Guide to Financing in Bangladesh Economic Zones

Introduction

Bangladesh has strategically established economic zones to accelerate industrialization, attract domestic and foreign investments, and generate employment. These zones, governed by the Bangladesh Economic Zones Authority (BEZA) and the Bangladesh Export Processing Zones Authority (BEPZA), offer a range of fiscal and non-fiscal incentives, streamlined processes, and robust infrastructure to facilitate business operations. This guide provides a comprehensive overview of financing options available for businesses in these zones, along with legal frameworks and practical insights.

Types of Economic Zones in Bangladesh

Bangladesh’s economic zones are designed to cater to various types of industries and investors, each offering unique advantages and opportunities. The key types of economic zones in the country include:

Public Economic Zones

  • Developed and operated by the government, these zones focus on large-scale industrialization and infrastructure development.

Public Economic Zones are established by the government to promote industrial growth and infrastructure development. These zones provide multiple benefits such as tax incentives, duty-free imports and streamlined regulatory processes to facilitate ease of doing business.

Private Economic Zones

  • Privately developed and managed by local or foreign entities, these zones cater to specific industries or investors.

Private Economic Zones are developed and managed by private entities, either local or international. They are tailored to meet the specific needs of various investors and industries, providing customized services and infrastructure to enhance productivity and profitability.

Special Economic Zones (SEZs)

  • Established for sector-specific purposes (e.g., tourism, agro-processing), SEZs often involve public-private partnerships (PPPs).

Special Economic Zones focus on particular sectors such as tourism, agro-processing, and more. These zones often involve public-private partnerships to leverage expertise and resources from both the public and private sectors to foster targeted industrial growth.

Export Processing Zones (EPZs)

  • Managed by BEPZA, EPZs are export-oriented zones offering unique incentives to boost international trade.

Export Processing Zones are managed by BEPZA and are designed to promote export-oriented industries. These zones offer exclusive incentives to businesses that focus on producing goods for export, including tax breaks, duty exemptions, and streamlined customs procedures.

Government-to-Government (G2G) Zones

  • Jointly developed by Bangladesh and foreign governments to encourage bilateral investments.

Government-to-Government Zones are collaborative efforts between Bangladesh and other countries, aiming to encourage foreign direct investment through mutually beneficial agreements. These zones are strategically developed to attract investments by providing favorable conditions and infrastructure.

Financing Options in Bangladesh for Economic Zones

Financing options for businesses in Bangladesh’s economic zones are diverse and cater to different needs and stages of business development. The major financing options include:

Traditional Bank Financing

  • Eligibility Requirements: Business registration within the economic zone, feasible business plan with financial projections, adequate collateral, and good credit history.
  • Process: Submit loan application with required documents (business plan, financial statements), undergo credit assessment by banks, negotiate loan terms, and receive disbursement upon approval.
  • Special Considerations: Dedicated desks for economic zone enterprises, priority-sector loans with lower interest rates, specialized loan products for economic zone investors.

Traditional bank financing remains a popular choice for businesses in economic zones. Companies must meet specific eligibility criteria and undergo a thorough credit assessment process. Banks often provide special loan products tailored to the needs of businesses operating in these zones, with competitive interest rates and dedicated support.

BEZA Financing Mechanisms

  • Investment Promotion Fund: Offers partial financing for feasibility studies and infrastructure development. Applications submitted directly to BEZA with detailed project proposals.
  • Public-Private Partnership (PPP): Joint financing of infrastructure projects under long-term contracts with shared risks. Apply through the PPP Authority with comprehensive project details.

BEZA offers several financing mechanisms to support businesses in economic zones. The Investment Promotion Fund provides partial funding for initial studies and infrastructure projects. Additionally, public-private partnerships enable joint financing of larger projects, allowing for risk-sharing and leveraging private sector expertise.

Bangladesh Bank Special Schemes

  • Export Development Fund (EDF): Provides foreign currency loans for export-oriented industries at reduced interest rates. Applications processed through authorized dealer banks.
  • Long-Term Financing Facility (LTFF): Designed for purchasing capital machinery with extended repayment terms. Available through participating financial institutions.

Bangladesh Bank offers special schemes to promote export-oriented industries and long-term investments. The Export Development Fund provides foreign currency loans at reduced interest rates, while the Long-Term Financing Facility supports the purchase of capital machinery with favorable repayment terms.

International Financing

  • Foreign Direct Investment (FDI): Allows up to 100% foreign ownership in most sectors. Full repatriation of profits and capital is permitted under existing laws.
  • Development Finance Institutions: Institutions like IFC and ADB provide project-based funding for SEZs.
  • Joint Venture Financing: Partnerships between local businesses and foreign investors to share risks and capital.

International financing options are crucial for businesses looking to expand or establish operations in Bangladesh’s economic zones. Foreign direct investment is highly encouraged, with laws allowing full ownership and repatriation of profits. Development finance institutions and joint venture partnerships offer additional funding opportunities and risk-sharing mechanisms.

Capital Market Financing

  • Initial Public Offerings (IPOs): Listing on Dhaka or Chittagong Stock Exchanges requires regulatory compliance.
  • Bond Issuance: Suitable for large-scale projects; requires credit ratings and approval from the Bangladesh Securities and Exchange Commission.

Capital market financing provides businesses with opportunities to raise funds through public offerings and bond issuance. Listing on stock exchanges or issuing bonds requires compliance with regulatory standards and securing necessary approvals, but can offer significant capital for large-scale projects.

Legal Frameworks Governing Financing

Several legal frameworks regulate financing in Bangladesh’s economic zones, ensuring transparency and protecting investor interests. Key legal instruments include:

Bangladesh Economic Zones Act, 2010

This act governs the establishment, operation, and management of economic zones under BEZA’s jurisdiction. It provides the legal foundation for setting up economic zones and outlines the roles and responsibilities of different stakeholders.

Foreign Exchange Regulation Act, 1947

This act regulates foreign currency transactions crucial for FDI and export-related financing. It provides guidelines on the repatriation of profits, investment procedures, and foreign currency handling, ensuring a conducive environment for international investors.

Public-Private Partnership Act, 2015

This act provides legal guidelines for PPP arrangements in infrastructure projects within economic zones. It outlines the process for entering PPP agreements, risk allocation, and the roles of public and private partners.

Income Tax Act 2023

This ordinance offers tax holidays, duty exemptions, and accelerated depreciation allowances for businesses in economic zones. It provides fiscal incentives to attract investment and support business growth.

Bangladesh Securities and Exchange Commission Rules

These rules regulate IPOs and bond issuance for financing large-scale projects. They ensure that businesses comply with necessary standards and provide transparency to investors.

Incentives for Economic Zone Investors in Bangladesh

Investors in Bangladesh’s economic zones enjoy a range of incentives designed to enhance business operations and profitability.

 

Specific Incentives for Investors in Bangladesh’s Economic Zones

Bangladesh offers a wide range of fiscal and non-fiscal incentives to attract both domestic and foreign investors to its economic zones. These incentives are designed to reduce operational costs, simplify investment processes, and ensure a competitive business environment.

Fiscal Incentives

  1. Tax Holidays:
    • 100% income tax exemption for the first 10 years.
    • Gradual reductions: 70% exemption in the 11th year and 30% in the 12th year for developers and unit investors
    • For certain sectors, tax exemptions are provided on royalties, technical fees, and capital gains from share transfers
  1. Customs Duty Exemptions:
    • Duty-free import of construction materials, capital machinery, raw materials, and spare parts (except locally available items)
    • Exemption from regulatory and supplementary duties on imports related to economic zone development
  1. VAT Exemptions:
    • Exemption from VAT on utilities like electricity and gas.
    • VAT-free import of goods required for zone development
  1. Stamp Duty and Registration Fee Waivers:
    • Exemption from stamp duty and registration fees for land registration and loan/credit documentation
  1. Dividend Tax Exemption:
    • Investors enjoy a tax exemption on dividends for up to 10 years

Non-Fiscal Incentives

  1. Foreign Investment Benefits:
    • 100% foreign ownership is allowed in most sectors.
    • No ceiling on foreign direct investment (FDI).
    • Full repatriation of capital, profits, and dividends
  1. Ease of Business Operations:
    • Issuance of work permits for up to 5% of the workforce.
    • Permission for subcontracting with domestic tariff area companies.
    • Backward linkage raw materials can be sold entirely to export-oriented industries in domestic markets
  1. Land Lease Flexibility:
    • Long-term land leases up to 50 years with scope for renewal.
    • Transfer of lease rights is permitted
  1. Special Facilities for Exporters:
    • Duty-free exports.
    • Most-Favored Nation (MFN) status and Duty-Free Quota-Free (DFQF) access in many countries
  1. Supportive Infrastructure:
    • BEZA ensures off-site infrastructure like roads, electricity, water supply, and telecommunications.
    • Hi-Tech Parks like Bangabandhu Hi-Tech City provide sector-specific facilities for IT/ITES industries

One-Stop Service Centers

Investors benefit from BEZA’s one-stop service centers offering:

  • Simplified licensing and registration processes.
  • Assistance with utility connections (electricity, water, gas).
  • Expedited customs clearance for imported goods

Sector-Specific Incentives

  1. Export-Oriented Industries:
    • Access to the Export Development Fund (EDF) for foreign currency loans at favorable rates.
    • Duty-free import of raw materials specifically for export production
  1. Hi-Tech Parks:
    • Additional benefits such as reduced corporate tax rates and specialized IT infrastructure support

Bangladesh’s economic zones offer a comprehensive package of fiscal and non-fiscal incentives tailored to attract diverse investments. These incentives significantly reduce costs while providing a supportive environment for businesses to thrive. Combined with strategic locations, robust infrastructure, and government facilitation through BEZA and BEPZA, these zones are highly competitive destinations for global investors.

 

Application Process for Economic Zone Financing in Bangladesh

The application process for financing in economic zones involves several steps to ensure compliance and secure funding.

Step 1: Registration with BEZA/BEPZA

Complete online application forms with required documentation and obtain an approval letter from the respective authority. Registration is the first step to access the benefits and services offered by economic zones.

  • Complete online application
  • Submit required documentation
  • Receive approval letter

Step 2: Business Plan Development

Prepare a detailed business plan outlining financial projections, capital needs, and sources of funding. A well-developed business plan is crucial for securing financing and demonstrates the viability of the project to potential investors.

  • Prepare detailed business plan
  • Include financial projections
  • Outline capital needs and sources

Step 3: Financing Application

Choose an appropriate financing source based on business requirements and submit applications along with supporting documents like feasibility studies.

  • Select appropriate financing source
  • Submit application with supporting documents
  • Attend interviews/presentations if required

Step 4: Due Diligence

Financial institutions conduct site visits, credit analyses, and document verifications to assess the project’s feasibility and credibility.

  • Financial institution conducts assessment
  • Site visits and verification
  • Credit analysis

Step 5: Approval & Disbursement

Upon approval, complete legal documentation before funds are disbursed as per the agreed schedule. Ensuring all legalities are in place is vital for smooth disbursement and project execution.

  • Receive financing approval
  • Complete legal documentation
  • Funds disbursed according to agreed schedule

Challenges & Solutions

Businesses in economic zones may face challenges, but solutions are available to overcome them.

Challenges

  • Complex documentation requirements.
  • Lengthy approval processes.
  • High collateral demands by financial institutions.
  • Foreign exchange regulations affecting international transactions.

Challenges include complex documentation, lengthy approval processes, high collateral demands, and foreign exchange regulations, which can hinder investment and operational efficiency.

Solutions

  • Utilize BEZA/BEPZA one-stop service centers for expedited approvals.
  • Engage financial advisors experienced in economic zone financing.
  • Leverage collateral-free loan schemes available for SMEs within economic zones.

Solutions include utilizing one-stop service centers for quicker approvals, engaging financial advisors, and leveraging collateral-free loan schemes for SMEs, helping businesses navigate challenges effectively.

Contact Information

For further assistance:

Reach out to the respective authorities for detailed information and support regarding economic zone financing and operations.

Conclusion

Financing opportunities in Bangladesh’s economic zones are diverse, offering significant advantages over conventional options elsewhere in the country. With robust legal frameworks, attractive incentives, and dedicated support systems like one-stop service centers, investors can efficiently establish or expand their operations while contributing to Bangladesh’s industrial growth trajectory.

Contact Us

For more information on how LegalSeba.com can assist you with financing at Economic Zones for non-residents in Bangladesh, please contact us at:

 

Let LegalSeba LLP be your trusted partner in ensuring compliance and facilitating smooth financing processes in Bangladesh.