Introduction
With a rapidly growing economy, Bangladesh is becoming an increasingly attractive destination for foreign investors. The government of Bangladesh has taken significant steps to liberalize the investment regime and provide a favorable climate for foreign investment, with policies that include tax incentives, duty exemptions, and streamlined regulatory procedures. The country’s strategic location, young and educated workforce, and potential for growth in certain key sectors have also made it an attractive destination for foreign investment.
The article aims to discuss the detailed procedure for making foreign investments in Bangladesh, along with certain challenges that the country is facing and measures to overcome them.
Benefits of Investing in Bangladesh
Investing in Bangladesh comes with a range of benefits. The country boasts strong macroeconomic stability, and has an open and diverse economy which makes it an attractive destination for investors. Moreover, the country could provide a low-cost, young, and skilled workforce and has a strategic and competitive position in the value chain of the global economy.[1] The country’s economic and legislative environment is also globally favorable to business, creating a welcoming climate for foreign investment. At last, Bangladesh’s geographic location is advantageous, acting as a gateway to countries in the Asia-Pacific region.
Regulatory mechanism
The country has the Foreign Private Investment (Promotion and Protection) Act, 1980 in force to promote and protect foreign investment in Bangladesh. Foreign investors are free to make investment in Bangladesh excepting a few reserved sectors as declared by the government in force, which includes the four categories of arms, ammunition and other defence equipment and machinery, forest plantation and mechanised extraction within reserved forests, production of nuclear energy and security printing where government reserves investment. However, any industrial venture may be set up in collaboration with local investors or may even be wholly owned by the foreign investors.
To avail of the facilities and institutional support provided by the Government, entrepreneurs/sponsors may secure registration with Bangladesh Investment Development Authority (BIDA). TheBangladesh Investment Development Authority (BIDA) has been established as the primary agency responsible for promoting and facilitating investment in Bangladesh, and it acts a one-stop authority for foreign investors to obtain necessary approvals and clearances.
For investment in Export Processing Zones(EPZs) and Economic Zones(EZs), such registration shall be done with the Bangladesh Export Processing Zones Authority(BEPZA) and Bangladesh Economic Zones Authority(BEZA) respectively…
FDI Structures in Bangladesh and procedure therewith
There are certain ways through which foreign investment can be done in the country, which have been discussed below:
Wholly owned subsidiaries
Except for a “one person company”, foreign investors can establish private limited or public limited company through the establishment of wholly owned subsidiaries under the Companies Act, 1994. Using this structure, foreign investors can gain full access to the Bangladesh market as equity ownership is allowed up to 100% with some exceptions in certain key sectors.[2] It is pertinent to note that this investment structure allows investors to have maximum flexibility in terms of ownership and control.
Foreign companies can easily incorporate a subsidiary in Bangladesh by obtaining name clearance from the Registrar of Joint Stock Companies and Firms (RJSC), transferring paid-up capital, and completing certain formalities with regulators.[3] No prior approval is required, except for a minimum paid up capital of US $50,000 for a 100% foreign owned company.. After obtaining necessary registrations and licences, including trade licence, income tax, and VAT registrations, subsidiaries may remit dividends. Foreign entities can acquire an existing Bangladeshi company or incorporate a new one that meets RJSC requirements.
Joint Ventures Companies
Foreign corporations can set up joint venture companies (JVCs) in Bangladesh by partnering with local investors, other foreign entities, or their Bangladeshi subsidiaries. The equity ownership of a foreign company depends on the industry it is investing in.
Branch Office
Foreign companies have the option to establish a limited presence in Bangladesh through a branch office, subject to BIDA’s approval. A branch office represents the parent company and can engage in specific activities such as exporting or importing goods and providing professional or consultancy services. However, manufacturing activities are generally not permitted.[4] Moreover, the operations of a branch office are strictly regulated by exchange control guidelines, and no outward remittances from Bangladesh through the branch office are allowed unless specific exemptions are obtained from the BIDA.
To establish a branch office, a foreign company is required to bring inward remittance of at least US $50,000 as establishment costs. The branch office is also required to register with the Registrar of Joint Stock Companies and comply with procedural formalities prescribed under the Companies Act.
Liaison Office/Representative Office
Foreign companies can set up a liaison office or a representative office in Bangladesh to promote their business interests in the country by spreading awareness of their services/products and exploring opportunities for setting up a permanent presence, subject to BIDA’s approval. However, a liaison office is not allowed to engage in any income-generating activity in Bangladesh.
All the setup and operational costs, including salaries of expatriates and local employees of the liaison office/representative office, have to be borne by the parent company abroad through inward remittance of foreign exchange. No outward remittances of any kind from Bangladesh are allowed except for the amount brought in from abroad (the unspent amount).[5] A liaison office is required to register with the Registrar of Joint Stock Companies and Firms.
Acquisition of shares
Foreign investors have the option to invest in the country’s companies by purchasing or acquiring newly issued shares or existing shares in the company. These investments are generally made by a share money deposit and by executing a share purchase agreement (SPA).It is important that shareholders enter into a shareholders’ agreement (SHA) and that the target company’s articles of association align with the SHA. This ensures proper governance and agreement among shareholders.
Special Purpose Vehicles
This route is usually chosen by foreign investors who wish to invest only in a particular project and do not want to be a stakeholder in other existing or potential projects, assets, or liabilities).
Financing in Bangladesh
Financing in Bangladesh offers a range of options for foreign investors. Debt-based financing can be obtained through local banks and non-banking financial institutions, with various credit facilities including cash credit, term loans, and overdrafts. Non-funded credit facilities such as letters of credit and bank guarantees are also available. Private-sector industrial enterprises can borrow from recognized lenders, including international banks, multilateral financial institutions, and export credit agencies.
Need for prior government approval
Apart from the restricted sectors, there are 17 sectors wherein foreign investors are required to take prior permission or clearance from respective government authorities. Those sectors are:
- Large-scale infrastructure project (e.g. flyover, elevated expressway, monorail, economic zone, inland container depot/container freight station)
- Sea-port/deep sea-port
- Sea-bound ship transport
- Fishing in the deep sea
- Cargo/passenger aviation
- Telecommunication service (mobile/cellular and land phone)
- VOIP/IP telephone
- Satellite channel
- Bank/financial institution in the private sector
- Insurance company in the private sector
- Generation, supply and distribution of power in the private sector
- Crude oil refinery (recycling/refining of lube oil used as fuel)
- Exploration, extraction and supply of natural gas/oil
- Exploration, extraction and supply of coal
- Exploration, extraction and supply of other mineral resources
- Medium and large industries using natural gas/condescend and other minerals as raw material
- Industries using heavy minerals accumulated from sea beach
Incentives for investing in certain sectors in the country
Bangladesh provides several benefits and incentives to encourage investment in certain sectors. These incentives are designed to attract foreign investors and promote economic growth. One of the benefits is tax holiday and exemptions, which includes 5-10 years of tax holiday and reduced tax rates depending on the area. In addition, certain projects under the Public Private Partnership (PPP) are eligible for 100% tax exemption on income and capital gain for 10 years.[6] There are also exemptions from tax on royalties, technical know-how, and technical assistance fees.
Another key incentive is the exemption of import duties on capital machinery, as well as on raw materials used for producing export goods. Bangladesh has double taxation avoidance agreements with more than 30 major trading partner countries, and expatriate employees involved in specific sectors can also avail of income tax exemption for up to 3 years. Additionally, full repatriation of capital invested from foreign sources is allowed, and profits and dividends accruing to foreign investment may be transferred in full.
Challenges and solutions
Despite efforts by the government of Bangladesh to attract FDI through monetary and non-financial incentives, the rate of FDI into the country’s economy is not picking up pace. While FDI can generate new jobs, promote development, and reduce poverty, it also has unintended consequences such as ecological damage.[7] In order to attract more FDI, Bangladesh has to create a more favorable atmosphere for foreign investors and invest in digital infrastructure.
Other solutions include amending the Foreign Private Investment (Promotion and Protection) Act, 1980 which shall include the newer investments, establishing a functional one-stop investment service center to reduce the time and resources needed for foreign investors to enter the market. The country could also focus on skill training and attract targeted measures of FDI into backward and forward linkage industries, as well as participate in regional and global value chains.[8] Additionally, increasing infrastructure spending, especially in digital architecture, can create a more conducive environment for FDI and foster overall economic growth. To ensure sustainable development, the government should prioritize environmental protections and establish regulations to mitigate the ecological impact of FDI.
Conclusion
There are countless opportunities for international investors to enter the Bangladeshi market and capitalize on its potential. Investing in Bangladesh has never been more beneficial, easier, and/or more secure owing to the regulatory framework that is in place to support investment, the incentives, and the provisions for the repatriation of capital and dividends. One can only imagine the countless ways in which Bangladesh will continue to grow and evolve in the years to come, creating new opportunities and avenues for foreign investment. Thus, by putting certain right measures in place, the country has the potential to become a dream investment destination for every investor across the world.
[1] Investment Opportunities in Bangladesh – EMBASSY OF THE PEOPLE’S REPUBLIC OF BANGLADESH, EMBASSY OF THE PEOPLE’S REPUBLIC OF BANGLADESH – MOSCOW, RUSSIAN FEDERATION, https://bangladeshembassy.ru/economy-trade-investment/investment-policy-in-bangladesh/.
[2]Tahmidur Rahman, Procedure of Foreign investment in Bangladesh | 2020 Law, Policy, FDI, ANGEL, Entering the Bangladesh market in 2020, Tahmidur Rahman Law Firm in Dhaka, Bangladesh(Jan. 17, 2020), https://tahmidurrahman.com/procedure-of-foreign-investment-in-bangladesh/#Procedure_of_Foreign_Investment_in_Bangladesh_2020_Law_Policy_Direct_Angel_Rules_Policy-_Everything_you_need_to_know_about_Foreign_Investment_in_21st_century_Bangladesh.
[3] Suhan Khan, Structuring and financing Foreign Direct Investment (FDI) in Bangladesh, Law.asia (July 14, 2020), https://law.asia/bangladesh-fdi-structuring-financing/.
[4]Ibid.
[5]Foreign Investment in Bangladesh – Resource Portal | OGR Legal, Resource Portal | OGR Legal, https://resource.ogrlegal.com/foreign-investment-bangladesh/.
[6]Investment Opportunities in Bangladesh – EMBASSY OF THE PEOPLE’S REPUBLIC OF BANGLADESH, EMBASSY OF THE PEOPLE’S REPUBLIC OF BANGLADESH – MOSCOW, RUSSIAN FEDERATION, https://bangladeshembassy.ru/economy-trade-investment/investment-policy-in-bangladesh/.
[7]Asif Raihan, Exploring Environmental Kuznets Curve and Pollution Haven Hypothesis in Bangladesh: The Impact of Foreign Direct Investment | Journal of Environmental Science and Economics, Global Scientific Research, https://www.jescae.com/index.php/jescae/article/view/451.
[8]Sanazida Begum, Mehedi Hasan & Jabed Hossain, Impacts of FDI on Economic Developments of Bangladesh: Considering GDP, Export and Industry Value (2023).
