NGO Formation & Primary Regulatory Authorities in Bangladesh

Legal Bases for NGO Formation

NGOs in Bangladesh can be formed under the following key statutes, each catering to different organizational structures and purposes:

• Societies Registration Act, 1860: This is a widely utilized act for forming societies focused on literary, scientific, or charitable objectives. It’s suitable for various social, cultural, and educational initiatives. While a society isn’t a true legal person (it sues or is sued in the name of its officers), most local NGOs historically opt for this due to its simpler formation requirements, typically needing 7 or more individuals.
• Trust Act, 1882: This Act governs the creation of trusts, which can be for any lawful purpose, public or private. Trusts are not legal persons, and the trustee holds legal ownership of the property, bearing personal liability for breach of trust. Some NGOs, like PRIP Trust, are formed this way. No government registration is strictly required for trust creation, although certain charitable trusts might seek specific approvals.
• Companies Act, 1994: This Act allows for the incorporation of non-profit companies (specifically under Sections 26 and 27) for promoting commerce, art, science, religion, charity, or any other useful object. This structure provides full legal personality and limited liability, making it increasingly popular for NGOs seeking a more formal and robust organizational framework. These entities typically require 7 or more persons (or 2 or more for a private company) and are overseen by the Registrar of Joint Stock Companies and Firms (RJSC).
• Voluntary Social Welfare Agencies (Registration and Control) Ordinance, 1961 (SWO): This Ordinance mandates registration for organizations providing specific welfare services, such as those for children, youth, women, persons with disabilities, and various social work initiatives. It’s administered by the Department of Social Services (DSS) under the Ministry of Social Welfare and Human Development, granting the DSS broad discretion and control over registered agencies, including the right to suspend or dissolve them. Most NGOs providing social welfare services are registered under this Ordinance.
• Religious Endowments: Specific laws like the Waqf Ordinance of 1962, Hindu Religious Welfare Trust Ordinance of 1983, Christian Religious Welfare Trust Ordinance of 1983, and Buddhist Religious Welfare Trust Ordinance of 1983 govern the establishment and management of religious trusts and endowments.

Key Regulatory Bodies

The regulatory oversight for NGOs in Bangladesh is distributed among several government agencies:

• NGO Affairs Bureau (NGOAB): This is the principal regulatory authority for all NGOs and International NGOs (INGOs) that receive foreign funds. Operating under the Prime Minister’s Office, NGOAB’s mandate is primarily derived from the Foreign Donations (Voluntary Activities) Regulation Act, 2016 (FDRA). It serves as a “one-stop shop” for the registration, project approval, and monitoring of foreign-funded voluntary activities.
• Department of Social Services (DSS): As mentioned, the DSS registers and regulates NGOs involved in specific social welfare activities under the SWO, 1961.
• Registrar of Joint Stock Companies and Firms (RJSC): This body, under the Ministry of Commerce, is responsible for the registration of NGOs opting to be incorporated as societies or non-profit companies.
• Department of Women and Children Affairs (DWCA): This department specifically registers and oversees organizations dedicated to the welfare of women and children.
• Government NGO Consultative Council (GNCC): Established to foster dialogue and cooperation between the government and NGOs, aiming to improve coordination and understanding.

NGO Registration Process: A Step-by-Step Guide

The NGO registration process in Bangladesh varies based on the chosen legal structure and the primary regulatory authority. However, common steps for legal compliance include:

1. Name Clearance: Obtain clearance for the proposed NGO name from the relevant authority (e.g., RJSC for societies/companies, or NGOAB for foreign-funded NGOs).
2. Application Submission: A formal application must be submitted with a comprehensive set of documents. This typically includes:
   • Constitutive Documents: Memorandum and Articles of Association (for companies), Trust Deed (for trusts), or equivalent founding documents for societies.
   • Organizational Details: List of executive committee members/trustees with their National ID copies, photographs, and detailed personal information.
   • Operational Plan: A clear outline of the NGO’s intended activities, objectives, and operational strategies.
   • Financial Details: Information on the source of funding, proposed budget, and projected financial activities. For foreign-funded NGOs, a letter of intent from the donor and detailed information regarding the foreign donation are mandatory for submission to the NGOAB.
   • Registered Office Proof: Documentation confirming the registered office address.
3. Payment of Fees: Prescribed government registration fees must be paid. For NGOAB registration, the fee is BDT 50,000 for local NGOs and USD 9,000 (or equivalent in BDT) for foreign NGOs.
4. Security Clearance: Law enforcement agencies, including the Special Branch of Police and the National Security Intelligence, conduct thorough security checks on the organization and its key members.
5. Review and Inspection: The relevant regulatory authority reviews the application. This may involve physical inspections of the proposed office premises and verification of submitted information.
6. Issuance of Certificate: If all requirements are met and clearances obtained, the registration certificate is issued. NGOAB registration certificates are initially valid for 10 years and are renewable, subject to satisfactory performance and compliance.

NGO Governance, Compliance & Reporting

Effective NGO governance and adherence to regulatory compliance are paramount for long-term sustainability and credibility in Bangladesh.

Ongoing Compliance Requirements

Registered NGOs must adhere to continuous reporting and compliance obligations:

• Annual Reporting: NGOs are required to submit annual reports on their activities and financial statements to the respective regulatory authority. Foreign-funded NGOs must submit these reports to the NGOAB.
• Financial Audits: Mandatory audited financial reports are required. The NGOAB specifically mandates audits by approved auditors for foreign-funded NGOs, ensuring financial transparency and accountability.
• Project Approval: For foreign-funded NGOs operating under the FDRA, each project, including its budget and implementation plan, requires prior approval from the NGOAB. Funds can only be released upon securing this approval.
• Fund Management: All foreign donations must be received and managed through a specifically designated “mother account” in a scheduled bank in Bangladesh.
• Monitoring and Inspection: Regulatory bodies possess the authority to monitor and inspect NGO activities, projects, and financial records to ensure adherence to approved plans and legal provisions.
• Restrictions: The FDRA imposes restrictions on fund usage, including a cap on administrative expenses (e.g., typically 20% of the approved project budget for foreign-funded initiatives). Certain entities and individuals, such as election candidates and political parties, are explicitly prohibited from receiving foreign donations.

Internal Governance and External Accountability

While laws for establishment (like the Societies Act or Trust Act) might have rudimentary internal governance rules, NGOs registered with the DSS or NGOAB face more stringent accountability standards. Non-profit companies under the Companies Act, 1994, have the most extensive requirements, mirroring those of commercial companies, including comprehensive bookkeeping, regular audits, and detailed report-filing obligations, along with explicit fiduciary responsibility rules for directors.

Role and Functions of the NGO Affairs Bureau (NGOAB)

The NGOAB plays a central role in the NGO regulatory framework, especially for those receiving foreign funds. Its core functions include:

• NGO Registration and Renewal: Managing the initial registration and subsequent renewal process for both local and international NGOs receiving foreign donations.
• Project and Fund Approval: Reviewing and approving project proposals, including budgets and detailed implementation plans, and authorizing the release of foreign funds.
• Expatriate Personnel Approval: Granting permission for the appointment of foreign officials and consultants and determining their tenure.
• Financial Oversight: Scrutinizing and evaluating financial statements and reports, ensuring adherence to financial regulations and proper utilization of funds.
• Monitoring & Evaluation: Regularly monitoring and evaluating NGO projects and activities to assess their progress and impact.
• Information Gathering: Collecting information on foreign travel by NGO personnel and other relevant activities.
• Compliance Enforcement: Taking appropriate action, including imposing penalties, for non-compliance with the FDRA and other relevant regulations.

To register with NGOAB, an NGO typically needs approval from the Home Ministry and at least one line ministry, along with a detailed five-year plan. Each foreign grant requires a project proposal and a letter of intent from the donor. Banks holding NGO accounts are mandated to report comprehensive financial details to the Bangladesh Bank, which in turn reports to the NGOAB, ensuring a robust financial monitoring system.

Penalties and Enforcement for NGOs

Non-compliance with the legal and regulatory framework in Bangladesh can lead to significant penalties for NGOs, varying depending on the specific law violated:

• Societies Act, 1860: This Act does not explicitly provide for fines, penalties, or involuntary dissolution for non-compliance. Enforcement typically relies on civil remedies or actions under other applicable laws.
• Non-Profit Companies (Companies Act, 1994): Like other companies, non-profit companies can be wound up if they cannot meet their debts or fail to file required reports. The government can also revoke their privilege to omit “limited” from their name after due notice.
• Trusts Act, 1882: A beneficiary can petition a court to enforce a trustee’s duty or seek their removal. Trusts may be dissolved if their purposes become unlawful or impossible, though the “cy pres” doctrine may apply to preserve charitable trusts by reforming their objectives as close as possible to the original intent.
• Social Welfare Organizations (SWOs) (Ordinance, 1961): The Director of Social Welfare (DSW) holds substantial power, including the ability to suspend the governing body of an SWO for financial irregularities, maladministration, or non-compliance. The DSW can also recommend dissolution to the government for violations prejudicial to public interest. Penalties for individuals or officers include fines or imprisonment for up to six months for contravening the Ordinance or making false statements.
• Foreign Donations (Voluntary Activities) Regulation Act, 2016 (FDRA): The NGOAB has extensive powers under the FDRA. For “reason to be recorded in writing,” NGOAB can inspect or seize accounts and documents. After providing a reasonable opportunity to be heard, NGOAB can cancel an NGO’s registration or halt its activities for failing to submit required declarations, submitting false declarations, or any other contravention. Individuals or NGOs that receive or use foreign donations in contravention of the FDRA are liable for a fine of double the donation amount or imprisonment for up to three years.

Fiscal Framework for NGOs: Taxation & VAT

Understanding the fiscal framework is crucial for NGOs to ensure tax compliance and maximize available exemptions.

Income Tax Exemption under the Income Tax Act, 2023

The Income Tax Act, 2023 (which repealed the Income Tax Ordinance, 1984) is the primary legislation governing NGO taxation in Bangladesh. While NGOs are generally considered taxable entities, significant exemptions apply, particularly for donations and income used for charitable purposes.

1. Exemption on Donations and Grants:
   • Clause 12 of Part 1 of the Sixth Schedule of the Income Tax Act, 2023 explicitly states that any donation or grant received by a religious institution or an organization operating for charitable purposes, approved by the Tax Commissioner, and spent for religious or charitable purposes, shall be deducted from total income, effectively making it non-taxable.
   • Similarly, voluntary contributions, grants, or donations received by any person approved by the NGO Affairs Bureau (NGOAB) and utilized for their intended purpose are also tax-exempt.
   • Important Note: Sub-sections (5) and (6) of Section 76 of the Income Tax Act, 2023, concerning undisclosed income, are always applicable, emphasizing the need for transparent financial records.
2. Approval is Key: For income from donations and grants to be tax-exempt, the organization must be approved by the Tax Commissioner or the NGO Affairs Bureau.
3. Utilization of Funds: The exemption is strictly contingent on the received donations and grants being spent exclusively for religious or charitable purposes. Diversion of funds to other activities may result in the income becoming taxable.
4. NGOs Defined as Companies: The National Board of Revenue (NBR) clarifies that NGOs are considered “companies” under the Income Tax Act, 2023. However, tax authorities acknowledge that NGOs may not necessarily face the same corporate tax rates as other companies, especially regarding income from micro-credit operations and donations for social welfare and development.
5. Income from Microcredit: Income derived from microcredit operations may be tax-exempt, provided it is maintained in a revolving fund and used solely for microcredit activities. Any diversion of these funds to other business ventures can render them taxable.
6. Tax on Other Income: It is critical to note that while donations and grants for charitable purposes may be exempt, other income sources of an NGO, such as revenue from commercial activities, bank interest, or rent from facilities like conference halls, are generally subject to taxation.
7. Reporting Requirements: NGOs registered with the NGOAB are required to file annual income tax returns, ensuring ongoing financial transparency to the NBR.

Deductibility of Donations for Donors

Under specific conditions, donations made to charitable NGOs in Bangladesh can be deductible for the donor from their taxable income, as per the Income Tax Act, 2023.

For the Donor: Donations to the following types of institutions can be deductible:

• Charitable Hospitals: Hospitals established outside city corporation areas within one year prior to the donation and approved by the NBR.
• Organizations for Persons with Disabilities: Entities established for the welfare of persons with disabilities, operational for at least one year prior to the donation, and approved by both the Department of Social Welfare and the NBR.
• Zakat Fund/Charitable Funds: Amounts paid as Zakat to the Zakat Fund or as donations to any charitable fund established under the Zakat Fund Management Act, 2023.
• Public Welfare/Educational Institutions: Grants to any public welfare or educational institution approved by the government.
• Specific Approved Institutions: Certain historically approved institutions, such as the Liberation War Museum, Aga Khan Development Network, Ahsania Cancer Hospital, Asiatic Society, ICDDR’B, and Centre for the Rehabilitation of the Paralysed (CRP), typically enjoy tax-exempt status for donations.

Important Considerations for Deductibility:

• Approval is Crucial: The recipient NGO or institution must be approved by the relevant authority (Tax Commissioner, NBR, or DSS) for the donation to be deductible.
• Documentation: Donors must maintain proper receipts and documentation to claim deductions.
• Limits: There may be statutory limits on the amount that can be claimed as a deduction, often expressed as a percentage of the donor’s taxable income.
• Income Tax Act, 2023: The new Act reinforces the necessity of approval for the receiving organization for the donation to be deductible.

VAT Exemption

Bangladesh has a standard Value Added Tax (VAT) rate of 15%. There isn’t a blanket VAT exemption for all NGOs. However, certain goods and services are VAT-exempt as per the First Schedule of the Value Added Tax and Supplementary Duty Act, 2012.

1. Standard VAT Rate: The general VAT rate is 15% on most goods and services.
2. VAT Exemptions: If an NGO’s activities involve the supply or import of goods or services listed in the First Schedule of the VAT Act, 2012, those specific transactions would be VAT-exempt. Examples include certain agricultural products, healthcare services, and educational services. The exemption is typically based on the nature of the good/service, not the entity itself.
3. VAT Deduction at Source (VDS): Notably, NGOs approved by the NGO Affairs Bureau or the Directorate General of Social Welfare are designated as withholding entities responsible for VAT Deduction at Source (VDS). This means they are required to deduct VAT at source when making payments to vendors for taxable supplies and remit it to the government treasury. This is a collection mechanism, not an exemption for the NGO.
4. No General Exemption Based on NGO Status: The VAT law does not provide a general exemption for all activities or purchases made by NGOs solely due to their non-profit status.
5. Project-Based Exemptions (Possible but not guaranteed): In specific cases, particularly for projects funded by international donors or focused on critical social welfare, project-specific VAT exemptions might be granted through Special Regulatory Orders (SROs) issued by the NBR. These are not automatic and require explicit approvals.
6. Import VAT: Unless a specific exemption is officially notified, the import of goods by NGOs is generally subject to 15% VAT, payable at the time of import.

Top Law Firms in Dhaka for NGO Legal & Regulatory Support

Navigating the intricacies of NGO law in Bangladesh, including NGO registration, governance, tax matters, and regulatory compliance, demands specialized legal expertise. Several law firms in Dhaka are highly regarded for their robust practice in this sector:

• LegalSeba LLP: With a demonstrated focus on NGO registration, governance, and tax matters, Legal Seba LLP offers comprehensive legal services tailored to non-profit organizations. Their expertise extends to navigating the complexities of the Foreign Donations (Voluntary Activities) Regulation Act, 2016, and the Income Tax Act, 2023, providing crucial support for both local and international NGOs. Their website indicates strong experience in NGO formation and legal advisory (LegalSeba).

When selecting a law firm, it’s vital for NGOs to prioritize firms with proven experience in NGO registration Bangladesh, deep understanding of the FDRA 2016, expertise in NGO tax exemptions under the Income Tax Act, 2023, and a strong track record in ensuring regulatory compliance with the NGOAB and other authorities. This ensures comprehensive legal protection and seamless operations for your organization.

Different Types of Non-profit Organizations in Bangladesh

Any group of individuals intending to establish a charitable organization in Bangladesh for social welfare may opt for one of the following legal entities, based on their specific objectives, long-term goals, and operational capacities, as stipulated under the relevant laws:

1. As a Society or Foundation: Register under the Societies Registration Act, of 1860, suitable for organizations focused on social, cultural, and educational activities. See detail guide>
2. A Charitable Trust: Established under the Trust Act, of 1882, appropriate for entities aiming to provide financial assistance, healthcare, and educational support. See detail guide>
3. As a Social Welfare Organization: Register under Voluntary Social Welfare Agencies (Registration and Control) Ordinance, 1961 (Ord. No. XLVI of 1961). See detail guide>
4. A Non-profit Trade Association:: Incorporated under the Companies Act, 1994, suitable for non-profit organizations intending to operate on a larger scale without issuing shares. See detail guide>

Contact Us

For more information or to begin the process of setting up a non-profit organization in Bangladesh, contact LegalSeba LLP today. Our team is ready to provide you with tailored assistance to ensure a seamless setup.

• 📞 Phone/WhatsApp: +8801753718223
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  🌐 Book A Meeting: LegalSeba.com/book-now

Choose LegalSeba LLP for expert guidance and support in establishing your charitable organization in Bangladesh. Our comprehensive services will ensure that you meet all legal requirements efficiently and effectively. Contact us today to get started on your journey to establishing a successful presence in Bangladesh.