Co-authored by Md. Wazed Jamil (Senior Associate) and Afrin Sadia Nusrat (Associate)
Bangladesh continues to attract foreign investment, including but not limited to the manufacturing, infrastructure and energy industries. Recent reports of potential Japanese investment in Bangladesh over the next five years, as reported by Prothom Alo[1], a national daily newspaper in Bangladesh, illustrate the continued interest in the country as an investment destination.
Special economic zones (hereinafter referred to as “SEZs”) are part of the country’s efforts to attract such investment by providing industrial infrastructure and facilities for businesses. There are certain challenges which foreign investors often face while incorporation, setting up infrastructure and operations in an SEZ. It is not unusual for some foreign investors to find the Bangladeshi process challenging in some aspects and this quite often contributes to the biggest delay in the ability to incorporate and in reaching the operation stage. Hence, it is important to understand the applicable legal framework, the approvals required for any proposed activities or businesses along with the rules governing foreign capital and repatriation of profits or sale proceeds.
What Are Special Economic Zones (SEZ) and What Laws Govern Them?
Understanding Special Economic Zones- Historical Perspective
SEZs are designated areas established to facilitate investment and industrial development under a specific legal and regulatory framework. Historically, under the Bangladesh Economic Zones Act, 2010, an SEZ was recognized as a category of economic zone. The Bangladesh Economic Zones Authority (hereinafter referred to as “BEZA”), established under that Act, was responsible for establishing, licensing, operating, managing and controlling economic zones. Unlike export processing zones, economic zones were planned to accommodate a broader range of activities, including manufacturing, commercial operations and other permitted business activities. This framework in some cases also allowed investors to benefit from incentives relating to customs duties, imports of raw materials and capital machinery and taxation.
A New Law- Changes to the Legal and Institutional Framework
The above legal framework changed significantly with the enactment of the Invest Bangladesh Act, 2026 (hereinafter referred to as “IBA, 2026”), which came into effect on 20th August 2026. The Act repealed the Bangladesh Economic Zones Act, 2010. Accordingly, the existing BEZA structure and operation mechanism were revised and have taken a new course. Along with BEZA, the Act also revised the structure of Bangladesh Investment Development Authority (BIDA) and the Public Private Partnership Authority (PPPA). All assets, contracts and liabilities from these three organizations were transferred to the Invest Bangladesh Authority. The IBA, 2026 provides for the consolidation of investment-related functions under the Invest Bangladesh Authority. Due to these changes, foreign investors are now expected to assess their proposed investments against the new legal and institutional frameworks to ensure compliance with the requirements applicable to the relevant zone and business activity.
Labour and Employment Requirements
Legal requirements pertaining to labour and employment mattern are another consideration when assessing the legal obligations associated with an SEZ investment. The IBA, 2026 addresses the application of the Bangladesh Labour Act, 2006 to SEZs and related projects, with necessary adaptations. It also restricts contractual conditions that conflict with applicable legal protections concerning wages, workers’ rights, social benefits, occupational health and safety and child labour. The adherence to the Labour laws, especially within economic zones is paramount to a compliant operation and therefore should be considered when structuring employment arrangements and planning business operations.
Repatriation of Dividends and Foreign Investment
Repatriation of foreign investment, including dividends and proceeds from foreign loans are subject to Bangladesh’s foreign exchange regulations. The Foreign Exchange Regulation Act, 1947 (hereinafter referred to as “FERA, 1947”) provides the main statutory framework, while Bangladesh Bank issues circulars from time to time prescribing the requirements for such transactions. An entity may remit dividends to non-resident shareholders through an authorized dealer (AD) bank by submitting the relevant documentation as required by the AD bank. The dividend is approved in taka and converted into foreign currency at the exchange rate prevailing on the date of remittance.
How to Establish a Business in an SEZ in Bangladesh?
SEZ requires investors to address the location, corporate structure, registration and operational requirements applicable to the proposed investment. Completing these steps in the appropriate order can help investors identify regulatory constraints before committing capital.
The first step is to identify the relevant industrial area. IBA, 2026 provides for designated categories within the SEZs, including export processing, domestic processing, commercial, non-processing, renewable energy and green industrial and blue economy and coastal industrial areas.
Following this, investors are required to select a suitable investment structure. Depending on the proposed business and any sector-specific restrictions, a foreign investor may establish a wholly foreign-owned subsidiary or enter into a joint venture with Bangladeshi or foreign partners. Incorporation generally requires name clearance from the Registrar of Joint Stock Companies and Firms (RJSC), preparation of the memorandum and articles of association, submission of the prescribed forms and receipt of the certificate of incorporation. The investors would need to address initial capital remittance through an authorized dealer bank followed by the requirements to obtain some common documents required for establishing most business in Bangladesh such as trade license, tax identification and VAT registration. Depending on the project, there may be requirements for operational approvals. These may include environmental clearance from the Department of Environment, a fire license from the Fire Service and Civil Defense, factory layout approval from the Department of Inspection for Factories and Establishments and the necessary building and plant construction approvals. Where the business intends to import capital machinery or raw materials, an Import Registration Certificate (IRC) may be required from the Chief Controller of Imports and Exports, together with any applicable recommendation from the Invest Bangladesh Authority.
Following incorporation, investors would be required to submit an Investment and Space Proposal to the Invest Bangladesh Authority and apply for project registration. This application may require the certificate of incorporation, constitutional documents, trade license, tax identification certificate, land or rental agreement, encashment certificate and relevant RJSC forms. Investments in regulated industries may also require a no-objection certificate from the competent ministry or department.
Challenges and Legal Considerations for Foreign Investors in SEZs
In any new jurisdiction, while considering investment, the most important aspect is to have a real understanding of ground reality and understanding the legal and business structure, In a country like Bangladesh, where there is a lack of updated available information online for investors, foreign investors may face practical difficulties in determining how the new legal framework applies to their proposed investments. Licensing requirements, permissions, land acquisition, leasing, regulatory approvals and sector-specific requirements may add to it. Compliance with foreign exchange regulations, customs requirements, environmental laws and labour legislation need to be considered both during establishment and throughout the operation of the business. It is recommended and prudent to acquire prior knowledge and seek expert opinion while considering an investment in Bangladesh.
[1] Japan to invest Tk 774.7 billion in Bangladesh: https://en.prothomalo.com/bangladesh/46eb9mf9ch
