How to Setup Real Estate Business in Bangladesh

There are several ways by which an investor can set up an entity to start the business in Real Estate industry, eg. Sole Proprietorship, Partnership Business and Private Limited Company. The first two options are not available for Foreign investors. 

In Bangladesh, a Sole Proprietorship does not constitute a separate legal entity, therefore, it is not distinct from the owner/proprietor. During the course of business if any liability arises, the business owner will be personally accountable for all liabilities. 

In order to set up a sole proprietorship business in Bangladesh, the following steps need to be followed:

Step 1- Proposed business name in Bangla

Step 2- Obtaining Trade License. 

General Licenses

Trade License – It is the basic requirement for proprietorship. This can be obtained by making an application to the respective City Corporation/local government along with the lease/rent document of the office space of the business. Entities which shall operate in commercial sector and the entities which shall operate in industrial sector shall have to apply for commercial trade license and industrial trade license respectively.

TIN Certificate -- The application needs to be made through online portal of National Board of Revenue (NBR).

VAT certificate -- The application needs to be made through online portal of National Board of Revenue (NBR).

A partnership business needs to be registered with Registrar of Joint Stock Companies and Firm of Bangladesh (“RJSC”).

STEP 1- CHOOSING THE PARTNERSHIP NAME

A Name Clearance for the proposed name of the Partnership Business, must be obtained from the Registrar of Joint Stock Companies and Firms (RJSC).

STEP 2 – PREPARE A PARTNERSHIP DEED

The Partnership Deed should be written on a stamp paper in accordance with the Stamp Act and all partners should sign it and subsequently be notarized.

STEP 3- REGISTER PARTNERSHIP DEED WITH RJSC

The partnership deed along with filled up Form I should be filed with RJSC. The officials of the RJSC will review the documents shall issue a Certificate of Registration.

Timeline – It usually takes around two weeks to obtain the Certificate of Registration from RJSC after the submission of the documents as per STEP 3.

General Licenses 

TIN Certificate -- The application needs to be made through online portal of National Board of Revenue (NBR).

Trade License -The application needs to be made, along with the appropriate government fees, to the relevant city corporation office/ local government office along with the business documents and the lease/rent deed of the office space of the Business. Entities which shall operate in commercial sector and the entities which shall operate in industrial sector shall have to apply for commercial trade license and industrial trade license respectively.

VAT certificate -- The application needs to be made through online portal of National Board of Revenue (NBR).

Procedure for company setup:

The procedure of setting up a company are as below:

Company Incorporation:

STEP 1 - A Name Clearance for the proposed name of the Company, must be obtained from RJSC.

STEP 2 – Drafting and signing the following:

• Memorandum and Articles of Association of the company;

• Filled in Form IX: Consent of director to act;

• Filled in Form XII: Particulars of the directors, manager and managing agents.

STEP 3 – Opening the bank account for the Bangladeshi Company and remitting the share capital amount of the foreign shareholders (not required for local shareholders)

STEP 4 – Bank to issue encashment certificate of such foreign remittance (not required for local shareholders)

STEP 5 – The signed documents, as mentioned in step 2, shall be required to be submitted to the RJSC along with the encashment certificate and the government fees for the incorporating the company. 

STEP 6 – RJSC shall verify the documents and provide the certified incorporation documents. 

Timeline – It usually takes 3 to 4 weeks, after submitting the documents as per Step 5, for RJSC to issue the certificates.    

TIN certificate - In order to obtain the certificate, an online application needs to be made after the company has been duly formed. Additionally, a local phone number and registered office address are required to complete the application.

Trade License - The application needs to be made, along with the appropriate government fees, to the relevant city corporation office along with the company documents and the lease/rent deed of the office space of the Company. Entities which shall operate in commercial sector and the entities which shall operate in industrial sector shall have to apply for commercial trade license and industrial trade license respectively.

VAT certificate - The application needs to be made through online portal along, with Company documents.

Import Registration Certificate (IRC) - Entities which shall require to import goods and/or machineries for construction purposes shall require to obtain IRC. The applications for IRC need to be made to the Office of Chief Controller of Imports and Exports, with entity incorporation documents, TIN certificate, trade license, solvency certificate from the bank and chamber of commerce membership certificate and relevant government fees. Both the certificates need to be renewed annually. 

To conduct real estate business in a particular area, every real estate developer shall obtain registration from the concerned authority. In order to conduct real estate business in the whole of Bangladesh, the said real estate developer has to get registration from the government.

Step 1- Every real estate developer has to apply to the government or, as the case may be, to the authorities in the form prescribed by the rules for registration along with a copy of the following documents, namely: -

1) Trade License

2) TIN ( Tax Identification Number) Certificate

3) VAT Registration Number

4) (i) experience in project formulation and implementation (if any);

(ii) Certificate of Qualification of Technical Persons (Certificate of Educational Qualification of Architects, Engineers and Planners and Certificate of Membership of the concerned professional body);

5) Certificate of Incorporation, including Memorandum of Association and Articles of Association;

6) Copy of registration of membership of Real Estate and Housing Association of Bangladesh (REHAB) or Land Developers Association, if any.

Step 2- After receiving the application, the government or, as the case may be, within 60 (sixty) days of verifying and sorting the information obtained by the authority, if it is satisfied that-

• if the applicant is able to meet the conditions laid down for the implementation of the real estate development project, he shall the approval of the application within that time and it will be informed in writing to the applicant; Or

• If the applicant is unable to fulfill the said conditions, the application shall be rejected stating the reasons and shall inform the applicant in writing.

Step 3- If the application is granted, the Government or, as the case may be, the Authority shall issue a Registration Certificate to the applicant for 5 (five) years, subject to collection of applicable fees, within 30 (thirty) days from the date of notifying the applicant in writing. It can be renewed every year.

Step 4 - A list of registered developers shall be maintained and published by the concerned authority in the prescribed manner.

 

 Step 5 - The registration of the developer may be renewed, canceled and amended in the prescribed manner.

Implication of Real Estate Development and Management Act 2010 --

Responsibilities of Developer: 

• All developers under this Act shall mention in the prospectus prepared by them the registration number of the real estate along with its name, address and the memorandum number and date with the approval number of the design approved by the appropriate authority.

• No developer may publish a notice in the media for the purchase and sale of real estate before the authority approves the real estate development project and acquires the power or right to execute the deed handed over by the developer.

• The developer may not enter into an agreement to sell or sell any real estate to the buyer before the project is approved.

• Every developer shall show to the buyer the documents pertaining to the approval of the authority and the ownership of the land concerned.

• Other building services designs and documents including associate architectural design, structural design other than approved design shall be counter-signed by the developer.

• In the case of ownership of land under the residential plot project under private or public-private joint venture and rehabilitation of the victims, the Land Development Rules of Private Residential Project, 2004, subject to necessary amendments, shall be followed.

• Every developer is required to approve the design, modification, re-approval of real estate development projects, subject to necessary amendments, and applicable building construction rules, from the appropriate authority, subject to necessary amendments.

• The layout plan of a real estate development project constructed by a private or public-private joint venture must be approved by the appropriate authority in the prescribed manner.

• In the case of real estate development projects, civic amenities, as far as possible, must be ensured in accordance with the Land Development Rules for Private Residential Projects, 2004.

• Every developer has to implement the real estate development project in accordance with the relevant laws and regulations in such a way that no harm should be done to any type of infrastructure or plot or flat or road, electricity connection, water supply, sewerage and drainage, gas supply and telephone connection and other related facilities.

Construction of real estate by the land owner –  If a developer buys land and builds real estate on that land for the purpose of sale, all the provisions of this Act shall apply to him also. The provisions of this Act shall, as far as may be applicable, apply to the construction of real estate for the purpose of purchase and sale on his or her own land, whether individually or by some persons jointly without being a real estate developer or commercial entity.

Terms of sale and purchase of real estate --- The prospectus or allotment shall specify the appropriate explanation or analysis including the division of the salable area of real estate. Detailed conditions relating to the development and sale of real estate shall be specified in the agreement executed between the parties. A developer may change the specified plot or flat allotted with the consent of the buyer. No developer may accept additional money from the buyer outside the terms of the contract. Provided, however, that this provision shall not come into force if either party executes a supplementary agreement to this effect by mutual consent after proposing the addition of any advanced equipment.

Execution and registration of transfer documents ---- After paying the full value of the real estate, the developer shall complete the transfer of possession, execution of documents and registration of the real estate to the buyer within 3 (three) months. at the time of transfer of possession if the size is more or less, the value of real estate should be adjusted within 3 (three) months according to the rate purchased. If a developer obtains land from or on behalf of a land owner and deals to build real estate on the land and sell the real estate in that part to the buyers, the developer must be empowered to the effect that the developer receives his share of the real estate. The deed can be self-executed and sold or otherwise transferred.

Unless the power of sale or transfer of real estate is granted to the owner of the land or to the developer by executing a deed of power of attorney on his behalf, after the sale or transfer of built real estate a deed must be executed by the developer in favor of the buyer in writing within not more than 15days Documents must be executed in favor. If the deed is not executed by the owner of the land or on his behalf within the stipulated time, the developer himself may, execute the deed along with the buyer as if the developer were the owner of the land and real estate.

Contract between the land owner and Developer ---The land owner will execute a written joint venture agreement with the developer for the purpose of real estate development. The contract shall specify the amount of the developer's share for real estate development and the time of commencement and completion of the land development or construction work along with the conditions for execution of the power of attorney deed with the developer to enable the developer to execute and register the deed with the nominated buyer. Real estate development or construction work must be started and completed as per the terms of the contract.

Implication of the Building Construction Act 1952 – 

This act deals with the prevention of haphazard construction of buildings and excavation of tanks which are likely to interfere with the planning of certain areas in Bangladesh. Matters like restriction on improper use of lands and buildings, restriction on cut or raze hills, eviction of occupier, removal of building etc. dealt under this act.

Implication of Private Residential Land Development Rule, 2004 ---

Registration of Entrepreneur: Any private residential project entrepreneur in the masterplan area need to get registered by the authority. Every entrepreneur has to apply through the prescribed method for the registration along with the following documents: 

• Trade License

• TIN Number

• VAT Registration Number

• Memorandum of Understanding and Articles of

Association with the incorporation certificate and registration certificate, in case of company.

After receiving the application, to verify the application the authority will arrange relevant inquiry within next 45 days. If the authority becomes satisfied that the applicant has successfully complete the conditions to implement private residential project, then accept the application within that period of time. If cannot satisfy the conditions then shall reject the application and inform the applicant about it. If the application gets accepted then within next 30 days the registration fees have to be provided by the applicant to the authority. The authority will preserve the registration list. 

Registration of Lay-out plan formulator – 

Every city planner, architect, engineer, advising institution or firm who are private residential project lay-out plan formulator must be registered under this provision. While making an application to get registered the following documents need to be provided along with the prescribed application form: 

• Attested copy of educational qualification certificate and transcript 

• Trade License

• TIN Number

• VAT Registration Number

• Memorendum of Understanding and Articles of Association with the incorporation certificate and registration certificate

After receiving the application, to verify the application the authority will arrange relevant inquiry within next 45 days. If the authority becomes satisfied that the applicant has successfully complete the conditions to implement lay-out plan of private residential project, then accept the application within that period of time. If cannot satisfy the conditions then shall reject the application and inform the applicant about it. If the application gets accepted then within next 30 days the registration fees have to be provided by the applicant to the authority. Every city planner, architect, engineer, advising institution or firm who are private residential project lay-out plan formulator shall provide their name, address, signature or registration number in their provided plan. If the plan is provided by any advising institution or firm then the actual plan formulator’s registered city planner, architect, engineer and relevant officials name, address, signature and registration number need to be mentioned in the plan along with the name and address of the firm. The authority will preserve the registration list.

• According to the approved final lay-out plan and development plan, the full project has to be completed withing maximum 10 years.

• Copy of approved final lay-out plan shall always be preserved at the project office site and it shall be present immediately to the designated officer during their visit.

• No changes can be done in the approved lay-out plan and relevant other plans without the approval of the authority or committee (in some cases).

• No new area can be included in the approved project without the approval of the authority or committee (in some cases).

• Steps shall be taken to keep the project area upper than the Highest Flood Level

• If there is any river, lake, pond, sewerage or any other water source in the project area the water flow should not be hampered that should be ensured

• Implement project by consulting with institutions connected with developing different utility service  

• Ensuring that while implementing the project, there should not be any waterlogging to the adjacent land

• Previous year’s allotted or all sold plot’s list, plot list, plot transfer or description of registration have to be submitted withing 31st January each year.

• Buildings must be made following the government Building Code.

• Environmental Impact Assessment of the project needs to be submitted. 

• To accept the Private Residential project, inside the City Corporation at least 5 acre and outside City Corporation or Municipality area at least 10-acre land is required.

• In Private Residential Project the gross density of population shall be 350 person and details of the population have to be attached with the application.

This act deals with the matters regarding the development, improvement and expansion of the Capital of the Republic and Narayanganj and Tongi Municipalities and certain areas in their vicinity and the constitution of a Rajdhani Unnayan Kartripakkha therefore.

If the building to be constructed is more than 10 storied or above 33 meter in height, then for RAJUK plan approval, Departmental Clearance from following 10 authorities are required by applying in plain paper with location details and related drawings.

·         Department of power division (DPDC) for electrical load requirement

·         Water and sewage authority WASA for water consumption requirement

·         Titas gas & Transmission authority for gas requirement

·         Fire service for fire safety drawing clearance

·         Civil aviation for building height permission

·         Dhaka traffic control authority

·         Dhaka City Corporation

·         Department of environment

·         DCC Ward Commissioner

·         Dhaka Metropolitan Police (DMP) 

Annul General Compliances of the business entities- The entities are required to comply with the annual filing requirements, such has updating trade license at the respective city corporation, renewal of chamber membership, renewal of IRC, filing taxes, updating the annual filings at the RJSC for limited liability companies and renewing branch office permission at BIDA after it expires.

Implication of Contract Law – The entities’ relationship with dealers/vendors is quite an integrate part who provides products or services for the business. There should be a presence of dealership/vendor Agreement while selling products to dealers or receiving any goods and/or services from the vendors. Vendor Agreements can cover a diverse area comprising software, professional services, office supplies, technology services, event planning, marketing, consultants and many others. In the time of dispute, in additional to the applicable laws, the agreement plays a vital role to resolve the disputes, hence it is very important to safe guard one’s the interest while drafting the agreements. 

Requirements Labour laws – The entities need to ensure that its relation with the employees are coordinated with the labour laws of Bangladesh. The employees shall have an appointment letter which shall duly mention their job title, job description, salary, benefits and welfare, applicable working hours and leaves etc. It is to be noted that the employer cannot, by contract or appointment letter, provide anything less than that is provided by the labour laws. It is also the employer’s duty to provide a safe and healthy environment for the employees.   

Foreign Exchange regulations– The entities with foreign investors shall need to ensure that the initial investment are made via proper banking channel, eg.  at the time of company incorporation or buying shares of an existing company, the foreign investors should be remitting the share capital amount from their foreign bank account Company’s bank account with a note ‘investment in the share capital of the (Name of the Company)”. This will show that the investment has been made via proper channel and while remitting the profit such initial investment documents/information shall allow a smooth transection as per Bangladesh Bank guidelines.  

FM Associates, as a full-service law firm, provides all types of legal and financial services with its experienced and skilled teams.

Entity registration and licenses: FM Associates provide the services for establishment of entities, i.e. sole proprietorship, partnership business and/or limited liability company, in Bangladesh, and obtaining the required licenses from the relevant government authority. The services include drafting relevant documents, forms and providing the required document list and procedure and subsequently file the application with the relevant documents to the relevant government office and liaising with them throughout the verification process and obtain the necessary certified documents.

Drafting, vetting agreement: The entities, as mentioned above, requires drafting of various types of agreements, eg, vendor, employment, franchises agreement, which are require to be drafted as per the applicable laws of the Bangladesh and at the safe time is requires to safe guard their interest in order to use these agreements for their favour in relation to any future disputes. 

Legal Opinion and/or due diligence report: FM Associates provides legal opinion to the clients, in relation to implication of laws and its impact in various matters which enables them to take informative business steps by considering the legal aspect.

Additionally, FM Associates also provides due diligence report to the interested clients for their entities which flags out all the legal requirements which are required to be followed and also non – compliances, if any, which needs to be fixed. 

Litigation services: FM Associates has a very strong litigation team which assist and represent the clients to defend/file disputes at court or tribunals in relation to all types of litigation. 

A state of panic now dominates peoples’ minds and they are afraid of an uncertain future. A majority of the people are withdrawing from all sorts of expenditure, including expenditure relating to real estate. As the lockdown initiative is taken by the government to reduce the spread of the virus, the economy is slipping into recession, as a result the buying capacity of the people as a whole shall decline, this will have a negative impact on the entities in this sector. People are facing difficulties in paying rent as there is a huge job cut in different industries due to the current economic situation which is increasing the unemployment rates. The customers who already bought flats/apartments on credit are defaulting in paying the monthly installments and the potential customers will also be withholding to purchase apartments due to financial crises.

Both landlords and tenants need to provide an eviction notice month(s) in advance so as to ensure there is ample time for the other party to find a replacement. And due to the current mindset of the people, finding either a new tenant or a new home can be difficult.

The measures taken to get more people engaged in real estate were coming into effect such as - the introduction of “zero equity” loans, higher debt-ceilings, a lower interest rate, and massive infrastructure developments etc, all these motivating people to invest in the real estate sector of the country. However, the fear of the virus may curtail all that and demotivate the people for taking that step.

The sliver of hope for the housing sector of Bangladesh lies in the fact that neither the desire of the people nor the beneficial regulations are going to disappear anytime soon. Once the pandemic subsides, people will begin to invest in property again with maybe the added benefit of lower prices — as can be seen in other major markets in various nations. Nonetheless, if the pandemic continues to hamper the economy and the recession takes over, than the sector may face long term financial crises due to fall in demand.

Entities should get themselves prepared for the pandemic and circumstances where the outbreak brings an adverse impact on business generally and, more significantly, on the performance of commercial contracts. In particular, companies should consider whether they are entitled to invoke force majeure under the contracts, and thereby defer the performance of their contractual obligations without penalty.

A force majeure event is an extraordinary event or circumstance which is beyond the control of the contracting parties. These events include an act of God (like a natural calamity) or events such as a war, strike, riots etc. Generally, the parties get relieved from their respective contractual obligation and/or liability if a force majeure clause can be invoked successfully. A force majeure clause does allow a party's non-performance entirely, but only suspends it for the duration of the force majeure event. If properly drafted, the force majeure clause may provide that where a force majeure event continues for more than a stipulated period then either party may, at its own option, terminate the contract without any financial consequences to each other.

Its reliance is based primarily on the parties' agreement and the respective terms of the contract entered into between the contracting parties, since the doctrine of force majeure does not have any direct statutory basis under the laws of Bangladesh. 

All contracts are regulated by the Contract Act 1872 (the "Act of 1872") which are governed by Bangladeshi law. The doctrine of frustration is enshrined in Section 56 of the Act of 1872 which provides that a contract becomes void when it becomes impossible to perform or, by reason of some event, it becomes unlawful after it was entered into. Therefore, if the contract becomes impossible to perform for reason of Corona, it shall be treated as void under the laws of Bangladesh, provided that the defaulting party did not know, or with reasonable diligence, could not have known that the contract would be so frustrated. In simple terms, the effect of a void contract is that it cannot be enforced by law and the parties are relieved from their respective obligations.

It is intermittent that, to attract the doctrine of frustration, the performance of the contract must become absolutely impossible due to the happening of some unforeseen event such as Corona Virus pandemic.

It can be summarized that in the absence of an appropriately worded force majeure clause in a contract, the parties in Bangladesh may have the option of relying on the existing provisions of Bangladeshi law -  particularly, Section 56 of the Act of 1872 - in order to excuse itself from the timely performance of their respective obligations under the contract.

Furthermore, government of Bangladesh has announced package of BDT 50000 million to revive the economy from recession which may follow due to the effect of pandemic. The business entities are hopeful that if this sector provide its fair share from the above package, then this sector can provide a boost to the local economy and play its part in overcoming the recession.

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.  

The income capacity of the people of Bangladesh has increased recently as Bangladesh enters to a “middle-income country” from “Least Developed Country” and it is termed as the 2nd fastest growing economy in south Asia. As a result, there is a sudden Urbanization and the demand of accommodation is increasing rapidly. 

The Real Estate Industry in Bangladesh has a huge potential as the demand of the local market is continuously growing. With the increased urbanization people become more inclined to come to city and looking for suitable accommodation, this creates an increased demand in the Real Estate Industry. 

To become a part of this Real Estate industry there are various options of entities, Sole Proprietorship, Partnership Business and Private Limited Company are available for investors. To create a business-friendly environment, BIDA has now open up a one stop services center for investors where all the services from incorporation of entities to post incorporation licenses are available.

FM Associates is a full-service law firm – it provides all sort of legal and financial assistance starting from registering entities to obtaining required licenses; drafting agreements and notices to providing annual compliances and litigation services. FM Associates is enriched with experienced Barristers and Advocates who have expertise in different legal sectors which enables to provide the required services with high standard and the clients can obtain all the essential and ancillary legal services under one umbrella.  

As discussed, due to Corona Virus Pandemic the industry might suffer long term financial crises due to fall in demand if the spread of the virus does not reduce in near future. Moreover, people are afraid to invest in the property due to the uncertainty caused by Covid-19.

Nonetheless, it is expected that, as the epidemic starts to decline, business shall resume and find its steady growth if proper economical steps are taken by the authorities to revive the industry.