Exit Options for Foreign Investors in Bangladesh: A Complete Guide
Divesting from a foreign market is a significant strategic decision. For foreign investors in Bangladesh, a successful exit requires a deep understanding of the local regulatory, tax, and legal landscape. This guide provides a comprehensive overview of the primary divestment strategies, helping stakeholders navigate the complexities of winding up or transferring their investments in compliance with Bangladeshi law.
Procedural Clarity
Get step-by-step breakdowns of each exit process, from initial resolution to final approvals from authorities like BIDA and Bangladesh Bank.
Regulatory Insights
Understand the roles and requirements of key bodies like the RJSC, NBR, and the High Court under the Companies Act 1994.
Tax Implications
Review critical tax considerations, including Capital Gains Tax and indirect transfer provisions under the Income Tax Act, 2023.
Comparing Divestment Strategies in Bangladesh
Choosing an exit strategy depends on factors like desired timeline, operational continuity, and tax implications. This section provides a high-level comparison to aid in strategic decision-making. The chart visualizes the estimated timeframes, while the table outlines key procedural differences for each foreign investment exit option.
Estimated Timelines for Exit Procedures
Feature Comparison of Exit Options
| Option | Key Regulators | Primary Tax Event | Entity Status Post-Exit |
|---|---|---|---|
| Closure of Office | BIDA, Bangladesh Bank, NBR | Final tax clearance on operations | Ceases to exist |
| Share Transfer (Local) | RJSC, Bangladesh Bank | Capital Gains on Share Value | Continues operations under new ownership |
| Share Transfer (Parent Co.) | None in Bangladesh (typically) | Potential Indirect Transfer Tax | Continues operations, new ultimate owner |
| Business Transfer | RJSC, High Court, Creditors | Varies (asset/slump sale basis) | May be liquidated or remain a shell |
| Liquidation | RJSC, High Court, NBR | Tax on final asset distribution | Formally Dissolved |
Exit by Closing a Branch or Liaison Office
This option is for foreign companies operating via a Branch, Liaison, or Representative Office. It involves formally winding up local activities and obtaining clearances to cease operations. This constitutes a complete exit from the market for that specific entity.
Process Flow for Office Closure
Parent Company Resolution
The foreign parent company's board must pass a formal resolution to close the Bangladesh office.
Application to BIDA & BB
Submit a formal closure application with supporting documents to the Bangladesh Investment Development Authority (BIDA) and Bangladesh Bank (BB).
Settle All Liabilities
Clear all outstanding liabilities, including employee dues per the Bangladesh Labour Act, 2006, and government taxes under the Income Tax Act, 2023.
Obtain Tax & Audit Clearance
Secure a final tax clearance certificate from the National Board of Revenue (NBR) and complete a final audit.
Receive Final Approval
BIDA and BB provide the final permission for closure, allowing repatriation of remaining funds under the Foreign Exchange Regulation Act, 1947.
Key Regulators
- BIDA
- Bangladesh Bank (BB)
- National Board of Revenue (NBR)
- RJSC (if applicable)
Key Documents
- Board resolution
- Formal application
- Final audit reports
- Tax clearance certificate
- Statement of assets/liabilities
Exit by Business Transfer (Slump Sale or Merger)
This complex exit involves transferring an entire business unit as a going concern, governed by Sections 228-229 of the Companies Act 1994. It's often structured as a "slump sale" or an amalgamation/merger, which requires High Court approval.
General Process for Business Transfer
Prepare a Scheme of Arrangement
Draft a detailed Scheme of Arrangement or Transfer Agreement, approved by the boards of the involved companies.
Obtain Shareholder & Creditor Approval
Convene formal meetings of shareholders and creditors of all involved entities to approve the proposed scheme.
File High Court Petition
File a petition with the High Court Division under the Companies Act 1994 to sanction the scheme.
Complete Regulatory Filings
Once sanctioned by the Court, file the official order with the RJSC. Notify other regulators like BIDA and BB as required.
Key Regulators
- High Court Division
- RJSC
- Bangladesh Bank
- NBR
Tax Implications
Taxation is based on the structure. For a "slump sale," tax is calculated on the gains from the lump-sum consideration. For mergers, specific provisions in the Income Tax Act may offer tax neutrality if certain conditions are met.
Exit by Liquidation of a Bangladeshi Company
Liquidation, or winding up, is the formal process of ending a company's existence, governed by the Companies Act 1994. A liquidator is appointed to sell assets, settle liabilities, and distribute any surplus to shareholders. This is a terminal exit strategy resulting in the company's dissolution.
Process Flow for Voluntary Liquidation
Declare Solvency
As per Section 360 of the Companies Act 1994, a majority of directors must declare that the company can pay all its debts in full.
Pass a Special Resolution
Shareholders pass a special resolution to voluntarily wind up the company and appoint a liquidator, as required by Section 359.
Publish Notice & File with RJSC
Publish a notice of the resolution in the official gazette and newspapers, and file the necessary documents with the RJSC.
Liquidator Takes Control
The appointed liquidator takes control of the company, sells assets, pays creditors, and settles all tax liabilities with the NBR.
Final Meeting & Dissolution
The liquidator presents the final accounts in a general meeting. The resolution is filed with RJSC, after which the company is formally dissolved.
Key Regulators
- RJSC
- NBR
- Bangladesh Bank
- High Court (if required)
Tax & Repatriation
The liquidator must obtain final tax clearance from the NBR before making the final distribution to shareholders.
After all local liabilities are settled, the remaining funds can be repatriated with permission from Bangladesh Bank.
Overarching Legal & Practical Considerations
Beyond specific procedures, any exit requires careful attention to practical matters and overarching regulations. These elements are crucial for a smooth and compliant divestment process for any foreign investor in Bangladesh.
Key Practical Matters
All employee dues, including salaries, benefits, and severance packages, must be settled in full compliance with the Bangladesh Labour Act, 2006. This is a critical prerequisite for closure or liquidation and is strictly reviewed by regulators.
Company bank accounts can only be closed after receiving final clearance from all regulatory bodies. The final repatriation of funds is subject to reporting and approval mechanisms of the Bangladesh Bank.
After ceasing operations and obtaining final tax clearance, the company must formally apply to cancel its Taxpayer's Identification Number (TIN) and Business Identification Number (BIN) under the Value Added Tax and Supplementary Duty Act, 2012.
Bangladesh Bank Regulations (FEG, Chapter 9)
The Guidelines for Foreign Exchange Transactions (FEG) are paramount for any exit involving foreign investors. Authorized Dealer (AD) banks play a key role in ensuring compliance.
- Repatriation of Proceeds: AD banks can remit net sale proceeds of shares without prior BB approval, provided they have verified compliance with all formalities, including evidence of payment of Capital Gains Tax.
- Valuation Compliance: For share transfers between residents and non-residents, the share price must be determined by a valuation that adheres to the methods prescribed by Bangladesh Bank, primarily Net Asset Value (NAV).
- Mandatory Reporting: All foreign currency transactions related to share transfers must be reported to Bangladesh Bank's Foreign Exchange Operation Department (FEOD) by the AD banks using prescribed forms.
How LegalSeba LLP Can Assist Your Exit Strategy
Navigating the complexities of a corporate exit in Bangladesh requires expert legal and regulatory guidance. LegalSeba LLP offers end-to-end support to ensure your divestment is handled efficiently, compliantly, and in alignment with your strategic objectives. Our experienced team provides tailored solutions for every stage of your FDI exit process.
Strategic Exit Advisory
We help you choose the most advantageous exit route by analyzing each option's timelines, costs, tax efficiency, and operational impact, ensuring your decision aligns with your global business strategy.
Regulatory Compliance & Liaison
Our team manages all interactions and secures necessary approvals from regulatory bodies such as BIDA, Bangladesh Bank, RJSC, and the High Court, ensuring a smooth and compliant process from start to finish.
Legal Documentation & Drafting
We handle the meticulous preparation and filing of all required legal documents, including board resolutions, share purchase agreements, schemes of arrangement, petitions, and regulatory applications.
Tax & Financial Structuring
We collaborate with leading tax experts to structure your exit for maximum tax efficiency, manage share valuations, ensure tax compliance, and facilitate the seamless repatriation of funds.
Ready to Plan Your Exit?
Contact LegalSeba LLP today for a confidential consultation to discuss your specific situation and learn how we can facilitate a successful and seamless divestment from Bangladesh.
