How can a foreigner open a company in Bangladesh?

Bangladesh has become the top choice of countries for foreign investors to set up foreign companies due to its developing economy and huge local customer base. The introduction of various policies aimed at foreign investment, including tax exemption, simple registration procedures and many other reforms, has made the country a favorable place for business. In addition, Bangladesh allows the registration of 100% foreign-owned corporations (BIDA).

Advantages of starting a business in Bangladesh

Setting up a company in Bangladesh has many benefits. One of the most important is low labor costs. Besides this, there are other advantages such as:

• Rapidly growing economy
• Strategic location
• Availability of a young and qualified workforce
• Profitable investment opportunities for foreigners
• Multiple trade agreements

The Companies Act 1994 sets out the legal requirements for the formation of a foreign company, as well as its subsequent administration. The legal entity in accordance with the Law is the Registrar of Joint Stock Companies and Firms (RAO), which establishes detailed rules from registration of names to registration of companies.

Legal requirements for registering a company in Bangladesh:

• Approval by RAO
• Bank account in Bangladesh
• Trade license issued by local authority
• Business identification number and taxpayer identification number
• Rental office in non-residential premises
• Prepared project and business map for obtaining permission to install a plant
• Copy of import or export license
• Fire Safety Certificate for Factory or Corporate Office
• Approval from relevant authority for approval of telecom business from BTCL

Types of companies

Limited liability company (LLC)

A private limited company in Bangladesh, also commonly referred to as an LLC, is treated as a separate legal entity, separate from its owners and shareholders. This means that the business is a separate legal entity and the directors and shareholders of the company will only be liable for the debts and liabilities incurred by the business to the extent of the investment they have in the company.

To form a private limited company in Bangladesh, you will need at least 2 directors and 2 shareholders. There are no citizenship or residence requirements for directors or shareholders of a Bangladeshi private limited company. This means that the company can be completely owned by foreigners. The maximum number of shareholders allowed in a private limited company is 50.

There is no minimum or maximum share capital limit in Bangladesh. The authorized capital must be specified in the Memorandum of Association and the Articles of Association. Part of the authorized capital must remain unissued. The minimum paid-up capital is at least $1 for a private company.

Public Limited Company (PLC)

Like Bangladesh LLC, Bangladesh PLC also has limited liability. However, unlike an LLC, a PLC may or may not be registered with the Dhaka Stock Exchange or the Chittagong Stock Exchange. This will allow them to issue shares and debt to the public to raise capital. To create a PLC you will need at least 3 directors and 7 members. Similarly, there are no citizenship or residency requirements for directors or shareholders of a Bangladeshi PLC. There is also no limit on the number of shareholders of a PLC. If a company wishes to register as a PLC, it must first obtain a Business Commencement Certificate.

Partnership

A partnership is formed when two or more co-owners decide to start a business together. The partnership and business partners are not treated as separate legal entities. Therefore, all partners will have unlimited liability, meaning that they will be personally liable for all debts and obligations incurred by the business. Instead of paying corporate income taxes, partners in a partnership will pay personal income taxes based on the share of income they receive from the partnership business. Although registering a partnership with the Registrar of Companies and Firms (RAS) is not mandatory, it is highly recommended to register a partnership in Bangladesh so that you can enforce contracts and, if necessary, file a claim against other companies. To register a partnership, business owners need to draw up a partnership agreement and register it with RAO.

Branch

Foreign companies registered outside Bangladesh can open a branch office to conduct business in the country. A branch office is considered as an extension of the parent company and is an alternative to registering an LLC in Bangladesh. After receiving approval from the Bangladesh Investment Development Authority (BIDA), the branch can trade with local residents and engage in commercial activities within the country. In addition to paying corporate income tax on its branch's income, the branch will also be required to file quarterly remittance reports and appoint an external auditor to audit its accounts.

Representation

This legal entity, also known as a liaison office, is limited by law as to the type of activities it can carry out. First of all, they are allowed to communicate or coordinate between the principal and local agents, collect and disseminate business information. However, they will not be allowed to engage in normal business activities such as importing and exporting goods, renting office space, purchasing real estate and much more. As a general rule, representative offices are not permitted to carry out any business activity that generates a local source of income. All expenses incurred by the representative office are borne by its foreign parent company. Registration of a representative office can also be done through BIDA.

The simplest and most preferred option for foreign investors — This is the registration of a limited liability company (LLC).

Company registration procedure

Step 1. Obtaining approval for the company name.

To register your company in Bangladesh, shareholders must apply for permission for the proposed company name. The authorities will approve or reject the name application within 1–2 working days.

Step 2. Opening a temporary bank account and transfer of authorized capital.

Shareholders must contact one of the banks in Bangladesh to open a temporary bank account for the transfer of share capital. Banks will ask for shareholder details such as passport. The company must also provide a copy of the draft memorandum and articles of association, as well as a copy of the name approval certificate from the authorities.

After the bank approves the temporary bank account, the shareholders must transfer the authorized capital to the bank account specified above. After transferring the paid-up capital, it is necessary to obtain a collection certificate from the concerned bank. If there are Bangladeshi citizens among the shareholders, this rule does not apply.

Step 3. Completion of company registration forms, memorandum and articles of association.

After completing the above steps, the company must complete the articles of association. The main objectives of the business, the authorized and paid-up capital, and the list of shareholders indicating their respective shareholdings must be stated in the memorandum of the company. Shareholders must also sign all registration forms.

Step 4. Submitting an application for registration with RAO.

The company can proceed with submitting all documents to RAO and make the appropriate payment to the authorities to initiate review and approval.

Authorities usually review and approve an application for company registration within 3-4 business days after submitting all necessary documents.

Step 5. Apply for a trade license and register with the tax authorities.

In Bangladesh, businesses must obtain a trade license from the regional government. This procedure usually takes 2 to 3 weeks.

The company must register with the tax authority to obtain a tax identification number. This procedure usually takes 3 to 4 business days.

The company must also register with the tax authorities if it is eligible for VAT registration. This procedure usually takes 5-7 business days.

Step 6. Opening a corporate bank account.

After completing all the above steps, the company can submit all the documents (registration certificate, trade license and tax certificate) to the bank. The bank will process the account opening within 5-7 business days.

In most cases, company registration procedures can be completed remotely, without the need for directors or shareholders to physically visit Bangladesh, with the exception of potential bank account opening requirements. The bank may require the presence of the signatories of the agreement to comply with KYC requirements.

Investors can manage the company from abroad. If necessary, foreign investors can come to Bangladesh on a business visa. A work permit is not required unless investors plan to move to Bangladesh. However, if you plan to move to the country, then obtaining a work permit is necessary for investors or foreign workers. In such cases, an equity investment of US$50,000 is required.

Foreign investors can set up, own and operate various businesses in Bangladesh. However, some sectors are reserved for government investment. Four limited sectors:

• Weapons, ammunition and other defense equipment
• Forest plantings and mechanized mining
• Nuclear energy production
• Secure Print

Generally, there are no major restrictions on foreign investment, with the exception of certain sectors that are controlled by administrative licensing processes. Sectors that require permission from other levels of government are:

• Deep sea fishing
• Private sector insurance companies
• Private banks and financial institutions
• Exploration, production and supply of natural gas, oil, coal and other minerals
• Generation, distribution and supply of electricity in the private sector
• Oil refineries
• Medium and large industry using natural minerals and gas as raw materials
• Large-scale infrastructure projects (such as overpasses, elevated expressways, inland container depots or container freight stations)
• Satellite channels
• Sea transportation on ships
• Cargo-passenger aviation
• VOIP/IP telephony
• Industry using heavy minerals mined on the seashore
• Sea ports/deep sea ports
• Telecommunications services (mobile/cellular and landline telephony)

Government assistance to foreign businesses

There are some grants and incentives offered to foreign businesses. Tax holidays: they are allowed for industrial enterprises and physical infrastructure facilities created during the period from July 1, 2019 to June 30, 2024 in Nadorny. sector. This sector refers to the industries that directly contribute to the industrialization of the country. In Bangladesh, this sector is based on developed and underdeveloped areas. Enterprises established in export processing zones (EPZs) can also enjoy tax benefits. On the other hand, independent power plants that commence production before December 31, 2022 are granted income tax exemption for a period of 15 years. Again, for independent power plants (IPPs) that start operating after January 1, 2023, there are some advantages:

• 100% tax exemption for the first five years
• 50% tax exemption for the next three years
• 25% tax exemption in the coming years