How to invest in and repatriate investment from Bangladesh

Dhaka,  Tue,  25 July 2017
Published : 13 Jun 2017, 19:55:56
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How to invest in and repatriate investment from Bangladesh

Tofazzul Hussain
Successful business organisations and corporate houses wish to expand globally based on their domestic success stories primarily for the decision that prospective financial rewards outweigh the projected cost of launching an overseas investment.Either they expand business in different parts of own countries or directly in other countries. Before they make desired investments, the investors measure eventual returns. Investment in foreign countries is not always about money, sometimes it is about non-monetary issues like physical and mental efforts.Nevertheless, they show the courage.

Investment in foreign countries is nowadays a common phenomenon - thanks to the free market system. Investors usually go to foreign countries with foreign direct investment (FDI) with certain objectives such as to increase global profit, to reduce production cost, to use global recourses, to use low-wage labours, to hold strategic assets, etc. Reasons include also outsourcing of manufacturing unit and services.They can expand strategically too.  They can relocate to a hub for the sake of emerging markets. For example, western investors brought FDI in Hong Kong for the sake of managing their investments in Asian region.  Moreover, trading locally as Bata or Singer does to meet domestic demand is also another lucrative incentive for the FDI.  In consumer goods sector and in ready-made garment (RMG) and Textile, FDI can develop an export market based on the hub to oversee quality control activities by relocating expensive offices to FDI destination country, thus they can minimise tax expenses to yield more profit for the owners.  More incentives include working for government projects - secured customer, having thrills of doing business overseas to appease expeditor instincts.  

Since it is a competitive business world each and every country tries to attract foreign investment because FDI is beneficial for the recipient country's economy as it allows the market to grow and expand, which, in turn, generate more employments. The economy and earning prospects of the FDI recipient get better.These explain why there is always competition to attract foreign investments. 

Bangladesh is mature enough to manage foreign investments as we have been receiving an influx of foreign investment over last three decades. The institutions are functional to protect and facilitate FDIs vide a combined set of local regulations and bilateral agreements and laws, so that the investors can increase their money and take back their fair shares. Institutions - Bangladesh Investment Development Authority (formerly known as Board of Investment of Bangladesh), companies' house, bankers with general banking and financing solutions, professional business advisers with business acumen - welcome foreign investments. The demographic dividend and availability of our young workforce is another prime attraction for FDIs to invest here.  A large number of youth and amenable workforces available at reasonable cost in comparison with neighbouring countries is another facet that makes Bangladesh an attractive FDI destination.  Our tax system, regulatory procedures and collection of legal permits required to conduct a business may seem lengthy or time consuming but these are functional.  You can obtain the permits as you apply. Investment in terms of time is expected of FDIs to grow its business here.  Experience suggests that there is negligible number of cases where we see foreign investments ever failed.  Choosing right business associates is very important to ensure business success.  In effect, from regulatory and FDI viewpoints, Bangladesh has positive attitude towards FDIs as evident from ZERO instance of FDI expropriation in Bangladesh.  And exist routes abound for retiring FDIs.  The country has a stable macroeconomic environment, including access to international trade, presence of infrastructure and human capital.

A due diligence and exploratory trip will reveal foreign investors' interest to invest in Bangladesh.  A foreign investor can establish a subsidiary company or joint venture, or a branch office or a liaison office. As for legal status of FDI, investment can be made through a local company or via an office of the main foreign company or can inject equity in an existing company in Bangladesh. In either case, Bangladesh investment regulation requires a minimum of 50,000 USD as foreign investment, which can be brought in phases as and when required. Companies are established following the Companies Act and rules of the Registrar of Joint Stock Companies and Firms in Bangladesh via an online platform which currently gives due importance on the checking of investors' profiles. Investors shall have representation on the board of the company's directors. To become directors, they will have tax identification numbers and ensure compliance with immigration rules.  Bankers diligently check the investor company's background before receiving any money as foreign investments.  Therefore, it is prudent to maintain business documents such as encashment certificates, form C, corporate legal papers etc throughout the investment career because these are golden during repatriation of profit, and remittances.  Once a FDI company has been formed, it will have trade licence, tax & VAT and other regulatory permits to regularise its proposed bank account. After starting the company, transactions occur and a responsible unit records them in books to classify, analyse, present in accounts to report to the government regulators as required to declare profit and tax.

However, if the motto of the FDI is not to generate income here locally, they can opt for different status of their investment.  Branch or a liaison office suffices in this regard unless the FDI is not treated as a mere cost centre of their head office. Such office incurs costs for certain activities carried out by a local team to monitor sales activities if the parent company is directly exporting products to Bangladesh to the local importers.  If it is import-oriented FDI, foreign company's local office can monitor the production quality here and help local exporters prepare all documents so that the complete transaction and merchandising happenat ease. Liaison office does the same thing.  

Either way the minimum investment required is 50,000 USD unless it is a Company route of investment where more money may be warranted to invest in cash generating capital assets. Usually, it takes more than the stipulated amount of investment considering establishment and office overheads to maintain the operation on monthly basis.

FDI as a Company enjoys repatriation facilities to remit back to the investors the residual profit as dividend and/or as technical knowhow, royalty and management services feesfor the head office's critical business services to the FDI.A branch or a liaison office does not have permission to remit any money outward on the premise that it does not generate income locally, and its bank holds only the money received as inward remittances from the head office to meet both ends in Bangladesh.  Any type of FDI in Bangladesh is subject to mandatory withholding tax and VAT rules as well to tax authority, financial reporting, and Bangladesh bank's regulations.  

Investing in Bangladesh is now rewarding and profit and return can be taken back within legal permits. If the foreign investors feel at a later stage that they want to retire or exit, there are routes, e.g., public offering where the FDI can dispose of their shareholding to the public in IPO (initial public offering) and take their money back legally. 

Tofazzul  Hussain FCA is Lead Consultant & Chairman Hussains Business Consultants Ltd. tofazzul@hussainsbd.com

 
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