Comprehensive Guidelines for Operations of Business in Bangladesh by Joint Ventures/Consortiums/Associations (JVCA) with Foreign Partner(s)

Introduction and Legal Framework

The operational guidelines for Joint Ventures/Consortiums/Associations (JVCA) with foreign partners in Bangladesh are governed by the Foreign Exchange Regulation Act (FERA), 1947, and the Guidelines for Foreign Exchange Transactions-2018 (GFET). These regulations ensure that non-resident entities, resident foreign nationals, or companies not incorporated in Bangladesh comply with the legal requirements for establishing and operating business entities in the country. Specifically, Section 18B(1) of FERA, 1947, and Paragraph 3, Chapter 17, Section II of GFET mandate that such entities must report to Bangladesh Bank regarding the establishment of branch offices, liaison offices, representative offices, or any other place of business for conducting trading, commercial, or industrial activities.

Additionally, Paragraph 31(i), Chapter 10 of GFET, Volume 1, provides detailed procedures for Joint Ventures (JVs) to distribute and remit profits to their non-resident partners. These guidelines aim to standardize the operations of JVCA entities, ensuring transparency, accountability, and compliance with Bangladesh’s legal and regulatory frameworks.

 

Background and Rationale of Joint Ventures and Consortiums in Bangladesh

Joint Ventures/Consortiums/Associations (JVCA) with foreign partners engaged in implementing development projects under contracts with the Government of Bangladesh (GoB) have exhibited inconsistent practices in reporting, cross-border transactions, financial preparation, and compliance with tax and remittance regulations. To address these inconsistencies and enhance transparency, the following comprehensive guidelines have been issued. Authorized Dealers (ADs) are required to adhere to these instructions and ensure their customers comply meticulously.

 

A. Establishment and Reporting Requirements for Joint Venture in Bangladesh

1. Permission from BIDA

  • JVCA entities with non-resident partners must obtain permission from the Bangladesh Investment Development Authority (BIDA) under Section 6.4 of Notification No. 03.219.344.00.00.1142.2019-849, dated May 29, 2023. In certain cases, permission may also be required from other competent authorities.
  • The application process involves submitting detailed documentation, including the proposed scope of activities, partnership agreements, and financial projections.

2. Execution of a Valid Contract

  • A legally binding contract among the partners of the JVCA entity must be executed. This contract should outline the roles, responsibilities, profit-sharing arrangements, and dispute resolution mechanisms among the partners.

3. Notification to Bangladesh Bank

  • Within 30 days of obtaining permission from BIDA or other relevant authorities, JVCA entities must notify the Foreign Exchange Investment Department (FEID) of Bangladesh Bank under Section 18B of FERA, 1947. This notification must be submitted through the entity’s nominated Authorized Dealer (AD).

4. Scope of Activities

  • The activities of the JVCA entity must be strictly confined to those specified in the BIDA permission letter. Any deviation from the approved scope of activities may result in penalties or revocation of permissions.

5. Tax Compliance

  • JVCA entities must obtain Tax Identification Number (TIN), Business Identification Number (BIN), and VAT certificates as per the rules of the National Board of Revenue (NBR). Additionally, these entities are required to submit income tax returns on a regular basis to ensure compliance with local tax regulations.

B. Banking Transactions for Joint Ventures in Bangladesh

1. Bank Account Maintenance

  • JVCA entities must maintain a bank account with an AD branch of a scheduled bank in Bangladesh in the name of the JVCA entity. The AD branch maintaining this account will be treated as the nominated AD.
  • Local currency accounts may be opened in other branches or banks with a No Objection Certificate (NOC) from the nominated AD, subject to compliance with Know Your Customer (KYC) and Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT)standards.
  • Any changes in the nominated AD or local currency accounts must be notified to FEID through the nominated AD.

2. Inward and Outward Remittances

  • All inward and outward remittances must be executed through the nominated AD and reported to Bangladesh Bank. This includes payments for services rendered, procurement of goods, and other project-related expenses.
  • Payments against work orders must be credited to the JVCA entity’s account to ensure proper tracking and accountability.

3. Foreign Currency (FC) Accounts

  • For projects funded by foreign or international agencies, ADs may open FC accounts in the name of the JVCA entity without prior approval from Bangladesh Bank, subject to the terms of the approved contract.
  • Only foreign exchange received from foreign or international agencies may be credited to these accounts. All expenses in foreign exchange, as per the relevant contract, may be met from these accounts.
  • FC accounts must be closed upon project completion, and transactions must be reported in Statement S-13 as per Paragraph 16(c), Chapter 2 of GFET, 2018.

4. Overseas Bank Accounts

  • JVCA entities may open bank accounts outside Bangladesh with prior approval from FEID. Transactions in such accounts must comply with the terms and conditions outlined in the permission letter.

5. Encashment Certificates

  • Encashment certificates and other relevant documents must be preserved by the JVCA entity and the nominated AD for future reference and audit purposes.

6. Prohibitions

  • Inward remittances through the branch office of any JVCA partner are strictly prohibited.
  • Deposit accounts maintained with nominated ADs and other banks must be non-interest or non-profit bearing.

7. Project Completion

  • Upon project completion, ADs must notify FEID and provide necessary documentation. In case of repatriation of residual amounts, the guidelines outlined in Section E(v) must be followed.

C. Financial Statements and Other Documents for Joint Ventures in Bangladesh

1. Audited Financial Statements

  • Separate audited financial statements, including the Balance Sheet, Income Statement, Cash Flow Statement, and Owner’s Equity Statement, must be prepared in compliance with Bangladesh Financial Reporting Standards (BFRS) and global best practices.
  • The Document Verification Code (DVC) number must be mentioned in the financial statements to ensure authenticity and compliance with the regulations of the Financial Reporting Council (FRC).

2. Income Reporting

  • All income generated from local sources, whether credited to accounts in Bangladesh or abroad, must be included in the JVCA entity’s books of accounts. This ensures comprehensive financial reporting and transparency.

3. Asset and Liability Treatment

  • Assets and liabilities in the balance sheet cannot be offset against each other. This ensures accurate representation of the entity’s financial position.
  • No transfer or adjustment entries may be made under the “Capital and Partners’ Contributions” account head. All transactions under this head must be conducted in cash.
  • Retained earnings must be shown separately in the Balance Sheet to provide clarity on the entity’s financial performance.

D. Loans and Borrowings for Joint Ventures in Bangladesh

1. Borrowing from Resident Entities

  • JVCA entities must comply with Paragraph 4(b), Chapter 16 of GFET, 2018, and subsequent circulars for borrowing from resident entities.
  • Existing branch offices of JVCA partners in Bangladesh may provide loans to the JVCA entity if unencumbered surplus funds are available, subject to FEID approval.
  • Trade and commercial credits may be offered in compliance with regular business norms, with appropriate disclosure as related party transactions.

2. Working Capital Loans

  • Interest-free working capital loans may be availed from the head offices of JVCA partners, subject to post-facto reporting to FEID through AD banks.

E. Outward Remittance for Joint Ventures in Bangladesh

1. Profit Repatriation

  • Outward remittances of profits to foreign partners require prior approval from Bangladesh Bank. Nominated ADs must submit applications to FEID with relevant documents as per Annexure-A.

2. Prohibitions

  • Profit repatriation or cash lending to branch offices of non-resident partners in Bangladesh is prohibited without prior approval from Bangladesh Bank.

3. Royalty and Technical Fees

  • Payments for royalty, technical know-how, technical assistance, and franchise fees must comply with BIDA Circular No. 03.08.2680.224.165.1479.2017/59, dated March 3, 2021, and FE Circular Letter No. 07, dated April 11, 2021.

4. Other Remittances

  • Outward remittances for purposes not covered under GFET, circulars, Import Policy Order (IPO), or BIDA guidelines require prior permission from FEID.

5. Repatriation of Residual Amounts

  • Repatriation of residual amounts and borrowings from the head office of any JVCA partner require prior approval from Bangladesh Bank. Nominated ADs must apply to FEID with documents as per Annexure-B.

F. Miscellaneous Provisions for Joint Ventures in Bangladesh

1. Import of Machinery

  • Imports of machinery as capital contributions without payment from Bangladesh must comply with the Import Policy Order (IPO). Relevant documents, including the Bill of Entry, must be retained by ADs.

2. Work Permits

  • ADs must verify work permits issued by BIDA or other competent authorities for foreign nationals employed by the JVCA entity. Salaries and benefits paid to foreign nationals must be disclosed in the notes to the audited financial statements.

3. Workers’ Profit Participation Fund (WPPF)

  • JVCA entities must ensure compliance with the Workers’ Profit Participation Fund (WPPF)under the Labor Act, 2006, where applicable.

4. Compliance with Bangladesh Bank Instructions

  • Nominated ADs and JVCA entities must comply with any additional instructions issued by Bangladesh Bank from time to time.

 

G. How to Obtain Foreign Loan in Bangladesh

To learn more about the Foreign Loan Process in Bangladesh, [visit here]

To learn more about Shor Term Working Capital Loan Process in Bangladesh, [visit here]

Conclusion

These comprehensive guidelines aim to standardize the operations of JVCA entities with foreign partners in Bangladesh, ensuring compliance with legal and regulatory frameworks while promoting transparency, accountability, and efficient financial management. By adhering to these guidelines, JVCA entities can contribute to the successful implementation of development projects and foster a conducive business environment in Bangladesh.

 

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