First-ever CenBank guidelines for foreign joint ventures stress accountability, transparency

The Bangladesh Bank has issued the first-ever comprehensive guidelines for joint ventures or consortiums or associations (JVCA) with foreign partners in Bangladesh, aiming to streamline operations, ensure accountability, and promote transparency. 

The guidelines detail rules on establishment and reporting procedures, banking transactions, financial statement requirements, loan regulations, and outward remittance policies.

The central bank's Foreign Exchange Investment Department issued a circular in this regard yesterday, directing all authorised dealers (ADs) in foreign exchange to operate and guide clients in accordance with the new rules.   

A joint venture is defined as a business arrangement between two or more companies to undertake a specific project or venture. In a joint venture, the companies share the costs, risks, and profits of the venture.

The guidelines noted that JVCA with foreign partner(s) engaged in the implementation of development projects of government of Bangladesh in terms of contracts or subcontracts signed with respective departments or divisions or employers etc, have shown diverse practices in their reporting activities and cross-border transactions, preparation of financials, transactions with their branch offices, outward remittances particularly profit remittances, tax payments and return submissions.

A senior official from the relevant department of Bangladesh Bank said, "Many joint ventures with foreign partners are operating in Bangladesh. However, there was no comprehensive guideline on this matter until now. Previously, these ventures were managed through various circulars issued from time to time."

According to the establishment and reporting section of the guideline, JVCA with non-resident partners must secure permission from the Bangladesh Investment Development Authority (Bida) before starting operations. 

They are required to notify the Foreign Exchange Investment Department (FEID) of Bangladesh Bank within 30 days of obtaining approval from BIDA or other competent authorities. 

JVCA loan and borrowing policy

JVCA involving foreign partners must comply with the "Guidelines for Foreign Exchange Transactions (GFET), 2018", for borrowing from resident entities and subsequent circulars in this regard. However, subject to approval from FEID, the existing branch office of any partner of the JVCA in Bangladesh can provide loans to the JVCA, if any unencumbered adequate surplus amount is available

Moreover, trade and commercial credits can be offered under regular business norms, provided all related party transactions are appropriately disclosed.  

The guideline further said interest-free working capital loans may be availed by foreign partners from their head offices, subject to post-facto reporting to Bangladesh Bank through authorised dealer banks.

Outward remittance 

Regarding outward remittances on account of profits payable to foreign partners or collaborators, the guideline stated that it would require prior approval from Bangladesh Bank.

Any amount as profit repatriable in favour of foreign partners or any cash lending cannot be made to a branch office, if any, in Bangladesh of that non-resident partners without prior approval from the central bank as well, it said.

Additionally, payments for royalties, technical know-how fees, or franchise fees must adhere to BIDA's circulars and subsequent notifications to banks through FE circulars.  

Cash lending to branch offices in Bangladesh by non-resident partners is strictly prohibited without the central bank's prior approval. Repatriation of residual funds or head office borrowings also requires similar approval, with applications submitted through nominated AD branches.  

Financial statements and reporting standards

According to the guideline, the financial statements of JVCA must comply with Bangladesh Financial Reporting Standards (BFRS) and global best practices. These must also align with the Financial Reporting Council (FRC) regulations, and all financial statements must include a Document Verification Code (DVC). 

Banking transactions

The JVCA entity must maintain a bank account with an authorised dealer (AD) branch of any scheduled bank in Bangladesh under the entity's name, to which the work order has been awarded, the guideline stated.

It further stated that the AD branch maintaining this account will act as the nominated AD. All inward and outward remittances must be executed through the nominated AD, and all payments abroad and receivables from abroad must be monitored and reported to Bangladesh Bank through this AD.