Foreign Investment Facilities in Bangladesh: A Detailed Overview

The Government of Bangladesh has established a comprehensive set of policies designed to facilitate significant socio-economic advancements for its people, ultimately aiming for national self-reliance. Recognizing the private sector’s potential to contribute towards these objectives, the government has recently implemented several substantial policy reforms intended to foster a more open and competitive environment for foreign investment.

Industrial Policy 1999: Key Features

To accelerate industrial growth, increase the industrial sector’s share of GDP, and ensure that industrial policy adapts to global economic changes, the current government announced the Industrial Policy of 1999. The main features are:

  • Expansion of Production Base: The policy aims to expand the economy’s production base by accelerating industrial investment.
  • Promotion of Private Sector: It emphasizes the private sector’s role in driving industrial production and investment growth.
  • Government as Facilitator: The government’s role is to create an enabling environment for private investment expansion.
  • Public Undertakings: Public sector involvement is limited to essential activities that support private sector growth or address significant social concerns.
  • Attraction of Foreign Direct Investment (FDI): The policy seeks to attract FDI in both export and domestic market-oriented industries to supplement domestic investment, acquire advanced technology, and access export markets.
  • Industrial Employment Growth: Encouraging investment in labor-intensive manufacturing industries, including small and cottage industries, to ensure rapid industrial employment growth.
  • Female Employment: Emphasizing skill development to generate higher-skill employment opportunities for women.
  • Productivity and Value Addition: Raising industrial productivity and progressively moving to higher value-added products through skill and technology upgrades.
  • Operational Efficiency: Enhancing operational efficiency in public manufacturing enterprises through management restructuring and market-oriented policies.
  • Export Diversification: Rapidly increasing the export of manufactured goods.
  • Import Substitution: Encouraging competitive import-substituting industries to cater to the growing domestic market.
  • Environmentally Sound Industrialization: Ensuring that industrialization processes are environmentally sound and consistent with the country’s resource endowment.
  • Balanced Industrial Development: Promoting balanced industrial development across the country through suitable measures and incentives.
  • Utilization of Production Capacities: Effectively utilizing existing production capacities.
  • Trade and Fiscal Policy Coordination: Coordinating trade and fiscal policies to support industrial growth.
  • Development of Indigenous Technology: Expanding production based on domestic raw materials and developing indigenous technology.
  • Rehabilitation of Sick Industries: Rehabilitating deserving sick industries.

Reserved Sectors for Public Investment

Certain sectors are reserved exclusively for public sector investment:

  • Arms, ammunition, and other defence equipment and machinery
  • Forest plantation and mechanized extraction within reserved forests
  • Production of nuclear energy
  • Security printing (currency notes) and minting

Private Sector Investment

The private sector is recognized as playing a predominant role in industrial investment. Except for the reserved sectors, private sector investment is unrestricted, allowing local, foreign, or joint ventures with the public sector.

Foreign Investment

  • Encouragement of Foreign Direct Investment (FDI): FDI is encouraged in all industrial activities, including service industries and toll manufacturing, excluding reserved industries, ready-made garments, banks, insurance companies, and other financial institutions. Investments can be made independently or through joint ventures.
  • Policy Framework: The Foreign Private Investment (Promotion and Protection) Act, 1980, ensures non-discriminatory treatment, protection from expropriation, and repatriation of profits.
  • Equity Participation: There are no restrictions on equity participation, allowing 100% foreign ownership. Foreign-owned firms or joint ventures are not obligated to sell shares through public issues, regardless of paid-up capital. However, they may purchase shares through the stock exchange.
  • Facilities and Incentives: Foreign investors enjoy the same facilities as domestic entrepreneurs, including tax holidays and the repatriation of profits. Foreign technicians are exempt from personal income tax for up to three years.
  • Repatriation of Investment: Full repatriation of invested capital and profits is allowed. Reinvested dividends are treated as new investments.
  • Work Permits: The process for issuing work permits for foreign experts operates without hindrance. Multiple entry visas are issued to prospective foreign investors and experts.
  • Priority for Thrust Sectors: Foreign investment in “Thrust Sectors,” particularly small industrial units, is given priority in the allocation of plots in BSCIC industrial estates.
  • Non-Resident Bangladeshi Investment: Investments by non-resident Bangladeshis are treated on par with foreign direct investment.
  • Intellectual Property Protection: Measures are in place to protect intellectual property rights.
  • Investment Guarantees: Investment guarantees and dispute settlements are governed by international arrangements and provisions.

Facilitative Role of Public Institutions

The investment framework supports private sector development through the following measures:

  • Registration: All foreign investments must be registered with the relevant promotional body before setting up an industry.
  • Prior Clearance: Required for setting up ready-made garments (RMG) units, banks, insurance companies, and financial institutions.
  • Industrial Plots: BSCIC and BEPZA allocate industrial plots in their estates. BIDA facilitates public land allotment where available.
  • Utility Services: Facilitating agencies coordinate with relevant authorities to provide power, gas, water, drainage, and telecommunication connections.
  • Approval of Fees: BOI, BEPZA, and BSCIC approve the payment of royalties, technical assistance fees, and foreign personnel remuneration.
  • Private EPZs: The private sector is allowed to establish export processing zones (EPZs) and industrial parks, enjoying the same facilities as public EPZs.

Bangladesh Investment Development Board (BIDA)

Established in 1989, the BOI accelerates private investment. Headed by the Prime Minister, the BIDA is empowered to make decisions for the speedy implementation of industrial projects and provide operational support services.

Major Functions of BIDA

  • Investment Promotion: Undertaking promotional activities domestically and internationally.
  • Facility Provision: Providing facilities for capital investment and industrialization.
  • Project Registration: Registering industrial projects and agreements related to royalty, technical know-how, and assistance.
  • Work Permits: Issuing work permits to expatriate personnel.
  • Import Facilities: Providing import facilities for industrial units.
  • Foreign Loan Approvals: Approving terms and conditions of foreign private loans and suppliers’ credit.
  • Land Allotment: Allotting land in industrial areas for industrial purposes.
  • Dispute Conciliation: Mediating disputes involving foreign investors.
  • Infrastructure Assistance: Assisting in obtaining infrastructure facilities.

One-Stop Service Centre

The One-Stop Service Centre offers infrastructure and institutional support, including pre-investment counseling, and assistance with obtaining utility connections and environmental clearances.

Courtesy Services for Visiting Investors

BOI provides courtesy services to visiting foreign investors, including airport reception, hotel booking, transport arrangements, and itinerary planning.

 

Procedure for Obtaining Facilities and Services

Registration of Investment Proposals

  • Joint Ventures and 100% Foreign Investment: Entrepreneurs must apply using the prescribed form available at the BIDA One-Stop Service Centre.
  • Self-Financed Local Investment Projects: Local investors must also apply to BIDA for registration.

Setting Up Joint Venture Industrial Units

  • Public Sector Collaboration: Joint ventures with public sector corporations require BIDA registration if private sector shareholding exceeds 50%. Projects with 50% or more public sector shareholding are processed by the relevant ministry.

Import Procedures

  • Raw and Packing Materials: No permission is required for importing items on the free list. For restricted items, BIDA sets the import entitlement and recommends issuance of IRC by CCI&E.

Guidelines for Foreign Loans and Credits

  • Approval Requirement: Private investors must obtain BIDA approval for foreign loans, suppliers’ credit, deferred payments, and PAYE schemes.

Remittance of Royalty and Technical Fees

  • Royalty and Technical Fees: No prior BIDA permission is required if fees are within prescribed limits. Agreements must be registered with BIDA for remittance.

Work Permits for Foreign Nationals

  • Work Permits: Foreign nationals require work permits for employment in Bangladesh. Private sector enterprises must apply to BIDA in advance, following guidelines for employment eligibility, documentation, and security clearance.

Industrial Plots and Utility Services

  • Assistance: Entrepreneurs may apply to BIDA for assistance in obtaining industrial plots and utility services. BIDA coordinates with relevant authorities to facilitate these services.

Incorporating a Company in Bangladesh

Business operations in Bangladesh can be conducted by locally incorporated companies or foreign companies registered by establishing a place of business. Companies are classified as limited or unlimited, with limited companies further divided into those limited by shares or guarantees.

Private Limited Companies

A private limited company restricts share transfer, limits members to 2-50, prohibits public invitations for shares, and commences business from incorporation.

Public Limited Companies

A public limited company can invite public subscriptions, requires a minimum of seven members, and must obtain a commencement certificate to start business.

Memorandum and Articles of Association

  • Memorandum of Association: States the company name, type, registered office location, objectives, authorized capital, and member liability.
  • Articles of Association: Governs the internal management and business conduct of the company.

Incentives and Facilities for Investors

Tax Holiday: Tax holidays are available for five years in Dhaka and Chittagong Divisions (excluding hill districts) and seven years in other regions.

Accelerated Depreciation: 80% depreciation is allowed in the first year, with 20% in subsequent years.

Concessionary Duty: Import duty on capital machinery is 5%. No duty for 100% export-oriented industries, with VAT exemptions on machinery.

Non-Resident Bangladeshi Incentives: Special incentives include facilities similar to foreign investors, public share quotas, and foreign currency deposit options.

 

Other Incentives

  • Tax exemptions on royalties, technical fees, and interest on foreign loans.
  • Double taxation avoidance agreements.
  • Income tax exemptions for foreign technicians for up to three years.
  • Tax exemptions for private sector power generation companies for 15 years.
  • Facilities for repatriation of capital and profits.
  • Multiple entry visas for new investors.
  • Reinvestment of repatriable dividends treated as new investments.
  • Citizenship for investments of US$500,000 or transfers of US$1,000,000 to recognized financial institutions.
  • Permanent residency for investments of US$75,000.
  • Tax exemptions on capital gains from public limited company shares.

Export-Oriented and Export-Linkage Industries

Incentives for export-oriented industries include duty-free capital machinery imports, bonded warehouses, duty drawbacks, export loans, tax exemptions on export earnings, and additional foreign exchange for promotional activities.

This comprehensive legal overview provides the necessary information for foreign investors considering investment in Bangladesh, highlighting the policies, incentives, and procedures to facilitate their business endeavors.

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