Bangladesh Investment Development Authority (BIDA)
Bangladesh Investment Development Authority (BIDA) was previously called the Board of Investment (BOI), it was created to handle issues pertaining to both domestic and international investments. New investments must first have BIDA approval. By reducing the administrative obstacles to joining the Bangladeshi market, the regulatory body hopes to encourage both international and indigenous investment.
The following tax-related fiscal incentives are available to projects that are registered with BIDA:
For export-oriented enterprises, there is a 1% import tax exemption on capital machinery and spares.
Additionally, spare parts may be imported duty-free for a maximum of 10% of the machinery's worth every two years.
Under BIDA, 3% on replacement parts and capital equipment for other sectors and for imported capital machinery and parts, VAT is not due.
In place of tax exemption on factory, machinery, and plant, newly founded industrial enterprises may be eligible for accelerated depreciation, which is 50% for the first year, 30% for the second year, and 20% for the third year. For machinery and plants, there is also an initial depreciation allowance.
Foreign technicians working in industries included in the Income Tax Ordinance of 1984, etc., are subject to personal income tax for a maximum of three years.
Companies with an address in an EZ or EPZ are eligible for a variety of tax exemption incentive packages.
Special bonded warehouses,export retention quota (ERQ), Remittance of royalty, franchise, technical licence etc are given for export-focused readymade clothing enterprises, such as those producing knitwear, sweaters, and woven clothing.
Bangladesh High-Tech Park Authority (BHTPA)
The establishment of Bangladesh's Hi-Tech Parks aims to promote employment creation, economic growth, and local and foreign investment in the information technology (IT) industry. A major part of the government's aim to build millions of new IT jobs by 2025 is the establishment of Hi-tech parks. In Bangladesh, new IT/Hi-Tech Parks are being created in 12 districts, and there are now five hi-tech parks under construction.
Prime Minister Sheikh Hasina has mentioned that the targeted employment from Hi-tech parks is 1 lac by 2025. Within five years of its inauguration, more than 7,500 people have been employed. Hi-Tech Park developers are entitled to a 12-year income tax exemption and investors can enjoy 10 years of tax exemption. Total 13.15 lakh sq ft with more than 5.41 lakh sq ft already rented. The creation of high-tech parks is thought to be an essential first step in creating a knowledge-based economy that might spur innovation and economic expansion. With an emphasis on waste management and renewable energy, the Hi-Tech Parks are anticipated to be ecologically friendly and to support sustainable development objectives. They seek to support the growth of Bangladesh's IT/Hi-Tech sector by establishing infrastructure that complies with international standards, fostering a sustainable business climate, and developing IT/ITES-based industrial ecosystems. In recognition of its accomplishments and success in the creation of Hi-Tech Parks, the Bangladesh Hi-Tech Park Authority has been granted the ISO 9001:2015 Certificate.
Public-Private Partnership Authority (PPPA)
As a component of the Bangladeshi government's Vision 2021, the Public-Private Partnership Authority (PPPA) was founded in August 2010 and put under the Prime Minister's Office. In order to enhance public sector service delivery, the PPPA seeks to develop and support public-private partnerships (PPPs) in Bangladesh by drawing in capital and experience from the private sector.The PPPA has been promoting and facilitating early harvest initiatives, which it has identified across a number of sectors, including energy, healthcare, and infrastructure.
In an effort to encourage the private sector's involvement in public projects, the government of Bangladesh announced a 10-year tax freeze on PPPs in 2017. The government's 8th Five Year Plan (FY 2021–2025) calls for an infrastructure investment objective of USD 14.51 billion and 8.0% annual growth, with PPPs to carry out 30% of the Annual Development Programme. The government has set an aim of introducing 5.6% finance through PPP by 2030 by attaining the Sustainable Development Goals as well.
A total of 79 projects with an estimated investment value of USD 29.23 billion are now being implemented in the PPP pipeline, according to the PPPA's Annual Report 2020–21. Moreover, 16 projects totaling an estimated USD 4 billion in investment have had their contracts signed. Of them, eight are in construction and one is currently in operation. Thirty-seven projects are at the thorough feasibility study stage, while twelve projects are in the procurement stage. In addition, under PPPA the bilateral G2G Framework Agreement or Memorandum of Understanding (MOU) is signed by the GOB and the other relevant foreign government shall regulate the process for implementing projects under G2G in accordance with the G2G Partnership Policy.
Bangladesh Economic Zones Authority (BEZA)
The Bangladesh Economic Zones Authority (BEZA) seeks to create economic zones in underdeveloped and backward areas of the nation in order to promote economic growth via the diversification and expansion of business, employment opportunities, production, and export. In the FY 2017-18, FDI in 3 EZs (Bangabandhu Sheikh Mujib Shilpa Nagar, Moheshkhali EZ and Shreehatta EZ) was US$ 2529 million and it rose to US$ 2933 million in FY 2018-19 just in a few years of BEZA initiative. In 2023, investment proposals of $26 billion have been signed in all these 97 economic zones. About 14 companies made their commercial debut last year. These companies have already invested about $967.33 million and will invest an additional $331.27 million in future business expansion as contracts are signed. The investment so far has been around $610 million and further investment will be around $1922.39 million coming from 29 under-construction industrial units.
The tax break will begin at 100% for the first ten years of commercial activities, 70% for the eleventh year, and 30% for the twelfth year. Additionally, industrial units inside EZs are subject to varying tax holidays, with rates of 100% for the first, second, and third years, 80% for the fourth, 70% for the fifth, 60% for the sixth, 50% for the seventh, 40% for the eighth, 30% for the ninth, and 20% for the tenth. VAT is exempted and those industries who registered for VAT Act 1991 were able to utilize the electricity, water, gas and procurement of raw materials from the domestic market for usage.
Bangladesh Export Processing Zones Authority (BEPZA)
Bangladesh's government has implemented a 'Open Door Policy' to entice international investment, with the aim of expediting the nation's economic progress, namely through industrialization. The government's official body responsible for encouraging, luring, and facilitating foreign investment in the EPZs is the BEPZA. In order to preserve cordial labor-management & industrial relations in EPZs, BEPZA, as the responsible Authority, also conducts inspection & supervision of the businesses' compliances with regard to social & environmental concerns, safety & security at work, and so forth. An EPZ's main goal is to create designated regions with welcoming investment environments free of onerous regulations for prospective investors.
The eight EPZs in the nation have received investments totaling US$ 81.04 million during the previous three months, from July to September 2020. Over the last three months of 2020, 6536 Bangladeshi labourers have been recruited to the operational units.EPZ enterprises anticipate receiving items valued at US$ 1579.61 million in the first quarter of the 2020–21 fiscal year. The industries established before 2012 will get 10 years of tax exemption and for first 3 years 100% tax exemption, for next 3 years 50% and for next 1 year 25% tax cut will be enjoyed by the industries. Duty free import and export of construction materials, machineries, office equipment & spare parts, raw materials and finished goods will be the incentive for investment. In addition, GSP facilities, quota free access to EU, Canada, Norway, Australia etc is granted under BEPZA.
The Bangladesh Investment Development Authority (BIDA) offers the One Stop Service (OSS), an online platform that unifies pertinent government institutions to offer effective and transparent services to both domestic and foreign investors. By acting as the sole point of contact and single window for investment-related services between the government and investors, the OSS seeks to enhance investment facilitation services in Bangladesh. BIDA and other organisations that promote investment, like the Bangladesh Export Processing Zones Authority (BEPZA), Bangladesh Economic Zones Authority (BEZA), and Bangladesh Hi-Tech Park Authority (BHTPA), execute the OSS. The five new services of OSS is-
Waiver of Condition 8 Service: This feature, which streamlines the procedures associated with foreign investments and operations, was added to the BIDA OSS system to improve the operational effectiveness of foreign branch offices in Bangladesh.
The National Industrial Policy 2022
The National Industrial Policy 2022 was announced by the Ministry of Industries (MoI) in a gazette on September 29, 2022. By 2027, the goal of the programme is to raise the industrial sector's contribution from the current 35 percent to 40 percent. Additionally, it aims to develop diversified export-oriented sectors, foster an environment that supports cottage, micro, small, and medium-sized businesses, and draw in more international and domestic investment.
Bangladesh would no longer have privileged market access in 2026 when it graduates from LDC status, making the policy crucial. Consequently, we will have to transition from market-driven competitiveness to productivity-driven competitiveness. The post-graduation issues have been effectively addressed by the new policy, which also pledges support for collaboration with the corporate sector to address these issues. A five-year action plan has been incorporated in the industrial policy to guarantee efficient growth in the manufacturing and service sectors.
Investment Incentives in FDI Policies
Government policies safeguard the interests of foreign investors. Since the nation gained its independence in the 1970s, successive administrations have maintained the favourable policy treatment for foreign investment. The Foreign Private Investment (Promotion and Protection) Act, 1980, which guarantees legal protection for foreign investments in Bangladesh, serves as the foundation for the policy framework for foreign investment in Bangladesh. The law ensures that local and international investors will not be treated differently and permits the free repatriation of earnings and divestitures. Furthermore, investments from these nations are further protected by a number of bilateral investment treaties that are in force.
Some of the benefits enjoyed by foreign investors are-
Foreign investors are free to completely own domestic enterprises and make unrestricted investments on the domestic stock exchange.
Profit reinvestment is treated as a fresh investment, and full repatriation of investments and dividends is allowed, subject to applicable taxes.
In addition, expats are granted multiple entry visas, such as the E1 and E visas, which are valid for a maximum of one year and may be renewed with the proper application procedure.
Foreign nationals are granted business visas so they can enter Bangladesh just for business meetings (i.e., not for activities that generate revenue).
On another note, if a comparable exemption is granted in their native country, international investors may be eligible to claim an exemption from capital gains on the sale of listed securities.
Multiple layer taxes on dividends have been abolished to minimise the cascading effect of dividends taxed at first level with certain government securities that are exempt from income tax on interest.
Repatriation of Capital and Outward Remittance Royalty
The repatriation of profit and capital is contingent upon reporting obligations and Bangladesh Bank authorization. Without prior clearance, proceeds from the sale of publicly traded firms' securities (equity) may be repatriated for a maximum amount not to exceed the share market value as posted on the stock exchange on the sale date. Other capital repatriations, such as those involving private limited firms and unlisted public limited corporations, often require Bangladesh Bank approval. In some unique circumstances, an exception from previous clearance is granted depending on the transaction's value, the valuation technique employed, etc. To ascertain the company's fair market worth on the transaction date, a market valuation is required. It is investigated on an individual basis based on transaction models, dynamics of market and company profile.
Private sector industrial businesses that are registered with BIDA must get their consent before remitting royalties, franchise fees, technical service fees, payments to EPC contractors, etc. abroad. However, a new BIDA circular states that remittances up to a particular amount (6% of income for royalties and technical fees, for example) may be repatriated without requiring BIDA's approval each time provided contracts are pre-endorsed by BIDA. Any payments beyond these caps would need special BIDA clearance. Regardless of the amount of the transfer, private sector industrial businesses are compelled by law to perform an arm's length examination of any outgoing remittances to foreign group organisations. The arm's length pricing of such transactions or payments for the repatriation of outward remittances must thus be verified by the applicants. For permissions related to such repatriation, entities outside the purview of private sector industrial businesses may apply to the Bangladesh Bank.
Double Tax Avoidance Agreement (DTAA)
The Agreement for the Elimination of Double Taxation with Respect to Income Taxes and the Prevention of Tax Evasion has been signed by Bangladesh. The purpose of this agreement is to combat tax evasion and double taxation while fostering investment and commerce between Bangladesh and its treaty partners. For example, the goal of the Double Tax Avoidance Agreement (DTAA) between Bangladesh and India is to stop income tax evasion and avoid double taxation.
The DTAA includes provisions that offer the advantage of tax reduction for various forms of income and is applicable to inhabitants of the contracting states, with some exclusions. Through the DTAA, people can lessen the tax consequences on income made in Bangladesh and other treaty nations, which benefits non-resident Indians (NRIs).Bangladesh and 36 other nations have inked Double Taxation Avoidance Agreements (DTAAs).All things considered, the main objectives of the DTAA are to fully shield taxpayers from double taxation and to advance international economic cooperation.
Sector-wise Tax Exemptions
Corporate Taxation: Corporation tax rate reduction of 12% for products and services exported. However, a 10% tax rate applies in the event of Leadership in Energy and Environmental Design (LEED) certified factories for export of goods.
Automobile: For ten years, there will be no taxes on the manufacturing of three- and four-wheelers. 10% tax rate reduction for the next ten years.
Engineering and Home Products: For the next ten years, there is a 100% tax exemption. VAT breaks on domestic production and manufacturing supplies. A waiver of VAT, SD, and AT for makers of home appliances purchasing raw materials and parts locally or through importation.
ICT manufacturer: Exemption from income tax of 100% on a variety of ITES services with a 5% lower VAT rate that applies to ITES services. 100% tax exemption for ten years on the production of certain ICT hardware. In addition, exemption from import duties and output VAT on raw materials used in the production of cell phone and computer products.
Health care services: 100% tax exemption on hospital/vocational training revenue for ten years. Private universities and medical facilities are exempt from taxes.
Infrastructure Projects: A ten-year tax exemption, decreasing from 90% to 10%, will be granted to specific infrastructure projects that are built between July 1, 2019, and June 30, 2024 but it needs clearance from NBR and BIDA.
Industrial Projects: Exemption from taxes for specific industrial projects (across several industries) founded between July 1, 2019, and June 30, 2024. Establishment in Dhaka, Mymensingh, and Chattogram: five years at a 90% to 20% reduction rate. Additional regions mentioned: ten years at a 90% to 10% reduction rate with permission.
The indirect tax incentives cover the basic VAT, Import Duties, supplementary duties etc exemptions or reductions.
The VAT rates for a few listed products and services are 5%, 7.5%, and 10%. VAT is applied on products and services across the whole supply, manufacturing, trade, and import processes. Every stage where goods and services are delivered with a regular 15% VAT rate is eligible for input tax credit. Regarding the import of the service, the recipient of the service is responsible for paying VAT under reverse charge.
The type of the goods determines the charges, these supplementary duties are designed in such a way so that the final products are produced and exported from Bangladesh.
National Single Window (NSW) Project
National Single Window (NSW) introduction To streamline all customs processes connected to international commerce through a single interface, NBR is now implementing a nationwide single window in Bangladesh. The National Single Window (NSW), which is intended to facilitate commerce in Bangladesh, will be led by the National Board of Revenue (NBR) of Bangladesh. This project is an additional effort by the government to carry out the Trade Facilitation Agreement (TFA) of the World Trade Organisation (WTO).
The WTO TFA includes measures for accelerating the movement, release, and clearance of goods, including products in transit. Bangladesh joined the agreement in September 2016. It also lays forth procedures for the efficient coordination of trade facilitation and customs compliance matters between customs and other relevant entities. On February 22, 2017, it came into effect after being ratified by two thirds of WTO members. Additionally, the industries' pre-clearance signature requirements have been lowered from 25 to 5. In 1999, the export approval time took 72 hours; now, it takes 3 hours. Customs automated operations in an effort to reduce red tape and expedite release times.
Bilateral and Multilateral Trade Agreements
In 2022, Bangladesh had a preferential trade agreement with Bhutan. Maldives, Nepal, Pakistan, and Sri Lanka are currently involved in bilateral and multilateral Free Trade Agreements (FTAs). Pakistan, Malaysia, Thailand, China, India, Sri Lanka, Brazil, and Turkey are linked through the Bay of Bengal Initiative: BIMSTEC; Trade Preferential System of the Organisation of the Islamic Conference are signed as well.The following investment accords are in effect: the UK, the US, Indonesia, Denmark, India, Singapore, Austria, Uzbekistan, China; the Belgium-Luxembourg Economic Union; France; Germany; Iran; Italy; Japan; Malaysia; Philippines; Poland; Republic of Korea; Romania; Switzerland; Thailand; the Netherlands; Turkey.
Important duty exemptions are given to foreign investors through multilateral trade agreements like- Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka are members of the South Asian Free Trade Area (SAFTA). The nations that are members of the Asia-Pacific Trade Agreement (APTA) include Bangladesh, China, India, Korea, the Lao People's Democratic Republic, and Sri Lanka.
Policies Protecting Foreign Investment
Bangladesh is a member of the Multilateral Investment Guarantee Agency (MIGA), a political risk insurance programme for investors. The World Bank's MIGA investment guarantee agency protects foreign investors from losses brought on by non-commercial risks and promotes FDI. Investors are shielded by MIGA's guarantee against the dangers of currency transfers, exploitation, conflict, and civil unrest. MIGA is limited to financial restructuring, privatisation, and de-risking new investments.
The US-based Overseas Private Investment Corporation (OPIC) provides insurance for US investments entering frontier countries such as Bangladesh. For international investors, OPIC offers the essential insurance against unanticipated catastrophic catastrophes like civil war, expropriation, and natural disasters. The International Centre Bangladesh for Settlement of Investment Disputes (ICSID), which arbitrates investment disputes between certain governments and citizens of other nations, is an institution that Bangladesh has ratified. The ICSID solves the disputes among government and foreign investors, encouraging the continuous flow of investment.
Measures for Accelerating Startup Investments
In order to accelerate investment through new entrepreneurs, the ICT division has done tremendous with new programmes. Such as:
Startup Bangladesh Limited
The first venture capital firm supported by the Bangladeshi government is Startup Bangladesh Limited, which was founded in March 2020 and has a committed fund of taka 500 crores (USD 57.5 million).In order to promote an innovation-led economy, the organisation has invested in over 150 companies, including ShopUp and Moner Bondhu, which focuses on mental health. The fund invests in pre-seed, seed, and growth-stage enterprises in the form of grants, convertible loans, and/or stock. The programme is a component of the government's attempts to help the country innovate more quickly, provide new employment opportunities, advance technical skills, and achieve the goals of Digital Bangladesh. Additionally, more than $35 million in declared investments were raised by Bangladeshi entrepreneurs in Q1 2023, demonstrating a significant interest and investment in the startup ecosystem in Bangladesh.
Digital Bangladesh Agenda by 2021
Bangladesh exhibits a rising market and digital environment for entrepreneurs, as seen by its ranking of 96th out of 113 economies in the Global Index of Digital Entrepreneurship Systems. With over 500,000 micro-entrepreneurs assisted, 1.2 million employment generated, and more than USD 280 million in foreign direct investments, Bangladesh's startup ecosystem is maturing. The goal of the government's premier digital transformation initiative, a2i, is to change how the public and enterprises receive governmental services with assistance from UNDP.
The Innovation Design and Entrepreneurship Academy (iDEA) project was launched with the goal of developing an innovation ecosystem in Bangladesh. The project provides training and support along with money up to BDT 10 lakh to entrepreneurs in their pre-seed stage.This would put USD 65 million into improving the state of the local startup scene. It aims to foster an environment that encourages innovation and entrepreneurship. Part of Bangladesh's ICT Division, the project's main goal is to support and grow enterprises through various initiatives. Since at least 2014, there have been ongoing efforts to create a strong and long-lasting startup ecosystem in Bangladesh through the iDEA programme. The project's activities include providing funding, training, mentorship, and the development of an innovation ecosystem in order to encourage entrepreneurship and innovation across the country.
The effort was acknowledged when the iDEA project was awarded an ASOCIO award in the ICT Education Category at the "2019 ASOCIO-PIKOM DIGITAL SUMMIT" held on November 12, 2019, in Malaysia. ASOCIO is a major information technology organisation in Asia. In addition, the iDEA Project won second place in the Public-Private Partnership category at the 2020 WITSA Global ICT Excellence Awards, gaining recognition around the globe.
Making Bangladesh Investor Friendly- A way Forward
One of the major challenges for Bangladesh is a lack of communication between the Government of Bangladesh and foreign investors. Most foreign investors are not informed about the amenities and incentives provided by Bangladesh for foreign investors. Thus, it’s crucial for the Bangladesh government to globally position itself as an investor-friendly nation through directly campaigning to the foreign investors.
In order to create a global awareness regarding the investor-friendly regime of Bangladesh, the GoB can undertake the following 3 measures:
a) Bangladeshi embassies and missions across the globe can play a proactive role in disseminating information and campaigns about the Bangladesh’s investment regime directly to foreign investors in the respective countries.
b) The six Investment Promotion Agencies (IPAs) of the country - Bangladesh Investment Development Authority (BIDA), Bangladesh Economic Zones Authority (BEZA), Bangladesh Export Processing Zones Authority (BEPZA), Public Private Partnership Authority (PPPA), Bangladesh High-Tech Park Authority (BHTPA), and Bangladesh Small & Cottage Industries Corporation (BSCIC) should also start actively campaigning and reaching out to foreign companies to facilitate investment in Bangladesh.
c) ‘Made in Bangladesh’ campaign should be popularised across the globe to motivate and attract more foreign investors in the country.
Foreign investors seek for policy coherence and political stability before investing in a country. Investors look for safe, secure and stable local operating conditions. Policy coherence often gets lost when successive governments change policies that directly influence FDI such as trade policies, import duties on raw materials, machinery and equipment, and fiscal incentives etc. Even frequent political strikes and blockades make doing business in the country unattractive as such political instability is often associated with uncertainty and risk. Thus, political expression and freedom without adversely affecting the country’s business environment should be maintained by pertinent stakeholders, including political parties.
Bureaucratic red tapes in many fronts still have not been addressed. For instance, on an average it takes 271 days to transfer property title in Bangladesh which is nearly six times longer than the world average of 27 days. While in OECD countries, it takes on average 590 days, in Bangladesh resolving a commercial dispute through a local first-instance court requires nearly three times longer – an average of 1,442 days. According to the World, in Bangladesh to get a new electricity connection for a business requires 150.2 days. Compared to countries such as Vietnam, Singapore, Malaysia and India, these countries take 31 days, 30 days, 24 days, and 55 days, respectively. Hence, reducing bureaucratic red tapes is quintessential to attract FDI in the country.
The country is currently experiencing an acute skill challenge. To meet the gap, companies have to import skilled foreign professionals and technicians in Bangladesh. Industry-academia-government collaboration is necessary to build a skilled labor force to address the skill gap and low labor productivity in Bangladesh.
Bangladesh needs to attract more green-field investments. A green-field investment is a form of FDI in which foreign companies set up their shops to the host country. They build their facilities, factories and offices in the host country to start operations. Such green-field investments can be only ensured when the stability in governance is ensured and all the policies undertaken by the government are implemented. Most government policies remain in paper without having proper oversight and implementations. Setting key performance indicators (KPI) and focusing on meeting them should be a top priority.
The recently completed projects like Karnaphuli Tunnel, Padma Bridge Metro-rail will bring more investment to the table of Bangladesh. However, in 2021 the FDI investment grew up to 12.1 percent and Private investment is about over 70% of the total investment due to signed multiple treaties. Export industries have seen reaching the peak of USD 52 billion in 2022. With the motto of Smart Bangladesh, Bangladesh can be the next investment hub of South Asia within a few years. However, the measurements need strict negotiation and maintenance so that the ease of business doing index improves with time.
