Taxation for Companies
A company needs to pay corporate tax on its profit (Revenue-Expenses); if it doesn’t have the profit, it doesn’t need to pay tax. This is subjected to the followings:
The standard corporate tax rate is 27.5% (reduced from 30% effective 1 July 2022) for private companies, including branch and liaison offices, unlisted companies, association of persons, and artificial juridical persons but can resort back to 30% if the following conditions are not met:
Corporate Tax Rate in Bangladesh:
| Listed companies with more than 10% paid-up capital raised through initial public offers | 20% (reduced from 22.5% effective 1 July 2022). The rate is increased to 22.5% if the conditions mentioned above are not met. |
| Listed companies with 10% or less paid-up capital raised through initial public offers | 22.5%. The rate is increased to 25% if the conditions mentioned above are not met. |
| One person companies | 22.5% (reduced from 25% effective 1 July 2022). The rate is increased to 25% if the conditions mentioned above are not met. |
| Listed banks, insurance, and other financial institutions, including mobile financial services providers | 37.50% |
| Unlisted banks, insurance, and other financial institutions, including mobile financial service providers | 40% |
| Merchant banks | 37.5% |
| Tobacco manufacturers | 45% (plus 2.5% surcharge) |
| Listed mobile phone operators | 40% |
| Unlisted mobile phone operators | 45% |
| Ready-made garment manufacturers and exporters | 12%; 10% with green building certification. The reduced rates apply up to 30 June 2024. |
| Export-oriented companies | 12%; 10% with green building certification (reduced from 30% effective 1 July 2022). |
| Textile industries | 15% until 30 June 2025 (extended from 30 June 2024). |
| Jute goods exporters | 10% until 30 June 2023. |
| Private universities, private medical, dental, and engineering colleges, and private colleges solely dedicated to imparting education on information and communication technology | 15% |
Besides, there are several tax exemption facilities for companies based on the nature of business and the location of business.
Withholding Tax:
The business entities and organizations need to deduct tax from any payment made during their operations to be allowed as the expense of the organization and it is called withholding tax. Upon deduction, the organization must furnish a withholding tax certificate to the person/entity from which the tax had been deducted.
Withholding Tax Authorities
Every person, being a company or a co-operative society or a non-government organization registered with NGO Affairs Bureau [a Micro Credit Organization having licence with Micro Credit Regulatory Authority, [a university], a private hospital, a clinic, a diagnostic centre, [an English medium school providing education following international curriculum, artificial juridical person, local authority,] a firm or an association of persons], shall file or cause to be filed, with the Deputy Commissioner of Taxes under whose jurisdiction he is an assesses, a return of tax deducted or collected under the provisions of Chapter VII of this Ordinance.
Responsibilities:
Find the Withholding Tax Rate of Bangladesh HERE➤
| Entities not required to register for BIN/VAT: | Entities eligible to register for Turnover Tax instead of BIN/VAT: | Entities are eligible for mandatory VAT registration. |
|
Those whose annual turnover/sales are less than 50 lakh Taka.
Additionally, sellers of products/services listed in the first schedule of the VAT law do not need to register for BIN. |
Those whose annual turnover/sales range between 50 lakh Taka and 3 crore Taka.
These entities are required to pay only 4% VAT. |
Those whose annual sales exceed 3 crore Taka.
These entities must pay VAT at the prescribed rates mentioned in the VAT law. |
However, the following individuals/institutions must register for VAT/BIN and submit monthly returns regardless of their annual turnover/sales (even if zero):
All individuals/institutions engaged in import-export business.
All individuals/institutions supplying goods/services against tenders/contracts/work orders.
All individuals/institutions supplying/producing/importing goods/services subject to supplementary duty.
As per General Order-17, the following must mandatorily register for BIN/VAT:
i) Manufacturers of 75 types of products.
ii) Providers of 79 types of services.
iii) Traders of 7 types of products.
iv) Shops located in supermarkets and shopping malls.
v) Any manufacturing institution located within a city corporation/district town.
Products and services that must mandatorily register for BIN/VAT as per point 4:
Product Manufacturing: Milk products, chocolate, biscuits, chanachur (a spicy snack), pickles, paint, soap, coil, foam, plastic products, wood and leather products, lozenges, noodles, ink, packaging materials, bricks, fans, TV, bulbs, parts, etc.
Service Provision: Online product sales, ITES services, ready-made garment retailers, ride-sharing services, businesses operating on rented office spaces, architects, graphic designers, tailoring shops, courier services, hotels/restaurants, car garages, advertising agencies, printing presses, confectioneries, furniture manufacturing and sales, parlors, consultancy firms, suppliers, fitness centers, coaching centers, clinics and security services, supermarkets, shopping mall shops, rod and cement shops, electronics product sales shops, etc.
VAT Deducted at Source (VDS):
The below-mentioned business entities and organizations need to deduct VAT from any payment made during their operations to be allowed as the expense of the organization, known as withholding VAT/Source VAT Deduction. Upon deduction, the organization must furnish a VAT Deduction certificate to the person/entity from which the VAT had been deducted.
Entities required to deduct VAT at source:
(a) Any government entity;
(b) Any private institution approved by the NGO Affairs Bureau or the Department of Social Services;
(c) Any bank, insurance company, or similar financial institution;
(d) Any secondary or higher-level educational institution; or
(e) Any limited company.
Responsibilities:
To know about the VAT rates for different services in Bangladesh, please visit here>
Selling Products/Services on Own Platform: If a manufacturer/business/service provider sells their own products/services through their own online platform/website/Facebook page/group, they must pay VAT at the specified rate according to the VAT law for those specific products/services. For example:
1. In the case of a product manufacturer, 15% VAT or the applicable rate for the product specified in the Third Schedule of the Ordinance.
2. In the case of a service provider, the applicable VAT rate according to the code for the relevant service.
Note: In this case, an additional 5% VAT for online services will not be applicable.
Selling Products/Services on Other Platforms: In the case of selling one’s own products/services on a third party or other online platforms, a 5% VAT will be applicable on the commission/profit/revenue sharing provided to the service provider of the relevant online platform. Additionally, the applicable VAT for the relevant product/service must be pre-paid as per the law. If this VAT is not pre-paid, then VAT on the relevant product/service must be collected from the final consumer.
Although the Income Tax Act does not provide a specific definition of supplier services, under section 52, it stipulates the rates at which tax is to be deducted at source (TDS) in the case of “supply of goods.”
However, in the VAT Act, a specific definition is provided, and it states that anyone wanting to provide services as a supplier must be VAT-registered as a supplier (service code S037). It also mentions that no manufacturer, trader, or service provider (for services with specific definitions) will be considered as a supplier.
Rates of Tax Deduction at Source (TDS) and VAT Deduction at Source (VDS) from bills for the supply of goods/supplier services are as follows:
| Particulars | TDS | VDS |
|---|---|---|
| If the base amount is less than 50 lakh BDT | 3% | |
| If the base amount is more than 50 lakh BDT but less than 2 crore BDT | 5% | 7.5% |
| If the base amount is more than 2 crore BDT | 7% |
Note:
a. Employee Salary Payments: Any payment made by way of salary to an employee for whom the statement under section 108A was not provided.
b. Non-Bank Salary Payments: Any payment by way of salary or remuneration made otherwise than by crossed cheque or bank transfer by a person to any employee having a gross monthly salary of Taka twenty thousand or more.
c. Incentive Bonus Payments: Any expenditure by way of incentive bonus exceeding ten percent (10%) of the net profit disclosed in the statement of accounts.
d. Overseas Traveling Expenditure: Any expenditure by way of overseas traveling exceeding zero point five zero percent (0.50%) of the disclosed turnover.
e. Large Payments Not Through Bank: Any payment by a person exceeding Taka fifty thousand, otherwise than by a crossed cheque or bank transfer, except for the following:
i. Salary or remuneration made to any employee, without prejudice to the obligation referred to in clause (i).
ii. Any payment on account of the purchase of raw materials.
iii. Any payment for government obligations.
f. Promotional Expenses: Any promotional expense exceeding zero point five zero percent (0.50%) of the disclosed business turnover. For the purpose of this clause, promotional expense means any expense incurred by way of giving any benefit in kind, cash, or any other form to any person for the promotion of business or profession.
g. Entertainment Expenses: If the entertainment expense surpasses four percent (4%) of the first ten lakh of the income and two percent (2%) of the subsequent profits and gains of the business.
h. Technical Fees and Royalties: The expenditure or aggregate of the expenditure by an assessee by way of royalty, technical services fee, technical know-how fee, technical assistance fee, or any fee of a similar nature, as exceeds the following:
i. Ten percent (10%) of the net profit from business or profession, excluding any profit or income of subsidiary or associate or joint venture, disclosed in the statement of accounts in the first three years.
ii. Eight percent (8%) on the subsequent years.
Be Cautious in Preparing Your Company’s Annual Audited Financial Statements (Profit and Loss Account and Balance Sheet)
Many of you may already know that from now on, every limited company is required to submit its annual financial statements at its office each year. Previously, this was only mandatory to be submitted to the Income Tax Office and the RJSC.
In the past, many used to prepare the financial statements of their organizations as they pleased. Some even created fake/false financial statements. Additionally, some prepared multiple types of financial statements in the name of a single company within a year and submitted them to various places for different purposes, which was entirely illegal.
Starting from last year, regulatory bodies (government, NBR, RJSC, ICAB, banks) have introduced a new rule. A company can no longer prepare more than one audit report in a year. To enforce this, ICAB has introduced a system where each audit report must include a DVC (Digital Verification Code) number through the DVS (Digital Verification System). This system generates a unique number that, once issued in the name of a company for a particular year, cannot be reissued for that company in that same year. Thus, no additional audit reports can be created for that company within that year. If someone fraudulently prepares and submits such a report somewhere, the concerned institution can easily verify the authenticity of the DVS number online. As a result, penalties and sanctions will be imposed for submitting fake audit reports.
Now, let’s discuss submitting audit reports to the VAT office. Many are not submitting monthly VAT returns, some are submitting zero VAT returns despite having sales, some are concealing actual sales, and some are not showing the actual amounts in monthly VAT returns despite transactions through banking channels. Consider this: when a VAT officer verifies the sales amount shown in your submitted audit report against the amount shown in your monthly VAT returns, or checks how much VAT you have deducted at source as a source VAT deductor against the expenses shown in your financial statements, or compares the sales amount with your bank statement, what will happen to you and your organization?
Company Tax Return Checklist
The National Board of Revenue (NBR), the preeminent tax authority in Bangladesh, oversees the comprehensive tax framework governing the country. It is crucial for both individuals and businesses to understand this system to ensure compliance and fulfill their tax obligations. This tax regulation framework significantly influences the country’s competitiveness on the international stage, particularly for enterprises looking to establish or expand their activities.
A tax is a mandatory financial charge imposed by a governmental organization on individuals, corporations, and other entities to generate revenue for public expenditure and governmental operations. These charges support various public services and infrastructure, including healthcare, education, defense, and transportation. Failure to comply with tax obligations can result in legal consequences under applicable laws.
Tax compliance services encompass a range of professional support and advisory services aimed at helping individuals and organizations adhere to tax laws and regulations. These services include assistance with tax return preparation, filing, tax planning, audit representation, and resolution of tax disputes. Tax compliance professionals are well-versed in areas such as personal income tax, corporate tax, value-added tax (VAT), and international tax matters, ensuring that clients meet their tax obligations accurately and efficiently.
In Bangladesh, tax obligations apply to both residents and non-residents with income sourced within the country. An individual is considered a resident if they have stayed in Bangladesh for at least 182 days in a given fiscal year.
The NBR, an autonomous body within the Ministry of Finance, is the principal authority responsible for enforcing tax laws and ensuring compliance. It develops and continually assesses tax policies and laws, negotiates tax treaties with foreign governments, and engages in inter-ministerial discussions on economic issues impacting fiscal policies and tax administration.
The NBR’s primary function is to collect various tax revenues, including Value Added Tax (VAT), Customs Duty, Excise Duty, and Income Tax. It is organized into three wings dedicated to different taxes: the Customs Wing, the VAT Wing, and the Income Tax Wing. Additionally, it has the IT Wing and the Research & Statistics Wing to support its operations.
Currency: Bangladesh Taka (BDT)
Foreign Exchange Control: Up to 100% foreign participation is permitted in all areas except a few restricted sectors. Dividend remittance requires application to the Bangladesh Bank, with approval in BDT and conversion to the relevant foreign currency at the applicable exchange rate on the payment date. No restrictions exist on inward remittances into Bangladesh.
Accounting Principles/Financial Statements: The accounting standards adopted by the Institute of Chartered Accountants of Bangladesh largely align with Bangladesh Financial Reporting Standards. Public and private limited companies must file financial statements annually.
Principal Business Entities: The main business entities include public and private limited liability companies, partnerships, and branches of foreign entities.
| Category | Details |
|---|---|
| Rates | Publicly listed companies: 20%/22.5%, Private companies: 27.5% |
| Branch Tax Rate | 27.5%, plus a 20% tax on remitted profits |
| Capital Gains Tax Rate | 15% |
| Residence | An entity is resident if it is registered or managed/controlled in Bangladesh |
| Basis | Residents: Worldwide income; Nonresidents: Bangladesh-source income only |
| Taxable Income | Income heads: Business income, capital gains, financial instruments, securities, and other income |
| Amortization and Depreciation | 20% straight line method for pre-commencement expenditure |
| Salary Expenses | Non-deductible if mandatory information on employee tax returns is not provided |
| Surtax | None |
| Alternative Minimum Tax | 0.6% on gross receipts over BDT 5 million (varies for specific sectors) |
| Global Minimum Tax (Pillar Two) |
Not implemented
|
Taxation of Dividends:
Dividends: Dividends paid to a resident company, or a nonresident company, trust, or fund are subject to a 20% withholding tax rate. Dividends paid to resident and nonresident individuals are subject to withholding tax rates of 10% and 30%, respectively.
Capital Gains:
Losses:
Foreign Tax Relief:
| Tax Year | Standard: 1 July to 30 June; exceptions apply for certain financial institutions. |
|---|---|
| Consolidated Returns | Not permitted |
| Filing and Payment | Annual corporate income tax return required |
| Advance Tax | Paid quarterly; remaining tax due before return filing |
| Penalties | Imposed for late filing, non-filing, non-payment, income concealment, and record-keeping failures |
| Rulings | Possible in certain cases but not publicly available |
| Other | Monthly withholding tax returns and additional information required for payroll submissions |
| Taxable Income (BDT) | Rate | |
|---|---|---|
| Up to 350,000 | 0% | |
| 350,001–450,000 | 5% | |
| 450,001–750,000 | 10% | |
| 750,001–1,150,000 | 15% | |
| 1,150,001–1,650,000 | 20% | |
| Over 1,650,000 | 25% |
| Residence | Details |
|---|---|
| Residence Definition | Present in Bangladesh for over 183 days in the income year or 365 days in the preceding four years and 90 days in the income year. |
| Basis | Residents: Worldwide income; Nonresidents: Bangladesh-source income only |
| Capital Gains Tax | Taxed at individual rates, lower of 15% or applicable rate if held for over five years |
| Deductions and Allowances | Various personal allowances and deductions available |
| Foreign Tax Relief | Credit for foreign taxes against Bangladesh tax liability |
| Tax Year | Assessment year: 12 months from 1 July |
|---|---|
| Filing Status | Joint returns not permitted |
| Filing and Payment | Returns due by 30 November; extension possible for first-time filers |
| Penalties | Imposed for late filing, non-filing, non-payment, income concealment, and record-keeping failures |
| Type of Payment | Residents | Nonresidents |
|---|---|---|
| Dividends | Companies: 20%; Individuals: 10% | Companies: 20%; Individuals: 30% |
| Interest | 0% | 0%/20% |
| Royalties | 10%/12% | 20% |
| Branch Remittance Tax | N/A | 20% |
| VAT Rates | Details |
|---|---|
| Standard Rate | 15% |
| Reduced Rates | 0%/5%/7.5%/10% |
| VAT Registration | Mandatory for turnover > BDT 30 million; optional for BDT 5-30 million turnover |
| Filing and Payment | Monthly filing within 15 days of the next month; VAT withholding applicable |
Imposition of VAT: Value Added Tax (VAT) is imposed on the supply of goods, the provision of services, and the importation of goods or services within the jurisdiction of Bangladesh. The valuation of goods and services provided without consideration is determined based on their fair market value.
VAT Rates: The standard rate of VAT is 15%, subject to specific exceptions for designated services. Export transactions are zero-rated, ensuring that exports are not burdened with VAT. Reduced VAT rates of 5%, 7.5%, and 10% are applicable to certain categories of goods and services as specified by the regulatory framework.
Advance Tax on Imports: An advance tax is levied on the importation of goods, set at a rate of 3% for manufacturers and 5% for other importers. The concessional rate applicable to manufacturers is contingent upon the submission of requisite documentation at the time of goods release.
VAT Registration Requirements: Mandatory VAT registration is required for suppliers with an annual turnover exceeding BDT 30 million. Suppliers with turnover ranging from BDT 5 million to BDT 30 million have the option to voluntarily register for VAT or opt for turnover tax at a rate of 4%. Suppliers with an annual turnover below BDT 5 million are exempt from VAT registration under the VAT Act. However, VAT registration is obligatory for importers, exporters, all withholding entities, and suppliers dealing in goods subject to supplementary duty.
A centralized registration process is available for entities maintaining centralized books and records while conducting supplies of similar types of goods and services from multiple business locations. Entities without a physical presence in Bangladesh must designate a VAT agent.
Filing and Payment Obligations: VAT returns must be filed and corresponding payments made through the online system. VAT withheld must be remitted within seven days following the end of the month in which the deduction occurred. The VAT return must be submitted monthly, within 15 calendar days from the commencement of the subsequent month, or the next working day if the deadline coincides with a government holiday.
VAT Withholding Tax (VAT Deduction at Source or VDS):
Foreign Entities: A foreign entity engaged in the provision of work, services, or supplies within Bangladesh may be required to register for VAT. Such entities may submit an application for registration through a designated local VAT agent.
The aforementioned provisions constitute the principal framework governing the imposition, collection, and administration of VAT in Bangladesh, ensuring compliance with statutory obligations and fostering a structured approach to indirect taxation.
| Tax | Details |
|---|---|
| Social Security | None |
| Payroll Tax | None for the employer, but employers must withhold income tax from the employee |
| Capital Duty | None |
| Real Property Tax | None, but stamp duty applies |
| Transfer Tax | Stamp duty and registration fees on immovable property transfers |
| Stamp Duty | Imposed under the Stamp Act, 1899 for real property and other applicable assets |
| Net Wealth Tax | Progressive surcharge on net worth over BDT 40 million or ownership of multiple cars/properties |
| Inheritance/Estate Tax | None |
| Rule | Details |
|---|---|
| Transfer Pricing | OECD-type rules; mandatory documentation for transactions > BDT 30 million |
| Interest Deduction Limits | Thin capitalization rules likely for interest payments > BDT 1.5 million |
| Controlled Foreign Companies | None |
| Anti-Hybrid Rules | None |
| Economic Substance Requirements | None |
| Disclosure Requirements | International transactions must be reported annually |
| Exit Tax | Capital gains tax on certain transfers by nonresidents |
| General Anti-Avoidance Rule | Authorities can scrutinize arrangements with nonresidents resulting in no or reduced profits |
| Standard Rate | 15% |
|---|---|
| Reduced Rates | 0%/5%/7.5%/10% |
| Taxable Transactions | Supply of goods, provision of services, and import of goods/services |
| Registration Threshold | Turnover > BDT 30 million; optional registration for BDT 5-30 million turnover |
| Filing and Payment | Monthly filing within 15 days of the next month; mandatory online payment |
| Advance Tax | 3% for manufacturers, 5% for others on imports |
| Tax Treaties | Concluded with around 40 countries |
|---|---|
| Tax Authorities | National Board of Revenue |
The income tax regime in Bangladesh is governed by the Income Tax Ordinance, 1984 and Income Tax 2023 which is subject to annual amendments by the Finance Act, alongside numerous Statutory Regulatory Orders (SROs). Over the past decades, the government has progressively reduced the general Corporate Income Tax (CIT) rate, currently standing at 27.5% for unlisted companies and 22.5% for listed companies, with certain specific sectors excluded from these rates. Capital gains are subjected to a separate taxation rate, generally set at 15%.
The CIT regime is regarded as standard, following conventional methods for determining taxable income and deductible expenses. However, notable differences arise in the application of this regime compared to other countries, particularly in the areas of i) differentiated tax rates, which vary depending on whether the entity is a limited liability company, a proprietorship, publicly listed, or sector-specific, and ii) the implementation of advance or presumptive payments.
Bangladesh employs presumptive taxation for certain types of incomes. For instance, proceeds from goods export are subject to withholding at source based on the Free on Board (FOB) value. Similar withholding practices are applied to proceeds from services, payments for goods import, royalties, technical license fees, dividends, loan interest, and other fees. These withheld taxes are considered advance payments and are thus credited against the final tax assessment.
Additionally, there exists a turnover tax, calculated at 0.6% of gross receipts, applicable to all companies regardless of their taxable income or potential losses, thereby establishing a minimum tax obligation.
All companies operating in Bangladesh are required to register and obtain a Taxpayer Identification Number (TIN) from the National Board of Revenue (NBR) for the purposes of income tax reporting and filing. This mandate ensures compliance with the national tax framework and facilitates the proper assessment and collection of taxes.
In conclusion, while the Bangladeshi CIT regime aligns with global standards in many respects, its unique aspects, such as differentiated tax rates and the use of presumptive taxation, reflect the country’s tailored approach to income tax administration.
LegalSeba provides a range of tax management services with expertise in various areas:
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