Foreign firms now require Bida registration for govt projects
The measure taken to enhance transparency and accountability of financial transactions
Highlights:
- Registration needed for solo, JV and subcontracting projects
- It will address issues of tax evasion and unclear capital flows
- Firms must report to Cenbank within 30 days after being registered
- Bangladesh Bank permission needed to send profits abroad
- Could encourage firms engaged in long-term projects
- But may discourage firms engaged in short-term projects
Foreign firms seeking to work on government projects in Bangladesh are now obligated to register with the Bangladesh Investment Development Authority (Bida).
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This new regulation extends to foreign entities collaborating with local Bangladeshi firms through joint ventures or subcontracting arrangements.
The move aims to enhance the transparency and accountability of financial transactions involving firms operating or planning to operate in Bangladesh, either independently or in partnership with local organisations, officials concerned say.
To this end, the Bangladesh Bank issued a guideline titled "Guidelines for Operations of Business in Bangladesh by Joint Ventures/Consortiums/Associations (JVCA) Having Foreign Partners" on 20 November last year. Based on the directive, government agencies have begun requiring foreign companies to register with Bida prior to participating in tenders.
A senior official of the Bangladesh Bank, while talking to TBS, explained the reasons behind the government's decision.
Most of the foreign firms working on government projects in Bangladesh, either independently or in partnership with local firms, are not registered with Bida. Additionally, many of their employees do not obtain work permits while working in Bangladesh.
As a result, there is a lack of clarity regarding how their transactions are conducted or how they bring in capital to implement the projects. In some cases, companies have even left without completing their work.
Consequently, the income earned by these companies and their employees is not being properly taxed. Even when projects are completed, the authorities are often unable to collect the due taxes efficiently.
Considering these issues, the government has introduced the policy to ensure greater transparency in the operations of foreign companies.
The initiative is highly positive for foreign firms intending to operate in Bangladesh on a long-term basis.
Sources at Bida say that four companies have so far applied to the authorities for the establishment of project offices since the Bangladesh Bank issued the guidelines.
Could encourage firms engaged in long-term projects
M Masrur Riaz, chairman of Policy Exchange Bangladesh, told TBS that the initiative is highly positive for foreign firms intending to operate in Bangladesh on a long-term basis, those bringing in their personnel, and those repatriating capital and profits from Bangladesh.
He emphasised the necessity of such a measure to ensure operational transparency and revenue collection. However, he cautioned that applying the policy to firms engaged in short-term projects in Bangladesh could potentially discourage foreign participation and deprive Bangladeshi firms of access to global technical expertise.
Major sectors
According to the officials, there is a significant presence of foreign companies in projects under the Road Transport and Highways Division, the Ministry of Railways, the Bridges Division, the Power Division, the Energy and Mineral Resources Division, and the ICT Division. Over a hundred contractors from countries including India, China, Japan, South Korea and the United States are involved in infrastructure projects. Additionally, foreign contracting firms are active in other sectors.
On 12 March, the Roads and Highways Department issued a circular instructing foreign firms to adhere to the Bangladesh Bank's policy when participating in tenders.
This directive follows an earlier instance where the Roads and Highways Department provisionally selected China Harzone Industry Corp Ltd, a Chinese company, as the lowest bidder for a project under the Habiganj Road Division in the Sylhet zone without the company possessing Bida registration.
The Chinese firm had submitted its bid in a joint venture with a Bangladeshi entity named Universal Infrastructure (BD) Limited and was initially awarded the work. However, following complaints from other contractors in the sector, the tender was put on hold, and the companies were instructed to obtain Bida registration.
Other requirements
The central bank's policy stipulates that the entities must report to the FEID Division of the Bangladesh Bank within 30 days of receiving Bida registration, in accordance with the Foreign Exchange Regulation Act (FERA), 1947.
A valid agreement between the foreign partner and the Bangladeshi entity is also mandatory. Furthermore, joint venture firms are required to obtain a tax identification number (TIN), business identification number (BIN), and VAT registration as per the regulations of the National Board of Revenue (NBR) and must regularly file income tax returns.
According to the policy, joint venture firms must open an account with a Bangladeshi bank. All foreign transactions must be reported to the Bangladesh Bank through an authorised dealer (AD) bank. Multiple local currency accounts can be opened with other banks if necessary, subject to obtaining a no objection certificate (NOC).
However, funds cannot be brought in through a Bangladeshi branch office of any partner. If project financing originates from foreign sources, a foreign currency account can be opened in accordance with the terms of the government-approved agreement, but it can only be used for the specific project.
Joint venture firms will be required to prepare separate audited financial statements (balance sheet, income statement, cash flow statement) in accordance with the Bangladesh Financial Reporting Standards. All income information must be recorded in the accounts, and no liabilities can be offset against income.
If a joint venture company obtains local loans, it must comply with the regulations outlined in the Guidelines for Foreign Exchange Transactions-2018. Interest-free working capital loans can be obtained from the foreign partner's head office, but these must be reported to the Bangladesh Bank through an AD bank.
Permission from the Bangladesh Bank is required for the repatriation of profits by the foreign partner, and necessary documentation must be submitted. Payments for royalties, technical fees, or franchise fees must be made in accordance with the regulations of Bida. Any other remittances of funds will require the approval of the Bangladesh Bank.
If a joint venture firm imports machinery as capital investment in Bangladesh, the relevant documentation (bill of entry) must be retained. An AD bank will verify the work permits of foreign nationals employed in the project, and their salaries and allowances must be stated in the financial statements. The company will also be required to ensure a Workers' Profit Participation Fund in accordance with the Labour Act 2006.
The documents required for remitting profits or capital and repaying loans include audited financial statements, approval for dividend distribution, proof of the foreign partner's capital contribution, income tax assessment orders, and the latest one-year bank statement.
Similarly, for the repatriation of remaining capital or loan repayments upon office closure, the following documents must be submitted: permission for office closure, project completion certificate, proof of tax payment, audit reports for the last three years, confirmation of full payment of employee dues, office rent settlement documents, and the latest one-year bank statement.
