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Doing business in Bangladesh: Things you MUST know

Bangladesh is gradually becoming an economically strong and financially settled nation. Many foreign investors are becoming interested in investing in the business sector of the country. Many companies and investors all over the world have chosen Bangladesh for investment purpose. The main reason behind this is the incentives and policies provided by the government. The Government of Bangladesh provides excellent facilities and incentives to the foreign investors. This is why foreign corporations are nowadays interested in business in Bangladesh. However, before entering Bangladesh for business, there are few techniques, or tips, that must be followed. These mere behavior manners must be strictly maintained in order to improve one's personality and personal expressions. Community and trade customs are sternly observed part in Bangladesh. It is very necessary to build a good relation with others like during lunch period or free time. A soft tone while communication is always welcoming to others. Therefore, one should speak softly but enthusiastically, without the words sounding like a murmur. A handshake is an extremely common gesture in doing business in Bangladesh, but there are a few rules for this. Men should not offer theirs hand to a woman unless she offers first. Again, the use of right hand is preferable as well as compulsory. It is always important to keep a good stock of one's visiting cards in one's pocket while attaining any party. The people of Bangladesh prefer the exchange of visiting cards during a conversation. While attending any party, one's attire should be clean and proper. Firstly, it is necessary to know whether the host has decided on any theme. If not, the men should wear trouser or an extended or short-sleeved type of shirt. Combination of jacket and tie are preferred in the more formal parties. The female population of Bangladesh wears the traditional 'Sari' and visitors from abroad prefer trousers and a formal blouse. Most Bangladeshi business persons have a fair communication skill and basic knowledge of English, but they prefer to communicate in the national language, which is Bangla. Bangladeshis are generally punctual. Therefore, one should not be late in attending any parties or formal functions. Exchanging of gifts is a common exercise in Bangladesh, but in business parties, corporate gifts are more used. Bangladeshis are very fond of receiving gifts and returning the favor. Shoes worn to a party must not be noisy. Most of the times, noisy shoes causes disturbances in business parties. In this case, small sole shoes must be preferred. The people of Bangladesh are formal, strict and more official than others. Therefore, one's behavior should be proper and precise.

All the tips suggested above must be followed in order to improve relationship with the residents of Bangladesh. Bangladeshis may be a little strict but they are neither rudely nor unfriendly. They are simply formal about business and follow certain rules. They are punctual and soft-spoken. Therefore, before planning to do business in Bangladesh, the above mentioned points must be followed. Last but not the least, it is not difficult to maintain a business in Bangladesh as the people here are welcoming and friendly.

Top Business Sectors of Bangladesh

There are several profitable sectors in Bangladesh where one can invest in. The main advantage of investing in Bangladesh is the cheap labor force and the low manufacturing cost. Here are some potential investing sectors of Bangladesh: Textile: The textile industry of Bangladesh is well reputed all over the world. Bangladesh is the largest exporter of readymade garment and knitwear to the USA and a number of European countries. In all, Bangladesh is the second largest readymade garment and knitwear exporting country of the world. There are several Export Processing Zones (EPZ) in the country. The garment products manufactured in these zones are entirely dedicated for exporting. Foreign Direct Investment in the textile sector is extremely encouraged by the Government. The leading companies of this sector are KDS Group, Pride Group, Noman Group and Beximco. Leather and Leather Products: Bangladesh has a large leather industry. These industries make leather based products, such as shoes, belts, bags, and jackets. These products are sold both in the domestic and foreign markets. Leather Footwear is the fastest growing segment of the leather industry. Bangladesh meets the demand for about 10% of the worlds total leather market. The main benefit of the leather industry of Bangladesh is the ample supply of raw materials. Frozen Food: The frozen food sector of Bangladesh is the second largest export of the country. There are numerous hatcheries by the sea-shores of the country. Shrimp farming and processing, and fish processing are rapidly growing industries in Bangladesh. Market leader of this industry is Aftab Group. Jute and Jute Products: Bangladesh is the second largest jute producing country in the world. Once, she had the biggest jute mill in the world, the now defunct Adamjee Jute Mill. Due to the uprising of synthetic products, jute has lost its popularity in the world. However, jute still has a high

demand in making carpets, sacks etc.

Bangladesh is one of the leading producers of jute in the world. At present the annual production is 890,000 MT. In 1996-97 Bangladesh exported raw jute worth US$ 116.32 million and jute goods worth US$ 317.86 million in the form of sacking hessian. carpet & carpet backing cloth, jute yarn/twine etc. This is one of the very prospective areas for investment with higher technology.
Oil and Gas: Bangladesh has a reserve of about 23 TCF gas reserved, in which about 14 TCF is accessible. Fifty-seven wells have been drilled so far. The oil and gas sector of Bangladesh has a lot of potential and the government is open to foreign companies to invest in drilling and recovering this natural resources. Power: The scarcity of electricity in Bangladesh is a major problem for the country. The government has asked foreign companies to help in producing electricity. Several quick rental companies have started working in Bangladesh. Currently, the Government is negotiating with Russia and a few other countries about establishing a nuclear energy plant. Marker leader of this sector is Summit Power. Electronics: As the population of the country is growing, the demand for electronic goods is budding with it. Therefore, investing in the electronic industry has no chance of backfiring. Top players of this industry are Grameen Shakti and Rahimafrooz.

Air Transportation In air transport, the government has given provisional domestic air transport operating licenses to six private companies for STOL Services. Seven airports have been refurnished to cater to their needs. International air & cargo transport in the private sector is now allowed for operation in Bangladesh. Electronics Bangladesh's experience in basic electronics spans over two decades. In recent years, European and Asian electronic firms have established technical collaboration with their Bangladeshi counterparts to produce some electronic goods at competitive prices. This has tremendous potentiality for expansion. Light engineering industries Light industries in Bangladesh produce a multitude of labour intensive goods including toys, consumer items, small tools and paper products for the domestic market. Further development of these industries offers various investment opportunities.

Export oriented production in light industries has gained momentum in the past few years. Entrepreneurs from Hong Kong, Japan and Korea have taken advantage of Bangladesh's cheap and easily trainable labour and its infrastructure facilities to manufacture products for the export market.
Tourism: In recent years, Bangladesh has started promoting the tourism industry more than ever. Bangladesh has the largest sea beach and the largest mangrove forest in the world. There are beautiful hill stations, such as Bandarban, Rangamati and Khagrachhari. Investing in the tourism industry of Bangladesh is like picking up a ripe apple ready to be eaten. Apart from these sectors, there are few other options available in Bangladesh for investors to put their money in; such as pharmaceuticals, IT and software, real estate and shipbuilding. Bangladeshi corporate houses are doing well these days which indicates that the market economy is in full force.
Bangladesh, traditionally known for jute and tea exports, has recently attracted attention for readymade garments and leather exports. Textile Bangladesh is best placed in the region for textiles and garments industry due to cheap labor and favorable trade status with the EU. Again, Government incentives for the spinning and weaving industries in the form of cash subsidy of the fabric cost to exporters sourcing fabrics locally. There is huge yarn and fabric demand supply gap in the RMG industries which is presently met by imports. Thus the potential for backward linkage industry is enormous Prospect for a huge textile industry capable to supply over 3 billion yards of fabrics a year to the export oriented garment industry has also been developed by the industry. Presently, about 85%-90% of this demand is met by import from countries like China, India, Hong Kong, Singapore, Thailand, Korea, Indonesia, Taiwan, etc. Fabric requirement is increasing at 20% per annum. This offers a tremendous opportunity for further investment. Cost of some key production factors in textile sector Labor costs incurred in the textile industry is the lowest compared to its competitors Thailand India Sri Lanka Vietnam Indonesia Pakistan China Bangladesh $ 1.00/Hour $ 0.60/Hour $ 0.45/Hour $ 0.40/Hour $ 0.40/Hour $ 0.40/Hour $ 0.35/Hour $ 0.25/Hour

Energy cost in Bangladesh is lower compared to India and Pakistan India Pakistan Bangladesh $ 0.095/KwH $ 0.08/KwH $ 0.07/KwH

Other potential investment sectors Leather goods, Frozen food, Jute goods, Oil and Gas, Coal, Power, Telecommunication, Air Transportation, Electronics, Light engineering industries, Tourism, Agriculture, Agro based industries, Computer software development, data entry & data processing. Sanctioning/Registration Authorities Board of Investment Registration of all industrial projects in the private sector outside the authorities of BSCIC and BEPZA. Bangladesh Small and Cottage Industries Corporation (BSCIC) Registration of industrial projects having capital investment not exceeding Tk. 30.00 million (For Build, Management, Reconstruction and Expansion maximum Tk. 45.00 million). Bangladesh Export Processing Zones Authority (BEPZA) Approval of all projects to be located in the EPZs. Export Processing Zone (EPZ) In order to stimulate rapid economic growth of the country, particularly through industrialization, the government has adopted an Open Door Policy to attract foreign investment to Bangladesh. Following this, EPZs have been created to provide complete infrastructural facilities including communication and utility connection where potential investors would find a congenial investment climate, free from cumbersome procedures. The Bangladesh Private Export Processing Act allows establishment in private EPZs entirely through foreign investment or through joint ventures or local initiative. Followings are the six EPZs of Bangladesh which are in operation now: Dhaka EPZ Chittagong EPZ Comilla EPZ Mongla EPZ Ishwardi EPZ Uttara EPZ (at Nilphamari) Proposed Adamjee EPZ will have 200 industrial plots for 70 industrial units with an investment of about 250 million US dollars. The annual estimated export target from this EPZ is 500 million US dollars.

Bangladesh Map showing EPZs

Industries in the EPZs enjoy tax holiday for 10 years, exemption of income tax on interest on borrowed capital, freedom from national import policy restrictions, and some other facilities which are not enjoyed by industries outside EPZs. Investment Incentives (Major) Tax Exemptions Duty Tax Law Generally 5 to 7 years No import duty for 100% export oriented industry. For other industry it is at 5% ad valorem. Double taxation can be avoided in case of foreign investors on the basis of bilateral agreements. Exemption of income tax up to 3 years for the expatriate employees in industries specified in the relevant schedule of Income Tax ordinance. Facilities for full repatriation of invested capital, profit and divided. Exit: An investor can wind up on investment either through a decision of the AGM or EGM. Once a foreign investor completes the formalities to exit the country, he or she can repatriate the sales proceeds after securing proper authorization from the Central Bank. Foreign investor can set up ventures either wholly owned on in joint collaboration with local partner.

Remittance

Ownership

Concessionary duty on imported No import duty is charged in case of capital machinery capital machinery and spares listed in NBRs relevant notification. Import duty at 7.5% is secured in the form of a bank guarantee or an indemnity bond to be returned after installation of the machinery. Incentives to non-resident Bangladeshis Special incentives are provided to encourage nonresident Bangladeshis for investment in the country. They will enjoy facilities similar to those of foreign investors.

Source - Statistical Pocket of Bangladesh, 2003, Published in January 2005

Investment Incentives
In order to encourage the inflows of FDI the government of Bangladesh offers one of the most liberal investment policies and attractive packages of fiscal, financial and other incentives to foreign entrepreneurs in South Asia. Major incentives to stimulate private sector direct investment are listed below.

Tax Exemptions
Generally five to seven years' tax exemptions are available for many business investments. However, for electric power generation tax exemptions are provided for up to 15 years.

Duty
No import duty is applicable for export oriented industry. For other industries it is 5% ad valorem.

Income Tax
Double taxation can be avoided in most cases as the country (Bangladesh) benefits from many bilateral investment agreements. Exemptions of income tax up to three years for the expatriate employees in industries are specified in the relevant schedules of the income tax ordinance.

Remittances
Facilities for full repatriation of invested capital, profits and dividends are the norm in most situations

Exit
An investor can wind up an investment either through a decision of an annual or extraordinary general meeting. Once a foreign investor completes the formalities to exit the country, he or she can repatriate the net proceeds after securing proper authorization from the central bank (Bangladesh Bank).

Ownership
Foreign investors can set up ventures, either wholly owned or in joint collaboration, with local partners.

Investing in The Stock Market


Foreign investors are allowed to participate in initial primary offerings (IPOs) without any regulatory restrictions. Also, incomes from dividends are tax-exempt for investors.

Incentives and Facilities for the Investors


Industries are eligible for tax holidays for the following periods according to the location of the establishment.

The period of tax holiday is calculated from the month of commencement of commercial production or operation of the industrial undertaking. The eligibility of a tax holiday is to be determined by the National Board of Revenue (NBR).

The tax holiday facility is applicable to industries set up in Bangladesh before June 30, 2012. Accelerated depreciation in lieu of a tax holiday is allowed at the rate of 80% of actual cost of machinery or plant for the year in which the unit starts commercial production and 20% for the following years. The rate of depreciation is 100% for years specified by the NBR.

Concessionary Duty on Imported Capital Machinery


Import duty at the rate of 3% ad valorem is payable on capital machinery and spares imported for initial installation or BMR/BMRE* of the existing industries. The value of spare parts should not, however, exceed 10% of the total cost and freight value of the machinery. Out of this, 3% rate of duty payable, export-oriented industries and industries in the under developed areas, may enjoy a further concession of the import duty in the following manner: No import duty is charged in case of capital machinery and spares listed in NBR's* relevant notification. However, import duty at 3% is secured in the form of a bank guarantee or an indemnity bond to be returned after installation of the machinery. Import duty at 2.5% is charged in case of capital machinery and spares listed in NBR's relevant notification. Additional duty at 5% is secured in the form of a bank guarantee or cash deposit to be returned after installation of the machinery. Import duty at 5% is charged in case of capital machinery and spares listed in NBR's relevant notification. Additional import duty at 2.5% is secured in the norm of a bank guarantee or cash deposit to be returned after installation of the machinery. Import duty at 5% is charged in case of capital machinery and spares listed in NBR's relevant notification. Additional import duty at 2.5% is secured in the form of a bank guarantee or cash deposit to be returned after installation of the machinery. Import duty at 3% is charged in case of capital machinery and spares listed in NBR's relevant notification.

100% export oriented industries:

Minimum 70% export oriented industries in developed areas: Minimum 70% export oriented industries in developed areas: Other industries outside developed areas:

Othe industries in developed areas:

Value Added Tax (VAT) is not payable for imported capital machinery and spares. Duties and taxes on import of goods which are produced locally will be higher than those applicable to import of raw materials for producing such goods.

Non-Resident Bangladeshis (NRBs)


Special incentives are provided to encourage non-resident Bangladeshis for investment in the country. Nonresident Bangladeshi investors will enjoy facilities similar to those of foreign investors. Moreover, they can buy newly issued shares/debentures of Bangladeshi companies. A quota of 10% has been fixed for non -resident Bangladeshis in primary shares. Furthermore, they can maintain foreign currency deposits in the Non -resident Foreign Currency Deposit (NFCD) account.

Other Incentives

Tax exemptions on royalties, technical know-how fees received by any foreign collaborator, firm, company and expert.

Tax exemption on the interest on foreign loans under certain conditions. Avoidance of double taxation in case of foreign investors on the basis of bilateral agreements. Exemption of income tax up of to three years for the foreign technicians employed in industries specified in the relevant schedule of the income tax ordinance.

Tax exemption on income of private sector power generation company for 15 years from the date of commercial production.

Facilities for repatriation of invested capital, profits and dividends. Six months multiple entry visa for investors. Citizenship by investing a minimum of US$ 500,000 or by transferring US$ 1,000,000 to any recognized financial institution (non repatriable).

Permanent residency by investing a minimum of US$ 75,000 (non-repatriable).

Tax exemption on dividend income of non-resilient shareholders during tax exemption period of an industry set up in export. processing zone and also after the expiry of tax exemption period if the dividend is re investment in the same project.

Exemption of tax on income from industrial undertakings set up in export processing zone for ten years from the date of start of commercial production.

Tax exemption on capital gains from the transfer of shares of public limited companies listed with a stock exchange.

Additional Incentives to Export Oriented and Export Linkage Industries


Encouraging export oriented industries is one of the major objectives of the Industrial Policy in place, and as such the government ensures all support and co-operation to the exporter as per the export policy. Some of the facilities and incentives offered are as follows:

Concessionary duty as per SRO* is allowed on the import of capital machinery and spare parts for setting up export-oriented industries or BMRE of existing industries. For 100% export-oriented industries no import duty is payable.

Facilities such as special bonded warehouse against back-to-back letters of credit or notional import duty and non payment of Value Added Tax (VAT) facilities are available as per SRO of the government.

System for duty drawback is being simplified and concise. The exporter will be able to get back the duty draw-back directly from the concerned commercial bank.

Bank loans, of up to 90% if the value against irrevocable and confirmed letters of credit/sales agreement, are available.

For granting export performance benefits, the list of export products and the rate of export performance benefit (XPB) are reviewed from time to time.

With the intention of encouraging backward linkages, export-oriented industries including export-oriented ready made garment industries using indigenous raw materials instead of imported materials, are given additional facilities and benefits at prescribed rates. Similar incentives are extended to the suppliers of raw materials to export-oriented industries.

Export-oriented industries are allocated foreign exchange for publicity campaigns and for opening offices abroad.

Entire export earnings from handicrafts and cottage industries are exempted from income tax. In case of other industries, proportional income tax rebates on export earnings is given between 30% and 100%. Industries which export 100% of their products are given tax exemption up to 100%.

Facilities for importing raw materials are given for manufacturing exportable commodities under banned/restricted list.

Import of specified quantities of duty-free samples for manufacturing exportable products is allowed. The quantity and value of samples is determined jointly by the concerned sponsoring agency and the NBR.

Local products supplied to local projects against foreign exchange under international tender are treated as indirect exports and the producer is entitled to avail of all export facilities.

Export oriented industries like toys, luggage and fashion articles, electronic goods, leather goods, diamond cutting and polishing, jewellery, stationery goods, silk cloth, gift items, cut and artificial flowers and orchid, vegetable processing and engineering consultancy services identified by the government as thrust sectors are provided special facilities in the form of cash incentives, venture capital and other facilities.

Export oriented industries are exempted from paying local taxes (such as municipal taxes). Leather industries exporting at least 80% manufactured products will be treated as 100% export oriented industries.

Manufactures of indigenous fabrics (such as woven, knit, hosiery, grey, printed, dyed, garment check, hand loom, silk and specialized fabrics) supplying their products to 100% export oriented garment industries are entitled to avail a cash subsidy equivalent to 25% of the value of the fabrics provided the manufacturers of the fabrics do not enjoy duty draw back or duty free bonded warehouse facility.

Apart from the above mentioned facilities, other facilities as announced and provided in the export policy are also applicable for export-oriented and export-linkage industries.

Tax exemption on dividend income of non-resident shareholders during tax exemption period of an industry set up in an export processing zone and also after the expiry of tax exemption period if the dividend is re invested in the same project.

Exemption of tax on income from industrial undertakings set up in an export pro cessing zone for ten years from the date of commercial production.

Tax exemption on capital gains from the transfer of shares of public limited companies listed with a stock exchange.

*SRO=Special revenue order *NBR=National Board of Revenue BMR/BMRE=Balancing, Modernisation, Rehabiliation and Expansion