Foreign subsidiaries can now remit service payments without central bank approval
Previously, banks were not allowed to process such payments without Bangladesh Bank’s approval
Foreign subsidiaries operating in Bangladesh can now remit various service payments to their parent companies abroad without prior approval from the Bangladesh Bank.
The central bank issued a circular in this regard today (19 February), instructing all scheduled banks and authorised dealers to implement the directive. Previously, banks were not allowed to process such payments without Bangladesh Bank's approval.
According to the circular, resident companies operating as subsidiaries of foreign companies in Bangladesh avail various services from their parent companies abroad. Considering this, and to facilitate transactions between subsidiaries and their parent or group companies, the new directive has been introduced.
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However, the circular stated that specific conditions must be met by the subsidiaries before service payments.
It said the gross remittable amount (before source tax deduction) must not exceed 10% of the net profit in an accounting year. Moreover, the services obtained from the parent company must not be locally available and the subsidiary must be controlled by the parent company, holding more than 50% of shares.
The circular also instructed authorised banks to ensure that service payments made by subsidiaries are backed by valid contracts and invoices and are competitively priced. Additionally, the transactions must comply with tax regulations, including source tax, VAT, and transfer pricing laws.
For periodic payments, the amount should be based on reasonable, auditor-certified profit estimations. If profits fall short of projections, any overpayment must be adjusted in the following year, the circular said.
The circular further said banks are required to report all such transactions to Bangladesh Bank via the online reporting module and include them in their usual monthly statements.
If service payments exceed the 10% limit, subsidiaries must apply through their designated banks to Bangladesh Bank, along with the necessary supporting documents, it added.
In the case of service payments requiring more than the limit set above, subsidiaries should send applications through their designated banks to Bangladesh Bank accompanied by necessary supporting documents, it added.
