Foreign Investment Facilities & Incentives in Bangladesh
A Comprehensive Legal Overview for International Investors
Bangladesh has strategically positioned itself as a premier destination for foreign direct investment (FDI) in South Asia. Through a series of robust legislative frameworks and progressive economic policies, the government has cultivated an environment that is not only welcoming but also highly profitable for international investors. This guide provides an in-depth legal analysis of the facilities, protections, and sector-specific incentives designed to attract and retain foreign capital, making it an essential resource for any investor considering this high-growth market.
The Legal Bedrock: Unwavering Protection for Foreign Investment
The security of foreign capital is paramount and is enshrined in Bangladeshi law, providing investors with a stable and predictable environment. The primary legislative instrument is the Foreign Private Investment (Promotion and Protection) Act, 1980, which forms the cornerstone of investment security.
This Act, supplemented by the latest Industrial Policy and the Bangladesh Economic Zones Act, 2010, establishes several key guarantees:
- Non-Discriminatory Treatment: Foreign investors are explicitly guaranteed treatment no less favorable than that accorded to local investors, ensuring a level playing field.
- Protection Against Expropriation: The Act provides formidable protection against the nationalization or expropriation of foreign-owned assets, permitting such actions only for a public purpose and against adequate, prompt compensation.
- Guaranteed Repatriation: Investors have the legally guaranteed right to repatriate their invested capital, profits, and dividends.
- Intellectual Property Protection: Bangladesh has strengthened its legal framework for IP rights, with the Patent and Design Act, 2022, and Trademark Act, 2009, providing robust protection for innovation.
Fiscal Incentives: A Framework for Profitability
Bangladesh offers a highly competitive suite of fiscal incentives designed to maximize returns and accelerate growth. These are primarily governed by the Income Tax Act, 2023, and are regularly updated through annual Finance Acts by the National Board of Revenue (NBR).
Corporate Income Tax Holidays
Newly established industrial undertakings in priority sectors are eligible for generous tax holidays. The duration is location-dependent, designed to promote balanced regional development.
- 5 Years: For industries in Dhaka and Chittagong Divisions.
- 7 Years: For industries in less developed regions.
Ref: Income Tax Act, 2023; NBR Notifications.
Accelerated Depreciation
As an alternative to a tax holiday, capital-intensive industries can opt for accelerated depreciation, significantly reducing their tax burden in the initial years.
- First Year: 80% depreciation on machinery.
- Subsequent Years: 20% depreciation.
Ref: Income Tax Act, 2023.
Extended Tax Exemption for ICT & ITES
Recognizing the digital economy's potential, the government has extended a 100% corporate tax exemption until June 30, 2027, for income derived from a wide range of IT and IT-Enabled Services (ITES), including cloud services, mobile app development, and SaaS. Explore more on ICT Tax Exemption in Bangladesh.
Ref: Finance Act (Annual); National ICT Policy.
Preferential Tax Regime for Startups
To foster innovation, qualifying startups benefit from a highly preferential tax regime that includes a minimal tax rate of just 0.1% on gross receipts and the ability to carry forward losses for up to nine years, subject to specific criteria like turnover limits (under BDT 1 billion) and ownership structure. See if you qualify with our Free Startup Legal Session.
Special Focus: Investing in Export Processing Zones (EPZs)
For investors focused exclusively on export markets, Bangladesh offers a highly attractive, ring-fenced investment environment through its Export Processing Zones (EPZs). Managed by the Bangladesh Export Processing Zones Authority (BEPZA), these zones are legally considered to be outside the customs territory of Bangladesh, providing a uniquely streamlined and incentivized operational framework.
Key Advantages of Investing in an EPZ
Companies operating within an EPZ (known as Type-A for 100% foreign-owned) enjoy a comprehensive package of benefits unavailable elsewhere:
- Extended Tax Holiday: A 10-year corporate tax holiday is granted to industrial undertakings in the EPZs.
- Duty-Free Regime: Complete duty-free import of machinery, equipment, raw materials, and construction materials. Furthermore, all exports from the zone are also duty-free.
- Operational Freedom: Exemption from many local regulations, including local government taxes and levies. EPZs operate under their own simplified rules.
- Infrastructure & Utilities: BEPZA ensures the provision of fully serviced industrial plots with guaranteed power, water, gas, and telecommunication connections.
- Simplified Logistics: On-site customs facilities, freight forwarding services, and central bonded warehouses streamline the import-export process significantly.
- Offshore Banking: Investors can operate foreign currency accounts and access offshore banking facilities directly within the zones, regulated by Bangladesh Bank.
- Labor Law Flexibility: While upholding core labor rights, EPZs operate under the EPZ Worker's Welfare Association and Industrial Relations Act, providing a stable labor environment.
Ref: Bangladesh EPZ Authority Act, 1980; BEPZA Investment Guide.
Investing in an EPZ is the premier choice for 100% export-oriented businesses seeking maximum fiscal benefits and minimal bureaucratic friction.
Broader Operational & Mobility Incentives
Beyond direct taxation and special zones, Bangladesh facilitates investment by reducing operational costs and removing logistical hurdles for all investors.
Customs and Duty Concessions (Outside EPZs)
Even for businesses operating outside the EPZs, significant customs duty concessions are available:
- Capital Machinery: Import duty is reduced to a concessionary rate, typically 1-5%.
- 100% Export-Oriented Industries: These entities enjoy 0% duty on the import of capital machinery and spare parts, along with VAT exemptions, through bonded warehouse facilities.
Ref: Customs Act, 1969; Statutory Regulatory Orders (S.R.O.s).
Citizenship and Permanent Residency
To attract high-value, long-term investors, Bangladesh offers unique incentives:
- Permanent Residency: Available for an investment of US$75,000.
- Citizenship: Offered for an investment of US$500,000 or a non-repatriable transfer of US$1,000,000 to a recognized financial institution.
Ref: Citizenship Act, 1951; Ministry of Home Affairs Notifications.
Other Key Incentives
- Tax Exemption on Royalties & Fees: Tax exemptions are available on royalties, technical know-how fees, and interest paid on foreign loans.
- Exemption for Foreign Technicians: Personal income tax exemption for up to three years for foreign technicians employed in eligible industries. This requires securing the proper work permits and visas.
- Double Taxation Avoidance: Bangladesh has Double Taxation Avoidance Agreements (DTAAs) with numerous countries to prevent double taxation of income.
- Multiple Entry Visas: New investors and their senior personnel are eligible for multiple entry visas to facilitate travel.
Sector-Specific Opportunities & Incentives: A Deeper Dive
While the investment regime is broadly liberal, the government provides highly tailored and potent incentives to "thrust sectors" critical to its economic vision. Below is a more detailed legal and practical breakdown of the facilities available in these key industries.
Textiles & Apparel (Ready-Made Garments - RMG)
The undisputed backbone of Bangladesh's export economy, the RMG sector's success is built on a sophisticated ecosystem of government support. Key incentives include:
- Bonded Warehouse Facilities: Under the Customs Act, 1969, 100% export-oriented factories can import raw materials and machinery completely free of all duties and taxes. This is a critical cash-flow advantage.
- Duty Drawback Scheme: For indirect exporters, the Duty Exemption and Drawback Office (DEDO) provides refunds on duties paid on imported inputs used in exported goods.
- Subsidized Export Financing: Access to low-interest foreign currency loans from the Export Development Fund (EDF), managed by Bangladesh Bank, to finance raw material imports.
- Cash Incentives & Currency Retention: Direct cash subsidies (4-15%) are provided on the FOB value of exports using local fabrics/yarn. Exporters can also retain a portion of their earnings in foreign currency (ERQ accounts) for business expenses.
Pharmaceuticals & Healthcare
This sector is transitioning from domestic dominance to a global export powerhouse, with incentives focused on R&D and infrastructure.
- Incentives for API Manufacturing: The National API & Laboratory Reagents Production and Export Policy provides a framework for a 10-year tax holiday and VAT exemptions for high-tech Active Pharmaceutical Ingredient (API) parks.
- Tax Holidays for Healthcare: Under the Income Tax Act, 2023, new private specialized hospitals established outside major cities are eligible for a 10-year tax holiday.
- Duty Concessions on Medical Equipment: The import of life-saving medical equipment is subject to significant customs duty concessions and VAT exemptions via NBR-issued Statutory Regulatory Orders (S.R.O.s).
Power & Renewable Energy
To fuel its rapid economic growth, Bangladesh offers exceptional long-term incentives for private investment in power generation.
- Extended Corporate Tax Exemption: The Private Sector Power Generation Policy provides a legal basis for an exceptional 15-year corporate tax exemption from the date of commercial operation.
- Comprehensive Duty & VAT Waivers: A complete waiver of customs duties, VAT, and other surcharges on the import of all plant and machinery for the power plant.
- Repatriation and Loan Guarantees: The framework provides explicit guarantees for the full repatriation of profits and capital, and the government may offer sovereign guarantees for foreign loans.
Agro-processing & Food Industries
This priority sector benefits from incentives aimed at modernization, value addition, and export promotion.
- Tax Holidays and Exemptions: Companies processing locally sourced agricultural products are eligible for tax holidays of 5 to 10 years, as outlined in the Income Tax Act, 2023.
- Accelerated Depreciation: As an alternative, agro-processing units can claim accelerated depreciation on machinery for processing, packing, and preservation.
- Special Export Incentives: Exporters gain access to the Export Development Fund (EDF) and are often eligible for direct cash incentives on their export value.
Navigate Bangladesh's Investment Landscape with Confidence
The opportunities in Bangladesh are immense, but success requires expert navigation of its legal and regulatory frameworks. At LegalSeba LLP, we provide end-to-end advisory services to ensure your investment is structured for optimal growth, compliance, and profitability. For a complete overview, see our Bangladesh Investment Guide.
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