International Tax
Bangladesh Highlights 2017
Investment basics:
Currency – Bangladesh Taka (BDT)
Foreign exchange control – Foreign participation for
investments is allowed up to 100%, in all but a few
restricted areas. The remittance of dividends is allowed
by the Bangladesh Bank (central bank), provided an
application is submitted.
Accounting principles/financial statements –
Accounting Standards adopted by the Institute of
Chartered Accountants of Bangladesh largely are based
on Bangladesh Financial Reporting Standards. Financial
statements must be filed annually by all public and
private limited companies.
Principal business entities – These are the public and
private limited liability company, partnership and branch
of a foreign entity.
Corporate taxation:
Residence – An entity is resident if it is registered in
Bangladesh or its management and control is in
Bangladesh.
Basis – Resident entities are taxed on worldwide
business income; nonresidents are taxed only on
Bangladesh-source income. A branch of a foreign entity is
treated as a foreign entity and is taxed accordingly.
Taxable income – Business income is taxed under the
following “heads” of income: business income, capital
gains and other income. Net taxable income is computed
on the basis of specific rules and principles, and expenses
may be deducted from gross income.
Taxation of dividends – Dividends received from
resident companies generally are taxed as income, at a
rate of 20%.
Capital gains – Capital gains are taxed at a rate of 15%,
although there are some exemptions.
Losses – Business losses may be carried forward for up
to six years. The carryback of losses is not permitted.
Rate – Publicly traded companies generally are taxed at a
rate of 25%. Banks, insurance companies and financial
institutions are taxed at a % rate, with a lower rate
of 40% available if the company is publicly traded. Mobile
phone operator companies and cigarette manufacturing
companies are taxed at a 45% rate. All other companies
are subject to a 35% rate.
Where any person employs or allows any non-
Bangladeshi individual to work at its business or
profession at any time during the income year, without
prior approval of the Board of Investment, such person
will be charged additional tax at a rate of 50% of the tax
payable on that person’s income or BDT 5 lakh, whichever
is higher.
Surtax – No
Alternative minimum tax – A minimum tax is imposed
at % on gross receipts from all sources for a
company (other than mobile phone operators and
manufacturers of cigarettes and other tobacco products)
or a firm that has gross receipts of more than BDT 5
million, irrespective of profit or loss, if the minimum tax is
higher than the corporate tax liability. The rate of tax is
% on gross receipts for an industrial undertaking
engaged in manufacturing of goods for the first three
income years from the commencement of its commercial
production.
The minimum tax applicable to taxpayers that have
income from any source that is exempt or is subject to
Bangladesh Highlights 2017
tax at a reduced rate is calculated based on a prescribed
method.
Foreign tax credit – A resident entity may credit income
tax paid on foreign-source income against its Bangladesh
tax liability. The amount of the credit is the lesser of the
income tax paid abroad or the Bangladesh tax payable on
the foreign-source income.
Participation exemption – No
Holding company regime – No
Incentives – Incentives are available for certain income,
such as income from a physical infrastructure facility set
up in Bangladesh, from the business of information
technology-enabled services, from exports of handicrafts
and from industries established in an export promotion
zone, subject to compliance with certain requirements.
Area-based tax incentives are available to industrial
undertakings set up in specified regions.
Withholding tax:
Dividends – Dividends paid to a nonresident company
are subject to a 20% withholding tax, unless the rate is
reduced under a tax treaty.
Interest – Interest paid to a nonresident is subject to a
20% withholding tax, unless the rate is reduced under a
tax treaty.
Royalties – Royalties paid to a nonresident are subject
to a 20% withholding tax, unless the rate is reduced
under a tax treaty.
Technical service fees – Management service fees and
technical service, technical know-how or technical
assistance fees paid to a nonresident are subject to a
20% withholding tax, unless the rate is reduced under a
tax treaty.
Branch remittance tax – The remittance of profits
abroad by a branch of a foreign company is subject to a
branch profits tax of 20%.
Other – Rental income on plant and machinery paid to a
nonresident is subject to a withholding tax of 15%.
Withholding tax returns must be filed on half-yearly basis,
on 31 January and 31 July.
Other taxes on corporations:
Capital duty – No
Payroll tax – No
Real property tax – No, see “Stamp duty,” below
Social security – Not mandatory
Stamp duty – Financial instruments, real property and
other specified transactions in Bangladesh attract stamp
duties that are levied under the Stamp Act, 1899.
Transfer tax – There is no specific transfer tax in
Bangladesh, but transfers of immovable property are
subject to stamp duty and registration fees, in addition to
business income or capital gains tax (as the case may
be), local government tax, advance income tax, etc.
under local tax laws.
Other – Gifts, grants or leases of immovable property
must be registered with the authorities.
Anti-avoidance rules:
Transfer pricing – OECD-type transfer pricing provisions
apply. The definition of “associated enterprise” extends
beyond a shareholding or management relationship, as it
includes some deeming clauses. A taxpayer that engages
in international transactions exceeding BDT 30 million is
required to maintain documentation and to provide a
certificate (in a prescribed format) from a chartered
accountant or a cost and management accountant that
sets out the details of related party transactions, as well
as the methods used to determine an arm’s length price,
provided a notice for filing the certificate is received from
the National Board of Revenue/tax authorities.
Thin capitalization – No
Controlled foreign companies – No
Disclosure requirements – No
Other – Under the substance-over-form principle, the tax
authorities may recharacterize a transaction that was
entered into to avoid tax or where the transaction does
not have substance, or may disregard a transaction that
has no economic substance.
Compliance for corporations:
Tax year – The uniform tax year to be followed is 1 July
to 30 June. Exceptions apply for banks, insurance
companies or financial institutions, which may use the
calendar year as their income year. The revenue
authorities may allow a different financial year for a
company that is a subsidiary or holding company of a
parent company incorporated outside Bangladesh if such
foreign company is required to follow a different financial
year for the purpose of consolidation of its accounts with
the parent company.
Consolidated returns – Consolidated returns are not
permitted; each entity must file a separate return.
Filing requirements – The tax return must be filed on
or before the “tax day,” . by the 15th day of the
seventh month following the end of the income year.
Penalties – Penalties are imposed for late filing, failure
to file a return or failure to pay tax; concealment of
income; failure to maintain proper records; and failure to
provide required documents or data.
Bangladesh Highlights 2017
Rulings – No
Personal taxation:
Basis – Residents are taxed on worldwide income;
nonresidents are taxed only on Bangladesh-source
income.
Residence – An individual is resident for tax purposes if
he/she is in Bangladesh for more than 182 days in the
income year, or if during the preceding four years he/she
was in Bangladesh for a total of at least 365 days and
during the income year he/she is in Bangladesh for at
least 90 days.
Filing status – Joint returns are not permitted; each
individual must file a separate return.
Taxable income – Taxable income is divided into
“heads” of income, which include income from
employment, income from the exercise of a profession,
income from property, agriculture income, interest on
securities, capital gains and other income.
Capital gains – Capital gains are one of the heads of
income and generally are taxed at the applicable personal
income tax rate. Gains from the sale of an asset that has
been held for more than five years are taxed at the lesser
of the applicable personal tax rate or the normal rate
(15%).
Deductions and allowances – Various personal
allowances are granted. Deductions are possible where
expenses are incurred in deriving taxable income.
Rates – Personal income tax rates are progressive from
10% to 30%, and nonresidents are taxed at a flat rate of
30%.
Other – An investment allowance is capped at 25% of
total income.
Other taxes on individuals:
Capital duty – No
Stamp duty – Financial instruments, real property and
other specified transactions in Bangladesh attract stamp
duties that are levied under the Stamp Act, 1899.
Capital acquisitions tax – No
Real property tax – No, see “Stamp duty,” above
Inheritance/estate tax – No
Net wealth/net worth tax – A surcharge is levied
based on total net worth at varying rates, on a
progressive basis, with a minimum surcharge of BDT
3,000 for individuals having a certain minimum net
wealth, as prescribed.
Social security – Not mandatory
Compliance for individuals:
Tax year – The assessment year is a period of 12
months commencing on 1 July of each year.
Filing and payment – Individuals must file a tax return
on or before the “tax day,” . by 30 November following
the financial year, unless an extension is obtained.
Every individual that has gross wealth exceeding BDT 2
million, that owns a motor car or that has made an
investment in a property that is a house or an apartment
in the city corporation area is required to file a “statement
of assets, liabilities and life style” along with the tax
return.
Penalties – Penalties are imposed for late filing, failure
to file a return or failure to pay tax; concealment of
income; failure to maintain proper records; and failure to
provide required documents or data.
Value added tax:
Taxable transactions – VAT is levied on the supply of
goods and the provision of services, and the import of
goods or services.
Price declaration approval by the VAT authority has been
discontinued, so taxpayers are at liberty to fix the price of
goods and pay the VAT accordingly.
The new Value Added Tax and Supplementary Duty Act,
2012 is proposed to be implemented as from 1 July 2017;
until the law is enacted and in effect, the existing VAT law
will continue to apply.
Rates – The standard rate is 15%, with certain
exceptions (truncated rates) for supplies of services.
Some of these truncated rates recently have been
changed (. the net VAT rate on construction services
has been increased to 6%, the rate on garage and
workshop and dockyard services has been increased to
10% and the rates on immigration advisory services and
sponsorship services and on the rental of office space and
installation services have been increased to 15%, while
an exemption has been granted to certain services
relating to the textile sub-sector, as well as a temporary
exemption for certain manufacturing units up to 30 June
2017).
A turnover tax, at a rate of 3%, is applicable for
unregistered persons, . persons with turnover less than
BDT 8 million.
Registration – VAT registration is required if annual
turnover is BDT 8 million or more and if the taxpayer is
engaged in the import and export business. Registration
is optional for taxpayers with turnover under BDT 8
million.
Bangladesh Highlights 2017
Filing and payment – VAT generally is payable in
advance. VAT withheld must be deposited within 15 days
of the deduction. The VAT return must be filed monthly,
within 15 calendar days from the beginning of the
following month.
Source of tax law: Income Tax Ordinance 1984; Income
Tax Rules, 1984; Value Added Tax Act & Rules 1991,
Customs Act 1969, Finance Act 2016
Tax treaties: Bangladesh has concluded more than 30
tax treaties.
Tax authorities: National Board of Revenue
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Contact:
Himanshu Patel (himanshupatel@)
Contact:
Himanshu Patel (himanshupatel@)
