technical assistance, operational services, marketing of products etc. should not exceed an aggregate limit of 6% of the previous years sales of the firms as declared in the Tax Return and Audited Balance Sheet of the company.

      Once the technology transfer agreements falling within the above limits are signed, these are required to be furnished to BOI for registration and for remittance.

      Proposals which are not covered under the prescribed limits will require prior approval of BOI for which application have to be submitted along with necessary documents and copy of the draft agreement.

Procedure for obtaining work permit for foreign nationals:

      Work permit for foreign nationals is a pre-requisite for employment in Bangladesh. Private sector industrial enterprises desiring to employ foreign nationals are required to apply in advance in the prescribed form of BOI. For expatriate employment the following guidelines are followed:

  1. a)   Nationals of the foreign countries recognized by Bangladesh are considered for employment.
  2. b)   Employment of expatriate personnel be considered only in industrial establishments which are sanctioned/registered by the appropriate authority.
  3. c)   Decision of the Board of Directors of the concerned company for new employment/ extension and the certified copy of the Memorandum and Articles of Association duly signed by the share holders are to be furnished.
  4. d)   Experts/Technicians in the irrespective fields are required to furnish their certificate of educational qualifications and experience through their employers.
  5. e) Service contract/agreement/appointment letter/buyer’s nomination along with the copy of passport are to be furnished.
  6. f)    The Number of foreign employees should not exceed 15% of the total employees including top management personnel.
  7. g)   Initially employment of any foreign national is considered for a term of one year which can be extended on the merits of the case.
  8. h)   Necessary security clearance by the Ministry of Home Affairs is required.

Procedure for obtaining industrial plots :

      Entrepreneurs requiring  industrial plots for setting up of an industry in any industrial area/estate apart from BEPZA and BSCIC, may approach BOI mentioning the size of plot required by them along with copies of  registration/sanction letter and industrial layout plan for lefting  actual requirement. After receiving an application the BOI provides assistance to the entrepreneur in getting an industrial plot. Most of the industrial areas/estates are owned/controlled by the city development authorities in three divisional head quarters, RAJUK in Dhaka, CDA in Chittagong and KDA in Khulna. Besides these, there are a few industrial estates owned and controlled by some other government agencies namely, (a) Public Works Department and (b) Housing and Settelement Directorate. BOI recommends for acquisition of land to the concerned authorities if required by the industrial units, In such case the entrepreneurs required to submit relevant papers and information in connection with the land to be acquired by the Deputy Commissioner concerned.

Procedure for obtaining electricity, gas, water, sewerage & telephone connection:

      Entrepreneurs may apply either directly to the concerned authority for obtaining utility services or approach BOI’s One Stop Service for assistance along with copy of registration/sanction letter.

INCORPORATING A COMPANY IN BANGLADESH

      Business in Bangladesh may be carried on by a company formed and incorporated locally and a foreign company incorporated outside but registered in Bangladesh by establishing a place of business here. There are mainly two types of companies

  1. i)    Limited companies and
  2. ii)   Unlimited companies

Limited companies are divided into two categories;

  1. a)   Company limited by shares; and
  2. b)   Company limited by guarantees.

Unlimited companies and companies limited by guarantees may or may not have share capital.

Companies limited by shares:

There are two broad categories of companies limited by shares  namely :

  1. a)   Private limited companies : and
  2. b)   Public limited companies.

Private limited companies :

A Private Limited company means a company which by its Articles

  1. a)   restrict the right to transfer the shares;
  2. b)   limit the number of its members to a minimum of 2 and maximum of 50 excluding the persons who are in the employment of the company
  3. c)   prohibits any invitation to the public to subscribe for the shares or debentures of the company ; and
  4. d)   entitles to commence business from the date of its incorporation.

Public limited companies :

  1. a)   A public Limited company may issue invitation to the members of the public to subscribe the shares and debentures of the company through a prospectus which complies with the requirements of the companies Act. 1994 and the Securities and Exchange Commission Act, 1993 as amended from time to time.
  2. b)   The required minimum number of Members are 7 but there is no maximum limit.
  3. c)   The minimum number of Directors are 3.
  4. d)   A company can be formed as a public company or alternatively a company which is incorporated as a private company can also be converted into a public company.
  5. e)   In order to commence business the public company shall have to obtain a commencement certificate from the Registrar of Joint Stock Companies.

Memorandum of Association:

      Memorandum of Association of the company shall state the name of the company, whether it is public limited or private limited and the location of the registered office of the company. The memorandum should clearly spell out the main objectives, the authorised capital-division of this capital into shares of fixed amount and liability of its members.

Articles of Association:

      The Articles of Association are the regulations governing the internal management of the affairs of the company and the conduct of its business.

INCENTIVES AND FACILITIES FOR THE INVESTORS

  1. Tax Holiday:Tax holiday is allowed to companies for the following periods according to the location of industries.

*     Dhaka and Chittagong Division                                  5 years

      (excluding the 3 hill districts of Chittagong Division)

*     Rajshahi, Khulna, Sylhet, Barisal and the

      3 Hill districts of Chittagong Division                          7 years

The period of tax holiday is calculated from the month of commencement of commercial production or operation of the industrial undertaking. The eligibility of tax holiday is to be determined by the National Board of Revenue (NBR). Tax holiday facility can be availed of by industries set up within June 30, 2000.

  1. Accelerated Depreciation:Accelerated depreciation in lieu of tax holiday is allowed at the rate of 80% of actual cost of machinery or plant for the year in which the unit starts commercial production and 20% for the following years. The rate of depreciation is 100% for areas specified by the NBR.
  2. Concessionary Duty On Imported Capital Machinery:Import duty at the rate of 5% advalorem is payable on capital machinery and spares imported for initial installation or BMR/BMRE of the existing industries. The value of spare parts should not however exceed 10% of the total C & F value of the machinery and will also get the benefit of this concessionary rate of duty. For 100% export oriented industries, no import duty is charged in case of capital machinery and spares. However, import duty @ 5% is secured in the form of bank guarantee or an indemnity bond to be returned after installation of the machinery. Value Added Tax (VAT) is not payable for imported capital machinery and spares.
  3. Rationalisation Of Import Duty:Duties and taxes on import of goods which are produced locally will be higher than those applicable to import of raw materials for producing such goods.
  4. Incentives To Non-Resident Bangladeshis:Special incentives are provided to encourage non-resident Bangladeshis for investment in the country. Non-resident Bangladeshi investors will enjoy facilities similar to those of foreign investors. Moreover, they can buy newly issued shares/debentures of Bangladeshi companies. A quota of 10% has been fixed for non-resident Bangladeshis in primary public shares. Furthermore, they can maintain foreign currency deposits in the Non-resident Foreign Currency Deposit (NFCD) accounts.
  5. Other Incentives:

*     Tax exemption on royalties, technical know-how fees received by any foreign collaborator, firm, company and experts.

*     Tax exemption on the interest on foreign loans under certain conditions.

*     Avoidance of double taxation in case of foreign investors on the basis of bilateral agreements.

*     Exemption of income tax up to 3 years for the foreign technicians employed in industries specified in the relevant schedule of income tax ordinance.

*     Tax exemption on income of the private sector power generation company for 15 years from the date of commercial production.

*     Facilities for full repatriation of invested capital, profit and dividend.

*     Six months multiple entry visa for the prospective new investors.

*     Re-investment of repatriable dividend treated as new investment.

*     Citizenship by investing a minimum of US$ 5,00,000 or by transferring US$ 10,00,000 to any recognized financial institution (non-repatriable).

*     Permanent residentship by investing a minimum of US$ 75,000 (non-repatriable).

*     Tax exemption on capital gains from the transfer of shares of public limited companies listed with a stock exchange.

  1. Incentives To Export Oriented And Export-Linkage Industries:

         Export oriented industrialisation is one of the major objectives of the Industrial Policy 1999. Export-oriented industries will be given priority and public policy support will be ensured in this respect. An industry exporting at least 80% of its manufactured goods or an industry contributing at least 80% of its products as an input to finished exportable, and similarly, a business entity exporting at least 80% of services including information technology related product will be considered as an export oriented industry. To make investment in 100 percent export-oriented industries attractive, the following incentives and facilities will be provided.

  1. Duty free import of capital machineries and spare parts upto 10 percent of the value of such capital machinery.
  2. Existing facilities for setting up of Bonded Warehouses and back-to-back Letters of Credit will continue.
  3. The system for duty drawback will be further simplified and to this end, duty drawback will be fixed at a flat rate on exportable and potentially exportable goods. Exporter will receive duty drawback at a flat rate directly from the relevant commercial bank.
  4. The arrangement for providing loans up to 90 percent of the value against irrevocable and confirmed Letter of Credit/Sales Agreement will continue.
  5. To ensure backward linkage, incentives will be extended to the “deemed exporters” supplying indigenous raw materials to export-oriented industries. Export-oriented industries including export-oriented RMG industries using indigenous raw materials will be given facilities and benefits at prescribed rates.
  6. The export-oriented industries, further to the provisions of Bangladesh Bank foreign exchange regulations, will be entitled to receive additional foreign exchange, on a case-to-case basis, for publicity campaigns, opening overseas offices and participating in international trade fairs.
  7. The entire export earnings from handicrafts and cottage industries to be exempted from income tax. For all other industries, income tax rebate on export earnings will be given at 50 percent.
  8. The facility for importing raw materials, which are included in the banned/restricted list, but required in the manufacture of exportable commodities, will continue.
  9. The import of specified quantities of duty-free samples for manufacturing exportable products will be allowed consistent with the prevailing relevant government policy.
  10. The local products supplied to local industries or projects against foreign exchange payment or foreign exchange L/C will be treated as indirect exports and be entitled to all export facilities.
  11. The Export Credit Guarantee Scheme will be further expanded and strengthened.
  12. 10 percent products of the enterprises, located in both public and private EPZs will be allowed to be exported to domestic tariff area against foreign currency L/C on payment of applicable duties and taxes.
  13. 100% percent export-oriented industry outside EPZ will be allowed to sell 20% percent of their products in the domestic market on payment of applicable duties and taxes.
  14. The Export-oriented industries which are identified by the government as “Thrust Sector” will be provided special facilities and venture capital support.

         Apart from the above mentioned facilities, other facilities announced and provided in the Export Policy will be applicable to export-oriented and export-linkage industries.

Note: For further details users are requested to contact BOI Bangladesh.

Source : Board of Investment.