FDI regulations and setting up a subsidiary company in Bangladesh

Foreign Direct Investment Regulations

In Bangladesh there are no restrictions for foreign investment in aquaculture and processing of frozen foods. 100% foreign capital is allowed. Policies for investment in aquaculture and frozen foods are very favourable and the Board of Investment (BoI) has highlighted both sectors as high potential. Deep sea fisheries however, is one of the seventeen sectors that is more strictly controlled. If you want to invest in deep see fisheries you need to get prior approval from the Department of Fisheries.

Setting up a subsidiary company

If you want to do more than just importing and exporting goods, it is recommendable to set up a company in Bangladesh, which is regarded as a separate legal entity and subsidiary from the parent company by Bangladesh law. A subsidiary company offers maximum flexibility for conducting business in Bangladesh. There are two options for setting up a subsidiary company:

1. Private Limited Liability Company (PLLC)

Most Bangladeshi companies are registered as private limited liability companies (or private limited companies). Contrary to a representative or branch office (as described in the section about setting up trading activities), a private limited company in Bangladesh is a separate legal entity. Shareholders are not liable for the company’s debts beyond the amount of share capital they have contributed. According to the Companies Act 1994, any person (foreign or local) above the age of 18 can register a company in Bangladesh. The shares are held by less than 50 persons and are not available to general public. The shareholders of a private limited company can either be individuals or corporate entities or both (OGR Legal, 2016).

2. Public Limited Company  

Contrary to a private limited company, a public limited company can issue invitations to the public to subscribe to the shares of a company through a prospectus that complies with the requirements of the Companies Act 1994 and the Securities and Exchange Commission Act 1993· The public limited company in Bangladesh has a minimum of seven members but there is no maximum limit and the company has at least three directors (UHY 2014).

Set-up procedures

After you have decided about whether you want to set up a private limited or public limited company, you need to follow the steps as described below:
  1. Clear your desired company name 
The crucial first step is to get name clearance for your company. You can visit www.roc.gov.bd and create a username. After your application, you will receive a bank payment slip and you will have to pay Tk. 600 to the designated bank. After you have made your payment and login to your account on the RJSC website, you will get name clearance. Be aware that your name clearance will only be valid for 6 months and that you need to apply for extension before the validity expires (OGR Legal 2016).
  1. Open a bank account and transfer the value of share capital 
After you have received your name clearance you need to open a bank account in the cleared company name with any bank in Bangladesh. When your account is activated you are required to remit money equal to the shares to be owned by the foreign shareholder into the account. Your bank will issue a so-called encashment certificate which you will have to submit to the RJSC (OGR Legal 2016).
  1. Register your company with RJSC 
Now you have to submit all required information to the Office of the Registrar Joint Stock Companies and Firms (RJSC)’s website. This guide explains in more detail which documents you are requested to submit and how this process works. When you have all documents submitted, you will receive a bank payment slip with which you need to pay the registration fees. To complete payment you need to obtain a company stamp from the treasury which will be used to guarantee your authenticity (OGR Legal, 2016). If RJSC accepts your company registration, they will provide you with digital copies of 1) the Certificate of Incorporation; 2) the Memorandum of Association and the Articles of Association; and 3) Form XII. You need these forms when you apply for other licenses that you have to acquire for further business purposes (UHY 2014).
  1. Get your trade license, tax identification number and other required licenses
After you have your registration with RJSC done, you need to obtain other licenses. These include your trading licence from the city cooperation where you plan to have your establishment. Also you need to obtain your Tax Identification Number and register with different departments (VAT, Excise and Customs) of the National Board of Revenue (OGR Legal, 2016). This list provides an overview of most common licenses that need to be acquired when setting up business in Bangladesh, where you need to apply and some input about the procedures.
  1. Obtain work permits for your foreign staff 
You need to apply for work permits for your foreign staff with the Board of Investment (BoI). Some important things to keep in mind are: 1) you can only use foreign staff if relevant staff is not available in Bangladesh, 2) the number of foreign staff should not expand 5% of your total staff, and 3) initial contracts for foreign staff should be for a period of maximum two years. Necessary security clearance has to be obtained from the Ministry of Home Affairs (OGR Legal, 2016). If you want to invest in processing establishments, there are specific other steps that you need to take.
  1. Register your company with the Factories Act: Any manufacturing company employing more than ten workers must be registered under the Factories Act 1965. The factories act regulates working conditions and ensures safety aspects in processing establishments (UHY, 2014).
  2. Obtain environmental clearance: According to the Environment Conservation Act 1995, all industrial projects need to get environmental clearance from the Department of Environment. The requirements are set out in the Environment Conservation Rules 1997 (UHY, 2014).