CHAPTER-02

TAXATION OF COMPANIES:
SOME CONCEPTS
 COMPANY

■ A company is a legal entity formed by a group of

individuals to engage in and operate a business—
commercial or industrial—enterprise.
■ A company may be organized in various ways for tax
and financial liability purposes depending on the
corporate law of its jurisdiction.
 PUBLIC VS. PRIVATE COMPANIES

■ A public or publicly-traded company allows shareholders to be equity

owners when they purchase shares through a stock exchange.
■ Someone who owns a large number of shares has a larger stake in the
company compared to someone who has a small number of shares.
■ Shares are first issued through an initial public offering (IPO) before
trading begins on a secondary exchange.
– Apple, Walmart, Coca-Cola, and Netflix are all examples of public
companies.
 PUBLIC VS. PRIVATE COMPANIES…
■
CONTINUED
Public companies are held to strict reporting and regulatory requirements by the BSEC.
– Under these guidelines, companies must file financial statements and reports
annually outlining the financial health of the company.
– This prevents fraudulent reports and activities.
■ Private companies, on the other hand, are held under private ownership.
– Although they may issue stock and have shareholders, equity in private companies
is not traded on an exchange.
– They vary in shape and size and are not always bound by the strict regulations and
reporting requirements to which public companies must adhere.
– These companies do not have to disclose financial information or outlook to the
public, giving them more opportunity to focus on long-term growth rather than
quarterly earnings.
 RESIDENTIAL STATUS
■ Residential status means the standing of the location of the
company’s management and control during relevant income year.
■ In Bangladesh, income tax is levied on the basis of residential
status of a tax payer.
– In other words, the tax liability of an assesse depends upon
its residential status.
■ In Bangladesh the income tax ordinance, 1984 provides that an
assesse may be resident or a non-resident.
– Such residential status is determined by the specific
provisions of this ordinance.
 IMPLICATION OF RESIDENTIAL
STATUS
■ The system of determination of total tax liability of resident and non-
resident is different.
– In case of resident, income received or deemed to be received in
Bangladesh; income accrued or arose or deemed to accrue or arose
outside Bangladesh will be included in total income.
■ On the other hand, only the income within Bangladesh will be included
in the total income of the non-resident.
■ Transactions may arise between a resident assesse and a non-resident.
■ Some assesse try to avoid and evade tax by manipulation.
– So it is necessary to determine who is a resident and who is non-
resident.
Some privileges in different sectors and areas may be
given to resident which may not be easily available to a
non-resident.

Nature of income Residential status

Resident Non-resident
Income received or deemed to be Taxable Taxable
received in Bangladesh
Income accrued or deemed to be Taxable Taxable
accrued or arise in Bangladesh
Income accrued or arose outside Taxable Non-Taxable
Bangladesh
 RESIDENTIAL STATUS OF
■ COMPANY
To be resident, a company should fulfill one of the following conditions:
■ It should be a company registered in Bangladesh under Companies Act 1913 or
1994 or a body corporate established or constituted by or under any law for the
time being in force in Bangladesh having in either case its registered office in
Bangladesh.
– So a Bangladeshi company will always be treated as resident.
■ According to Section 2(55)(c) of the ITO 1984, in case of other companies, they
will be treated as residents if the control and management of their affairs are
situated wholly in Bangladesh in the income year.
– Here control means defacto control and not dejure control and the place of
control lies there where the directing powers situate (i.e. where the meetings
of the directors are held usually).
 INCOME YEAR

■ The Financial Year immediately preceding the

assessment year or any other accounting period (not
exceed 12 months) as adopted by the assessee and
ending within the said financial year is the income
year.
■ Thus, if the assessment year is 2020-2021, Financial
Year 2019-2020 is the income year.
 ASSESSMENT YEAR

■ Assessment Year is the year in which one file income

tax returns of the year prior to it (i.e. Financial Year).
It is the year in which the income that one has earned
in the financial year that is just ended is evaluated.
– Example: For Financial Year 2019-2020
the Assessment Year will be 2020-2021.
 TAX RATE

■ Applicable tax rates for companies for the Assessment year 2019-2020 are as
follows:
■ Publicly Traded Company: the tax rate is 25% (However, Non listed
company is eligible to claim 10% rebate on such payable of tax if they list at
least 20% of their paid up capital through IPO).
■ Non-Publicly Traded Companies: the tax rate is 35% (Non listed company
will receive rebate of 10% in the year of listing if they list at least 20% of
their paid up capital through initial public offering)
■ Bank, Insurance and Financial Institutions: the tax rate is 40% (Other
than Merchant Bank and publicly traded or approved by the government in
the year 2013)
 TAX RATE……….continued

■ Not publicly traded Bank, Insurance and Financial

Institutions: the tax rate is 42.5% (Other than Merchant
Bank)
■ Merchant Banking: the tax rate is 37.5%
■ Cigarette manufacturing companies: the tax rate is 45%
■ Manufacturer of cigarette, bidi, chewing tobacco,
smokeless tobacco or any other tobacco products: the tax
rate is 45%
■ Mobile Phone Operator Company: the tax rate is 45%
 TAX RATE……….continued

■ Publicly traded Mobile Phone Operator Company: the tax rate is 40%
(Provided that if the mobile phone operator company turned into a publicly
traded company by offering at least 10% (it must not include Pre Initial
Public Offering Placement at a rate higher than 5%) of its paid up capital
through stock exchanges, it would get 10% rebate on total tax in the year of
transfer.)
■ Tax on Dividend/Remittance of Profit of Companies:
– A company paying dividend shall withhold tax at the rate of 20% on
dividend payable to a company
– A branch company shall withhold tax at the rate of 20% while remitting
profit to Head Office.
 TAX RATE……….continued
■ Tax on capital gain:
– (a) Capital gain on Capital assets other than Shares referred to in clause (b)
below: the rate is 15%
– (b) Capital gain on Sale of Shares:
– (i) Shares of Public Listed Companies: No capital gain tax (Ref. section 32(7))
– (ii) Shares of Private Limited Companies: @ 10%.
– (iii) Gain received by Non-resident on Sale of Shares of Public Companies if the
assesse is entitled to similar exemption in the country in which he is a resident.
■ Co-operative Society registered under Cooperative Act: the tax rate is 15%
■ Non-resident non-Bangladeshi: the tax rate is 30%
 MINIMUM TAX FOR COMPANIES

Classes Minimum tax

on gross
receipts
Manufacturer of cigarette, bidi, 1%
chewing tobacco, smokeless tobacco or
any other tobacco products
Mobile Phone Operator 0.75%
Any other type of company 0.60%
 INTER-CORPORATE TAX RATE (TAX RATE ON
DIVIDEND) FOR ASSESSMENT YEARS 2019-20:

■ (i) If dividend declared by a company registered under

Company Act 1994 or any profit remitted outside Bangladesh
by a company not incorporated in Bangladesh under Company
Act 1994, the rate on such dividend or profit is20%.
■ (ii) 10% to 15% in relation to a non-resident company resident
of a country with whom there is Double Taxation Agreement
with Bangladesh.
 REDUCED RATES OF CORPORATE TAX FOR
SPECIAL CASES:

Particulars Rates
Textile industries (time extended up to 30 June 2019) 15%
Jute industries(time extended up to 30 June 2020) 10%
Research Institutes recognized under the Trust Act, 1882 & Societies registration 15%
Act,1860
Knit wear & Woven Garments 20%
Private Universities, Private medical college, Private dental college, Private 15%
engineering college or Private college engaged in imparting education on
information technology
Fisheries, poultry, plated poultry feed, seed production, marketing of locally For 1st 10 Lac =Rate 3%
produced seeds, cattle farming, dairy farming, horticulture, frog farming, For next 20 Lac =Rate 10%
sericulture, mushroom farming, floriculture. For rest of = Rate 15%
 
 LIABILITY TO TAX

■ A company is a legal person which is legally separate from its owners

(shareholders) and its managers (directors). For the purpose of income tax the
meaning of company is defined under section 2(20) of Income Tax Ordinance
1984 (hereinafter referred to as the Ordinance).
■ A company is liable to the following taxes:
–  Corporation tax (CT) on its income
–  Income tax of employees deducted at the time of payment of salaries and
remuneration
–  Value added tax (VAT) as the supplier of goods and services or as the
final consumer of goods or services
■ Note: A company is liable to corporation tax, the rate being determined with
reference to the Finance Act enacted in every financial year.
 TIME FOR FILING TAX RETURN

■ A company is to submit the return within 15th day of 7th month next
following the income year or before expiry of seventh months from the end
of the income year which is later.
■ It is to be mentioned here that in the Finance Act 2001, submission of return
for the company is made compulsory whether its income is taxable or not.
– (i) The companies are required to submit audited accounts along with
the tax return.
– (ii) For a company, the return is to be verified and signed by the
principal officer.
TIME FOR FILING TAX
RETURN…….continued
– (iii) In the case of a company, an audited statement of accounts
where the profit or loss of a business is different from profit or
loss disclosed in the return of income in accordance with the
provision of this ordinance, a computation sheet showing how
the income shown in the return is arrived at on the basis of
profit and loss account.
– (iv) If there is difference in profit figure as shown in income
statement and tax return, explanation shall have to be given for
such difference along with reconciliation computation
statement.
 As to tax day for companies, Finance Act 2019 has made some changes. It
provides that tax day for relevant income year will not be before 15th
September that is if the 15th day of 7th month come before 15th September
tax day will not before 15th September for instance:

Ending of income year Assessment year Tax day

30th Nov. 2018 2019-2020 15th September, 2019
31st Dec. 2018 2019-2020 15th September, 2019
31st March, 2019 2019-2020 15th October, 2019
30th June, 2019 2019-2020 15th January, 2020
 TAX DEDUCTED AT SOURCE/ WITHHOLDING TAX/
COLLECTIONS OF TAX AT SOURCE

ITO 1984 from section 50 to 56 provides the heads of tax on which tax
will be deducted at source, the concerned withholding authority and tax
rate thereof.
Serial Heads Reference Particulars & Rates
01 Salary Sec-50 Average rate
02 Discount on the real value of Bangladesh Sec-50A Maximum rate
Bank Bills
03 Interest on Securities Sec-51 5% Upfront on interest but for Islamic Principles, 5% on
profit or discount at the time of payment or credit
04 Deduction from payment of royalties, Sec- 52A Up to taka 25 lakh= 10%
franchise fee etc. More than taka 25 lakh= 12%
05 C&F Agency Commission [Sec-52AAA] 10%
06 Commission of letter of credit Sec-52I 5%
 THE TIME LIMIT FOR PAYMENT OF TAX DEDUCTED AT SOURCE
(RULE 13):

All sums of withholding tax shall be paid to the credit of the government in
the following manner.
(a) in any month from July to May of a Within two weeks from the end of the
year month in which the deduction or
collection was made
(b) in any day from the first to the Within seven days from the date in which
twentieth day of June of a year the deduction or collection was made
(c) in any other dates of the month of June The next following day in which the
of a year deduction or collection was made:
(d) in the last two working days of the on the same day on which the deduction or
month of June of a year, collection was made.
SUBMISSION OF WITHHOLDING TAX RETURN
(75 A)
Person who makes any TDS (Tax Deducted at Source) on payment, must
file a separate return of withholding tax.

Sl. No. Period of Deduction of Tax TDS-Return Due date

1 1st July to 31st December 1st Return 31st January of this
income year
2 1st January to 30th June 2nd Return 31st July of the next
income year

Following document should be annexed with return:

-Statement of TDS
-Copy of Treasury Challans/Pay-Orders
CONSEQUENCES OF NON-SUBMISSION OF
RETURN AND RETURN OF WITHHOLDING
TAX:
■  Imposition of penalty amounting to 10% of tax on
last assessed income subject to a minimum of Tk.
1,000/
■  In case of a continuing default a further penalty of
Tk.50/- for everyday of delay.
 ADVANCE PAYMENT OF TAX:

■ Every taxpayer is required to pay advance tax in four

equal installments falling on 15th September; 15th
December; 15th March and 15th June of each year if
the latest assessed income exceeds Taka four lakh.
■ Penalty is imposed for default in payment of any
installment of advance tax.
 END
OF
CHAPTER-02