How to Setup Cosmetics & Toiletries Business in Bangladesh

LICENSE AND REGISTARTION PROCESS 

In Bangladesh, which entity is responsible for the quality of any product including cosmetics and toiletries? Overall, generally the quality of product is first tested and determined at the Bangladesh Standard and Testing Institution commonly known as BSTI. BSTI takes into account all the factors including the process, measurements and system by which the product is created. BSTI tests the quality and makes sure that the product is compliant with all the legal boundaries of substances used, production method and whether it is fit for import or export amongst other things. Most importantly it provides a standard mark which confirms BSTI’s certification for a product. There is a list of One Hundred and Eighty-One products which must be verified and tested by BSTI before they are sold in the market including cosmetics and toiletries. A number of cosmetics and toiletries that are sold in the Bangladeshi market falls in this list, such as tissue, lipstick, shampoo, soap etc. Similarly, there is a list of Fifty-Four imported products which have been brought under mandatory certification of BSTI before customs clearance. Therefore, cosmetics & toiletries companies need to obtain license from BSTI before their products are sold in the market.

For establishment of any cosmetics or toiletries factory in Bangladesh, it generally starts with the registration of the company at the Registrar of the Joint Stock of Companies also known as RJSC. The options available are that of a Public Limited Company which have the option of raising funds from the public by selling shares or a Private Limited Company who have their set list of shareholders. There can also be foreign shareholders for these companies. Bangladesh allows 100% ownership in most cases except for some controlled industries. For incorporation of any type of company, the first step is to choose a name which then has to be cleared by the RJSC so that it does not conflict with other company names which sometimes creates Trade Mark issues and this is done through the Name Clearance Certificate.  Following the Name Clearance Certificate, local shareholders can just submit the draft of their Articles and Memorandum of Association with the other requisite identity documents and submit the same to RJSC for registration of the company. The Name Clearance Certificate has a validity of One month within which this registration procedure must be completed, or else, another certificate may be required. If there are foreign shareholders in the company, they would require a bank account in a designated Bangladeshi bank where their part of the investment capital would be remitted and thereby received and documented through an encashment certificate which has to be submitted with the rest of the documents.

Foreign companies have two other option if they want to conduct business in Bangladesh, i.e. through a Branch Office or a Liaison Office. A Branch Office will be considered as a branch in Bangladesh of the parent company which must also have the same name as the parent company itself. Branch offices are able to engage in commercial activities and generate income locally with prior permission from the Bangladesh Investment Development Authority also known as BIDA. Where as a Liaison Office can be created only for the purpose of maintaining liaison and cannot generate any local income. Even the staff and employees of the Liaison Office must be paid through foreign remittance of the parent company in a designated bank account. Further, for a Branch or Liaison Office, the number of employees must maintain a 1:5 foreign to local employee ratio. These two routes are taken by many foreign brands who want to set up their cosmetics or toiletries business in Bangladesh.

Once a company has been set up, if there is a matter of production, the next requirements are related to licenses for setting up factory. Depending on the type of operations the following is a rough list of the licenses that may be required by cosmetics & toiletries factory for operation. The list is non-exhaustive as there may be additional requirements for different kinds of products:

1. Export Registration Certificate (E.R.C)

2. Import Registration Certificate (I.R.C)

3. Factory Layout Plan Approval.

4. Fire License.

5. Factory License

6. Environment Certificate.

7. Membership of the Chamber of Commerce. (if applicable)

8. Value Added Tax Registration Certificate.

9. Trade License.

10. Tax Identification Number. (TIN)

The I.R.C is required by most cosmetics and toiletries companies as they tend to import a lot of their raw materials in the form of chemicals, essences etc. The E.R.C is generally required only by those entities who wish to export their products. The Factory License, Fire License, Environment Certificate are necessary for the operation of the factory. Trade License is a primary requirement for any business in Bangladesh for a company. A Trade License in any metropolitan city can be acquired from the respective City Corporation or in case of outside the metropolitan from the respective Municipal Corporation or from Union Parishad. The VAT and TIN registration are required by all companies and the same can be registered with the National Board of Revenue.

LEGAL ISSUES 

Legal issues in this matter mainly arise from the inspection of the products. BSTI provides license for quality products but it happens quite often that following the licensing of the product, a lot of these products end up reaching the market with compromised quality. BSTI has designated inspectors to ensure that the right products are reaching the market. In addition, BSTI reserves the right to conducts tests on any product to ensure that the proper standard is being maintained. BSTI also ensures that any other products of the same category are not sold in the market without BSTI’s standard mark or false standard marks under BSTI Act 2018. BSTI has the authority to withdraw and seize such products under BSTI Act 2018. Further, Mobile Courts convened under the Mobile Court Act (2009), can adopt the BSTI regulations and take charge of inspection and provide punishment if the standards are not met.

Trade Mark is adopted for different products from time to time. In Bangladesh, it is issued by the Department of Patent, Design and Trade Mark. Trade Mark gives an entity that exclusivity with regards to its’ name, which it can use around the country and no other party should be able to copy the same legally, and this is enforceable by law by the Trade Mark registering party under the Trademarks Act 2009. A very common legal issue that arises with regards to cosmetics & toiletries mainly is the issue of Trade Mark. Trade Marks are not necessarily always there for every product, but in most cases the copy of Trade Mark takes place with mostly the better-known brands as they are sold more easily. 

The Consumers Rights Protection Act (2009) deals with the above matters from the consumers’ perspective. It ensures that the consumers are not sold any fake products which does not conform the necessary standards and does not have the requisite BSTI standard mark. Further, there are no misrepresentation or false advertisement about a certain product’s quality or capabilities. The Director General or any officer thus empowered by him of the Directorate of National Consumers’ Right Protections shall be able to enforce the requisite penalties as appropriate.

Quite a high number of workers are involved in this industry, legal issues arise often regarding termination, unfair dismissal, leaves, payment etc under Bangladesh Labour Act 2006. In recent years, working environment has become very important for the workers since for cosmetics and toiletries, chemicals and other harmful substances are used quite often. It is necessary to comply with the working hours, number of leaves, all employment benefits, termination benefits, trade union issues, workers’ welfare matters etc. under the Bangladesh Labour laws. The Department of Inspection for Factories and Establishments (DIFE) is the statutory body who has the authority to monitor all labour related issues.  

Other legal issues may emerge in the cosmetics and toiletries industry from contract issues between parties in the industry, banking issues such as foreign exchange policies as there are import and export of raw materials and products involved, transportation of products and their safety, acquiring work permit and immigration of foreign employees working in this industry in Bangladesh etc.

Introduction of FMA and its services

FMA is one of the premier legal firms in Bangladesh which can provide any assistance required with regards to the legal needs of the cosmetics and toiletries industry. FMA is a full-service law firm with an extremely dedicated team ready to provide all your legal solutions. FMA specializes in company incorporations, Trade Licenses and can assist in acquiring all kinds of legal registrations such as Name Clearance Certificate, VAT, IRC, ERC, TIN etc. Any and all drafting required with regards to these services from the Articles and Memorandum of Association etc. can be availed by FMA. FMA can also provide assistance with licenses related to Trade Mark, Standard Marks etc. with the BSTI and the. FMA can also provide assistance with licenses related to Trade Mark, Standard Marks etc. with the BSTI and the Department of Patent, Design and Trade Mark. 

Labour issues are quite common in this industry. Labour issues can range from wages & leaves of the workers, unfair dismissal, termination benefits, Trade Union and its activities, health & safety of the workers etc. FMA’s legal team consists of some excellent lawyers who can efficiently represent any aggrieved in the court system of Bangladesh regarding any labour, contract or relevant issue related to the cosmetics and toiletries industry. 

FMA has a fully dedicated team for supporting any immigration needs. FMA can assist in securing the E-visa recommendation, Work Permit, Security Clearance and any other subsequent visas or extensions. FMA has a full wing specifically to support taxation issues which can easily take over all tax matters, payrolls and banking issues. Further, with regards to any breach of contract or agreement FMA can provide full assistance.

All in all FMA, has a very unique team which can serve to any legal needs in the cosmetics and toiletries industry. FMA has an excellent group of lawyers who can cater to any needs in the court and are also experts at conducting alternative dispute resolutions including arbitration, mediation and negotiation.

COVID-19 impact on business

The impact of the Covid-19 has been profound on this business, however there is a unique situation in this industry as some of the products specially in the toiletries sector, have almost become essential during this crisis where as others mostly in the cosmetics sector have their markets plummeted completely. Because this is a health crisis, the sanitation products such as hand wash, hand sanitizers, tissue, soap etc. have faced increasing demand to the point where for some of them the demand went beyond the supply and the product became unavailable for consumer purchase. The very opposite can be seen for cosmetics products, as because of the lockdown effect, people have stopped going out. As a result, both use and purchase of the cosmetics product have gone down significantly. 

The labour laws of Bangladesh provide a lot of protection for workers from wrongful termination and has laws in place for lay-off situations and what kind of payment the workers can receive under these circumstances. In case of lay-off, the employees, who have completed at least 1 (one) year of service shall be entitled to the amount of compensation which shall be equal to half of the total basic salary of the employees and equal to the full amount of housing allowances that would have been payable to them if they had not been so laid-off. Retrenchment is an option available to the Employer after the initial lay-off period of 45 days. Retrenchment can take place on the ground of redundancy which means the owner can declare that there is no work available for the workers, and thereby, they may be retrenched. 

Taxation

General rate of tax is 32.5% currently in the laws of Bangladesh. Nominal requirements for a limited company formed locally includes a number of reporting to be done to NBR, such as: Opening a TIN, Monthly Tax deduction statement, Half Yearly Withholding Tax statement, Yearly statement related to tax return submission of its employees, Yearly statement related to salary disbursed from company to its employees, Quarterly Advance tax deposition, Yearly Tax return submission, attending appeal/hearing session as required on behalf of the company, Monthly VAT return etc. FMA can advise and assist to satisfy all regulatory compliances to enable the company to run smooth and hassle free.  

Conclusion

The importance of the cosmetics and toiletries industries has changed massively. It is an important industry and has excellent potential for growth in the Bangladeshi market. Bangladesh Government has been diligently making progress in the Nation’s economic infrastructure and welcoming foreign direct investment with open arms. If the right push is there, with 17 crores ready customers in Bangladesh itself, this industry can become one of the dominant industries of the future.

EXECUTIVE SUMMARY

The business scenario for cosmetics and toiletries industry in Bangladesh is growing rapidly. It is one of the sectors with steady growth and employing a large number of workers. The cosmetics and toiletries industry can be divided into two sectors. The cosmetics sector is still relatively young and is still developing. The toiletries sector has a good hold on the market as it is producing some daily use items.

To enter this industry there are some requirements. The cosmetics and toiletries sector is related to a lot of other industries which directly affect its outcome, especially import/export industry, trade mark, labour, banking etc. From incorporation of the company, to setting up the factories, there are some minimum licenses and registrations required to enter this sector and hence there are lots of legal services to be provided especially with regards to the licenses, for example, trade license, TIN, VAT, I.R.C, E.R.C etc.. Cosmetics & toiletries companies need to obtain license from BSTI for some of their products before such products are sold in the market.

Foreign companies can also choose to incorporate a Branch office or Liaison Office instead of a full-fledged company. These entities will have the name of the original company and because these products are so brand oriented, this becomes very important. Depending on the type of business, other licenses can also become necessary such as Factory License, Environment Clearance Certificates, Fire license for setting up factories. In addition, because there is a huge amount of foreign investor coming in to invest in this particular area, there is a presence of expatriates, who require work permit to work in the country.

One of the major issues in this industry is with regards to the labour. Labour issues are quite common in this industry. Labour issues can range from wages & leaves of the workers, unfair dismissal, termination benefits, Trade Union and its activities, health & safety of the workers etc. FMA’s legal team consists of some excellent lawyers who can efficiently represent any aggrieved in the court system of Bangladesh regarding any labour, contract or relevant issue related to the cosmetics and toiletries industry.

In conclusion, FMA is the full-service firm which can provide total solutions with regards to any legal issue arising out of the cosmetics and toiletries industry. FMA has unparalleled experience in the fields of company law, trade mark laws, labour law, commercial laws and can advise regarding any legal matters. FMA also has specific wings dedicated to financial and immigration matters.