How to Setup Trading Business in Bangladesh

A basic sole proprietorship business can be started with simply acquiring a Trade License. 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. On providing the required documents with the proper certification, enquiry by the licensing supervisor and payment of the requisite fees, a Trade License can be obtained easily. Trade License is also a primary requirement for any business in Bangladesh be it a company or a partnership.

 

Partnership is a popular arrangement for conducting business in Bangladesh with partners ranging from two to twenty. It is a rather straightforward process which stipulates the ownerships, rights and roles of all the partners. Such agreements are usually done on Government issued non judicial stamp papers purchased by paying the requisite stamp duties as per the law which increases the enforceable value of the agreement. A partnership agreement also needs to be registered with the Registrar of Joint Stock of Companies also known as RJSC to be valid.

 

Now, when it comes to companies, there are various options available. Companies cane be formed and incorporated in Bangladesh as entities such as private limited company or public limited company. Public limited companies can raise funds from the general public by issuing shares, however private limited companies have a fixed set of shareholders. For 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 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. If there are foreign shareholders in the company, they would require a bank account where their part of the capital would be delivered and thereby an encashment certificate which will record the investment will need to be submitted with the requisite list of 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 have the option of engaging 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.

 

Other than that, there are some registrations required for taxation purposes such as the Tax Identification Number (TIN) with the National Board of Revenue also known as NBR which will be the primary document used for taxation purposes. All earning individuals or bodies or entities in Bangladesh require this document to identify with the Tax authorities. Value Added Tax (VAT) registration is also required for all businesses in Bangladesh which is obtained from the NBR as well. Whether the tax and VAT are payable will depend on the earning of the individual business entity. 

 

Also, some licenses depend on the requirement of the particular trade. For example, for export and import business, an entity will require an Import Registration Certificate (IRC) and/or an Export Registration Certificate (ERC) which can be obtained by applying to the Office of Chief Controller of Imports and Exports (CCI&E). There are also some other licenses required to run the business which will depend on the type of trading. For example, if a company wants to conduct business in the Telecommunications Sector, particular licenses would be required from the Bangladesh Telecommunication Regulatory Commission (BTRC) under the Telecommunication Act 2001. Then again for ensuring quality of certain products, a license has to be taken by food processing industry from the Bangladesh Standard and Testing Institution (BSTI) before entering the products in the market. If such a trading company is operating as a factory, they would also require Factory license, Fire License and Environment Clearance Certificate from the respective authorities.

 

In some cases, to import, export or to conduct a particular business as a whole, registration is required with a business association or body which works towards the common goal for the betterment of the business, such as Dhaka Chamber of Commerce, Bangladesh Garments Manufacturers and Exporter’s Association etc.

 

  

As the ambit of Trading business is huge, legal issues may arise from multiple areas. In this perspective, the focus is on the most common legal issues seen in the Trading business. Firstly, the law of contract plays a major role as all business and transactions are done through a contract be it written or verbal. The Contract Act (1872) is the leading law for dealing with disputes arising from agreements and contracts. In Bangladesh, because most written contracts are made on stamp paper, it is important to give consideration to the Stamp Act (1899) as it stipulates the amount of stamp duty that needs to be paid for a particular instrument. 

 

The Trading business is extremely dependent on the banks since most of the transactions take place through the banking system under the Bank Company Act 1991. Companies have requirements for different type of bank account. It can be for general banking transactions, salary accounts for their staff, accounts for receiving foreign investment to avail encashment certificates for foreign investors etc. Some businesses obtain cash credit loans from banks and financial institutions and grow their portfolio for there. A lot of businesses also take small or medium enterprises loans against a collateral to avail more business opportunities while still having the right to retain their possession. There are also loans taken against mortgages. A big contributor in this business in recent years have been the non-banking financial institutions which provide star-up business loans as well under the Financial Institutions Act 1993. Banks also provide major loans for implementation of different projects to companies while also sometimes providing the loaning facilities  to the Government. At the same time, there is the Letter of Credit through which transactions of most import and export take place. Because of such inter-country transactions, the foreign exchange regulations also come in to play in a major way. Bangladesh Bank being the regulatory authority forms the regulations regarding these matters under the Bangladesh Bank Foreign Exchange Guidelines. Legal issues often arise from default of loans taken. Sometimes discrepancies with the banking documents and agreements arise. Issues can be seen with regards to L/Cs where the payment has been stopped which brings UCP (Uniform Customs and Practice for Documentary Credits) 600 into consideration. Foreign transactions leading to illegal means and finance is considered a serious offense and is regulated very seriously by the Bangladesh Bank as per Money Laundering Prevention Act,2012.

 

Issues with labour laws are prominent in the Trading business. It is common to have legal issues arise from matters such as wages, leaves, benefits, employment contracts, appointment letters, gratuity, provident funds, disciplinary matters etc. For every entity involved in employment of labor, it is extremely important to comply with the legally stipulated working hours, number of leaves, all employment benefits, termination benefits, trade union issues, workers’ welfare matters etc. granted by the government of Bangladesh under the Bangladesh Labour laws (Bangladesh Labour Act 2006). The Department of Inspection for Factories and Establishments (DIFE) is the statutory body who has the authority to monitor all labour related issues.  

 

Bangladesh is a country which allows full ownership by foreigners in some sectors and in some forms. This not only brings a load of foreign investment, with it comes the investors with the requirement of residing in Bangladesh and this is leading to a lot of growth in immigration and work permit issues. 

 

 

FMA is a full-service law firm with excellent expertise in providing all types of legal solutions to Trading businesses. FMA’s expertise includes working with all kinds of legal issues from company, labour, banking, immigration laws etc. 

 

FMA can provide assistance with regards to incorporation of company, obtaining trade license, I.R.C, E.R.C, VAT, TIN etc. and any type of drafting with regards to such work including Articles and Memorandum of Association etc. FMA’s range of work in this sector has established an extremely reliable image with its’ clients over the tenure of its’ existence.

 

The FMA team also specializes in labour issues, regularly providing advice on all sorts of labour issues including termination, payments, wages, trade union issues, workers’ welfare matters 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 trading industry.

FMA’s proficiency also includes immigration matters with regards to expatriates and provides support in obtaining the E-visas, FE visas and the Work Permit. FMA works with some of the biggest firms both local and foreign with regards to their expatriates. In addition, FMA has a whole wing dedicated to the financial and taxation issues which can take care of all the tax matters, payroll etc.

 

 

Covid-19 has been an eye opener in terms of the vulnerability of all economies around the world. Bangladesh is no different and in its 49 years history, has never faced a crisis so taxing. The resulting effect on the Bangladesh economy has been devastating. Locking down and quarantining the mass has been a challenge but its’ effect on Trading businesses has been profound. 

 

The hit was the hardest on small businesses and sole proprietors who are having to shoulder the burden almost to a situation of existential crisis. Import and export have stopped so there are shortage of resources and products in the market. It has caused entities to invoke the “force majeure” clauses of contract in a lot of situation. Contracts are being frustrated because of the lack of ability of performance of the contract under the current circumstances.

 

A huge number of workers have lost their jobs or are being laid off due to the Covid-19 situation. 

 

The Covid-19 will leave a lasting impression on the economy and as a result, a lot of trading businesses might never recover or re-open. This will also lead to a lot of legal implications where contracts have not been fulfilled on time and lack of services leading to losses. The legacy of Covid-19 is something nations have to suffer for a long period even after the crisis is over.

 

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.  

 

 

It can be concluded that Bangladesh being a booming economy with cheap labour, is a stable place for investment for the future. The Government has been diligently making progress to ensure there are more investments both foreign and domestic. The improvement of infrastructure and business environment will only support further investment.

  

 

A lot of businesses come under the umbrella of Trading. It can include a business entity that has been formed as a company or a partnership or a sole proprietorship. But like all businesses there are requirements of following the legal rules and regulations with regards to the Trading business and because its’ ambit is so huge, the legal conundrums can increase depending on the circumstances of the business.

 

Some of the basic requirements for any business in Bangladesh include documents such as Trade License which can be acquired by applying to the relevant City Corporation, Municipal Corporation or Union Parishad or VAT and TIN etc. which can be obtained from applying to the NBR. These are necessities for any business from sole proprietorship to partnerships and companies. Partnerships can be formed through agreement between the concerned parties and registering the same with RJSC. Companies in the form of public limited or private limited can be formed by applying with the requisite documents to RJSC. The fundamental difference is that public limited companies have the option of raising funds from the public by selling shares where as private limited companies have their set list of shareholders

 

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. Branch offices can have income from local business where as Liaison offices are only meant for maintaining liaison. Depending on the type of business, other licenses can also become necessary such as IRC and ERC for import and export. There are also some other licenses required to run the business which will depend on the type of trading such as licenses from BTRC for telecommunication business, licenses from BSTI for food processing industry etc.

 

Legal issues can arise from various situations in the Trade business. Because there is a requirement of contracts in any business transaction, the most common type of legal disputes emerges from Contract law. Businesses have to deal regularly with banks and this is why banking laws especially loans and financing policies come in to play. Import and export attract the foreign exchange regulations set by the Bangladesh Bank.

 

Other legal affairs include labour law as there is a huge number of employees involved in these trading businesses in one way or the other. It can give rise to all sorts of legal conundrums such as wages, leaves, employment contracts, appointment letters or contracts, wages, gratuity and provident funds etc. 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.

 

FMA can provide all the services in relation to the Trading Business. FMA can give assistance with regards to incorporation of company, obtaining trade license, I.R.C, E.R.C, VAT, TIN etc. FMA also has unparalleled experience in the fields of labour law and can advice with all concerned matters with relevance to labour laws mentioned above. FMA also has specific wings dedicated to financial and immigration matters. All in all, FMA being a full-service law firm can provide a total legal solution.