Allowable Company Expenses in Bangladesh
Operating a limited company in Bangladesh comes with strict financial and regulatory obligations. A critical aspect of managing your company's finances and minimizing tax liability is understanding exactly which allowable company expenses in Bangladesh are legally deductible. For a comprehensive overview, refer to our Bangladesh Company Tax Guide.
The allowability of corporate expenses is primarily governed by the Income Tax Act, 2023. While the Companies Act, 1994 dictates how accounts must be prepared, it is the tax law that definitively outlines "allowable expenses." The overarching principle is that any expenditure incurred wholly and exclusively for the purpose of the business is allowable, provided specific conditions are met.
Key Tax-Deductible Corporate Expenses
Below is a breakdown of the primary deductible company expenses with references to the Bangladesh Income Tax Act, 2023.
1. General Business Expenses
Section 49
The "residual" clause allows expenditure that is wholly/exclusively for business, revenue in nature, and not a personal expense.
2. Rent, Rates, and Taxes
Section 47
- Rent: Paid for premises used for business.
- Rates/Taxes: Municipal taxes or local rates for premises.
3. Repairs and Insurance
Section 47
- Repairs: For buildings, machinery, plant, or furniture used in business.
- Insurance: Premiums paid against risk of damage/destruction of business assets.
4. Bad Debts
Section 47
Debts that have become irrecoverable and have been actually written off in the books of accounts are allowable.
If recovered later, it is treated as income in the year of recovery.
5. Depreciation & Amortization
Sec. 47 & Third Schedule
- Depreciation: On cost of buildings/machinery per Third Schedule rates.
- Amortization: Pre-commencement expenses at 20% (straight-line).
6. Salary and Perquisites
Section 47 & 55
Salaries paid to employees. Perquisites (house rent, conveyance) exceeding BDT 1,000,000 per year are disallowed.
7. Entertainment & Travel
Section 55 & Rule 17
- Entertainment: Subject to limits based on profit.
- Foreign Travel: Restricted to 1.25% of disclosed turnover.
- Promotional: Restricted to 0.5% of disclosed turnover.
8. Royalties & Tech Fees
Section 55
Royalties, technical services fees, or know-how fees are allowable but capped at 10% of the net profit for the first three years and 8% thereafter.
9. Interest on Borrowed Capital
Section 47
Interest paid on capital borrowed for the business is allowable.
If used to acquire a capital asset, interest incurred before the asset is put to use must be capitalized.
10. CSR & Donations
General Rules
- CSR: Subject to limits (usually 20% of total income or BDT 120M) and NBR guidelines.
- Donations: To govt-approved funds are eligible for tax rebates/deductions.
Strict Rules on Disallowances (Section 55)
Even if an expense is real and incurred for business, it will be added back to your taxable profit if:
- No TDS: Tax was not deducted at source (TDS) as per law.
- Cash Payment: Payments exceeding BDT 500,000 (total) or BDT 50,000 (single transaction) were made in cash instead of banking channels.
- Excessive Perquisites: Benefits provided to employees exceed the statutory limit.
Relevant Acts Governing Corporate Tax in Bangladesh
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