Foreign Direct Investment (FDI) Legal Procedural Guide for Bangladesh

Bangladesh presents diverse opportunities for foreign direct investment (FDI), rendering it an attractive destination for foreign individuals and corporations. LegalSeba.com provides extensive assistance to foreign investors, ensuring seamless entry and successful business operations in Bangladesh. We cover various business organization types, profit repatriation, and funding options for businesses in Bangladesh.

 

Entry Options into Bangladesh

Foreign investors intending to establish a business in Bangladesh have three options:

  1. Liaison Office: (lacks legal personality)
  2. Branch Office: (lacks legal personality)
  3. Locally Registered Company: (separate legal entity with legal personality)

Liaison Office

Foreign companies may establish Liaison Offices in Bangladesh, subject to specific approval from the Bangladesh Investment Development Authority (BIDA). These Liaison Offices act as communication channels between foreign companies and Bangladeshi customers, promoting business interests by spreading awareness of their services/products and exploring opportunities for establishing a permanent presence. Liaison Offices also require registration with the Registrar of Joint Stock Companies and Firms.

Liaison Offices are prohibited from undertaking any business activities and cannot generate income in Bangladesh under the terms of BIDA approval. All setup and operational costs, including salaries for expatriates and local employees, must be borne by the parent company abroad through inward remittance of foreign exchange. No outward remittances from Bangladesh are permitted except for the unspent amount brought in from abroad.

A Liaison Office in Bangladesh is authorized to:

  • Maintain liaison/coordination between the principal and local agents, distributors/exporters’ institutions through correspondences, personal contacts, and other electronic media.
  • Collect, compile, analyze, and disseminate business information related to its field of activities as mentioned in the approval letter.

Note: In Bangladesh, both Representative Office and Liaison Office refer to the same entity.

Branch Office

A Branch Office serves as an extension of a foreign corporation in Bangladesh. Foreign corporations may open branch offices to engage in business activities within Bangladesh, provided they obtain prior approval from BIDA.

Branch Offices are restricted from engaging in any activities not explicitly authorized by BIDA. Additionally, they must register with the Registrar of Joint Stock Companies and Firms and adhere to specific procedural requirements as outlined in the Companies Act.

While a Branch Office offers operational simplicity and straightforward closure processes, its operations are stringently regulated by exchange control guidelines. Therefore, a Branch Office may not provide the most advantageous structure for a foreign corporation’s expansion or diversification plans.

Locally Registered Company

Foreign investors may establish subsidiary companies in Bangladesh as private or public limited companies. Most sectors permit 100% foreign ownership. Additionally, foreign investors may form joint ventures with local or other foreign partners.

Generally, prior approval from the government or any governmental agency is not required in most sectors. However, prior approval may be necessary depending on the specific nature of the business activities.

Compared to a Branch Office or Liaison Office, a subsidiary company offers the greatest flexibility for business operations in Bangladesh. A subsidiary company incorporated under Bangladeshi law is considered a domestic company for tax purposes.

Restrictions and Prior Approval

As previously mentioned, foreign investment is permitted in most sectors. However, certain sectors prohibit all forms of investment, while others require prior government approval.

Foreign and local investment is restricted in the following sectors:

  1. Arms and ammunition, military equipment, and machinery.
  2. Nuclear power.
  3. Security printing and minting.
  4. Forestation and mechanized extraction within reserved forest boundaries.

Seventeen controlled sectors require prior clearance/permission from respective line ministries/authorities, including:

  • Deep sea fishing
  • Private sector banks/financial institutions
  • Private sector insurance companies
  • Private sector power generation, supply, and distribution
  • Exploration, extraction, and supply of natural gas/oil
  • Exploration, extraction, and supply of coal and other mineral resources
  • Large-scale infrastructure projects (e.g., flyovers, expressways, monorails, economic zones, inland container depots)
  • Crude oil refineries
  • Medium and large industries using natural gas/condensates as raw material
  • Telecommunication services (mobile/cellular and landline)
  • Satellite channels
  • Cargo/passenger aviation
  • Sea-bound ship transport
  • Sea-port/deep sea-port
  • VOIP/IP telephone services
  • Industries using heavy minerals from sea beaches

Funding of Bangladeshi Businesses

Equity Share Capital: Issuing equity shares is a conventional method for funding local Bangladeshi subsidiaries. The amount of equity capital a company can issue is limited by the authorized capital specified in its Memorandum of Association. A company may increase its authorized capital if permitted by its Articles of Association. Equity capital can be repatriated upon liquidation or transfer of shares.

Borrowings: Companies may secure loans from both local and foreign sources. Borrowing from foreign sources may require prior approval from Bangladesh Bank or BIDA.

Repatriation of Funds

Closing the Company: LegalSeba.com provides comprehensive services to facilitate the remittance of residual funds to foreign shareholders following the winding up of a company in Bangladesh, ensuring strict compliance with Bangladesh Bank regulations. The process can be complex, but LegalSeba.com offers expert assistance for both court-supervised and voluntary winding up to ensure a smooth exit strategy for businesses.

Court-Supervised Winding Up

LegalSeba.com handles application preparation, obtaining and endorsing court orders specifying distribution amounts, and securing certificates from liquidators confirming that all liabilities and statutory payments are fulfilled.

Voluntary Winding Up

For voluntary winding up, LegalSeba.com compiles necessary documents, including certificates of incorporation, audited financial statements, and tax clearance certificates, ensuring compliance with regulatory requirements.

Liaison with Authorized Dealers (ADs)

LegalSeba.com ensures compliance with the Guidelines for Foreign Exchange Transactions-2018 by verifying that target companies meet required standards and forwarding permission requests for remittance only after thorough checks. The entire process takes approximately 9-11 months. Authorized Dealers must exercise due diligence per KYC, AML, and CFT standards before remitting funds to foreign investors’ bank accounts. LegalSeba.com ensures efficient, transparent handling of the wind-up process and fund remittance, enabling foreign shareholders to receive their residual funds smoothly and compliantly.

 

Repatriation of Funds Following Share Transfer:

LegalSeba.com provides comprehensive services for the transfer of shares and repatriation of sales proceeds for non-resident investors in private and public limited companies not listed on stock exchanges. Our expertise ensures compliance with Bangladesh Bank guidelines, particularly FEID Circular No. 1, which outlines valuation methods for repatriating sales proceeds.

We assist in determining the fair value of shares using the Net Asset Value (NAV) approach based on recent audited financial statements and tax returns. Our services include preparing necessary undertakings from target companies, ensuring proper adjustment for asset impairments, and verifying the stability of asset growth over the past three years.

For remittances up to Tk 10.00 million, no Bangladesh Bank permission or independent valuation reports are needed. For amounts above Tk 10.00 million and up to Tk 100.00 million, we facilitate the valuation and submit required reports to the Foreign Exchange Investment Department within 30 days of remittance.

We ensure compliance with Paragraphs 2(A) and 2(B), Chapter 9 of the Guidelines for Foreign Exchange Transactions-2018 and the Foreign Exchange Regulation Act, 1947 (amended up to 2015). Authorized Dealers (ADs) must exercise due diligence per KYC, AML, and CFT standards before fund remittance. LegalSeba.com ensures efficient and compliant share transfers and repatriations for foreign investors.

Short-Term Working Capital Loan Fascilaiton:

LegalSeba.com provides comprehensive services to assist foreign-owned or controlled industrial enterprises in Bangladesh with securing short-term, interest-bearing loans from their parent companies or shareholders abroad, as per Paragraph 9, Chapter 15 of the Guidelines for Foreign Exchange Transactions-2018, Volume 1.

Key Services:

  1. Securing Short-Term Loans: Assistance in obtaining interest-free loans for up to one year, excluding input procurement, from parent companies or shareholders.
  2. Interest Payment Compliance: Ensuring interest on Taka proceeds is paid at the prevailing 3-month interest rate, and accurately calculating accrued interest.
  3. Repayment and Repatriation: Managing the conversion and repatriation of principal and interest to the source country, ensuring tax compliance before repatriation.
  4. Loan Facility Duration and Renewal: Supporting the utilization of loans for a maximum of three years from the start of manufacturing activities and facilitating timely renewal or extension.
  5. Ongoing Compliance: Keeping clients informed of regulatory updates and conducting due diligence to ensure adherence to all relevant regulations.

By ensuring regulatory compliance and providing expert guidance, LegalSeba.com enables businesses to secure necessary funds efficiently, focusing on operational needs without regulatory concerns.

Dividends: Foreign capital invested in Bangladesh can generally be repatriated along with profits after tax payments. Profits and dividends earned in Bangladesh are repatriable after-tax payments, and no Bangladesh Bank permission is necessary for remittance, subject to compliance with specified conditions. No prior approval is required to remit profits earned by Bangladeshi branches of companies (excluding banks) to their head offices abroad.

Royalty, Technical Know-How, Technical Assistance Fees, Operational Services Fees, Marketing Commission: Bangladeshi companies can enter into agreements for royalty, technical know-how, technical assistance, operational services, and marketing with foreign companies. Payments towards technical know-how and royalty under the terms of the foreign collaboration agreement are permitted, subject to certain limits.

Training and Consultancy Services: Bangladeshi companies producing for local markets may remit up to a specified limit of annual sales declared in their previous year’s income tax return to cover training and consultancy service costs as per relevant contracts with foreign trainers/consultants.

 

Why Choose LegalSeba.com?

  • Expertise in FDI Regulations: Our team has extensive knowledge of foreign investment regulations in Bangladesh.
  • Comprehensive Services: From entry options and funding to repatriation and regulatory compliance, we offer end-to-end solutions.
  • Efficiency and Accuracy: We streamline processes to minimize administrative burdens and ensure timely compliance.
  • Personalized Solutions: Our services are tailored to meet the specific needs of each client, ensuring successful business operations.

Contact Us

For more information on how LegalSeba.com can assist with foreign direct investment and business operations in Bangladesh, please contact us at:

Let LegalSeba.com be your trusted partner in navigating the complexities of investing and conducting business in Bangladesh. Our expertise and comprehensive services will ensure your investment is successful and compliant with all regulatory requirements. Contact us today to get started.