Practice Notes
Foreign Loan by Private Companies
in Bangladesh — ECB Guide
An exhaustive regulatory and compliance guide to External Commercial Borrowing (ECB), structuring Short-Term vs Long-Term cross-border financing.
LegalSeba LLP
LegalSeba
Foreign
Borrowing
Borrowing
LAW IN BANGLADESH
01 · FRAMEWORK
Three company types,
two tenure regimes,
one master rule book.
When a private limited company in Bangladesh borrows from an overseas financing company or a foreign private person, the regulatory pathway is shaped by three intersecting variables: (i) where the company sits in the FDI regulatory map — a general BIDA-registered company, a foreign-owned/controlled company outside specialised zones, or an entity within an Export Processing Zone, Economic Zone or Hi-Tech Park; (ii) the tenure of the proposed borrowing — short-term (up to 12 months) or medium/long-term (exceeding 12 months); and (iii) the use of proceeds — strictly capital expenditure, working capital, or refinancing.
Two rules anchor the entire framework. First, foreign loans are categorically prohibited for working-capital use by general BIDA-registered private sector industrial enterprises — only foreign-owned or controlled enterprises engaged in manufacturing or services may take working-capital loans from their parent or shareholders abroad, capped at 3% per annum interest in convertible foreign currencies. Second, 100% foreign-owned (Type-A) entities operating within EPZs, EZs or Hi-Tech Parks enjoy a regulatory carve-out permitting direct foreign borrowing from overseas financial institutions without prior BIDA or Bangladesh Bank approval, subject only to reporting through the Authorised Dealer (AD) bank channel.
Beyond these two rules, the transaction sits within a layered statutory architecture spanning at least 30 distinct Acts, multiple subordinate Rules, the master Guidelines for Foreign Exchange Transactions (GFET), and a body of more than 35 active circulars from FEPD, BRPD, FEID, BFIU, NBR and the special-zone authorities. The matrices below map these distinctions for both tenure buckets, then enumerate every applicable instrument with its citation, operative provisions, and the reason it bears on the transaction.
Navigating this complex landscape of external commercial borrowing (ECB) requires meticulous planning and legal precision. As a leading corporate law firm in Bangladesh, LegalSeba LLP regularly advises foreign lenders, multinational parent companies, and local borrowers on structuring these credit facilities, securing regulatory approvals, and ensuring airtight compliance from drawdown to repatriation.
Foreign Borrowing / External Commercial Borrowing
Defined under the BIDA/Scrutiny Committee Guidelines as commercial loans, financial loans, bank loans, buyer's credit, supplier's credit from institutions or individuals abroad, and debt issuances in international capital markets. Equity-linked instruments (convertible debt) fall within this definition for the debt portion.
Foreign-Owned / Controlled Firm
A company in Bangladesh in which non-residents hold significant shareholding or management control. The threshold for "control" follows GFET-2018 Chapter 16 read with FE Circulars; access to short-term parent/shareholder loans depends on this classification. Control is typically established through majority shareholding, special voting rights, or board-composition rights.
Type-A / Type-B / Type-C Enterprise
In EPZ/EZ/HTP nomenclature defined under GFET-2018 Chapters 8 and 20: Type-A is 100% foreign-owned; Type-B is joint venture between foreign and local investors; Type-C is 100% locally-owned. Foreign-borrowing access differs sharply across the three categories.
Scrutiny Committee on Foreign Loan / Supplier's Credit
The inter-ministerial decision-making authority for medium- and long-term foreign loan approvals. Chaired by the Governor of Bangladesh Bank. Receives applications via BIDA, BEPZA, BEZA or BHTPA depending on the borrower's location. Approval valid for 6 months from the BIDA/zone-authority approval-letter date.
All-in-Cost
The aggregate annualised cost of the foreign loan including: rate of interest, commitment fee, syndication fee, front-end fee, project appraisal fee, and legal fees payable in foreign currency. Excludes: pre-payment fees and BDT-denominated fees. The all-in-cost ceiling determines regulatory acceptability of the proposed pricing.
Authorised Dealer (AD) Bank
A scheduled bank licensed by Bangladesh Bank under section 3 of the Foreign Exchange Regulation Act, 1947 to deal in foreign exchange. The AD bank is the operational gateway for all foreign-borrowing transactions: opens FC accounts, processes remittances, verifies KYC, and submits regulatory reports to FEPD/FEID/Statistics Department.
02 · COMPANY-TYPE FRAMEWORK
Where does your company sit?
The regulatory pathway begins with where the company is registered and who owns it. The three categories below carry materially different rules for foreign borrowing — eligibility, pricing, approval routing, and use-of-proceeds restrictions all flow from this initial classification.
⚠ Critical Restriction · Working Capital Prohibition
Foreign loans cannot be used as working capital by general BIDA-registered private sector industrial enterprises. BIDA explicitly states: "permission is not provided for the foreign loan to be used exclusively for working capital." This restriction does not apply to (i) foreign-owned/controlled firms borrowing from their parent/shareholder under FE Circular No. 04 dated 19 January 2021 (extended by FE Circular No. 04 dated 23 April 2024), nor (ii) Type-A entities in EPZs/EZs/HTPs. Plan the use-of-proceeds clearly before applying — proposals describing working-capital use will be rejected at the BIDA stage and may attract penalties under section 23 of FERA, 1947 if drawn down in contravention.
ℹ Reserved & Controlled Sectors
Foreign borrowing — like all foreign investment — is constrained by sectoral restrictions. Four reserved sectors are closed to private investment entirely: arms, ammunition and defence equipment; nuclear energy production; security printing and minting; and forestation/mechanised extraction within reserved forest boundaries. Seventeen controlled sectors require prior government clearance before foreign investment or borrowing can proceed (including aspects of telecommunications, broadcasting, deep-sea fishing, and certain financial services). Confirm sectoral admissibility before structuring the loan.
03 · FEATURE MATRIX
Side-by-side comparison
Every commercial, structural and procedural parameter that materially differs between short-term and long-term external borrowing by a private company. Section 04 below adds the EPZ/EZ/HTP carve-out matrix.
Parameter
Short-Term Borrowing≤ 12 months · Working Capital & Bridge
Long-Term Borrowing> 12 months · Capex & Project Finance
Definition & Typical Instruments
Foreign-currency credit facilities with original maturity of up to 12 months: working-capital loans from foreign parent or shareholders to foreign-owned/controlled manufacturing or service companies; supplier's credit / buyer's credit for imports of inputs; short-term bridging loans from foreign equity holders; deferred-payment LCs; usance import facilities up to 60 days (without LC) or up to 360 days (with LC) — extended to 3 years for industrial enterprises under FE Circular 24/2024.
Foreign-currency loans with maturity exceeding 12 months: commercial bank loans, syndicated facilities, club deals, multilateral DFI loans (IFC, ADB, FMO, DEG, OPIC, OPEC Fund, World Bank, CDC), export-credit-agency facilities (Euler Hermes, SACE, EXIM China, JBIC, US EXIM, Sinosure), supplier's credit for capital machinery, foreign-currency bonds issued abroad, convertible debt instruments, and refinancing of existing approved external borrowings.
Eligibility · Who Can Borrow
- Foreign-owned / controlled manufacturing companies — eligible for parent/shareholder working-capital loans
- Foreign-owned / controlled service companies (except trading) — eligible since FE Circular 04/2021 extension
- EPZ / EZ / HTP entities — Type-A directly without approval; Type-B/C with BB approval through FEID
- General BIDA-registered companies — only for permitted import-finance arrangements (supplier's/buyer's credit) with prior BIDA approval if outside general permission
- Trading-business companies — categorically excluded from the parent/shareholder loan facility
- Industrial enterprises in private sector incorporated under Companies Act, 1994 and registered with BIDA
- Entities under BEPZA, BEZA, BHTPA jurisdiction (with their respective approvals)
- Working-capital use prohibited — only capex, BMRE, refinancing, project finance, capital-market debt issuance
- Strong financial standing required: positive net worth, satisfactory CIB report, sponsor creditworthiness, debt-equity ratio not exceeding 60:40 (recently relaxed from 50:50)
- Sponsor track record of foreign borrowing assessed by Scrutiny Committee
Typical Tenure
Up to 6 years from inception
For foreign-owned/controlled companies, working-capital parent/shareholder loans are admissible for a maximum of 6 years from the date of inception of manufacturing or service operations under FE Circular No. 04 dated 19 January 2021 (originally 3 years; extended to 6 years), with options to renew or extend within that 6-year window.
Up to 360 days for usance import finance under standard provisions; Up to 60 days for usance without LC under FE Circular No. 24/2024; Up to 3 years for industrial enterprises in regular and specialised zones.
For foreign-owned/controlled companies, working-capital parent/shareholder loans are admissible for a maximum of 6 years from the date of inception of manufacturing or service operations under FE Circular No. 04 dated 19 January 2021 (originally 3 years; extended to 6 years), with options to renew or extend within that 6-year window.
Up to 360 days for usance import finance under standard provisions; Up to 60 days for usance without LC under FE Circular No. 24/2024; Up to 3 years for industrial enterprises in regular and specialised zones.
3 – 10 years
Project and term loans typically run 5–10 years. Power-sector and infrastructure loans may extend longer subject to specific approval. Approval validity from the Scrutiny Committee is 6 months from the date of the BIDA approval letter — drawdown must commence within this window or fresh approval is required, restarting the entire 3–6 month process.
Project and term loans typically run 5–10 years. Power-sector and infrastructure loans may extend longer subject to specific approval. Approval validity from the Scrutiny Committee is 6 months from the date of the BIDA approval letter — drawdown must commence within this window or fresh approval is required, restarting the entire 3–6 month process.
Permitted Lenders
- Foreign parent companies or shareholders abroad (primary source for working-capital loans)
- International commercial banks (for trade-finance lines and short-term credit)
- Equipment suppliers abroad (supplier's credit for inputs)
- Foreign affiliates within the corporate group (sister concerns)
- Loans from foreign private persons — only by way of short-term bridging arrangements, sparingly approved, with heightened AML scrutiny
- Offshore Banking Units (OBUs) of scheduled banks operating in Bangladesh
- International commercial banks; international capital markets (bond investors)
- Multilateral FIs: IFC, World Bank, ADB, CDC (UK), DEG (Germany), FMO (Netherlands), OPIC/DFC (US), OPEC Fund
- Export credit agencies (Euler Hermes, SACE, EXIM China, JBIC, US EXIM, Sinosure)
- Equipment suppliers (long-tenor supplier's credit)
- Foreign equity holders / private persons — only by way of short-term bridging, sparingly approved by Scrutiny Committee
- OBUs of scheduled banks operating in Bangladesh — relevant for medium/long-term FCY funding
- Sovereign wealth funds — case-specific, typically requires inter-governmental coordination
Prior Approval Requirement
For foreign-owned/controlled companies receiving working-capital loans from parents/shareholders: NO PRIOR APPROVAL from BIDA or Bangladesh Bank required. Only post-facto reporting through the AD bank.
For supplier's/buyer's credit for imports beyond standard usance terms: BIDA approval required if outside general permission; otherwise AD-bank facilitation under GFET-2018 Chapter 7.
For Type-A EPZ/EZ/HTP entities: CARVE-OUT Direct borrowing without prior approval. Type-B/C entities require BB approval through FEID via the AD bank → BEPZA/BEZA/BHTPA route.
For supplier's/buyer's credit for imports beyond standard usance terms: BIDA approval required if outside general permission; otherwise AD-bank facilitation under GFET-2018 Chapter 7.
For Type-A EPZ/EZ/HTP entities: CARVE-OUT Direct borrowing without prior approval. Type-B/C entities require BB approval through FEID via the AD bank → BEPZA/BEZA/BHTPA route.
PRIOR APPROVAL REQUIRED
Application to BIDA via OSS portal (bidaquickserv.org) → BIDA initial scrutiny on commercial viability and policy alignment → forwarded to Scrutiny Committee chaired by the Governor of Bangladesh Bank → Committee evaluates commercial viability, indebtedness, creditworthiness, repayment terms, debt-equity ratio (60:40 ceiling), and capital-machinery quality/price/economic life → final approval communicated through BIDA. Process typically 3–6 months.
For EPZ/EZ/HTP non-Type-A entities: AD bank → BEPZA/BEZA/BHTPA → FEID, Bangladesh Bank Head Office. Decisions communicated simultaneously to zone authority, applicant entity, and AD bank.
Application to BIDA via OSS portal (bidaquickserv.org) → BIDA initial scrutiny on commercial viability and policy alignment → forwarded to Scrutiny Committee chaired by the Governor of Bangladesh Bank → Committee evaluates commercial viability, indebtedness, creditworthiness, repayment terms, debt-equity ratio (60:40 ceiling), and capital-machinery quality/price/economic life → final approval communicated through BIDA. Process typically 3–6 months.
For EPZ/EZ/HTP non-Type-A entities: AD bank → BEPZA/BEZA/BHTPA → FEID, Bangladesh Bank Head Office. Decisions communicated simultaneously to zone authority, applicant entity, and AD bank.
Interest-Rate Ceiling
(All-in-Cost)
(All-in-Cost)
3.0% per annum maximum for working-capital loans from parent/shareholders in convertible foreign currencies (FE Circular 04/2021).
For loans received in BDT proceeds from foreign parents/shareholders in their home currency (where the lender's home-currency funds are converted to Taka on receipt): interest payable in Taka at the prevailing 3-month term-deposit rate of the AD bank on the date of encashment — typically materially higher than 3%. This currency-of-disbursement distinction has significant cost implications and must be modelled at term-sheet stage.
For supplier's/buyer's credit: rate must be reasonable vs international markets for the relevant tenure and currency. The cost of financing during the usance period must not exceed the rate allowed for short-term trade finance under the prevailing FEPD circular.
For loans received in BDT proceeds from foreign parents/shareholders in their home currency (where the lender's home-currency funds are converted to Taka on receipt): interest payable in Taka at the prevailing 3-month term-deposit rate of the AD bank on the date of encashment — typically materially higher than 3%. This currency-of-disbursement distinction has significant cost implications and must be modelled at term-sheet stage.
For supplier's/buyer's credit: rate must be reasonable vs international markets for the relevant tenure and currency. The cost of financing during the usance period must not exceed the rate allowed for short-term trade finance under the prevailing FEPD circular.
Must be reasonable vs international market rates for the tenure and currency. Indicative benchmark: prevailing government treasury bond rate in that currency for that tenure plus a moderate country-risk premium. Excessive risk-premium margins attract heightened Scrutiny Committee review and typically result in rejection or downward revision.
All-in-cost includes: rate of interest, commitment fee, syndication fee, front-end fee, project appraisal fee, legal fees. Excludes: pre-payment fee, BDT-denominated fees.
For related-party loans (parent/shareholder/group company), the interest rate must additionally satisfy arm's-length transfer-pricing requirements under the transfer-pricing provisions of the Income Tax Act, 2023.
All-in-cost includes: rate of interest, commitment fee, syndication fee, front-end fee, project appraisal fee, legal fees. Excludes: pre-payment fee, BDT-denominated fees.
For related-party loans (parent/shareholder/group company), the interest rate must additionally satisfy arm's-length transfer-pricing requirements under the transfer-pricing provisions of the Income Tax Act, 2023.
Permitted Currencies
Convertible foreign currencies declared by Bangladesh Bank under Article 18 of the Bangladesh Bank Order, 1972: USDGBPEURJPYCNY
Same five-currency basket. The borrowing must be in the lender's home currency where the lender is the foreign parent/shareholder. Deal-specific approval may be granted by FEPD for additional currencies in exceptional cases (e.g., Indian Rupee for cross-border trade with India under specific bilateral arrangements).
Permitted End-Use
- Working capital for manufacturing or service-output activities (foreign-owned firms only)
- Procurement of inputs / raw materials for manufacturing
- Operational expenses incidental to production
- Trade finance: usance imports of admissible items under Import Policy Order in force
- Bridge financing pending long-term loan disbursement (for foreign equity holders, sparingly approved)
- Strictly NOT for trading-business companies
- Strictly NOT for capital-market investments
- Import of capital machinery for new projects (primary qualifying use)
- BMRE (Balancing, Modernisation, Replacement, Expansion) of existing facilities
- Project finance for industrial undertakings
- Refinancing existing approved foreign borrowings (with prior BB concurrence)
- Long-term infrastructure projects in power, transport, telecom, real estate, special economic zones
- Debt issuance in international capital markets (subject to BSEC compliance)
- Strictly NOT for working capital (general BIDA-registered companies)
- Strictly NOT for capital-market investments or speculation
Repayment Mechanism
Repayment of principal and interest at maturity by converting BDT proceeds (where loan was BDT-converted) to the original lending currency at the prevailing exchange rate.
For convertible-currency working-capital loans: repayment from inward export remittances, retained foreign-exchange earnings, or other authorised foreign-currency sources through the AD channel.
AD bank verifies underlying transaction documentation before processing outward remittance.
For convertible-currency working-capital loans: repayment from inward export remittances, retained foreign-exchange earnings, or other authorised foreign-currency sources through the AD channel.
AD bank verifies underlying transaction documentation before processing outward remittance.
Remittance of principal, interest and fees through the AD bank, supported by the BIDA approval letter and registered loan agreement reference number. Each remittance is processed under the Scrutiny Committee's approved repayment schedule.
Pre-payment requires fresh BB concurrence before submission to the BIDA Scrutiny Committee for approval.
Refinancing of existing approved loans by fresh borrowings at lower cost is permitted with Scrutiny Committee approval; the new loan's maturity must not be less than the outstanding maturity of the original loan.
Payment of interest and principal arrears (if any) must be made in installments as approved by the Scrutiny Committee.
Pre-payment requires fresh BB concurrence before submission to the BIDA Scrutiny Committee for approval.
Refinancing of existing approved loans by fresh borrowings at lower cost is permitted with Scrutiny Committee approval; the new loan's maturity must not be less than the outstanding maturity of the original loan.
Payment of interest and principal arrears (if any) must be made in installments as approved by the Scrutiny Committee.
Withholding Tax
on Interest Outflow
on Interest Outflow
Applicable under the Income Tax Act, 2023 (typically 20% domestic rate on interest paid to non-residents). Reduced rate where Bangladesh has a Double Taxation Avoidance Agreement with the lender's tax-residence jurisdiction (Bangladesh has DTAAs with approximately 38 countries; reduced rates typically 10–15%). Tax Residency Certificate (TRC) from the lender's home tax authority required to claim treaty relief.
Same WHT framework. The TRC requirement should be built into the conditions precedent to drawdown and refreshed annually. Interest payable to overseas lender is generally tax-deductible for the borrowing company subject to: (i) thin-capitalisation rules capping deductibility on related-party debt; (ii) arm's-length pricing under transfer-pricing provisions; (iii) the loan being properly approved and registered. Interest on an unapproved foreign loan may not be tax-deductible.
Reporting Obligations
- Borrowing companies must report obtaining and repaying the loan to BB through the AD
- FC account opening report at AD level with KYC and source-of-funds verification
- Quarterly utilisation reports for ongoing facilities
- CIB reporting on the borrowing company
- FEPD statistical filings via the AD bank
- Encashment Certificate (Form-C) issued by AD on receipt of foreign-currency funds
- Annual disclosure in audited financial statements (FRC compliance)
- Certified copy of executed loan agreement to FEPD, FEID and BB Statistics Department through the AD
- Status of implementation and utilisation report to BIDA on a semi-annual basis as per prescribed format
- Quarterly returns to the AD bank for onward consolidated reporting to FEID (within 15 days of quarter-end)
- Annual disclosure in audited financial statements with related-party disclosures (where lender is parent/shareholder)
- Drawdown notifications and repayment schedules to AD bank
- CIB inquiry reports updated periodically
- Charge registration confirmation to RJSC within 21 days (where security is created)
- Tax-residency certificate filings annually with NBR for DTAA relief continuation
Required Documentation
- Term sheet or loan agreement with parent/shareholder/lender
- Board resolution authorising the borrowing
- FC account opening forms with AD bank
- KYC pack on the foreign lender (incorporation documents, ownership structure, financials)
- AML/sanctions screening clearance
- Certified Memorandum & Articles of Association
- BIDA registration certificate
- Trade licence; e-TIN; VAT registration certificate
- Certificate of Incorporation from RJSC
- Certificate of Incorporation & Commencement (RJSC)
- Certified Memorandum & Articles of Association (with Schedule-X and Form XII)
- BIDA registration certificate (or BEPZA/BEZA/BHTPA registration as applicable)
- Term sheet, loan MoU or executed loan agreement (repayment schedule, grace period, calculated effective rate of interest, all-in-cost computation)
- Board resolution in favour of the loan proposal; AGM/EGM resolution if borrowing exceeds M&AA limits
- CIB inquiry forms (Forms 1 & 2) with sponsor/director undertakings
- Bank certificate on indebtedness and creditworthiness of borrower and sponsors based on latest CIB report
- Feasibility report: IRR, payback period, break-even analysis, sensitivity analysis
- Pro-forma invoice for capital machinery to be imported
- Financial analysis: debt-equity ratio (max 60:40), debt-service coverage ratio (base & sensitive cases)
- Undertakings/consent from L/C-opening bank for opening 4C in favour of project (supplier's credit only)
- Quality, price and economic-life certificate from BRTC/BUET (supplier's credit for capital machinery)
- Equity encashment certificate; sponsor credentials; track record of foreign borrowing
- Encashment certificate, C-Form, and Bangladesh Bank report from AD
- Utilisation of subject loan with proper banking documents
- Power Sector additional: Letter of Intent, Implementation Agreement, Power Purchase Agreement
- Environmental Clearance Certificate from DOE (for new industrial projects)
- Latest audited financial statements of the borrowing company
- Tax-residency certificate of the lender (for DTAA relief)
Security & Charge Creation
Generally unsecured at the bank-borrower level; underlying trade documents (LCs, bills of exchange, shipping documents) provide indirect security. FE Circular 24/2024 grants a general waiver from Section 13(1) of FERA, 1947 permitting issuance of corporate, personal and third-party guarantees favouring foreign lenders/suppliers against admissible imports. No charge registration with RJSC typically required for short-term parent/shareholder loans.
Often secured: pledge of receivables; mortgage of fixed assets (land, buildings, plant & machinery); pledge of shares; hypothecation of capital machinery imported through the loan; assignment of insurance policies, contracts and receivables; corporate guarantees from group companies; personal guarantees from sponsors/directors.
Charge creation triggers registration with RJSC under section 159 of the Companies Act, 1994 within 21 days — late registration is condonable with penalty under section 160; non-registration renders the security unenforceable against a liquidator or subsequent secured creditor. Mortgages over land require registration under Registration Act, 1908 at the relevant Sub-Registry. Movable-asset security may use the Secured Transactions (Movable Property) Act, 2023 framework with central registry filing.
Charge creation triggers registration with RJSC under section 159 of the Companies Act, 1994 within 21 days — late registration is condonable with penalty under section 160; non-registration renders the security unenforceable against a liquidator or subsequent secured creditor. Mortgages over land require registration under Registration Act, 1908 at the relevant Sub-Registry. Movable-asset security may use the Secured Transactions (Movable Property) Act, 2023 framework with central registry filing.
Government / Sovereign Liability
No government or sovereign guarantee exposure created. Liability remains exclusively with the borrowing company and its sponsors.
There must be absolutely no liability — either in Taka or in foreign exchange — for the Government of Bangladesh, any of its entities, or Bangladesh Bank. This is a non-negotiable Scrutiny Committee condition stated in the BIDA Foreign Borrowing Guidelines. Sovereign-guaranteed structures fall outside this regime and follow a separate inter-ministerial process involving the Ministry of Finance, Economic Relations Division, and the Ministry of Foreign Affairs.
Approval Validity
No formal approval validity (since prior approval is generally not required). Reporting must be done at the time of drawdown and at each repayment event. AD bank monitors the 6-year inception-based cap on parent/shareholder loans.
Scrutiny Committee approval is valid for 6 months from the date of the BIDA approval letter. Drawdown of the first tranche must commence within this period; otherwise, fresh approval is required. Progress reports to BIDA are mandatory throughout the loan tenure.
Approval Fees
No formal approval fees for short-term parent/shareholder loans. AD-bank charges for FC account operation, remittance processing, and FX conversion apply on commercial terms.
Fee schedule for BIDA/Scrutiny Committee approval is approximately BDT 5,000 to BDT 100,000 depending on the loan amount. Stamp duty under the Stamp Act, 1899 applies separately on the loan agreement at ad valorem rates. Registration fees apply for charge filings with RJSC and Sub-Registry. Legal fees, AD-bank charges, CIB report fees, and BRTC/BUET certification fees (for supplier's credit) add to the overall cost base.
AML / CFT Diligence
Enhanced Due Diligence (EDD) on the overseas lender by the AD bank under the BFIU Master Circular: sanctions screening (UN, OFAC, EU, UK Treasury, Bangladesh Domestic Sanctions List); ultimate beneficial ownership identification; politically exposed person (PEP) screening; STR triggers; transaction monitoring; record-keeping for minimum 5 years.
Same EDD requirements with enhanced scrutiny given larger ticket size and longer relationship. Source-of-funds verification for the lender (especially crucial for foreign private-person lenders); ongoing transaction monitoring; periodic risk re-assessment; FATCA/CRS implications where applicable. The AD bank carries primary AML responsibility but the borrower's MD/CEO and CCO have personal liability under sections 25–28 of the Anti-Money Laundering Act, 2012 for systemic failures.
Dispute Resolution
Recovery actions typically governed by the law of the contract — usually English or New York law for loans from international lenders, with arbitration clauses. Local enforcement through the Code of Civil Procedure, 1908; the Money Loan Court Act, 2003 (Artha Rin Adalat Ain) is unavailable to foreign lenders directly (it is reserved for banks and NBFIs). Foreign judgment enforcement under section 13 CPC.
Foreign-law governed agreements with arbitration clauses typically at SIAC, LCIA, ICC, or HKIAC. Bangladesh acceded to the New York Convention 1958 and is a party to the ICSID Convention since May 1992. Enforcement of foreign arbitral awards in Bangladesh under the Arbitration Act, 2001. ADR provisions and BIAC mediation clauses are increasingly built into long-term facility documentation. LegalSeba LLP provides comprehensive arbitration and dispute resolution representation for cross-border financial transactions. Bilateral Investment Treaty protections may provide an additional dispute-resolution layer for investors from BIT-partner countries.
04 · EPZ / EZ / HTP CARVE-OUT MATRIX
The specialised-zone framework
Companies operating within Export Processing Zones, Economic Zones, Private EPZs, or Hi-Tech Parks face a materially different (and generally more liberal) regime. The matrix below maps the position by company type within these zones.
| Parameter | Type-A (100% Foreign-Owned) | Type-B (Joint Venture) | Type-C (100% Locally-Owned) |
|---|---|---|---|
| Short-term foreign loan from parent/shareholder | PERMITTED Direct access without prior BIDA/BB approval. Up to 6 years from inception of manufacturing/service. Interest cap: 3% p.a. in convertible currency (or BDT 3-month FDR rate where converted). | Permitted for the foreign-owned/controlled portion of operations subject to FE Circular 04/2021 conditions. Interest cap: 3% p.a. Same 6-year tenure cap from inception of operations. | NOT APPLICABLE No foreign parent/shareholder; the loan would have to be from an unrelated foreign person — sparingly approved on a short-term bridging basis only. |
| Long-term foreign loan from overseas FI | CARVE-OUT May obtain FCY loans directly from overseas FIs without prior BIDA or BB approval. Reporting only through AD bank. | Requires prior approval from Bangladesh Bank through FEID. Application routed via AD bank → BEPZA/BEZA/BHTPA → FEID at Bangladesh Bank Head Office. | Requires prior approval from Bangladesh Bank through FEID. Same routing as Type-B. Decisions communicated simultaneously to all three (zone authority, applicant, AD bank). |
| Long-term loan from OBU of scheduled bank | Permitted with prior approval from Bangladesh Bank's Foreign Exchange Investment Department (FEID). OBU may extend term loans for capital machinery up to 3 years for fully foreign-owned EPZ enterprises. | Permitted with prior approval from Bangladesh Bank's FEID. OBU lending subject to FE Circular 11/2025 framework and prudential rules. | Permitted with prior approval from Bangladesh Bank's FEID. Subject to OBU prudential rules and CRR/SLR conditions where applicable. |
| Working-capital loan from local banks | Free access to local banks for BDT working capital on normal banker-customer relationship basis. Foreign investors retain priority for FCY loans from OBUs. | Free access to local banks for BDT working capital on normal banker-customer relationship basis. Standard prudential single-borrower limits apply. | Free access to local banks (standard domestic borrowing). Single-borrower exposure limits and provisioning rules apply at the lender level. |
| Approval-routing authority | No approval required for direct overseas borrowing. For OBU lending: AD bank → FEID, BB. | AD bank → BEPZA / BEZA / BHTPA → FEID, Bangladesh Bank Head Office | AD bank → BEPZA / BEZA / BHTPA → FEID, Bangladesh Bank Head Office |
| Application documents (long-term) | Loan agreement / term sheet; Board resolution; M&AA; certificate of incorporation; BEPZA/BEZA/BHTPA registration; CIB inquiry forms with director undertakings; bank certificate on creditworthiness; feasibility report; pro-forma invoices for capital machinery; AD-bank prima facie verification of completeness; financial analysis; sponsor track record. | ||
| Reporting after approval | Concerned AD bank submits a consolidated quarterly statement within 15 days of quarter-end to General Manager, FEID, Bangladesh Bank Head Office. Borrower submits semi-annual utilisation report to BEPZA/BEZA/BHTPA. CIB updates on borrowing entity continued throughout loan tenure. | ||
| Interest rate / pricing | Same overall framework: short-term parent/shareholder loans capped at 3% p.a. in convertible currency; long-term commercial loans must be at market-reasonable rates. The Type-A direct-borrowing carve-out does not exempt from these rate ceilings — only from the prior-approval requirement. | ||
| Tax incentives | EPZ entities enjoy income-tax holidays typically 10 years (graduated exemption: 100% for first 3 years, 50% for next 3 years, 25% for next 4 years), VAT and customs-duty exemptions on imported capital machinery, and dividend repatriation privileges. Hi-Tech Parks offer similar concessions. Power-sector projects enjoy 15-year tax holiday. These tax incentives apply to operating profits/receipts, not specifically to interest payments under the foreign loan, but they substantially affect the overall structure economics. | ||
| Repatriation of capital & interest | Full repatriation of principal, interest and fees through AD bank channel. Repatriation of dividends, profits and disinvestment proceeds is permitted under the Foreign Private Investment (Promotion & Protection) Act, 1980. Foreigners employed in Bangladesh may remit up to 50% of their salary plus full repatriation of savings and retirement benefits. | ||
| Asset disposal restrictions | No specific restrictions beyond standard FERA provisions. | Joint ventures in EPZs cannot make changes to their assets favouring non-residents without prior approval. This restriction directly affects security creation and asset transfer in foreign-loan structures. | |
EPZ Type-A Carve-Out · The Headline Concession
The most significant regulatory privilege in the Bangladesh foreign-borrowing framework is reserved for 100% foreign-owned (Type-A) entities operating within EPZs, EZs, and Hi-Tech Parks. These entities may obtain foreign currency loans from overseas financial institutions or entities without prior approval of either BIDA or Bangladesh Bank. This carve-out reflects deliberate policy to make these zones frictionless investment destinations for export-oriented foreign investors. The carve-out does not, however, exempt the entity from interest-rate ceilings, AML/CFT obligations, withholding tax on interest payments, transfer-pricing requirements (for related-party loans), or reporting requirements through the AD bank to FEID. Smart structuring often involves establishing the borrowing vehicle as a Type-A EPZ entity precisely to access this regulatory route.
05 · APPROVAL FLOW · LONG-TERM FOREIGN LOANS
The five-step approval journey
For long-term foreign borrowings requiring Scrutiny Committee approval, the application moves through five distinct stages. The matrix below maps the flow for general BIDA-registered companies.
BIDA-Registered Company · Long-Term Foreign Loan Approval Process
STEP 01
Documentation Assembly
Complete document pack including loan agreement, M&AA, CIB inquiries, feasibility report, financial analysis, sponsor undertakings, capital-machinery proforma invoices. Expert corporate lawyers at LegalSeba LLP regularly prepare and audit these compliance packs to prevent early rejections.
STEP 02
OSS Application
Submit application via BIDA Online Single Service portal (bidaquickserv.org) with all supporting documents and applicable fees (BDT 5,000–100,000).
STEP 03
BIDA Initial Scrutiny
BIDA officials review proposal against commercial viability, alignment with national industrial policy, job creation, value addition, sectoral admissibility.
STEP 04
Scrutiny Committee
Inter-ministerial Scrutiny Committee chaired by BB Governor evaluates creditworthiness, indebtedness, debt-equity ratio (60:40 cap), pricing, and capital-machinery quality.
STEP 05
Approval & Drawdown
BIDA communicates approval (valid 6 months). AD bank facilitates FC account operation, drawdown, and remittances. Semi-annual utilisation reports begin.
ℹ Timeline Reality Check
The official BIDA processing timeline is "30 days" but the realistic end-to-end timeline is 3–6 months, contingent on: (i) document completeness on initial submission; (ii) speed of clarifications and additional information requests; (iii) timing of Scrutiny Committee meetings (typically held quarterly); (iv) the lender's own internal approvals and conditions precedent. Build the timeline backwards from anticipated drawdown, factor in the 6-month approval validity, and allocate buffer.
06 · APPLICABLE LAWS, RULES & CIRCULARS
Regulatory instruments by tenure
Each instrument is tagged for short-term applicability SHORT long-term applicability LONG EPZ-specific application EPZ or all categories BOTH The tables are grouped by instrument type for quick reference, with statutory citations and operative section numbers.
A
Primary Legislation — Acts of Parliament
| Instrument | Applies To | Why It Applies / Operative Provisions |
|---|---|---|
|
Constitutive · Central Bank
Bangladesh Bank Order, 1972
President's Order No. 127 of 1972
|
BOTH | The constitutive charter of Bangladesh Bank. Article 7A empowers BB to formulate and implement monetary, credit and exchange policies. Article 18 declares the convertible currency basket usable for all FX transactions including borrowing by private companies. Source of all FE circulars and the regulatory architecture for foreign borrowing. |
|
Forex · Constitutive
Foreign Exchange Regulation Act, 1947
Act VII of 1947, amended by FERA (Amendment) Act, 2015 (Act No. 2 of 2015)
|
BOTH | The foundational FX statute. Section 3 empowers BB to authorise dealers (ADs). Section 4 restricts dealing in foreign exchange. Section 5 regulates payments to non-residents. Section 13 covers permission for borrowing in foreign currency by residents from non-residents — the central enabling provision for company foreign borrowing. Section 13(1) requires BB permission for issuance of guarantees in favour of non-residents (waived by FE Circular 24/2024 for trade finance). Section 18A covers service-sector remittances. Section 23 imposes penalties for contravention. The 2015 Amendment introduced criminal penalties for hundi and unauthorised forex transactions. |
|
Contract · Foundational
Contract Act, 1872
Act No. 9 of 1872
|
BOTH | The foundational statute governing all contractual relationships in Bangladesh, including loan agreements between Bangladeshi borrowers and overseas lenders. A loan, once disbursed and accepted, forms a valid contract enforceable under this Act. Sections 10–30 set out essentials of valid contracts. Sections 73–75 provide remedies for breach including compensation. Sections 124–147 cover indemnity and guarantee — directly relevant to corporate, personal, and third-party guarantees in foreign-loan structures. |
|
Corporate · Borrowing Powers
Companies Act, 1994
Act No. 18 of 1994 (amended by the Companies (Amendment) Act, 2020)
|
BOTH | The constitutive corporate statute for private limited companies in Bangladesh. Section 2(1)(p) defines "private company". Section 76 covers borrowing powers and limits. Section 159 mandates charge registration with RJSC within 21 days of creation. Section 160 imposes penalty for non-registration and renders unregistered charges void against liquidators and subsequent secured creditors. Section 232 deals with directors' liability. AGM/EGM approvals required where borrowing exceeds prescribed thresholds in M&AA. The 2020 Amendment introduced electronic-filing facilities. |
|
FDI · Statutory Protection
Foreign Private Investment (Promotion & Protection) Act, 1980
Act No. 11 of 1980
|
BOTH | Provides statutory protection to foreign investments in Bangladesh. Section 4 guarantees fair and equitable treatment to foreign private investment. Section 5 permits full repatriation of capital, profits and dividends. Section 7 provides protection against expropriation. Section 8 guarantees equal treatment with domestic investors. The legal foundation enabling Type-A and Type-B foreign investors to borrow abroad and repatriate principal/interest. |
|
Investment Promotion
Bangladesh Investment Development Authority Act, 2016
Act No. 38 of 2016
|
LONG | Establishes BIDA as the apex investment-promotion agency. Section 8 sets out BIDA's functions including registration of industrial enterprises and processing of foreign loan applications. The Scrutiny Committee operates downstream of BIDA processing. The One-Stop Service Act, 2018 provides BIDA's OSS operational basis at bidaquickserv.org. |
|
Special Zones · EPZ
Bangladesh Export Processing Zones Authority Act, 1980
Act No. 36 of 1980
|
EPZ | Establishes BEPZA and the EPZ regime. Provides the legal basis for Type-A entities to enjoy direct foreign-borrowing privileges. Approval routing for Type-B and Type-C EPZ entities goes through BEPZA → FEID at Bangladesh Bank. |
|
Special Zones · EZ
Bangladesh Economic Zones Act, 2010
Act No. 42 of 2010
|
EPZ | Establishes BEZA and the Economic Zones regime. Extends EPZ-style privileges (with variations) to entities in declared Economic Zones. Applications for foreign loans by EZ entities go through BEZA → FEID at Bangladesh Bank. |
|
Special Zones · Private EPZ
Bangladesh Private Export Processing Zones Authority Act, 1996
Act No. 20 of 1996
|
EPZ | Establishes the framework for privately-developed EPZs. Entities in Private EPZs operate under similar (though not identical) regulatory privileges to those in BEPZA-administered public EPZs. |
|
Special Zones · HTP
Bangladesh Hi-Tech Park Authority Act, 2010
Act No. 8 of 2010
|
EPZ | Establishes BHTPA and the Hi-Tech Park regime — typically for IT, software, biotech and technology-intensive industries. Foreign-loan approval routing goes through BHTPA → FEID at Bangladesh Bank for non-Type-A entities. |
|
One-Stop Service
One-Stop Service Act, 2018
Act No. 63 of 2018
|
BOTH | Mandates the OSS framework operated by BIDA, BEZA, BEPZA, BHTPA, and PPPA — providing end-to-end digitised investor services including foreign-loan application processing through bidaquickserv.org and equivalent portals. Establishes service-level commitments and fee structures. |
|
AML · Substantive
Anti-Money Laundering Act, 2012
Act No. 5 of 2012, amended by Act No. 9 of 2015
|
BOTH | Mandates KYC, customer due diligence, transaction monitoring, suspicious-transaction reporting, and ultimate-beneficial-ownership identification for cross-border lender relationships. Sections 25–28 impose personal liability on the company's MD/CEO and CCO for AML failures. The 2015 Amendment broadened predicate offences and tightened reporting timelines. |
|
CFT · Substantive
Anti-Terrorism Act, 2009
Act No. 16 of 2009, amended by Act No. 11 of 2013
|
BOTH | Combats terrorism financing — mandatory sanctions screening of overseas lenders against UN designations and the Domestic Sanctions List of Bangladesh. Particularly important when lender is a foreign private person rather than a regulated financial institution. |
|
Anti-Corruption
Anti-Corruption Commission Act, 2004
Act No. 5 of 2004
|
BOTH | Establishes the Anti-Corruption Commission (ACC) with jurisdiction over corruption-related offences including bribery in cross-border transactions. AD banks and borrowing companies must ensure no corrupt-payment risks are embedded in lender selection or loan-related professional fees. |
|
Tax · Substantive
Act No. 12 of 2023 (replacing the Income Tax Ordinance, 1984)
|
BOTH | Withholding tax on interest paid to non-resident lenders (typically 20% domestic rate). DTAA relief available where applicable (reduced to 10–15% under most treaties). Thin-capitalisation rules may apply to interest deductibility on related-party loans. Tax-residency certificate from the lender required for treaty relief. Transfer pricing provisions apply to related-party loan pricing. |
|
Tax · Annual
Finance Acts (Annual)
Annual fiscal legislation
|
BOTH | Annually update tax rates, thresholds, exemptions, withholding tax rates on interest outflows, and DTAA implementation rules. Each year's Finance Act should be checked for changes affecting the cost economics of the foreign loan. |
|
Tax · Indirect
Value Added Tax and Supplementary Duty Act, 2012
Act No. 47 of 2012
|
BOTH | Governs VAT on financial services where applicable. Most cross-border interest payments are exempt from VAT, but legal fees, advisory fees, and certain ancillary services connected to the loan may attract VAT obligations. Capital machinery imports financed through the loan are typically VAT-exempt under EPZ and similar regimes. |
|
Stamp Duty
Stamp Act, 1899
Act No. 2 of 1899 (as amended)
|
BOTH | Loan agreements executed in or brought into Bangladesh require ad valorem stamp duty under the prevailing Stamp Schedule. Mortgage and charge documents attract additional duty. Bonds issued abroad may have collateral stamp implications when brought to Bangladesh for enforcement. |
|
Property · Mortgage
Transfer of Property Act, 1882
Act No. 4 of 1882
|
LONG | Governs creation of mortgages over immovable property. Sections 58–104 cover the various forms of mortgage (simple, by conditional sale, usufructuary, English, equitable mortgage by deposit of title deeds, anomalous). Foreign lenders typically prefer English mortgages or registered mortgages by deposit of title deeds. |
|
Property · Registration
Registration Act, 1908
Act No. 16 of 1908
|
LONG | Mandatory registration of mortgage deeds (where consideration exceeds BDT 100), charge documents, and other security instruments at the Sub-Registry Office having jurisdiction. Failure to register renders the mortgage unenforceable. Time limit: 4 months from execution. |
|
Power of Attorney
Power of Attorney Act, 2012
Act No. 53 of 2012
|
LONG | Governs creation, registration and operation of powers of attorney. Foreign lenders frequently require irrevocable powers of attorney from borrower/sponsor for security enforcement, asset transfers, and litigation. POAs executed abroad require apostille/consularisation to be valid in Bangladesh. |
|
Security · Movable
Secured Transactions (Movable Property) Act, 2023
Act No. 56 of 2023
|
LONG | New unified framework for security interests over movable property — receivables, inventory, intangibles, capital machinery imported under the loan. Establishes a centralised collateral registry with online filing. Particularly relevant for long-term project finance with security over moveable assets and reduces the need for physical possession to perfect security. |
|
Civil Procedure
Code of Civil Procedure, 1908
Act No. 5 of 1908
|
BOTH | The principal procedural statute governing civil litigation including suits for loan recovery and enforcement of foreign judgments. Section 13 sets criteria for recognition of foreign judgments. Section 44A permits direct execution of judgments from reciprocating territories. Foreign lenders enforcing in Bangladesh courts proceed under the CPC. |
|
Specific Performance
Specific Relief Act, 1877
Act No. 1 of 1877
|
BOTH | Provides equitable remedies including specific performance of contracts, injunctions, and declaratory relief. Foreign lenders may seek specific performance of conditions precedent, security creation undertakings, and information covenants under this Act. |
|
Limitation
Limitation Act, 1908
Act No. 9 of 1908
|
BOTH | Time-bars on initiating recovery suits — typically 3 years for simple money claims, 6 years for written contracts, and 12 years for mortgage suits. Foreign lenders must time legal action carefully; acknowledgments of debt under section 18 reset the limitation clock. |
|
Recovery · NPL
Money Loan Court Act, 2003 (Artha Rin Adalat Ain)
Act No. 8 of 2003
|
BOTH | Specialised courts for speedy recovery of defaulted loans. Section 22 mandates ADR/mediation before adjudication. Reserved exclusively for banks and NBFIs as plaintiffs — foreign lenders cannot use this route directly but can if the loan is intermediated through a Bangladeshi bank/AD. |
|
Banking Instruments
Negotiable Instruments Act, 1881
Act No. 26 of 1881
|
SHORT | Governs cheques, promissory notes and bills of exchange — the underlying instruments in supplier's/buyer's credit arrangements, accepted-bill financing, and trade-finance lines. Section 138 criminalises cheque dishonour, providing an additional enforcement avenue. |
|
Insolvency
Bankruptcy Act, 1997
Act No. 10 of 1997
|
BOTH | Insolvency framework applicable to private companies in distress. Foreign lenders' enforcement rights and creditor priority are determined under this Act in conjunction with the loan-security documentation. Prone to long delays — recovery actions may take 20–25 years. |
|
Penal · Fraud
Penal Code, 1860
Act No. 45 of 1860
|
BOTH | General criminal statute. Section 420 (cheating and dishonestly inducing delivery of property) and Section 406 (criminal breach of trust) are commonly invoked in cross-border financing fraud cases. Provides parallel criminal-law remedies alongside civil recovery. |
|
Customs / Imports
Customs Act, 1969 & Import Policy Order in force
Act No. 4 of 1969
|
BOTH | Capital-machinery imports financed by long-term foreign loans must comply with the Customs Act and the prevailing Import Policy Order. Admissibility of items imported on usance basis under supplier's/buyer's credit (short-term) is conditional on IPO compliance. The 5% import duty on capital machinery is typically secured through bank guarantee or indemnity bond and refunded after installation. |
|
Financial Reporting
Financial Reporting Act, 2015
Act No. 16 of 2015
|
BOTH | Establishes the Financial Reporting Council (FRC). Mandates IFRS/IAS-compliant disclosure of foreign-currency liabilities, FX exposures, related-party transactions (where the lender is parent/shareholder), contingent liabilities (guarantees), and going-concern assessments in audited financial statements. |
|
Payments
Payment and Settlement Systems Act, 2024
Act of 2024
|
BOTH | Governs payment systems including BD-RTGS used for cross-border settlement of foreign-currency loan disbursements and repayments through the AD-bank channel. Establishes operational standards for payment service providers. |
|
Evidence
Bankers' Books Evidence Act, 2021
Act No. 7 of 2021 (replacing the 1891 Act)
|
BOTH | Modernises admissibility of digital banking records as evidence in legal proceedings — relevant for any disputes arising under foreign-currency credit facilities and for production of certified extracts of FC-account transactions. |
|
Evidence · General
Evidence Act, 1872
Act No. 1 of 1872
|
BOTH | The general evidentiary statute. Governs admissibility of foreign-executed loan documents, electronic records, and witness testimony in Bangladesh courts. Foreign documents typically require authentication and apostille/consularisation under section 85. |
|
Arbitration
Act No. 1 of 2001
|
LONG | Governs domestic arbitration and the enforcement of foreign arbitral awards in Bangladesh. Bangladesh acceded to the New York Convention 1958; foreign awards from Convention states are enforceable. Bangladesh is also a party to the ICSID Convention since May 1992 for investor-state dispute settlement. Foreign loan agreements typically include arbitration clauses (SIAC, LCIA, ICC, HKIAC). |
|
Securities · Capital Markets
Bangladesh Securities and Exchange Commission Act, 1993
Act No. 15 of 1993
|
LONG | Governs capital-market activities including bond and debenture issuances. Where foreign borrowing takes the form of bonds or debentures (whether issued in Bangladesh or abroad), BSEC compliance and approvals may be required. Public placement of bonds requires prospectus registration. |
|
Trade Organisations
Trade Organisations Act, 2022
Act of 2022 (replacing the Trade Organisations Ordinance, 1961)
|
BOTH | Modernised framework governing chamber of commerce memberships. Borrowing companies often need to be members of relevant chambers (FBCCI, MCCI, DCCI, FICCI) — chamber membership is a customary documentation requirement for some sector-specific approvals. |
|
Recovery · Government Dues
Public Demands Recovery Act, 1913
Act No. 3 of 1913 (Bengal)
|
BOTH | Procedure for recovery of public dues including unpaid stamp duty, registration fees, and tax arrears — relevant where the loan transaction generates statutory dues that remain unpaid. |
B
International Treaties & Conventions Bangladesh Is Party To
| Instrument | Applies To | Why It Applies / Operative Provisions |
|---|---|---|
|
Arbitration · Enforcement
New York Convention on Recognition & Enforcement of Foreign Arbitral Awards, 1958
Bangladesh acceded — operationalised via Arbitration Act, 2001
|
LONG | Provides for cross-border enforcement of arbitral awards. Foreign lenders can enforce awards from Convention member states (over 165 countries) in Bangladesh courts, subject to limited grounds for refusal. The most commonly invoked dispute-resolution framework in long-term foreign loan documentation. |
|
Investor Protection
ICSID Convention, 1965
Bangladesh acceded May 1992
|
LONG | Convention on the Settlement of Investment Disputes between States and Nationals of Other States. Provides investor-state arbitration via the International Centre for Settlement of Investment Disputes. Particularly relevant where the foreign lender is also an investor and the dispute involves expropriation, breach of treaty protections, or fair-and-equitable-treatment claims. |
|
DTAA
Applicable Bilateral Tax Treaty
Approximately 38 DTAAs in force
|
BOTH | Reduced withholding rate on interest where the lender resides in a DTAA-partner jurisdiction (typically 10–15% under treaty vs 20% domestic rate). Tax-residency certificate from the lender's tax authority required to claim relief. Bangladesh has DTAAs with major lender jurisdictions including UK, US, Germany, Japan, Korea, Singapore, China, India, Netherlands, France, Italy, Switzerland. |
|
BIT
Applicable Bilateral Investment Treaty
29 BITs in force
|
LONG | Bangladesh has BITs with 29 countries including Austria, Belgium-Luxembourg, Cambodia, China, Denmark, France, Germany, India, Indonesia, Iran, Italy, Japan, Korea, Malaysia, Pakistan, Philippines, Poland, Romania, Switzerland, Thailand, Netherlands, Turkey, UK, US, Indonesia. Provides additional protections including fair and equitable treatment, full protection and security, compensation for expropriation, and investor-state dispute settlement (ISDS) rights. |
|
International · Trade Rules
ICC Uniform Rules — UCP 600, URDG 758, ISBP 745, URC 522
International Chamber of Commerce
|
SHORT | Trade-finance instruments (LCs, demand guarantees, collections) underlying short-term external borrowing by private companies are governed by ICC's uniform rules; AD banks contractually adopt these in their cross-border arrangements. UCP 600 governs documentary credits; URDG 758 governs demand guarantees; URC 522 governs collections. |
|
FATF Standards
FATF Recommendations on AML/CFT
Implemented through AMLA 2012 and BFIU circulars
|
BOTH | Financial Action Task Force standards on anti-money laundering and counter-terrorism financing. Bangladesh, as a member of the Asia-Pacific Group on AML, implements FATF standards through domestic legislation and BFIU guidance. Affects KYC and EDD requirements for the foreign lender. |
|
FATCA / CRS
FATCA and Common Reporting Standard
Implemented through NBR notifications
|
BOTH | US FATCA and OECD CRS automatic-exchange-of-information frameworks may require disclosure of certain cross-border financial relationships. Where lender or borrower has US-person or other reportable connections, additional reporting obligations apply. |
C
Bangladesh Bank, BIDA & Other Regulatory Guidelines
| Instrument | Applies To | Why It Applies / Operative Provisions |
|---|---|---|
|
Master Reference
Guidelines for Foreign Exchange Transactions (GFET), 2018 — Vol. 1 & Vol. 2
Bangladesh Bank · Foreign Exchange Policy Department
|
BOTH | The master compendium for all AD operations relevant to private-company foreign borrowing. Chapter 7 covers import payment provisions including supplier's/buyer's credit. Chapter 8 covers EPZ operations. Chapter 9 covers issuance of shares to non-residents. Chapter 15 covers loans to enterprises in private sector. Chapter 16 governs term lending and borrowing in foreign currency, including borrowing from abroad. Chapter 20 covers Type-A/B/C enterprise definitions and EPZ financing. |
|
Procedural · Foreign Borrowing
Guidelines for Foreign Borrowing — BIDA / Scrutiny Committee Framework
Issued under BIDA Act, 2016 read with FERA
|
LONG | The substantive procedural guideline. Sets out: eligibility (private-sector industrial enterprises incorporated under Companies Act 1994 and registered with BIDA); approved sources of foreign borrowing; all-in-cost guidance; application proforma (Annexure-A); supporting document requirements; and the Scrutiny Committee approval process. Sets the 6-month approval validity period and the prohibition on government/sovereign liability. |
|
Investment Handbook
BIDA Investment Handbook
Bangladesh Investment Development Authority — periodically updated
|
BOTH | Comprehensive investor guidance including foreign-borrowing procedures, repatriation rules, tax incentives, sectoral conditions, and step-by-step application processes. Updated to reflect recent policy changes. |
|
Citizen Charter
BIDA Citizen Charter — Foreign Industry Services
bida.gov.bd
|
LONG | Lists the documents required for foreign-loan applications, the standard processing timelines under the BIDA OSS framework, and grievance-redressal mechanisms. |
|
AML/CFT Master
BFIU Master Circular on AML/CFT (latest edition)
Bangladesh Financial Intelligence Unit
|
BOTH | Operational AML/CFT manual: enhanced due diligence on cross-border lender (especially when lender is a foreign private person); sanctions screening; STR/CTR triggers; UBO identification; PEP screening; record-keeping for minimum 5 years. Distinct circulars apply to banks, financial institutions and regulated entities. |
|
Forex Risk
Foreign Exchange Risk Management Guidelines (revised, Feb 2025)
FEPD Circular Letter No. 12 dated 26 February 2025
|
BOTH | Sets prudential framework at AD-bank level for managing FX exposures from foreign borrowings of corporate clients. Affects pricing and availability of hedging products. Net open position limits at AD bank level may constrain large hedging structures. |
|
Transfer Pricing
Transfer Pricing Rules (under Income Tax Act, 2023)
NBR-issued rules and guidelines
|
BOTH | For loans from foreign parent/shareholder/group companies, the interest rate must reflect arm's-length pricing. Documentation requirements apply where related-party transactions exceed prescribed thresholds. Interest deductibility may be limited by the safe-harbour rate or transfer-pricing benchmarks. |
D
Bangladesh Bank Circulars & Circular Letters
| Instrument | Applies To | Why It Applies / Operative Provisions |
|---|---|---|
|
FEPD · Working Capital
FE Circular No. 04
19 January 2021 (foundational); FE Circular No. 04 dated 23 April 2024 (amendment)
|
SHORT | The foundational short-term parent/shareholder loan circular. Liberalised the regime by: (i) extending eligibility from foreign-owned manufacturing companies to also include foreign-owned service companies (excluding trading); (ii) extending the maximum borrowing period from 3 years to 6 years from inception of manufacturing/service operations, with options to renew/extend within the 6-year window; (iii) capping the annual interest rate at 3% in convertible foreign currencies; (iv) for BDT-converted proceeds: interest payable in Taka at the AD's prevailing 3-month term-deposit rate. No prior BB approval required for receipt or repayment, but reporting is mandatory through the AD bank. |
|
FEPD · Loans Master
FE Circular No. 34
2 September 2025
|
BOTH | Comprehensive consolidation of regulations on loans, overdrafts and guarantees — including medium and long-term external borrowing by enterprises in specialised zones, term lending in Taka to foreign-owned/controlled companies, private loans against guarantees lodged outside Bangladesh, and short-term shareholders' loans. Supersedes scattered earlier instructions. |
|
FEPD · OBU Master
FE Circular No. 11
30 January 2025 — Issued under Offshore Banking Act, 2024
|
BOTH | Master OBU Guidelines. Relevant where the private company borrows from the OBU of a scheduled bank in Bangladesh rather than directly from an overseas FI. Specifies eligible borrowers (Type-A enterprises in specialised zones, Type-B/C with approval), permitted end-uses (trade finance, capital-machinery imports, term lending), and reporting framework. |
|
FEPD · Trade Finance
FE Circular No. 24
24 October 2024
|
SHORT | Short-term external trade finance on supplier's/buyer's credit for imports. Extends usance term from 360 days to 3 years for industrial enterprises in regular industries and those in EPZs, EZs, Hi-Tech Parks. General permission for usance facilities up to 60 days against commercial imports without LCs within IPO provisions. General waiver from Section 13(1) of FERA, 1947 for issuance of corporate, personal and third-party guarantees favouring foreign lenders/suppliers against admissible imports — a major liberalisation removing the BB-approval requirement for guarantees in trade finance. |
|
FEPD · Trade Finance
FE Circular No. 32
19 November 2024
|
SHORT | Updates to short-term trade finance procedures and reporting; must be checked for any incremental conditions on FCY exposure arising from trade finance lines. |
|
FEPD · Service Sector
FEPD Circular No. 30
12 November 2024
|
SHORT | Service-sector remittance and short-term loan provisions — operationalises the short-term shareholder/parent-company loan facility for foreign-owned service entities under FE Circular 04/2021 framework. |
|
FEPD · Forex Operations
FE Circular No. 18
2 October 2024
|
BOTH | Operational provisions for foreign-currency account management and remittance routing relevant to private-company foreign borrowings. |
|
FEPD · Forex Operations
FE Circular No. 20
14 October 2024
|
BOTH | Further operational provisions on foreign-exchange transactions including those linked to foreign borrowings by private sector entities. |
|
FEPD · Account Operations
FE Circular No. 27
3 July 2025
|
BOTH | Permissible transactions against funds held in foreign currency accounts. Permits OBUs to allow FCY deposits of non-resident account-holders to be used by DBUs as collateral against short-term local-currency financing — relevant where the foreign parent's FC deposit is leveraged for BDT working capital of the borrower. |
|
FEPD · Forward Cover
FEPD Circular No. 09
26 January 2025
|
BOTH | Forward sales/purchases in foreign currency. ADs may apply forward premium not exceeding policy rates of respective currencies. Relevant when the borrowing company hedges principal/interest cash flows on the foreign loan. |
|
FEPD · FX Risk
FEPD Circular Letter No. 12
26 February 2025
|
BOTH | Updated Foreign Exchange Risk Management Guidelines — addresses FX-risk treatment of foreign-currency liabilities at AD bank level, which affects pricing and availability of hedging products to private companies. |
|
FEPD · Earlier OBU/EPZ
BRPD Circular No. 02 dated 25 February 2019; FE Circular No. 21 dated 16 May 2019; FE Circular No. 19 dated 5 May 2019; BRPD Circular Letter No. 09 dated 27 May 2019; BRPD Circular Letter No. 31 dated 18 June 2020
Earlier OBU and EPZ regulatory framework
|
EPZ | Earlier circulars setting out the framework for OBU lending to EPZ/EZ/HTP entities and other foreign-owned firms. While substantially superseded by FE Circular 11/2025 for OBU operations, contracts under these circulars run to expiry and historical references may be relevant. |
|
FEID · Investment Reporting
FEID Circular Letter No. 03
6 May 2014
|
BOTH | Reporting framework for non-resident investment transactions; AD bank consolidated quarterly statement to FEID within 15 days of quarter-end. Continues to govern reporting cadence for foreign borrowings by EPZ/EZ/HTP entities. |
|
FEID · Investment Reporting
FEID Circular No. 01
27 January 2025 (also 20 November 2024)
|
LONG | Reporting framework for non-resident investment transactions, share issuances against FCY remittances, and equity-linked components. Applies where the long-term external borrowing has convertible features or warrants attached. Paragraph 2(A), Chapter 9 of GFET-2018 requires reporting within 14 days of share issuance against FCY remittance. |
|
FEPD · Earlier Reference
FE Circular Letter No. 01
18 March 2024
|
BOTH | Specific operational adjustments to foreign-currency loan procedures for FDI enterprises. Continues to be referenced in current AD-bank operational practice. |
|
FEPD · Debt-Equity
FEPD Circular on Debt-Equity Ratio Relaxation
Recent FEPD circular relaxing debt-equity ratio from 50:50 to 60:40
|
LONG | Bangladesh Bank has revised the foreign-exchange policy to ease local borrowing for foreign-owned/controlled companies — increasing the allowable debt-equity ratio from 50:50 to 60:40. This adjustment applies to Taka term loans for capacity expansion or BMRE for companies engaged in manufacturing or service activities in Bangladesh for at least three years. While primarily about local Taka borrowing, the relaxation affects the structuring economics of foreign-loan-funded projects. |
|
DMD · Reference Rate
DMD Circular No. 03
2026 — Effective from 15 April 2026
|
BOTH | Publication of an effective reference rate for the money-market segment — transaction-based interbank benchmark replacing the quotation-based DIBOR. Long-term floating-rate documentation should incorporate the new reference rate and an appropriate fallback waterfall. |
|
BRPD · Loan Classification
BRPD Circular No. 14 dated 23 September 2012; BRPD Circular No. 03 dated 21 April 2019; BRPD Circular No. 15 dated 27 November 2024
Loan classification and provisioning master circulars
|
BOTH | Set the AD-bank-level prudential rules for classification (Standard, Special Mention Account, Sub-Standard, Doubtful, Bad/Loss) and provisioning of FCY loan exposures. Affect how the borrowing company's facility is treated on the AD's books and influence the AD's willingness to extend follow-on credit. |
08 · AT-A-GLANCE
The 60-second summary
If you only have a minute before walking into a deal call, the differences below are the ones to remember.
Short-Term Foreign Borrowing
≤ 12 MONTHS · WORKING CAPITAL & BRIDGE
- No prior BB or BIDA approval for foreign-owned/controlled manufacturing or service companies borrowing from parent/shareholders abroad
- Maximum tenure: 6 years from inception of manufacturing or service operations (with renewal/extension options within the 6-year window)
- Interest cap: 3.0% per annum in convertible foreign currencies; for BDT-converted proceeds, AD's 3-month FDR rate applies
- End-use: working capital, input procurement — strictly NOT for trading-business companies, NOT for capital-market investments
- Type-A entities in EPZ/EZ/HTP enjoy direct foreign borrowing without approval
- Reporting: through AD bank to FEPD/FEID; FC account opening; Encashment Certificate (Form-C) on receipt
- Documentation: term sheet, board resolution, KYC pack, M&AA, BIDA registration, FC account forms
- For supplier's/buyer's credit: usance up to 60 days without LC, up to 360 days with LC, extendable to 3 years for industrial enterprises
- FE Circular 24/2024 grants general waiver from FERA Section 13(1) for issuance of corporate, personal and third-party guarantees in trade finance
- Foreign loans for working capital strictly prohibited for general BIDA-registered companies
Long-Term Foreign Borrowing
> 12 MONTHS · CAPEX & PROJECT FINANCE
- Prior BIDA approval and Scrutiny Committee clearance required (chaired by BB Governor)
- Application via BIDA OSS portal; processed in 3–6 months; fees BDT 5,000–100,000
- Approval valid for 6 months from BIDA letter date — drawdown must commence within
- End-use: capital machinery imports, BMRE, project finance, refinancing existing approved loans, capital-market debt issuance
- Working-capital use strictly prohibited for BIDA-registered companies; capital-market investment use prohibited
- Lenders: international banks, multilaterals (IFC, ADB, FMO, DEG, OPIC, OPEC Fund), ECAs, capital-market investors, equipment suppliers
- Type-A EPZ entities may borrow directly without approval; Type-B and C route via BEPZA/BEZA/BHTPA → FEID
- Debt-equity ratio cap of 60:40 (recently relaxed from 50:50)
- No sovereign or government liability permitted — non-negotiable Scrutiny Committee condition
- Documentation: full loan agreement, M&AA, feasibility (IRR, payback, break-even, sensitivity), CIB, sponsor undertakings, capital-machinery valuation by BRTC/BUET (supplier's credit), environmental clearance
- Reporting: certified agreement to FEPD/FEID/Stat Dept; semi-annual utilisation reports to BIDA; quarterly AD-bank consolidated statements
- DTAA relief on interest WHT (rates 10–15% under treaty); charge registration with RJSC within 21 days under Companies Act 1994 section 159
- Pre-payment requires fresh BB concurrence before BIDA Scrutiny Committee approval
09 · PRACTICE NOTES
Twelve things worth keeping in mind
Issues that materially affect execution but are easy to miss when negotiating term sheets and structuring drawdowns.
Note 01 · The working-capital prohibition is absolute
For general BIDA-registered private companies (i.e., outside the foreign-owned/controlled FE Circular 04/2021 carve-out and outside the EPZ/EZ/HTP zones), foreign loans cannot be used as working capital under any circumstances. BIDA explicitly states: "permission is not provided for the foreign loan to be used exclusively for working capital." If working capital is the genuine need, the company must either (i) qualify as foreign-owned/controlled and use the parent/shareholder route under FE Circular 04/2021, (ii) borrow from local banks in BDT (where the recently-relaxed 60:40 debt-equity ratio gives more headroom), or (iii) restructure as an EPZ Type-A entity. Don't try to dress working-capital needs as "BMRE" or "capital expenditure" — BIDA's commercial-viability scrutiny will catch it, and contraventions attract penalties under section 23 of FERA, 1947.
Note 02 · The EPZ Type-A direct-borrowing carve-out is the headline concession
A 100% foreign-owned (Type-A) entity operating in an EPZ, EZ or Hi-Tech Park may borrow foreign currency directly from overseas financial institutions or entities without prior approval of BIDA or Bangladesh Bank. This is a deliberate policy concession to make these zones frictionless investment destinations. The concession does not exempt from interest-rate ceilings, AML/CFT diligence, withholding tax on interest payments, transfer-pricing requirements (for related-party loans), or AD-bank reporting. If a company can structure as Type-A within an EPZ/EZ/HTP, this is the most efficient regulatory route available — and the additional benefits (income-tax holiday, customs duty exemption on capital machinery, dividend repatriation) compound the advantage.
Note 03 · The 3% interest ceiling is currency-specific
The 3% per annum interest ceiling under FE Circular 04/2021 applies only to short-term working-capital loans from parent/shareholders denominated in convertible foreign currencies and disbursed in those currencies. Where the loan is received in BDT (after conversion of the lender's home-currency proceeds), interest is payable in Taka at the AD bank's prevailing 3-month term-deposit rate on the date of encashment — typically materially higher than 3%. This currency-of-disbursement distinction has significant cost implications. Plan the disbursement currency carefully: holding the loan in convertible currency and converting to BDT only as needed (rather than at receipt) preserves the 3% economics.
Note 04 · Trading businesses are categorically excluded
Foreign-owned/controlled trading companies (i.e., engaged purely in import-export trading without manufacturing or service-output activities) are not eligible for the short-term parent/shareholder loan facility under FE Circular 04/2021. The eligibility was extended from manufacturing to "manufacturing or services output activities" but explicitly excluded trading. If the company has a mixed model (e.g., manufacturing plus trading), the loan should be ring-fenced to the manufacturing/service portion through clear use-of-proceeds covenants, accounting segregation, and supporting documentation.
Note 05 · Loans from foreign private persons are sparingly approved
The BIDA Foreign Borrowing Guidelines list "foreign equity holders and their connected interests" as an approved source only "by way of short-term bridging arrangements" and explicitly note these are "sparingly" approved. Loans from unrelated foreign private persons (i.e., not financial institutions and not connected to the borrower's equity structure) face heightened AML/CFT scrutiny, source-of-funds verification, and Scrutiny Committee skepticism. Where a foreign individual is the lender, careful documentation of the commercial rationale, the lender's source of funds, arm's-length pricing (with TP support for related-party loans), and AML clearances is essential. The AD bank's BFIU EDD procedures may delay or block such transactions.
Note 06 · Approval validity is six months — plan drawdown carefully
Scrutiny Committee approval for long-term foreign loans is valid for six months from the BIDA approval-letter date. If the first drawdown does not commence within this period — typically because of delays in lender's conditions precedent, security creation, or the foreign lender's own internal approvals — fresh approval is required, restarting the entire 3–6 month process. Common causes of delay: stamp duty mobilisation, RJSC charge registration, Sub-Registry registration of mortgages, environmental clearance (DOE) timing, IRC issuance from CCI&E, and the lender's own document-perfection requirements. LegalSeba LLP's corporate finance team assists clients in mapping out and expediting these conditions precedent to secure drawdown within the validity window.
Note 07 · Pre-payment requires fresh BB concurrence
Pre-payment of approved foreign borrowings is subject to concurrence of Bangladesh Bank before being submitted for approval of the BIDA Scrutiny Committee. This is a meaningful constraint on borrowers who want to refinance early at lower rates or release security. Build pre-payment optionality into the original Scrutiny Committee approval where possible. Refinancing at lower cost is permitted but requires fresh approval and the new loan's maturity must not be less than the outstanding maturity of the original loan. Make-whole and breakage costs should be modelled into the lender-borrower negotiation.
Note 08 · DTAA relief is conditional on documentation
Interest payments to overseas lenders are subject to WHT at 20% under the Income Tax Act, 2023, but the rate may be reduced under an applicable Double Taxation Avoidance Agreement (Bangladesh has DTAAs with approximately 38 countries; reduced rates typically 10–15%). Relief is conditional on production of a valid Tax Residency Certificate from the lender's home tax authority. In its absence, the full 20% domestic rate applies. Build the TRC requirement into the conditions precedent and refresh it annually. Also be alert to thin-capitalisation and transfer-pricing rules where the lender is a related party — interest deductibility may be limited even if the loan is regulatorily compliant.
Note 09 · Charge registration discipline is critical
Where the long-term foreign loan is secured (mortgage of land, hypothecation of capital machinery, pledge of receivables, corporate guarantee), the security documents must be (i) properly stamped under the Stamp Act, 1899, (ii) registered with RJSC under Companies Act 1994 section 159 within 21 days of creation, and (iii) where land is involved, registered at the Sub-Registry under the Registration Act, 1908 within 4 months of execution. Late registration is condonable with penalty; non-registration renders the security unenforceable against a liquidator or subsequent secured creditor. The Secured Transactions (Movable Property) Act, 2023 introduces a new central registry for moveable-asset security that should be considered at the structuring stage. LegalSeba LLP handles end-to-end security perfection, drafting mortgage documents, and executing timely RJSC and Sub-Registry charge registrations to protect lender interests.
Note 10 · Reporting cadence is not optional
Even where prior approval is not required (short-term parent/shareholder loans, Type-A EPZ direct borrowings), reporting through the AD bank channel is mandatory. The AD bank submits consolidated quarterly statements to FEID within 15 days of quarter-end; the borrowing company must file semi-annual utilisation reports to BIDA in the prescribed format. Failures attract penalties under FERA, 1947 (now criminalised under the 2015 Amendment with potential imprisonment), and may delay future approvals or trigger BFIU scrutiny. Establish a reporting calendar at drawdown and assign clear responsibility within the company's finance team. Keep all encashment certificates (Form-C), inward remittance vouchers, and outward remittance applications properly filed.
Note 11 · Dispute resolution favours international arbitration
The Bangladeshi judicial system is materially backlogged for commercial disputes — foreign judgment enforcement under section 13 of the CPC, 1908 is discretionary and based on a single criterion of "competent court". Money Loan Court Act, 2003 is reserved for banks and NBFIs as plaintiffs, so foreign lenders cannot use it directly. Bankruptcy proceedings can take 20–25 years. As a result, most foreign-loan agreements designate international arbitration (SIAC, LCIA, ICC, HKIAC) with Bangladesh as the seat or as a neutral seat. Bangladesh's accession to the New York Convention 1958 makes such awards enforceable; the Arbitration Act, 2001 governs the local enforcement procedure. BIT protections (Bangladesh has 29 BITs in force) provide an additional ISDS layer for investors from BIT-partner jurisdictions.
Note 12 · Sectoral admissibility comes first
Before structuring the loan, confirm the company's sector is open to foreign borrowing. Four sectors are completely reserved for government investment (arms and ammunition; nuclear energy; security printing and minting; forestation in reserved forests), and 17 controlled sectors require prior government clearance. Sectoral admissibility for FDI is a precondition to BIDA registration and the subsequent foreign-loan approval. Power-sector projects qualify for additional incentives including 15-year tax holiday but require Letter of Intent, Implementation Agreement, and Power Purchase Agreement at the foreign-loan application stage.
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The information provided in this comprehensive regulatory reference is for general informational purposes only and does not constitute legal, financial, or tax advice. While LegalSeba LLP strives to keep the information up-to-date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, or suitability with respect to the laws, regulations, and circulars mentioned. Foreign borrowing in Bangladesh involves complex regulatory frameworks (including BIDA, Bangladesh Bank, BEPZA, BEZA, etc.) that are subject to frequent changes. Any reliance you place on such information is therefore strictly at your own risk. Always consult with a qualified legal professional or corporate finance attorney at LegalSeba LLP before making any financial or legal decisions. All statutory provisions are summarised for orientation; the operative text of each instrument should be consulted directly.
