Navigating Capital Repatriation and Foreign Exchange in Bangladesh: A Comprehensive Guide

Section 1: The Regulatory Superstructure for Foreign Investment and Repatriation

The regulatory framework governing foreign investment and the subsequent repatriation of capital from Bangladesh is a multi-layered system characterized by foundational statutes, comprehensive operational guidelines, and dynamic administrative circulars. For any non-resident investor, a thorough understanding of this legal hierarchy and the distinct roles of the key regulatory bodies is a prerequisite for successful market entry, operation, and exit. The system is designed to both attract foreign capital through protective legislation and simultaneously manage the country's foreign exchange reserves through stringent controls, creating a unique environment that demands careful navigation.

1.1. The Cornerstone: The Foreign Exchange Regulation Act (FERA), 1947

The bedrock of Bangladesh's foreign exchange control regime is the Foreign Exchange Regulation Act, 1947 (FERA). Originally enacted in British India and later adapted by Pakistan and subsequently Bangladesh, FERA provides the legal basis for regulating all payments, dealings in foreign exchange and securities, and the movement of currency and bullion. Its primary historical purpose was the conservation of scarce foreign exchange reserves, granting extensive powers to the government and, most critically, to the Bangladesh Bank (BB) to control and monitor all transactions involving foreign currency.

The Act imposes a fundamentally restrictive regime. Key provisions prohibit any person other than an Authorized Dealer (AD)—a bank or financial institution specifically licensed by the BB—from buying, selling, or otherwise dealing in foreign exchange without the general or special permission of the central bank. It places explicit restrictions on making payments to or for the credit of non-residents and requires prior approval for many types of remittances. While the Foreign Exchange Regulation (Amendment) Act, 2015, introduced measures to make the law more investor-friendly, it did not alter the fundamental control structure. FERA remains the paramount legislation, establishing a system where permission from the Bangladesh Bank is the default requirement for most cross-border financial transactions.

The practical implication of this legal structure is that investors cannot rely solely on the text of the 1947 Act. FERA functions as a constitutional framework, while the specific, operative rules are articulated through a cascade of subordinate regulations and circulars issued by the Bangladesh Bank. This creates a regulatory environment that is not static but evolves through administrative pronouncements, making continuous monitoring of central bank publications essential for compliance.

1.2. Corporate Governance and Share Transfers: The Companies Act, 1994

While FERA governs the currency flow, the Companies Act, 1994, governs the underlying corporate actions, particularly the transfer of shares that precedes the repatriation of sale proceeds. The Act establishes shares as movable, transferable property and sets out the legal procedures for their transfer.

A critical distinction within the Act is between private and public limited companies. A private company, as defined in Section 2(q), is characterized by articles of association that restrict the right to transfer its shares, limit the number of members to fifty, and prohibit any public invitation to subscribe for its shares or debentures. A public company does not have these restrictions. This distinction is of paramount importance because the restrictions on share transferability in private companies add a layer of corporate law complexity that must be resolved before the foreign exchange aspects of a sale can even be addressed.

Procedurally, the Companies Act mandates that a company cannot register a transfer of shares without a proper instrument of transfer, duly stamped and executed by both the transferor and the transferee, being delivered to the company. The company's board of directors retains the right under its articles to refuse to register a transfer, though it must provide notice of such refusal within a specified timeframe. These corporate law mechanics form the essential backdrop to any disinvestment by a foreign investor. The successful execution of a valid share transfer under the Companies Act is the trigger event for the repatriation process governed by FERA and Bangladesh Bank's guidelines.

1.3. Investor Protection Guarantees: The Foreign Private Investment (Promotion & Protection) Act, 1980

To counterbalance the restrictive nature of the foreign exchange regime, Bangladesh enacted The Foreign Private Investment (Promotion & Protection) Act, 1980. This legislation serves as a critical assurance to foreign investors. Its core provisions offer explicit legal protection against the risks of nationalization and expropriation.

Crucially, the Act guarantees non-discriminatory treatment, stipulating that foreign private investment shall be treated on par with local private investment. Most importantly, it legally enshrines the right of foreign investors to repatriate their capital, as well as returns from it, including profits and dividends. This Act provides a foundational layer of legal security, assuring investors that their right to take their money home is protected by a specific statute, subject to compliance with the procedural requirements laid out by other laws and regulations.

1.4. The Central Authority: Role and Mandate of Bangladesh Bank (BB)

The Bangladesh Bank is the central nervous system of the foreign exchange regime. As the country's central bank, it is vested with the authority to administer FERA, 1947, and is responsible for all aspects of its implementation. Its power is exercised primarily through the issuance of legally binding directions, notifications, FE (Foreign Exchange) Circulars, and FEID (Foreign Exchange Investment Department) Circulars. These instruments provide the detailed, operational instructions that Authorized Dealer banks and their clients must follow.

Within the Bangladesh Bank, the Foreign Exchange Investment Department (FEID) is the specialized unit that deals directly with matters of foreign investment. The FEID is the primary authority for granting approvals for more complex repatriation cases, such as the sale of shares in non-listed companies above certain value thresholds, and for remittances related to company liquidation. Investors and their AD banks will interact most frequently with the rules and decisions emanating from the FEID.

1.5. The Gateway for Investment: Functions of the Bangladesh Investment Development Authority (BIDA)

The Bangladesh Investment Development Authority (BIDA), established under the BIDA Act, 2016, serves as the country's apex investment promotion agency. While the Bangladesh Bank controls the flow of currency, BIDA acts as the primary facilitator and port of entry for foreign investors. Its mandate includes promoting investment, providing institutional support, and advocating for investor-friendly policies.

For a foreign investor, interaction with BIDA is crucial for several reasons. Registration with BIDA is often a prerequisite for accessing various government incentives, such as tax holidays and customs duty exemptions on imported capital machinery. Furthermore, BIDA holds specific approval authority in key areas, including the endorsement of long-term foreign loan agreements, the issuance of work permits for expatriate employees, and the approval of agreements for the remittance of royalties and technical assistance fees that exceed prescribed limits.

The establishment of BIDA's One-Stop Service (OSS) portal, governed by the OSS Act, 2018, and the OSS Rules, 2020, represents a significant step towards streamlining these processes by creating a single digital window for investors to access services from multiple government agencies.

1.6. The Comprehensive Rulebook: Introduction to the Guidelines for Foreign Exchange Transactions (GFET), 2018

To translate the broad principles of FERA, 1947 into a workable, modern framework, the Bangladesh Bank publishes the Guidelines for Foreign Exchange Transactions (GFET). The 2018 edition, presented in two volumes, is the definitive operational manual for AD banks and their clients, replacing the older Exchange Control Manual.

Volume 1 of the GFET provides detailed instructions for individual transactions, with several chapters being of direct relevance to foreign investors. These include:

• Chapter 9: Foreign Investment in Bangladesh: Covers the issuance and transfer of shares, portfolio investment, and the procedures for repatriating sale proceeds.
• Chapter 10: Commercial Remittances: Details the rules for remitting profits, dividends, and other commercial payments.
• Chapter 15: Borrowing Abroad by Residents: Outlines the regulations for obtaining foreign loans.

The GFET, read in conjunction with the latest FE and FEID circulars, constitutes the comprehensive body of rules that govern the day-to-day realities of foreign exchange transactions in Bangladesh.

The interaction between these different authorities and legal instruments creates a complex but navigable system. An investor's journey typically begins with BIDA for investment facilitation and registration. The corporate entity itself is governed by the Companies Act and registered with the Registrar of Joint Stock Companies and Firms (RJSC&F). All financial transactions involving foreign currency are then channeled through an AD bank under the strict supervision of the Bangladesh Bank, which enforces the rules laid out in FERA and the GFET. Finally, any tax liabilities arising from the investment, such as on capital gains or dividends, are administered by the National Board of Revenue (NBR). A successful investment and exit strategy must therefore be designed to satisfy the distinct requirements of each of these bodies in a coordinated manner.

Table 1: Key Regulatory Authorities and Their Core Functions

Section 2: Repatriation of Share Sale Proceeds: Non-Listed Companies

The process for a non-resident investor to repatriate the proceeds from selling shares in a non-listed Bangladeshi company is the most intricate aspect of the country's foreign exchange regime. The core challenge stems from the absence of a publicly quoted market price, which necessitates a formal, regulated valuation process. This procedure is governed by specific circulars from the Bangladesh Bank's Foreign Exchange Investment Department (FEID).

2.1. The Procedural Framework: FEID Circulars and GFET

Foundational guidance comes from FEID Circular No. 01, dated May 6, 2018, and a subsequent relaxation circular letter from June 18, 2020. These empower Authorized Dealer (AD) banks to remit funds up to certain thresholds without prior BB approval, moving towards a decentralized model. These circulars operate within the broader context of the Guidelines for Foreign Exchange Transactions (GFET), 2018, especially Chapter 9, which covers the initial reporting of foreign investment.

2.2. The Valuation Mandate: A Deep Dive into Methodologies

The cornerstone of the process is determining "fair value" through a formal valuation by a BSEC-licensed Merchant Banker or an experienced Chartered Accountant. The GFET outlines three acceptable approaches:

• Net Asset Value (NAV) Approach (Asset-Based): Based on the latest audited financial statements, excluding revalued or intangible assets. This is a critical anti-abuse measure.
• Market Value Approach (Comparable Analysis): Uses valuation multiples (e.g., P/E ratio) from similar publicly traded companies, typically using a three-year average of the target's Earnings Per Share (EPS).
• Income Approach (Discounted Cash Flow - DCF): Values the company based on its projected future cash flows, with specific guidelines for calculating the free cash flow (FCF) and the discount rate.

2.3. Remittance Thresholds and Approval Matrix

The 2020 circular introduced a tiered system for remittance approval:

• Up to BDT 10.00 Million: No prior BB permission or independent valuation is required. The AD bank processes the remittance based on its own due diligence.
• Above BDT 10.00 Million and up to BDT 100.00 Million: AD banks can remit without prior BB permission, but a formal valuation is mandatory. A post-facto report must be submitted to FEID within 30 days.
• Above BDT 100.00 Million: Prior approval from the FEID of the Bangladesh Bank is mandatory. The AD bank submits a formal application with a comprehensive valuation.

2.4. Documentation and Compliance Checklist for Authorized Dealers (ADs)

ADs must perform extensive due diligence, including standard KYC/AML checks and obtaining a specific undertaking from the target company, countersigned by its auditor. This undertaking certifies that the valuation is clean of revalued/intangible assets and that there has been no "abnormal growth" in the company's assets, a key anti-abuse mechanism.

2.5. Special Case: Repatriation upon Winding Up or Liquidation

Repatriation of funds following a company's winding up or liquidation uniformly requires prior approval from the FEID, regardless of the amount. The process is highly document-intensive, requiring court orders, liquidator's certificates confirming all liabilities (including taxes) have been paid, and audited financial statements.

Table 2: Repatriation Thresholds and Approval Matrix for Non-Listed Companies

Section 3: Repatriation of Share Sale Proceeds: Listed Companies (Portfolio Investment)

The framework for repatriating proceeds from the sale of publicly listed securities is significantly more streamlined, designed to encourage foreign portfolio investment (FPI).

3.1. The NITA Framework: The Gateway for Portfolio Investment

The central pillar is the Non-resident Investor's Taka Account (NITA). It is mandatory for any non-resident to open a NITA with an AD bank to trade on Bangladeshi stock exchanges. The NITA functions as a dedicated transactional hub, creating a closed-loop system where inward remittances are used for investment and sale proceeds are credited back for reinvestment or repatriation.

3.2. The Role of Authorized Dealers and Custodians

Foreign portfolio investors typically use custodian banks who act as agents on the ground, handling trade execution, safe custody of shares, settlement, and managing corporate actions and tax compliance, all processed through the NITA maintained by the AD bank.

3.3. Trading and Settlement: Navigating DSE and CSE Regulations

Foreign investors trade on the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE). A key detail is the trade settlement cycle, which is typically T+1 (day after trading) for foreign investors, providing an extended timeframe to manage currency conversion and fund movements.

3.4. Repatriation of Sale Proceeds and Capital Gains: A Streamlined Process

A significant advantage is that no prior approval from the Bangladesh Bank is required for an AD bank to remit sale proceeds, including capital gains. The repatriable amount is based on the market price on the date of sale, eliminating the complex valuation process required for non-listed companies. The AD bank's role is to ensure the funds are legitimate sale proceeds and that all applicable local taxes have been paid.

Section 4: Taxation of Investment Returns: Capital Gains and Dividends

Complying with Bangladesh's tax obligations is critical. The taxation of returns is governed by the Income Tax Act, 2023, and can be modified by Double Taxation Avoidance Agreements (DTAAs).

4.1. Capital Gains Tax under the Income Tax Act, 2023

Effective from the assessment year beginning July 1, 2025, a new regime differentiates tax rates based on asset type and holding period, a policy tool designed to encourage long-term, stable investment.

• Gains from Listed Shares: A flat rate of 15% for all non-resident investors.
• Gains from Non-Listed Shares:
  • Held for more than five years: A preferential rate of 15%.
  • Held for five years or less: Taxed at the regular income tax rate (which can be up to 30% for a non-resident company).

The AD bank is responsible for ensuring the correct capital gains tax is paid before remitting the net proceeds.

4.2. Navigating Double Taxation Avoidance Agreements (DTAA)

Bangladesh has an extensive network of DTAAs to prevent double taxation. The treatment of capital gains varies by treaty. To claim benefits, a non-resident investor must obtain a certificate from the National Board of Revenue (NBR) confirming their eligibility. AD banks are required to verify this certificate before applying any treaty benefits.

4.3. Withholding Tax on Dividend Income for Non-Residents

Dividends paid to non-resident shareholders are subject to a withholding tax (WHT), collected at the source.

• Standard WHT Rate: 20% under domestic law.
• Impact of DTAAs: This rate can often be reduced to 10% or 15% under a DTAA, contingent on the shareholder providing the required NBR certificate.

Table 3: Capital Gains Tax Rates for Non-Resident Investors (Effective from AY 2025-26)

Section 5: Ancillary Repatriation and Foreign Exchange Transactions

Understanding rules for other common transactions like remitting dividends and securing financing is essential for smooth operations.

5.1. Remittance of Dividends to Non-Resident Shareholders

The process for remitting dividends is highly liberalized. No prior or post-facto approval from the Bangladesh Bank is required. AD banks are authorized to remit both final and interim dividends after performing due diligence, which includes verifying the board resolution and ensuring the correct withholding tax has been paid. As an alternative, dividends can be credited to a foreign currency (FC) account in Bangladesh for reinvestment or later repatriation.

5.2. Obtaining Foreign Loans: The BIDA and Bangladesh Bank Approval Process

The rules for foreign loans are sharply divided based on their tenor.

• Medium and Long-Term Loans: Any proposal for a private sector industrial enterprise to borrow long-term funds from abroad requires prior approval from BIDA's "Scrutiny Committee on Foreign Loan". The application is rigorous, requiring a full feasibility report and financial analysis. BIDA evaluates the loan's interest rate, repayment period (generally not less than 7 years), and the project's commercial viability. Loan proceeds cannot be used for working capital or capital market investment.
• Short-Term and Working Capital Loans: Foreign-owned firms can obtain short-term working capital loans from parent companies abroad without prior approval. They can also freely access Taka-denominated loans from local banks.

Section 6: Strategic Compliance and Operational Best Practices

Success in Bangladesh requires a proactive, strategic approach to compliance and operations from market entry to final exit.

6.1. Leveraging the BIDA One-Stop Service (OSS) Portal for Efficiency

The BIDA One-Stop Service (OSS) portal is a single digital window designed to integrate services from over 35 government agencies. It is the primary digital front door for investors, offering services like company registration, tax identification number applications, and work permit processing. The OSS Rules, 2020, establish Service Level Agreements (SLAs) that set official timeframes for service delivery, creating transparency and a benchmark for agency performance.

6.2. The Critical Role of the Authorized Dealer (AD) Bank

Recent liberalization has elevated the AD bank from a transaction processor to a key regulatory partner. Selecting an AD with a dedicated and experienced foreign exchange department, deep knowledge of the latest circulars, and a strong compliance culture is a critical strategic decision. Proactive and transparent engagement with the AD bank from the beginning of the investment lifecycle can prevent significant bottlenecks.

6.3. Proactive Compliance: Record-Keeping, Reporting, and Navigating Audits

A "compliance-first" mindset is essential. This includes:

• Preservation of Records: Meticulously maintaining all foreign exchange transaction records for at least five years for potential BB inspection.
• Timely Reporting: Working with the AD bank to ensure all mandatory reporting is completed on time.
• Audit Readiness: Operating as if any transaction could be audited. A clean, complete, and logical documentation trail is the best defense.

6.4. Concluding Recommendations for a Secure and Efficient Repatriation Strategy

The overarching trend in Bangladesh is progressive liberalization counterbalanced by robust, risk-based controls. A successful strategy must be built on this understanding.

• Integrated Planning from Day One: An efficient repatriation strategy begins at the point of investment.
• Engage Expert Local Counsel: The regulatory landscape is complex. Engaging experienced local legal and financial advisors who specialize in this area is a critical investment in risk mitigation.
• Embrace Transparency and Documentation: In a system reliant on AD due diligence and post-facto audits, a clear paper trail is the surest path to a smooth and predictable process.