The tax position for a foreign investor

Bangladesh's direct tax regime runs under the Income Tax Act 2023, amended annually by the Finance Act, with indirect tax under the Value Added Tax and Supplementary Duty Act 2012. Rates move each year. The structural issues for a foreign investor move far more slowly, and they are what determine the after-tax return.

Four things to settle before signing

1. 01Withholding on cross-border payments. Bangladesh collects a large share of direct tax at source, and the obligation sits on the local payer. Deduction is frequently required before a remittance will be processed, which turns a tax question into a cash-flow question on the payment date.
2. 02Treaty relief. Bangladesh has double taxation agreements, but relief is generally not self-executing. The procedural steps to claim a reduced rate should be built into the payment process rather than pursued as a refund afterwards.
3. 03Permanent establishment. Services performed partly in Bangladesh, seconded personnel and dependent agency relationships all create exposure. Once a PE is asserted, the analysis shifts from withholding on gross payments to attribution of profit, with filing obligations attached — and contesting an assertion usually costs more than structuring to avoid it.
4. 04Capital gains on exit. Gains on the transfer of shares in a Bangladeshi company are taxable, with treatment depending on listing status, holding period and the transferor's residence. It affects price, the choice between a share and an asset deal, and the timing of clearance before a transfer can be registered.

Incentives

Exemptions and concessions attach to economic zones, hi-tech parks, export-oriented industry, power generation and certain infrastructure. They are real and material, and they are specific: the availability, the duration and the conditions all need confirming for the particular project rather than taken from a general statement. The conditions attached to an exemption are also where investors most often lose it.

The firm maintains a handbook on direct taxation in Bangladesh, updated for each Finance Act. It is available from the tax team.