Chinese Outbound Investment Guide 2018: Bangladesh
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Chinese Outbound Investment Guide 2018: Bangladesh

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The helicopter shot from Dhaka, Bangladesh

Dewan Faisal and Mohammad Hasan Habib, A S & Associates


SECTION 1: General outlook

1.1 Please summarise the broad trends and patterns in Chinese investment into your jurisdiction, citing any recent specific examples.

Chinese investment into Bangladesh has taken a positive approach following the visit of Chinese President Xi Jinping in October 2016. During 2017, Chinese investors invested $69 million across different sectors. It has recently been noted that Chinese business delegations are keen to invest in active pharmaceutical ingredients (APIs), medical devices and Bangladesh's power sector.

Chinese investment in Bangladesh is mainly in the form of equity. Therefore, Chinese investors are either establishing new companies or taking over existing business ventures by way of acquisition of majority shares. Upon acquisition, if circumstance permits and requires, they obtain a loan facility from Chinese banks. Although they are legally permitted to open a branch office or liaison office, in practice these options are rarely used.

Recently, a Chinese company executed a joint-venture (JV) agreement with a power company domiciled in Bangladesh to secure a power project in the name of the JV. In order to do this, an unsolicited proposal was submitted in the name of the JV for a 1,320MW coal-fired power plant and the Government of Bangladesh (GoB) gave its approval. As a JV partner, the Chinese investor invested in the project company and also arranged a foreign loan from China.

1.2 How would you summarise your jurisdiction's attitude towards Chinese investment?

The GoB is always welcoming to foreign direct investment (FDI) and is working towards making the environment friendlier for foreign investors. By way of encouraging investment, the GoB has adopted a one stop shop approach, with a national portal/platform that foreign investors can use to establish a business venture and to obtain the necessary licences and visas for foreign expatriates, without having to move from one agency to another. On a separate note, to further secure Chinese investment, the GoB established a special economic zone solely for Chinese investment/investors.

While the GoB encourages Chinese investment in the private sector, Chinese companies are also expected to participate in large infrastructure projects. Also, Chinese investors have been interested in participating in the capital markets and are currently the front-runner for an investment into the Dhaka Stock Exchange.

1.3 What is your outlook for Chinese investment into your jurisdiction over the next 12 months?

Chinese investment has recently experienced a sharp upward trajectory. The upward trend of foreign investment is based on the improved investment environment created by Bangladesh, coupled with the relative political stability and the GoB's positive approach to investors. In light of this, it is predicted that Chinese investment in next 12 months should increase, particularly in large infrastructure projects.

SECTION 2: Investment approval

2.1 Explain the process and timings for foreign investment approval.

Foreign investors, subject to general regulatory process (i.e. incorporation, trade licence, etc.), are free to make investments in Bangladesh in any industrial enterprise except a few reserved sectors indicated by the Government. An industrial venture may be set up in collaboration with local investors or may even be wholly owned by the foreign investors.

No approval of the Bangladesh Bank, the regulator of foreign investment, is needed to set up such ventures. Furthermore, prior approval of the Bangladesh Bank is not required for the issue of shares in favour of non-residents against foreign investment in Bangladesh. The only applicable limitation is that the investment/capital from abroad must come through a proper banking channel.

However, to avail of the facilities and institutional support provided by the Government, the new business entities should secure registration with the Bangladesh Development Authority (BIDA). Generally, 20 to 30 days is needed to obtain such registration. All business ventures, foreign or local, have to comply with general regulatory process in due course.

2.2 Briefly explain the investment restrictions for any specially regulated/restricted sectors, including whether the government is entitled to any special rights in those sectors.

While foreign investment is not as such restricted in Bangladesh, for those sectors which are specifically regulated by a particular regulatory agency, prior approval (or post approval as the case maybe) shall be required. The requirement is commonly applicable for all businesses in those sectors, irrespective of the origin of the investment, foreign and local. For example, prior permission of the Bangladesh Telecommunication Regulatory Commission (BTRC) would be required for operating a telecommunication venture.

In general, the GoB is not by default entitled to any golden share of a company in a restricted sector. However, the GoB does have the power to acquire a company's shares, and in some exceptional case it has done this to safeguard the public interest.

2.3 Which authority oversees competition clearance?

The Bangladesh Competition Commission, constituted by Section 5(1) of the Competition Act 2012 on December 17 2012, oversees competition clearance.

2.4 Briefly explain the merger clearance process.

The practice of mergers is considered to be at a nascent stage in Bangladesh. However, gradually with economic growth and improved political stability, mergers have increased for both inbound and outbound cases.

In order to merge two entities, prior permission from the High Court Division of the Supreme Court of Bangladeshis is required. A merger will also then need shareholder approval and clearance by the creditors. In addition to these requirements, depending on the nature of the business of the merging entities, permission from the concerned regulator would be required. For example, when two telecom providers, Robi Axiata and Airtel, merged together to become Robi Axiata, clearance from the BTRC was required. Furthermore, depending on the nature of consideration/value involved, the permission of the Bangladesh Securities and Exchange Commission (BSEC) may be required.

2.5 Are there approval requirements when a foreign investor increases or exits its investments?

In general, to increase foreign investment in any company domiciled in Bangladesh, permission is not required from the Bangladesh Bank. However, if a capital infusion into a company through foreign investment results in the aggregate capital of a private company exceeding BDT100 million ($1.2 million), or in the case of a public company over BDT1 million, BSEC permission is required.

For closing any business in Bangladesh, any foreign investor, being a shareholder of a company, has the option to either transfer the entire shareholding in a company or wind up a company, if all shareholders agree.

In the case of a transfer of shares from a foreign investor to another foreign or local entity, irrespective of the nationality/residency of the transferee, permission/approval from the Bangladesh Bank is not required.

However, for the transfer of shares of private limited companies or public limited companies not listed on the stock exchanges, the Foreign Exchange Investment Department of the Bangladesh Bank should be informed/notified through the concerned authorised dealer (AD) i.e. any Schedule Bank. Nevertheless, for public limited companies listed with stock exchanges, the above notification requirement is not applicable.

As for repatriation of proceeds of sale for shares of a listed public company by a foreign investor, prior approval of the Bangladesh Bank is not necessary, provided that the amount repatriated does not exceed the market price of securities prevailing in the stock exchange on the date of sale.

However, prior approval of the Bangladesh Bank is required for repatriation of sales proceeds by a foreign investor in public limited companies that are not listed with the stock exchange companies; and/or for private limited companies.

SECTION 3: Investment techniques

3.1 What are the most common legal entities and vehicles used for Chinese investment into your jurisdiction?

In our jurisdiction any foreign investor has the option of establishing a branch office, forming a 100% foreign owned company, or forming a JV with a local entity to establish their business in Bangladesh. Amongst all modes of business vehicles, Chinese investors mostly opt for forming a JV with a local entity, which leads to the incorporation of a local company in this jurisdiction. The formation of a 100% foreign owned company is also not uncommon for Chinese investment into Bangladesh. The establishment of a branch office, while permissible, is not popular for Chinese investors.

3.2 What are the key requirements for establishment and operation of these vehicles which are relevant to China outbound investment?

In Bangladesh, a company has to be registered with at least two shareholding directors. Two types of capital (authorised capital and paid-up capital) are recognised. Authorised capital is the maximum approved threshold limit for investment in a company (as determined by the company during incorporation); and paid-up capital is the actual investment made during incorporation. The amount of authorised capital can be increased by paying necessary government fees in due course.

The promoters of a proposed company are required to hold a meeting, and must decide on a proposed name for the company, shareholding structure, a nominee for the corporate shareholders, directors, etc., and approve the draft Memorandum and Articles of Association. Once the necessary documents are in order, the company must be registered with the Registrar of Joint Stock & Companies (RJSC).

Following incorporation, the company will need to obtain a Trade Licence, TIN and VAT, as applicable, in order to run the business, and open a bank account (for local entity) or make the non-operative bank account operative (for foreign investment).

Thereafter, during the company's business operation, renewing the Trade Licence and holding at least one board meeting in each quarter and a general meeting each year, are compliance requirements.

SECTION 4: Dispute resolution

4.1 Does your jurisdiction have a bilateral investment protection treaty with China or other jurisdictions commonly used for investing into the country?

Bangladesh has bilateral investment treaty with China, singed on September 12 1996 and the same is still in force. Also, Bangladesh has similar bilateral investment treaty with 24 other countries.

4.2 How efficient are local courts' enforcement and dispute resolution proceedings, and are there any procedural idiosyncrasies foreign investors must be aware of?

Dispute resolution and enforcement under the Bangladeshi legal system remains outdated, lengthy and time-consuming. The current dispute resolution procedural system, especially the Code of Civil Procedure, is characteristically overly adversarial and mostly driven and controlled by litigants without proactive involvement by the judges.

Civil suits in Bangladesh are instituted at the court of first instance and the existing system does not mandate any statutory timeline to be followed by the parties during the litigation. The judges are at liberty to allow countless adjournments in each of the procedural stages and may take up to a year before even the case proceeds to the trial stage. The existing system also allows litigants to file interim applications and appeals regardless of their merit.

The noticeable idiosyncrasy that the foreign investors should be aware of is that after concluding the procedures at the court of first instance, in most civil suits there is a second round of procedures to enforce judgments through execution suits, meaning that the judgment needs to be enforced by initiating another proceeding. Besides this, there is also a provision for appeal against a judgment and decree to achieve finality on the decision of the court of first instance. These additional layers of processes and time delay make the judicial system inefficient for foreign investors.

While there are special courts that hear money recovery suits established by the Artharin Adalat Ain, 2003, there are no fast track courts for trying commercial disputes. There is no pre-trial mandatory mediation or dispute resolution process in the current legal system. There is no obligation under Bangladeshi law to opt for arbitration for settling disputes unless contractually agreed by the parties.

If there is an arbitration clause, a Bangladeshi court will hold the dispute instituted in formal court system and will send the parties for arbitration. This liberal process is often abused by the defaulting party to keep the aggrieved party from obtaining effective remedy within a reasonable time. Often, initial proceedings are initiated intentionally at the court, only to refer it back to arbitration. The defaulting party also often makes files an appeal against the decision of the arbitrator.

In brief, the local courts and the dispute resolution system in Bangladesh are not efficient.

4.3 Do local courts respect foreign judgments and are international arbitration awards enforceable?

Section 44A of the Code of Civil Procedure (CPC) allows execution of foreign judgments passed by the superior court from reciprocating countries (with which Bangladesh has bilateral agreement). In order to enforce foreign judgment in Bangladesh, the foreign judgment in question must be conclusive. If the judgment is inconclusive, it will not be executable in Bangladesh. Section 13 of the CPC embodies the principles when the courts consider a foreign judgment to be inconclusive, amongst the principles, most notable are judgment given by a court without competent jurisdiction, judgment not given on the merits of the case, judgment founded on a breach of any law in force in Bangladesh etc.

Section 45 of the Arbitration Act now specifically allows local courts to enforce foreign arbitration award, unless, as per section 46 of the Arbitration Act, there are issues related to:

  • incapacity of a party;

  • legal validity of the arbitration agreement;

  • lack of proper notice to a party regarding the arbitration or reasonable inability of a party to present his case;

  • the concerned foreign arbitral award being ultra vires;

  • non-compliance with arbitration agreement or prevailing law in relation to the composition of the arbitral tribunal or procedure;

  • non-binding or suspended nature of the award;

  • the subject matter of the dispute being beyond settlement by arbitration under the law of Bangladesh; and

  • contradiction with public policy of Bangladesh, making the recognition and execution of the foreign arbitral award ineffective in Bangladesh.

4.4 Are local judgments and arbitration awards from your jurisdiction generally enforceable in other jurisdictions?

Overseas enforceability of a judgment or arbitration award by a Bangladeshi court depends on the rules of civil procedure for the jurisdiction in question.

SECTION 5: Forex controls and local operations

5.1 What foreign currency or exchange restrictions should foreign investors be aware of?

In comparison to other sectors and to other developing countries, foreign exchange is one of the comparatively conservative sectors in Bangladesh. The Bangladesh Bank monitors the matter very closely and with a restrictive approach.

In order to invest in any company or formation of a foreign owned company in Bangladesh, the equity investment amount should be remitted from the foreign investors through a banking channel.

In compliance with the aforesaid requirement, if a foreign investment has been made in Bangladesh, the Bangladesh Bank, National Board of Revenue and Register of Joint Stock of Companies and Firms will consider the investment as a foreign investment into Bangladesh. Such investment and/or any income in the form of dividends, generated by this foreign investment, can be remitted to China. Failure to comply with this requirement may render the foreign investor liable for money laundering.


6.1 Are there tax structures and/or favourable intermediary tax jurisdictions that are particularly useful for foreign direct investment (FDI) into the country?

In order to develop an improved business environment, the GoB is offering investors attractive tax benefits/breaks in some particular locations and sectors.

For the time being, income, profits and gains from industrial undertakings, involved with the active pharmaceuticals ingredient industry and radio pharmaceuticals industry, automobile manufacturing industry, compressors, computer hardware, energy efficient appliances, insecticide or pesticide, petro-chemicals, pharmaceuticals etc., set-up in few area of Dhaka, Mymensingh and Chittagong divisions between the July 1 2011 and June 30 2019 are/shall be exempt from tax payable for a period of five years from incorporation. A similar benefit is applicable at Rajshahi, Khulna, Sylhet, Barisal and Rangpur divisions (excluding the City Corporation area) and Rangamati, Bandarban and Khagrachari districts, for a period of 10 years.

Investments in businesses related to deep sea ports, elevated expressways, export processing zones, flyovers, gas pipelines, hi-tech parks, information and communication technology (ICT) villages or software technology zones, IT parks, large water treatment plants and pipelines, liquefied natural gas (LNG) terminals and transmission lines, mono-rail, rapid transit infrastructure and renewable energy are also eligible for tax exemption, up to a certain limit, for a period of 10 years on the income, profits and gains derived from the business.

6.2 What are the applicable rates of corporate tax and withholding tax on dividends?

For 2017-2018, the applicable corporate tax rate is 35% for private companies and public companies not listed on the stock exchange. The corporate tax rate is 25% for listed companies.

Different corporate tax rates are also applicable for companies in different sectors. On the other hand, withholding tax on dividends are applicable for shareholders of companies willing to pay dividends. The company shall be responsible to deduct 20% of the dividend amount while making payment, if the relevant shareholder is a company/ corporate entity.

However, if the shareholder is a person other than a company, the deduction rate shall be 10%, if the person receiving such dividend has Taxpayer's Identification Number and 15%, if the person receiving such dividend does not have Taxpayer's Identification Number.

6.3 Does the government have any FDI tax incentive schemes in place?

The GoB has tax incentive schemes for investment in some particular sectors, and in some particular locations; however, those incentives are available for every company within that sector and/or location, irrespective of the nature/origin of the investment, i.e. foreign or local or JV.

6.4 Are there any reciprocal tax arrangements between your jurisdiction and China? If so, how can they aid investors?

A double tax agreement has been executed between China and Bangladesh to avoid double taxation and prevent evasion with respect to income tax. Therefore, for a resident of China who derives income from Bangladesh, the amount of tax on that income payable in Bangladesh, in accordance with the provisions of the double taxation agreement, may be credited against the Chinese tax. The amount of credit, however, shall not exceed the amount of the Chinese tax on that income computed in accordance with the taxation laws and regulations of China.

In addition to the above, if the income derived from Bangladesh is a dividend paid by a company which is a resident of Bangladesh and is paid to a company which is a resident of China, holding not less than 10% of the shares in the company paying the dividend, the credit shall take into account the tax paid to Bangladesh by the company paying the dividend in respect of its income.

In light of the above, any Chinese investor may be entitled to get reciprocal tax benefit, and in order to ensure the same, the governments of both of the countries have agreed to share tax related information with each other to ensure the benefits are granted to the investors.

About the author



Dewan Faisal

Principal associate, A S & Associates

Dhaka, Bangladesh

T: +88 02 9561540

F: +88 02 9561476



Dewan Faisal, one of the principal associates of A S & Associates, works in corporate advisory and finance. He is an advocate of the Supreme Court of Bangladesh. His experience also encompasses alternative dispute resolution (ADR) and he is a Centre for Effective Dispute Resolution (CEDR, UK) accredited mediator.

Faisal is acting as a legal consultant for a Chinese state owned company responsible for implementing a coal base power project with the capacity of 1,320 MW in Bangladesh by way of a joint venture with a local entity. He has also assisted multinational brands, such as Saren and Evonik, to initiate business in Bangladesh through efficient structuring.

On the other spectrum, he is the team leader for corporate finance. He has independently represented the firm in various financial deals, including M&A, syndications and high value project financing/lending. He has successfully completed numerous multiparty fund-raising transactions for different companies and projects. Currently he is assisting the lead counsel in the tax structuring of a group of companies with six different domestic and one international (domiciled in US) companies and has played critical role in merger between active and dormant companies within the group.

About the author



Mohammad Hasan Habib

Principal associate, A S & Associates

Dhaka, Bangladesh

T: +88 02 9561540

F: +88 02 9561476



Mohammad Hassan Habib, one of the principal associates of A S & Associates, is an enrolled advocate of the Supreme Court of Bangladesh. His practice ranges from administrative and constitutional matters, civil and criminal litigation, VAT and customs appeals, commercial arbitration, trademark disputes, company matters and labour disputes.

Habib has the experience of working with various national and international organisations and representing them in various courts and tribunals in connection with multifarious legal disputes. Amongst the most notable cases, Habib has represented one of the bottlers of The Coca Cola Company (TCCC) in Bangladesh in a civil suit and helped the bottler to dispose of the case filed against it by successfully striking out the case at the court of first instance.

In an arbitration proceeding, Habib has represented a foreign invested JV company in challenging an arbitrary imposition of electricity purchase tariff by the Bangladesh Power Development Board and helped the company to avoid unwarranted financial liability by securing arbitral award in its favour.

Habib has also represented one of the leading Bangladeshi telecommunication companies in the Labour Court and Tribunal and assisted the company to settle cases with employees at a very early stage.

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