How to Setup Shipbuilding & Shipbreaking Business in Bangladesh

In Bangladesh, the demand for ships in the international market is directly connected to the economy as ships are used for commercial purposes.Bangladeshi shipbuilding industry has been seeking export market prospects in the specific segment of small vessels.Shipbuilding yards in Bangladesh has been exporting small and medium-sized vessel for the extremely competitive European market.The industry has begun to accumulate a record of building orders from foreign ship owners. Export value rose from USD 5.7 million to USD 30.0 million in 2017-18.

 

On the other hand, the ship-breaking industry has taken over the global market by dismantling about 47.2% of world vessels. According to the UNCTAD report, Bangladesh, India and Pakistan account for 70–80% of the international recycling market for ocean-going vessels.In recent years, the fast-growing shipbuilding and ship breaking industry in Bangladesh has emerged as a significant source of foreign revenue. In a short period of time, this high-potential industry has made a good reputation in the global competitive market. 

Major ship building companies in Bangladesh ranges from larger to medium scales,there are around 200 shipbuilding companies currently in Bangladesh. Among them some largest and prominent building companies are Western Marine Shipyard, Ananda Shipyards, High Speed Shipbuilding & Engineering etc.And most well renowned ship breaking yard is the Chittagong Ship Breaking Yard.

Shipbuilding and Shipbreaking are probably the most promising export-oriented industry in our country. There has been an increased demand of various kinds of vessels worldwide, and Bangladesh is a lucrative destination in this market.At the same time, demand for ship building and ship breaking industry is increasing due huge amount of profit earning every year. As Bangladesh has proved itself to be a new and favorable destination for this business many foreign investors are showing interest in this sector. 

Ship Building and Ship Recycling Board (SBSRB) is a designated authority under the Ministry ofIndustriesto provides one stop service for Ship Building and Ship Recycling.

Bangladesh has competitively-priced skilled engineers and semi-skilled workers and has training opportunity for shipbuilding and breaking which is operated under the cooperation between the government and industry association, thus provide job opportunities for thousands of workers.This Industry is a sophisticated and highly tech-based industry with the promise of significant economic and social benefits. This sector offers significant employment opportunities, industrial development, a constant flow of foreign revenues, and many other opportunities for the industrial sector attracting foreign investors. The major laws in this sector are Bangladesh Ship Recycling Act, 2018; The Ship Breaking and Recycling Rules, 2011; Hazardous Waste and Ship breaking waste management rules 2011; Inland Shipping Ordinance 1976; Bangladesh Shipping Corporation Order, 1972; Merchant Shipping Ordinance 1983; National Industry Policy 2016.

 License and Registration process:

In Bangladesh, Shipbuilding business can be operated through forming a company:

A Company duly registered in Bangladesh may engage in any business activities as per the Object Clause of the Company, set out in the Memorandum of Association of the Company. In Bangladesh, a company can be either public or private. To form a public company minimum seven shareholders shall be required. On the other hand minimum two shareholders are necessary to incorporate a private company. Private company cannot any issue invitation to the public to subscribe for its shares, while, public company can offer general public to acquire its shares. In practice, private company is the most popular form of company to foreign and local entrepreneurs. For foreign direct investment, there is no limitation pertaining to foreign equity participation, i.e. 100 percent foreign equity is allowed. Foreign investment enjoys full protection and security in Bangladesh, like other Locally Invested Companies. The laws of Bangladesh guarantees non-discriminatory treatment between foreign and local investment, and repatriation of proceeds from sales of shares and profit.

The following steps needs to follow to form Company:

1. A Name Clearance for the proposed Company needs to be obtained from Registrar of Joint Stock and Companies. 

2. Drafting and signing the following:

• Memorandum and Articles of Association of the company;

• Form I: Declaration On Registration Of Company;

• Form VI: Notice Of Situation Of Registered Office;

• Form IX: Consent of director to act;

• Form X: List of Personal Consenting to be Directors;

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

3. Opening a temporary bank account for the Proposed Company in any scheduled Bank in Bangladesh.

4. Remit the paid up capital amount from the account of each foreign shareholders to the Bank Account of the Proposed Company in Bangladesh.

5. Obtain encashment certificate for each foreign transactions from the Bank of the Proposed Company.

6. Submit all the required to the Company House. 

7. Pay the Govt Fees for the registration.

8. Obtain the registration certificate from the Company House.

a) Copy of Valid Name Clearance for the proposed company;

b) Executed copy of Memorandum and Articles of Association of the Company.

c) Executed copy of Form I: Declaration On Registration Of Company;

d) Executed copy of Form VI: Notice Of Situation Of Registered Office;

e) Executed copy of Form IX: Consent of director to act;

f) Executed copy of Form X: List of Personal Consenting to be Directors;

g) Executed copy of Form XII: Particulars of the directors, manager and managing agents;

h) Copies of National ID of shareholders and directors (for Bangladeshi Nationals);

i) Copies of TIN Certificate of shareholders and directors (for Bangladeshi Nationals);

j) Copies of passport of shareholders and directors (for Foreign Nationals);

k) Passport size photos of shareholders and directors;

l) Bank Encashment Certificate with respect to each foreign shareholder;

m) Receipt of payment of the governmental fees.

Apart from setting up the above respective format a 100% foreign owned company can also register as Branch Office to initiate Shipbuilding business. Though, Branch office can only perform the function envisaged by the parent company by taking prior approval from Bangladesh Investment Development Authority. After setting up the respective company, some additional license or permissions may be required, depending on the expansion/scope of the business.

The additional licenses required for establishing a Shipbuilding industry are mentioned below:

I. Trade License;

II. TIN Certificate; 

III. VAT Registration Certificate;

IV. Registration of Industrial Investment Project;

V. Factory Layout Approval;

VI. License of Factory;

VII. Membership Certificate;

VIII. Import Registration Certificate (applicable for Import Business);

IX. Export Registration Certificate (applicable for Export Business);

X. Environment Clearance Certificate;

XI. Fire License;

XII. Registration of Trademark

XIII. Permission for Ship Breaking.

The process to obtain the additional licenses has been specified below:

In order to start up a business in Bangladesh, the most important requirement is acquisition of a trade license. It is compulsory for every business entity to obtain Trade License from the respective local governmental authority. In order to obtain the Trade License an application enclosed with necessary documents needs to be submitted to the concerned local governmental authority (i.e. City Corporation/Municipal Corporation/Union Parishad).

The Government of Bangladesh provides a TIN Certificate, to individual or company to track tax payments. The National Board of Revenue (NBR) is the sole authority to provide TIN Certificate. In order to obtain the TIN Certificate an online application needs to be submitted to the NBR.

Every Business in order to operate is required to have a Business Identification Number (BIN). A BIN can be obtained by VAT registration process to the National Board of Revenue. Every business entity must obtain a VAT registration certificate. In order to obtain the VAT Certificate an online application along with necessary documents needs to be submitted to the NBR.

The Industrial enterprises in Bangladesh, either local or foreign, have to be registered with the Bangladesh Investment Development Authority (BIDA). In order to Registration of Industrial Investment Project an application along with necessary documents needs to be submitted to the BIDA.

Before use, change or expansion of any houses, building or premises as factory, an approval in writing from the Department of Inspection for Factories and Establishments (DIFE) shall be taken.  In order to get the approval of the layout an application along with necessary documents needs to be submitted to the DIFE.

Each of the owners or occupiers shall have to submit an application with necessary documents to the Department of Inspection for Factories and Establishments (DIFE) for registration and license of factory within 30 (thirty) days before start of work for factories. 

After setting up the respective business, the entrepreneur needs to be a member of a local Chamber of Commerce and Industry or relevant Trade Association. The application form to be a member is available at the office of the concerned Chamber of Commerce or Trade Association.

 Import Registration Certificate and Export Registration Certificate:

An importer having Import Registration Certificate (IRC) and an Exporter having Export Registration Certificate (ERC) can Import & Export any permissible item without any value and quantity restrictions and without obtaining any permission from any authority. The Office of the Chief Controller of Imports and Exports (CCI&E) issues Import Registration Certificate and Export Registration Certificate to the desired applicant. In order to obtain the IRC or ERC an online application along with necessary documents needs to be submitted to the CCI&E.

Environment Clearance Certificate (ECC) is one of the vital approvals in order to initiate an industrial unit or project in Bangladesh. In order to obtain such Certificate, the concerned entrepreneur of the industrial unit or project need to make an application to the Department of Environment along with the necessary documents. 

Considering the environment and to ensure the safety of the establishment along with the workers engaged in the business, it is mandatory for buildings and business organizations to obtain fire license. It is issued by the Fire Service and Civil Defense (FSCD) authority operating under the Ministry of Home Affairs, Bangladesh. In order to obtain such license, the concerned entrepreneur of the industrial unit or project need to submit an application to the FSCD along with the necessary documents.

In order to protect trademark and other IP related matters, after the registration of the entity, it can apply to the Department of Patents, Designs and Trademarks (DPDT), operated under the Ministry of Industries, for registering its trademarks and/or any other Intellectual Property. An applicant in the prescribe manner has to file with necessary documents for the registration of a trademark to the Trademark Registry Wing of the DPDT.

In order to conduct a Ship Breaking/recycling business in Bangladesh it is compulsory to get permission from the “Ship Building and Ship Recycling Board (SBSRB) which is under the Ministry of Industries.

Firstly, a NOC or No Objection Certificate shall also be obtained from SBSRB to import the particular ship for scraping or recycling within Bangladesh. SBSRB provides NOC to facilitate letter of credit to import scrap vessel by evaluating and examine of Ship’s detail, MOU and inventory of Hazardous Waste as per import policy order of the government.

In order to inspect the ship, SBSRB in cooperation with the customs department makes visit to the ship at the outer anchorage to check its inventory. If the department assesses that the ship does not carry any cargo or item banned by Bangladesh laws, it gives its clearance for demolition. The surveyors make an assessment of the ship.

Moreover, the Department of Environment simultaneously examines the ship for Hazardous Waste and material excluding in built hazardous and toxic materials and they may issue an environment clearance certificate for that particular ship.

The Department of Explosives issues two certificates

• Gas free for man entry and

• Gas free for hot work

Before provide demolition or cutting permission, yard owner has to submit Ship Recycling Plan (SRP) and copy of permit for Ship Recycling Facility Plan (SRFP). The SBSRB is the authority designated to ensure compliance with all ship breaking rules and regulations. It also oversees hazardous waste/materials generation and its disposal. Noncompliance of rules will result the cancellation of the permit. The ship recycler can get a new permit only after a full re-inspection of corrective measures. The SRFP conducts its monitoring activities half yearly. It may conduct more inspections when accidents take place SBSRB shall issue permit of Ship Recycling Facility Plan “SRFP" for every applied ship breaking and Recycling yard after evaluate their facilities to break and recycle ships in safe and environmentally sound management.

To import ship for breaking, recycling, the following documents needs to be submitted:

• NOC from SBSRB 

• Environment clearance certificate, 

• Ship’s details of particulars, 

• MOU with buyer and the inventory of Hazardous materials on board. 

• A letter of credit from scheduled bank

In order to start ship recycling process, the two documents required are, Ship Recycling Plan and Ship Recycling Facility's Plan.

The Ship Building and Ship Recycling Board (SBSRB) under Ministry of Industry has the authority to approve the Ship Recycling Facility Plan in a prescribed form with the requirements of documents as follows:

 Prescribed application form mentioned in Annexure III and IV of the ship breaking and recycling rules.

 Authorization for handling Hazardous waste generated from ship recycling activities issued by the DOE.

 Registration as a Trade Body’s Member and member of the Hazardous Waste

 Treatment, Storage and Disposal Facility (TDSF) which will be facilitated or operated by SBSRB under Ministry of Industries.

 License for storage of L.P.G, Acetylene, Carbon di oxide, Oxygen & all other cylinder and flammable liquid.

 Map showing the yard layout and other components of the facilities. 

 Obtained License and SRFP approval from SBSRB.

 Storage go down for temporary storage for Hazardous/ Non-Hazardous Waste Materials

 Asbestos handling & removing and storage facility.

 Sanitation and rest room facilities for minimum 50 workers,

 Facility of adequate and clean drinking water

 Workers change and refresh room,

 First aid facility

 Firefighting facility and Emergency Response System (ERS)

 Material Handling Equipment’s (MHE) and Personal Protection Equipment (PPE) 

 List of the trained labors of all disciplines (lightening, gas cutting, waste handling, working in confine spaces, using various gadgets like oxygen and other gas detectors, crane and material handling systems etc.)

 Other necessary facilities as instructed by Department of Environment

Foreign entities or individuals who are considering investing in Bangladesh can get generous opportunities for investment under its liberalized Industrial Policy and export-oriented, private sector-led growth strategy. All sectors are open for private investment in Bangladesh except for some restricted sectors. Shipbuilding sector is open to 100% foreign investment. The aim of the government is to serve as a facilitator to help create an enabling environment for the expansion of private investment, both domestic and international. The policy framework for foreign investment in Bangladesh is based on 'The Foreign Private Investment (Promotion & Protection) Act 1980, which ensures legal security for foreign investment in Bangladesh against nationalization and expropriation. This also ensures non-discriminatory treatment between international and local investment and the repatriation of proceeds from the selling of shares and income.

Apart from the above Act, the following Acts also deals with the foreign investment: Foreign Exchange Regulations Act 1947, The Bangladesh Export Processing Zones Authority Act 1980, Bangladesh Private Export Processing Zone Act 1996, Bangladesh Economic Zone Act 2010, and Bangladesh Investment Development Authority Act 2016.

Employment Law: The employment law in Bangladesh is mainly governed by the Labour Act, 2006. Apart from this Statute there are other rules and regulations in regards to this issue, the Labour Rules 2015, National Labour Policy 2012, Bangladesh Labour Welfare Foundation Act 2006, Bangladesh Labour Welfare Foundation Rules 2010, National Occupational Health and Safety Policy 2013, Domestic Workers Protection and Welfare Policy 2015 and National Child Labour Elimination Policy 2010. The Labour Act of 2006 deals with employment of labour, relation between employers and employees, payment of wages and compensation for injuries to workers, leaves, benefits, formation of trade unions, settlement of industrial disputes, welfare, health, safety and working condition in the establishment etc. Maternity benefits are also provided for a female employee. It should be noted, if the company is establish in an EPZ then, Bangladesh EPZ Labour Act 2019 shall be applicable.

Contract Law: Contractual agreement is the heart of the commercial world. It sets out the duties and responsibilities between the parties relating to the subject matter of the contract. A contract binds both parties of its all agreed and stipulated clauses, for example, what would be the party’s liability in the event of committing breach of contract and how far shall it cover the losses of the opposite party. It is advisable that, to take highest care during stipulating the terms and conditions of the contract so that it expresses the real intention of the parties. Every contract in Bangladesh is governed by the Contract Act, 1872. 

A force majeure event means an unusual occurrence or situation beyond the control of the contracting parties, such as an act of God, war or a natural calamity. An effective application of the force majeure clause usually relieves the parties of their respective contractual obligations and/or liability. A force majeure provision does not completely justify the non-performance of a faction, but only suspends it for certain period. In Bangladesh, the Contract Act 1872, contains the doctrine of frustration, which is provided in Section 56 of the Act of 1872. As per this doctrine, a contract becomes void when it becomes impossible to perform due to occurrence of an event, it becomes unlawful after it was entered into.

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 & ERC, filing taxes, updating the annual filings at the RJSC, reporting to Bangladesh Bank, NBR etc.

Property Law: In order to complete the registration of the lease or purchase of the land, the laws in regards to property shall also be applicable. The key statutes in these areas are Land Reform Act 2014, East Bengal Tenancy Rules 1954, The Survey Act 1875, The Non-Agricultural Tenancy Act 1949, Registration Act 1908, and Transfer of Property Act 1882.

FM Associates (FMA), is a full-service corporate law firms, which aims to offer a comprehensive range of services to the clients rather than focusing on just one specific area of law. It is one of the largest and well reputed law firms in Bangladesh offering clients, legal advice that meets needs and expectations of both domestic and International clients. FMA provides all range of services related to Company Incorporating, Sole Proprietorship business, Partnership Business, Foreign Company Registration etc. FMA law firm has legal experts who can assure smooth legal process and assist in obtaining Certificates or License needed for Company Incorporation, such as VAT Certificate, IRC/ERC, Name Clearance, Factory/Fire/Environmental License, TIN, Trade License and other types of certificates.

In Order to set up Shipbuilding Business in Bangladesh, the services FMA can provide are as follows:

 FMA has an excellent and competent team who can proceed in setting up Shipbuilding business smoothly and efficiently. The legal advisors of FMA can assist the clients through consultations and meetings and provide them guidelines on any type of business incorporation. 

 In order to incorporate any type of business, several deed, agreements and documents are required to be drafted. FMA legal team can assist the clients in preparing and drafting those documents.

 In order to establish a business entity, it is essential to select a suitable land first. FMA can provide service to the client by searching for a preferable location for business establishment for the client. Moreover, FMA can assist in drafting lease agreement, Land vetting from respective land registry office, preparation for purchase of land including registration etc.

 FMA can also assist in making necessary payments of Government fees to the concerned authority, such as BIDA or RJSC and liaise with them to obtain relevant documents for business incorporation. FMA, legal experts have good working relation with government offices; which makes it easier to obtain any certificate/license.

 In order to incorporate a business, sometimes Trademark/Copyright/Patent registration is required for getting protection against infringement, to add value to the company and to strengthen legal protection. FMA assists its clients by obtaining registration for Trademark / Copyright / Patent from the Department of Patents, Designs and Trademarks (DPDT) and thus securing the company’s legal protection.

 FMA also provides services of obtaining or renewing any type of License, for conducting Shipbuilding business, several licenses are required to be obtained. FMA legal team can assist in getting those licenses and if necessary, renew them at the right time.

 FMA provides services related to labour matters, such as drafting of employment agreements, solving labour related disputes, providing legal opinion on labour law etc. to the clients.

 FMA can advise and assist to satisfy the regular legal compliances to smooth the regular run of the company.

The coronavirus (Covid-19) has caused havoc all over the world and lockdown policy has resulted in border closures, travel bans, restaurant closures, community quarantines, supply chains and trade disturbances that have greatly affected the Industrial sector in Bangladesh.Covid-19 have also affected Shipbuilding and Shipbreaking industries of Bangladesh due to closure of factories, restriction of export, import, temporary shutdown of production, restrictions of free movement, shortage of workers, higher controls on cargo vessels which is aimed at avoiding the further spread of the virus. Due to the current situation, Exporters in Bangladesh are not getting their payments on time, Buyers are cancelling or modifying orders. As a result of this, industry owners are finding it difficult to pay salaries to the employees working in different establishments. Lay-off workers are moving to the villages creating shortage of workers, shutdown of industry is causing unemployment and thus it is hampering the economic condition of the country.

However, the Government in order to mitigate the impact of the coronavirus on the country’s economy has announced a bailout/stimulus package of Tk 5,000 crore for export-oriented industries indicating that the money from the package could only be disbursed in the form of salaries for employees of those establishments. Management of export-oriented companies or factories have to provide salary sheets, workers’ lists and their mobile banking accounts to banks so that salaries for April can be directly disbursed to the employees. 

Moreover, Tk 300 billion has been provided for working capital loan to the affected industries and service sectors with 9.0 per cent interest, out of which half will be borne by the facility enjoying entity and other half will be paid by government as subsidy. Export Development Fund (EDF) will be enhanced by an additional amount of Tk 127.50 billion and a new credit facility of Tk 500 billion as 'Pre-shipment Credit Refinance Scheme' will be introduced by the central bank with 7.0 per cent interest. The Government of Bangladesh has also, requested $1 billion in funding from the International Monetary Fund and the World Bank as the country seeks to help its citizens, companies and industries suffering from the pandemic.

Further, four fresh financial stimulus packages of Tk 67,750 crore was also announced by the government. The four programs under the plan which includes, increasing public expenditure, formulating a stimulus package, widening social safety net coverage and increasing monetary supply. The program, which has almost $2.5 billion allocated to support financing of the labor resources of small and medium-sized enterprises, is a bold step towards preserving the livelihoods of people working in this sector.  The Government policies were adopted as per, sections 12 and 16 of the Bangladesh Labour Act 2006.As per section 12 of the Act, lay-off means the failure, stoppage or inability of an employer to work at an establishment in the event of fire, catastrophe, breakdown of machinery, or stoppage of power supply, epidemics etc.

Section 16 of the Act specifically deals with the right of laid-off workers. This section specifies that a laid off worker shall be paid by the employer on all days on which he or she is laid-off, except on weekly holidays. The law notes that the names of these laid off employees must be borne by the establishment's personnel and must be someone who has completed not less than one year of continuous service in an establishment.

This section also states that, the value of the salary shall be equal to half of the overall regular wages and benefits and, if any, the ad hoc and the full amount of the housing allowance.

Section 16(5) mentions that, If, within a calendar year, the worker is laid off for more than forty-five days and after the end of it, the days comprises periods of fifteen days or more, the worker shall be compensated for those days.

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 optimism of ship building and breaking industry arose from the success attained by a number of local entrepreneurs who brought the name and fame to Bangladesh as a country with great potentials in shipbuilding by building and handing over some ocean-going vessels to overseas buyers. Bangladesh has continued to be an attractive destination for foreign companies to do business due to its convenient, business policy, lower production cost and labour wage compared to other Asian countries. These industries employ huge number of workers thus reducing unemployment and improving the country’s GDP at the same time. Moreover, labour skill, availability, man-hour, cost & productivity for local industries are the inherent part for expansion of this sector. The ship-breaking and ship building sector is saving a huge amount of foreign currency in many ways. Given the need for large-scale investment in the capital-intensive shipbuilding and ship-breaking industry, the government needs to develop a strategy for providing long-term financing at the lowest interest rates to ensure sustainability in this huge and competitive international market.

 Executive Summery

In recent years, shipbuilding and ship breaking industry has emerged as a significant means of diversification of exports and has built a strong reputation in a competitive global market.It has turned into a promising sector and has contributed in economic growth and earned a good reputation for being a profitable industrial sector. This sector offers significant employment opportunities, industrial development, a constant flow of foreign revenues, and many other opportunities for the industrial sector attracting foreign investors. In order to proceed with Shipbuilding and Shipbreaking business in Bangladesh, it is important to take permission from the concerned authority or department Under the ministry of Industries, A Shipbuilding and Shipbreaking business could be done through company incorporation or partnership. To incorporate a business obtaining licensees, such as-Trade license, Fire License, Environment and factory license, ERC/IRC etc. are compulsory. Registration with BIDA and BEZA shall also be obtained to start a business. Foreign entities or individuals who are considering investing in Ship Building and breaking business can get generous opportunities for investment under its liberalized Industrial Policy and export-oriented, private sector-led growth strategy. The aim of the government is to serve as a facilitator to help create an enabling environment for the expansion of private investment, both domestic and international. The Shipbuilding and Breaking Industry legislation emphasizes on the safety of a rule with a focus on adequate safety for workers and the protection of human health and the environment, including the establishment of targets for minimization with the ultimate objective of eliminating the adverse effects on human health and the environment caused by ship recycling. 

Covid-19 in recent time has made a huge hindrance on the economic sector and so in , shipbuilding and ship breaking industry .The Industry owners are finding it difficult to pay salaries to the employees working in different establishments, Lay-off workers are moving to the villages creating shortage of workers, shutdown of industry is causing unemployment and thus huge impact on the economic condition of the country. However, the government of Bangladesh has taken major initiatives to overcome this situation and offered support to the effected employees and workers.

In Bangladesh development of, shipbuilding and ship breaking industry business can play a huge role in boosting up the overall economic condition of the country. In order to establish, shipbuilding and ship breaking industry business and industries, FMA legal team can provide various services related to business incorporation. FMA is a full-service law firm that has an excellent and competent team, who can proceed in setting up business in this sector efficiently.