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How to Setup Shipping Business in Bangladesh
Waterways transport is an active player in the transport sector of Bangladesh and it has a prospective avenue to contribute in the economic and social development of the country. The maritime sector encompasses the shipping industry, shipping or maritime transport as well as ports, suppliers, equipment manufacturers, ship building ship breaking, ship brokers etc. Currently, the inland and coastal ships have been dominating the waterways transport market and it carries either oil products, cargos or passengers in them. The maritime sector falls under the purview of Ministry of Shipping which includes in its ambit national waterways, inland water transport, ports and ocean shipping etc.
Substantial and sustainable increase of import and export over the years has allowed the logistics and freight industries to flourish by providing their services through transportation by sea. Transportation services of freight through sea, road and air ways are currently offered by the logistics companies, with shipping freight contributing to 80% of the nation’s import and export. With BSC (Bangladesh Shipping Corporation) being the only state-owned shipping entity in the country, it halted its liner services until recently due to failing to cope with market changes and poor performance. This had allowed more private shipping companies to quickly fill this gap in the market. However, foreign shipping companies are the ones who are capturing this growing demand for shipping services- almost forming a monopolistic market. However, maritime industry is still a growing industry and there is still ample amount of scope for progress in this sector. Bangladesh is also working on a plan for a deep sea port, which would enhance more business opportunities for entrepreneurs.
From 2005 to 2017, the shipping industry is believed to have increased five times in size, with foreign and local companies both seeing their profit margins go up significantly. Bangladesh continues to strive towards “Vision 2021” - - import and export will see further rise in the coming years , and the country is comfortable with using mostly shipping freight services – the shipping sector seems to have no substitutes surely for many years to come - confirmed by increasing buyers of services. Growth of both public and private sector has also triggered the demand for more maritime transportation services.
LICENSE AND REGISTRATION PROCESS
Weaving dreams to enter into the shipping industry and practically entering into it has dissimilarity. The various licenses in conjunction with the registration procedure of a shipping establishment makes the entire process complex and onerous. The registration procedure initially requires the confirmation of the choice of an entity by the entrepreneur. Once the choice of entity is affirmed, i.e private limited/public, sole proprietor and partnership, the commencement of the registration procedure begins.
Company
The incorporation procedure of a public or a private limited company has no variance. The company can be set up after submission of all the relevant documents along with the government fees at the Company House, Registrar of Joint Stock and Companies (RJSC). Upon finding all correctness and the authenticity of all the documents, the RJSC shall issue a certificate of incorporation. The procedure is slightly different if a foreign shareholder is involved
Partnership
A partnership business can be established by executing a partnership deed between the partners and registering the partnership at the Registrar of Joint Stock Companies And Firms (RJSC).
Sole Proprietorship
This type of entity is established by one person only and has no partners. In order operate business through such entity, one has to obtain trade license from the relevant city corporation.
Other licenses:
Once the choice of entity has been established, there are variety of licenses which needs to be obtained depending on the type of services that it desires to deliver to the customers. The list of licenses mentioned below is a non-exhaustive list which vary depending on each service provided.
1. Obtain certificate of Registration of a Bangladesh ship from the Director General of Shipping (under Ministry of Shipping)
2. Obtain license for taking ships to sea from Ministry of Shipping
3. Obtain Certificate of Competency for various grades of service in a ship from the Director General of Shipping (under Ministry of Shipping)
4. Obtain port clearance from collector of customs of the relevant ports in Bangladesh.
5. Obtain Passenger Ship Safety certificate from the Director General of Shipping (under Ministry of Shipping)
6. Obtain Cargo Ship Safety Equipment Certificate from Ministry of Shipping
7. Obtain load line certificates from Ministry of Shipping
8. Obtain the registration of fishing vessels from Ministry of Shipping
9. Obtain the registration of sailing vessels from Ministry of Shipping
10. Obtain the registration of inland ship from Ministry of Shipping
11. Obtain certificate of competency for inland ship from Ministry of Shipping
12. Obtain TIN (Tax identification number) Certificate from National Board of Revenue (NBR)
13. Obtain Trade License from City Corporation
14. Obtain Vat Registration Certificate from NBR
LEGAL ISSUES
Legal Assistance is required before and after the setting up of an entity i.e. company? office/sole proprietorship or partnership in Bangladesh. While incorporating an entity it is essential that all the original signed documents along the relevant forms are to be submitted at the relevant government authority or else the application for incorporation of the entity shall fail without a doubt. Furthermore, post incorporation of the entity, as discussed above, different licenses are required for various purpose, such as Trade License ship registration licenses etc., which are required to be renewed to stay valid.
Legal Issues come into light when obtaining operational licenses and the registration procedure of the ships at the ports of registry under The Bangladesh Merchant Shipping Ordinance Act 1983. Various compliance requirements become mandatory on the ship owner. According to Section 19(1) of the Bangladesh Shipping Merchant Ordinance 1983, an obligation is imposed on the owner of the ship to get his ship surveyed by a Surveyor or by any Surveyor of a Classification Society regarding the measurement of the ship such as ship's tonnage, build and such other particulars descriptive of the identity of the ship. Also, as per the requirement of the Registrar the body of the ship must be permanently and clearly marked denoting the identity of the ship before the commencement procedure of the registration. If the mark on the ship is removed altered or concealed, then the owner of the ship shall face a penalty of fine which may extend to twenty thousand Taka and also a detainment of the ship as per Section 20(2) of the Bangladesh Merchant Shipping Ordinance Act 1983.
The owner of a Bangladesh ship also has an obligation to refrain from converting, modifying or altering the character or the identity of the ship after registration compliance has been completed and the owner’s careless attempt to do the same without prior permission in writing from the Director-General of shipping shall put him under legal risk of an imprisonment for a term which may extend to three years, or with fine which may extend to taka ten lakh, or with both pursuant to section 34 of the Bangladesh Merchant Shipping Ordinance Act 1983.
The Owner of a Bangladeshi ship must ensure that he does not change the name under which the ship was registered under The Bangladesh Merchant Shipping Ordinance Act 1983 except when the name change was made in the prescribed manner mentioned in section 48 of The Bangladesh Merchant Shipping Ordinance Act 1983. If the owner without complying with the prescriber manner changes the name of the ship then he shall be punishable with fine which may extend to fifty thousand Taka and detainment of the said ship.
The Bangladeshi ship owner must bear in mind not to hoist any colour on their ships other than proper national or distinctive colours that are approved by Government, by notification in the official Gazette as per Section 52 of The Bangladesh Merchant Shipping Ordinance Act 1983. Hoisting of any other colours outside the colours approved by the government shall cause the owner to face legal consequences.
It is the responsibility of the owner of the ship to obtain a port clearance from the Collector of Customs before a ship commences it voyage on the sea. Only, upon confirmation of the country of origin of the ship, the Collector of Customs shall issue the port clearance. Legal implication may arise upon travelling on the sea without port-clearance which may result in detainment of the ship as per section 69 of The Bangladesh Merchant Shipping Ordinance Act 1983.
Besides, when dealing with inland ships, separate legal applications arises for the Inland ships since are registered and regulated under the Inland Shipping Ordinance 1976. Upon successful registration of the inland ship under this ordinance, the registrar shall issue a ship registration number which shall clearly be exhibited on the ship as per the prescriber manner required by the Ordinance. Also the certificate of registry of an Inland Ship must always be carried by the owner or the ship master at the ship, available for inspection by the government authorized person.
All the employees of the Shipping establishment are subject to the Labour Laws of Bangladesh (Bangladesh Labour Act 2006) and as such in compliance with the laws, no marine transport owner shall appoint an employee in a marine transport service unless he has attained the age of 15 (fifteen) years unless he is has entered in a school ship or training ship, he has been appointed in a ship in which all persons employed are members of one family; or where he is employed on nominal wages and under the supervision of his father or other adult near male relative.
In the era of globalization, Bangladesh has significantly failed to provide the marine transport workers, serving at the ship, a safe environment to work in. Unfortunate maritime accidents in recent years have resulted in heavily penalties which in turn forced the employer to follow the health, safety and welfare laws provided by the labour laws of Bangladesh.
INTRODUCTION OF FMA AND ITS SERVICES
FM Associates is one of the prominent law firms in Bangladesh encompassing of a dedicated team of lawyers and Barristers. They have a separate department in their firm for each arena of law led by lawyers and barristers specialized in each field for eg employment law, company law, commercial law, property law, maritime law and many more.
FMA has gained the status of the best law firm in Bangladesh through their constant effort and sincerity in fulfilling their professional commitments. Clients seeking legal assistance from FMA never with empty hands. Their concerns are left in the hands of the best lawyers and barristers who accomplishes each case with completely sincerity and devotion.
FMA can also provide assistance in the entire procedure of the incorporation of the company starting from the drafting of the AOA and MOA including all other relevant forms to obtaining name clearance and submission of all the documents to RJSC. FMA supports companies in the renewal procedure of the Trade Licenses and as well as the Name Clearance, if required.
In relation to the immigration services required for foreign consultants employed by the companies, for eg captain of the ship, FMA’s immigration law team can assist the Company to obtain the E-visa (employment visa) recommendation letter and work permit on behalf of the foreign employee and can also assist to obtain the extension of the work permit and the E visa for the foreign employee. The service shall include drafting all the necessary application and documents and collecting the relevant documents from the foreign employee and the Company; and submitting the same to the relevant government authorities and also liaise with them to obtain the necessary work permit and visa extension.
The Labour Laws in Bangladesh are labour friendly and as such the Ship owners must at every step while dealing with sea transport workers safeguard themselves from industrial disputes since any discrimination caused to transport worker will cause them unwanted harassment . The legal team of FMA, due to their years of experience in employment law, has attained proficiency in drafting and reviewing employment agreements/appointment letters of employees for such entities and they are also equipped powerfully to represent employers and employees both in the Labour Courts in case of any industrial dispute.
Often irregularities are found in the service agreements executed with shipping companies acting as service providers and vendors who require transportation and logistics services from them. FMA assists Clients in the reviewing and drafting of these service agreements executed between Clients in compliance with the laws of Bangladesh in order to avoid any future repercussions.
EFFECT OF COVID -19 ON SHIPPING INDUSTRY
As we have learned over the course of this pandemic, a large number of the crew on a US navy war fleet as well as passengers in many cruise ships over the world were affected by the novel coronavirus COVID-19. This further raised alerts amongst international head of nations and these ships were not allowed to set up anchor in any port until 14 days of quarantine on the ships. Countries have taken a lesson from this and as scientific proof is yet to be offered on whether the virus lives on products or how long it can survive on the surfaces of goods – containers filled with commodities are left on cargo ships themselves and even when they are brought down, authorities discourage clearing out products from their ports. The scarcity of workforce to shift commodities physically has discouraged import and uncertainty over the spread of virus has brought down import and export drastically in just the past few months. In addition, countries have opted to use air freight services to import and export medical supplies or other essential goods like reagents to test for the virus, PPEs etc leading into downfall of the services of the water transport sector. However, as a precautionary step, extra protections have being taken at the ports by the port authorities of Bangladesh by implementing hygiene and cleanliness standard at the decks, cabins and the ships. The port authorities has directed the use of hand sanitizer to be mandatory for passengers while getting on and out of the ship and social distancing must be maintained between foreign and local passengers.
Currently, the government has taken strict measures to flatten the curve of the corono virus spread rate and declared shut down of the entire country as a result of which prohibited all modes of roads, waterways and airline transportation in Bangladesh. Due to the current lockdown in effect throughout the entire country, all types of vehicular movement are banned with only emergency vehicles being granted leeway. If the shipping establishment has to remain shut, then the owners as well as the employees, including captains, masters, crew member and daily workers have to encounter huge financial losses. The Ship owners in this instance in order to survive this loss are depriving the employees by opting for a pay cut from their salary. Nevertheless, the correct procedure should be laying off the employees or going directly for retrenchment. Under the layoff scheme, the employees who have completed at least 1 (one) year of service shall be entitled to the compensation which shall be half of the total basic salary of the employees and full amount of housing allowances. If the employers do not wish to retain the employees, they may terminate them on the ground of redundancy. Or alternatively they may retain employees to work in a limited capacity for the transportation and logistics service of the essentials.
Entities in this industry needs to consider whether they are entitled to invoke force majeure clause under the various commercial contracts, and thereby defer the performance of their contractual obligations without penalty. A force majeure event is an extraordinary event or circumstance, like a pandemic, which is beyond the control of the contracting parties. 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.
If the contract does not consist of a force majeure, parties can opt for the Contract Act 1872 (the "Act of 1872"). 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.
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 marine sector is a flourishing sector from a business perspective and it has a lot to offer. The government of Bangladesh, on its own initiative, after exploring how profitable the sector is, has allowed foreign investors to invest in this sector which has also contributed impeccably to the GDP of the country. Essentially, the maritime sector has facilitated national and international trade through export and import of goods and passenger transportation by sea which resulted in both economic and social development of Bangladesh. However, in order to survive in this sector without any encumbrances, legal and regulatory compliances in accordance the Inland Shipping Ordinance 1976 and the Bangladesh Merchant Shipping Ordinance Act 1983 with must be complied with.
EXECUTIVE SUMMARY
The maritime sector is one of the booming and profitable sector of Bangladesh. This industry is rapidly growing both domestically and internationally. The government of Bangladesh is very much dependent on this sector for facilitation of national and international trade which boosts up the country’s GDP exponentially. Bangladesh has the potential to grow as one of the strongest maritime industry giving a tough competition to all the maritime industries in this sub-continent. The maritime sector falls under the purview of Ministry of Shipping and it is governed by the Inland Shipping Ordinance 1976 and the Bangladesh Merchant Shipping Ordinance Act 1983.
Entering into this industry is quite a challenge since the registration and the licensing requirement of the establishment along with obtaining variety of operational licenses for the ships can be complex and hurdle some. Once a company/partnership or a sole proprietor entity is formed with the relevant government authority of Bangladesh, the entrepreneur needs to obtain various licenses for the operation of the ship and the establishment eg obtain certificate of Registration of a Bangladesh ship from the Director General of Shipping (under Ministry of Shipping),obtain license for taking ships to sea from Ministry of Shipping, obtain Certificate of Competency for various grades of service in a ship from the Director General of Shipping (under Ministry of Shipping),obtain port clearance from collector of customs of the relevant ports in Bangladesh, obtain Passenger Ship Safety certificate from the Director General of Shipping (under Ministry of Shipping) and obtain TIN Certificate and Vat from NBR etc.
FM Associates, an international law firm has been providing legal solutions to Clients in regards to the Maritime laws of Bangladesh. FMA has ample amount of experience with the incorporation of entities and attainment of the necessary licenses under the Company laws of Bangladesh. FMA assist entities with the registration and licensing requirements of the establishment starting from the entire procedure of the setting up of the company to obtaining Tin, Trade license and Vat Certificate. The Maritime industry is labour intensive as innumerable employees are employed in this sector and such legal issues related to employment arises every other day. FMA assist with all sorts of employment matters including representing employer or employee in the Labour Courts in case of any industrial dispute. FMA also has a separate dedicated team of lawyers who deals with the immigration matters of expatriates.
Bangladesh, like any other countries in the world has been profoundly affected due to the outbreak corono virus- Covid 19 and due to shut down of the entire country there is a fall in demand of the transportation services via sea. With world import and export almost nonexistent at present, the ship owners await proper guidelines from the authorities on how to proceed because they are incurring huge financial losses and the world economy simply cannot continue to take such huge economic hits at the same times.
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How to Incorporate a Business in Bangladesh
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