Exit Option from a Company in Bangladesh | Foreign Investor Guide

Exit Options for Foreign Investors in Bangladesh

Finding the right exit option from a company in a foreign market is a critical strategic decision. If you are planning an investors' exit from a Bangladeshi company, a successful divestment requires a deep understanding of the local regulatory, tax, and legal landscape. This complete guide outlines the primary foreign investment divestment strategies, helping stakeholders navigate the complexities of winding up operations, transferring shares, and repatriating funds in full 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

1

Parent Company Resolution

The foreign parent company's board must pass a formal resolution to close the Bangladesh office.

2

Application to BIDA & BB

Submit a formal closure application with supporting documents to the Bangladesh Investment Development Authority (BIDA) and Bangladesh Bank (BB).

3

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.

4

Obtain Tax & Audit Clearance

Secure a final tax clearance certificate from the National Board of Revenue (NBR) and complete a final audit.

5

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

Key Documents

View Document List
  • Board resolution
  • Formal application
  • Final audit reports
  • Tax clearance certificate
  • Statement of assets/liabilities

Exit by Share Transfer of a Bangladeshi Company

A common exit route where a foreign investor sells their shares in a Bangladeshi company. The company continues its operations under new ownership. This process is governed by the Companies Act 1994 and specific share transfer procedures aligned with Bangladesh Bank's foreign exchange guidelines.

Process Flow for Share Transfer

1

Execute Share Purchase Agreement

The seller and buyer execute a formal agreement outlining the terms of the share transfer.

2

Conduct Share Valuation

Determine the fair value of shares per Bangladesh Bank guidelines (Chapter 9, FEG), typically based on Net Asset Value (NAV).

3

Remit Purchase Funds

The buyer remits funds to the seller's bank account through an Authorized Dealer (AD) bank in Bangladesh.

4

File with Regulators

Submit Form-117 to the RJSC as required by the Companies Act 1994. The AD bank reports the transaction to Bangladesh Bank.

5

Pay Tax & Repatriate Proceeds

The seller pays Capital Gains Tax. The AD bank then facilitates the repatriation of the net sale proceeds.

Tax Implications

  • Capital Gains Tax: 15% rate for foreign companies on gains from share sales, which may be reduced by a Double Taxation Avoidance Agreement (DTAA).
  • Withholding Tax: The buyer may need to withhold tax from the sale proceeds.

Key Documents

View Document List
  • Share Purchase Agreement
  • Share valuation report
  • Board resolutions
  • Form-117 (for RJSC)
  • Original investment certificate
  • Tax payment receipt

Exit by Share Transfer of a Foreign Parent Company

This indirect exit occurs outside Bangladesh when shares of the foreign parent company (which owns the Bangladeshi subsidiary) are sold. While it doesn't require direct regulatory approval in Bangladesh, it can trigger "indirect transfer" tax provisions.

Key Considerations

Transaction at Parent Level

The share transfer occurs between foreign entities abroad. No local filings like Form-117 are required in Bangladesh.

Tax Assessment in BD

The primary concern is potential tax liability under the Income Tax Act, 2023, if the Bangladeshi subsidiary's assets form a substantial part of the parent company's value.

Understanding Indirect Transfer Tax

The Income Tax Act, 2023 aims to tax capital gains from foreign company share transfers if those shares derive substantial value from assets in Bangladesh.

Defining "substantial" and enforcing this tax can be complex, often requiring analysis of international tax treaties (DTAAs). Expert tax advice is essential for this type of exit strategy.

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

1

Prepare a Scheme of Arrangement

Draft a detailed Scheme of Arrangement or Transfer Agreement, approved by the boards of the involved companies.

2

Obtain Approvals

Convene formal meetings of shareholders and creditors of all involved entities to approve the proposed scheme.

3

File High Court Petition

File a petition with the High Court Division under the Companies Act 1994 to sanction the scheme.

4

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

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 (winding up).

Process Flow for Voluntary Liquidation

1

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.

2

Pass a Special Resolution

Shareholders pass a special resolution to voluntarily wind up the company and appoint a liquidator, as required by Section 359.

3

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.

4

Liquidator Takes Control

The appointed liquidator takes control of the company, sells assets, pays creditors, and settles all tax liabilities with the NBR.

5

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

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

Employee Settlement

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.

Bank Account Closure & Fund Repatriation

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.

Tax & VAT De-registration

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

The Guidelines for Foreign Exchange Transactions (FEG, Chapter 9) are paramount for any exit involving foreign investors.

  • Repatriation of Proceeds: AD banks can remit net sale proceeds of shares after verifying compliance, including Capital Gains Tax payment.
  • Valuation Compliance: For share transfers, the share price must be determined by a valuation adhering to BB methods (primarily NAV).
  • Mandatory Reporting: All foreign currency transactions must be reported to Bangladesh Bank's FEOD 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.

Strategic Exit Advisory

We help you choose the most advantageous exit route by analyzing each option's timelines, costs, tax efficiency, and operational impact.

Regulatory Compliance

Our team manages all interactions and secures necessary approvals from regulatory bodies like BIDA, Bangladesh Bank, RJSC, and the High Court.

Legal Documentation

We handle the meticulous preparation and filing of all required legal documents, including board resolutions, share purchase agreements, and petitions.

Tax & Financial Structuring

We collaborate with leading tax experts to structure your exit for maximum tax efficiency, manage share valuations, and facilitate fund repatriation.

Ready to Plan Your Exit Strategy?

Whether you are exploring an exit option from a company via share transfer, or initiating a complete investors' exit from a Bangladeshi company through liquidation, LegalSeba LLP is here to help. Contact us today for a confidential consultation to discuss your specific foreign investment situation.

+8801753718223 [email protected]