Foreign Direct Investment in Bangladesh

1.1 The Legal Cornerstone: Protection for Foreign Investors

The foundational legal framework protecting foreign direct investment (FDI) in Bangladesh is the Foreign Private Investment (Promotion and Protection) Act, 1980. This pivotal legislation establishes a robust legal basis for the security of foreign capital, mandating fair and non-discriminatory treatment for foreign investors on par with local counterparts. It provides explicit guarantees against expropriation and ensures the right to repatriate capital and returns, creating a secure and welcoming environment for international businesses.

While the 1980 Act provides these high-level guarantees, the practical application of these rights is governed by a complex web of regulations from bodies like the Bangladesh Bank (BB) and the Bangladesh Investment Development Authority (BIDA). Understanding this interplay between foundational law and procedural regulation is the first step to successful investment.

1.2 National Industrial Policy 2022: Charting the Course for Growth

The strategic direction for industrial development is articulated in the National Industrial Policy (NIP) 2022. This policy outlines an ambitious vision to transform Bangladesh into a modern, industrialized nation. For investors, it signals priority sectors, such as high-tech manufacturing and export diversification, which are likely to receive government support and incentives. It also underscores the government's commitment to simplifying the investment framework to attract more FDI.

1.3 The Investment Climate: Opportunities and Navigational Challenges

Bangladesh presents a compelling, yet complex, investment climate. It boasts one of South Asia's most liberal FDI regimes, permitting 100% foreign ownership in most sectors and offering attractive fiscal incentives. However, investors must be prepared to navigate bureaucratic hurdles, infrastructure gaps, and a highly regulated foreign exchange system. Success requires a proactive strategy and expert local guidance.

1.4 Sectoral Analysis: Open, Controlled, and Reserved Industries

As previously mentioned, foreign investment is permitted in most sectors. However, certain sectors prohibit all forms of investment, while others require prior government approval.

2.1 Choosing the Right Vehicle: A Comparative Analysis

The choice of business entity is a critical strategic decision that dictates your operational scope and liability. Foreign investors have three primary options, each tailored for different business objectives. LegalSeba LLP provides expert advice to help you select the optimal structure for your venture.

2.2 Procedural Guide to Incorporating a Private Limited Company in Bangladesh

The company incorporation process is managed by the Registrar of Joint Stock Companies and Firms (RJSC) and involves several key steps. LegalSeba ensures a smooth and compliant registration from start to finish.

2.3 Post-Incorporation Formalities: Your Operational Checklist

Incorporation is just the beginning. To become fully operational, a company must secure several key licenses and registrations. We handle this entire process for you.

• Trade License: The basic license to operate, issued by the local city corporation or municipal authority.
• Tax Identification Number (TIN): Mandatory registration with the National Board of Revenue (NBR).
• VAT Registration (BIN): Required for most businesses to comply with Value Added Tax laws.
• BIDA Registration: Essential for accessing incentives, importing machinery, and obtaining work permits for foreign staff.

2.4 The Role of BIDA and the One-Stop Service (OSS) Platform

The Bangladesh Investment Development Authority (BIDA) is the primary government agency for promoting and facilitating investment. It acts as a central point of contact, providing counseling, registering projects, and approving foreign loan and royalty agreements. BIDA's One-Stop Service (OSS) platform is designed to streamline the licensing process, integrating services from various government departments to reduce delays and enhance efficiency for investors.

3.1 Capitalization and Funding Your Bangladeshi Enterprise

A foreign-owned enterprise can be funded through a strategic mix of equity and debt, each with its own regulatory pathway.

• Equity Capital: This is the primary funding source, brought in as cash remittance via banking channels or as contribution through the import of capital machinery.
• Foreign Loans: Securing loans from foreign sources requires prior authorization from BIDA for medium and long-term borrowing. Short-term working capital loans from parent companies are also permitted under specific Bangladesh Bank regulations.
• Local Loans: Foreign-controlled companies have full access to Taka-denominated loans from the robust local banking system, enabling flexible financing for operations and expansion.

3.2 Navigating Foreign Exchange Regulations

All foreign exchange transactions are regulated by the Bangladesh Bank under the Foreign Exchange Regulation Act, 1947 (FERA). All funds must be routed through Authorized Dealer (AD) Banks. A key recent policy change allows investors to hold inward remittances in a foreign currency account for up to one year, offering crucial flexibility to manage currency risk and make direct overseas payments for capital expenditures.

3.3 Import Regulations for Capital Machinery and Raw Materials

The import of capital goods and raw materials is a critical process overseen by the Chief Controller of Imports and Exports (CCIE) and Bangladesh Customs. An Import Registration Certificate (IRC) is essential. The import of used machinery is subject to stringent rules, including mandatory Pre-Shipment Inspection (PSI) and a Longevity Certificate, a policy designed to encourage investment in modern technology.

3.4 Employment of Foreign Nationals: Securing a Work Permit

Employing expatriates requires a valid work permit from BIDA (or BEPZA/BEZA for zone-based enterprises). The government enforces a strict expatriate-to-local employee ratio (e.g., 1:20 for industrial, 1:5 for commercial) to promote local employment. Foreign employees can legally remit up to 75% of their net salary abroad, ensuring talent mobility.

4.1 Repatriation of Profits and Dividends

Bangladesh offers a liberal regime for the repatriation of profits. No prior approval from the Bangladesh Bank is required to remit declared dividends to non-resident shareholders, provided all applicable taxes have been duly paid. The process is efficiently handled by Authorized Dealer Banks upon submission of required documentation, ensuring a smooth flow of returns to investors.

4.2 Repatriation of Royalties and Technical Fees

Payments for royalties and technical services can be remitted abroad, but the underlying agreement must first be registered with BIDA. This ensures the legitimacy of the technology transfer. AD Banks can remit these fees without further approval as long as they fall within prescribed limits (typically up to 6% of the previous year's sales or imported machinery cost).

4.3 Disinvestment and Repatriation of Capital: The Valuation Challenge

Exiting an investment and repatriating the capital is a critical, and often the most complex, part of the investment lifecycle. While the transfer of shares from a non-resident to a resident is straightforward, the repatriation of the sale proceeds is tightly regulated.

The central issue is valuation. The Bangladesh Bank will only approve repatriation up to the "fair value" it accepts, which may differ from the commercially agreed price. This requires a formal Valuation Report from a licensed firm. This regulatory oversight introduces uncertainty and is a key risk factor that requires expert management to ensure a successful exit. LegalSeba specializes in navigating this process to maximize our clients' returns.

5.1 Winding Up and Liquidation of a Company

For a solvent company, a Members' Voluntary Winding Up under the Companies Act, 1994 is the standard procedure for ceasing operations. This process involves a formal Declaration of Solvency, shareholder resolutions, and the appointment of a liquidator to settle all liabilities and formally dissolve the company with the RJSC.

5.2 Final Repatriation of Residual Assets

The final step in any exit is repatriating the residual funds after all debts are paid. This requires explicit prior permission from the Bangladesh Bank's Foreign Exchange Investment Department (FEID). The liquidator must submit a comprehensive application, including a final tax clearance certificate from the NBR. This acts as the ultimate regulatory checkpoint, ensuring all local obligations are met before capital exits the country. We manage this entire process to ensure a compliant and efficient conclusion to your investment.

6.1 Key Strategic Considerations for Investors

• Strategic Entry Vehicle Selection: For any long-term commercial venture, a locally incorporated company offers the best protection and flexibility.
• Proactive Regulatory Engagement: Build a strong, transparent relationship with BIDA and your Authorized Dealer Bank from day one.
• Anticipate Repatriation Hurdles: Factor the Bangladesh Bank's valuation approval process into your financial models and exit timeline.
• Meticulous Documentation: Maintain a flawless paper trail for all financial transactions, registrations, and corporate filings. This is non-negotiable for compliance.
• Engage Expert Local Counsel: Partnering with a firm like LegalSeba LLP, with deep practical experience, is essential to navigate the complexities of the Bangladeshi legal and business environment.

6.2 Comprehensive Compliance Checklist