Foreign Direct Investment (FDI) Legal Guide in Bangladesh: Entry, Operation, and Exit

Bangladesh is increasingly becoming a preferred destination for Foreign Direct Investment (FDI) due to its rapidly growing economy, favourable demographic profile, and strategic access to regional markets. The country offers various legal structures for foreign investors to enter and operate within its jurisdiction, supported by a legal regime that balances investor incentives with national oversight. At Kazi Law Chamber, we provide end-to-end legal support to foreign investors, ensuring full compliance with the laws governing business establishment, capital deployment, and exit.

Entry Options for Foreign Investors

Foreign investors have three primary legal vehicles for conducting business in Bangladesh: Liaison Office, Branch Office, and Locally Incorporated Company (subsidiary or joint venture). Each structure comes with its own set of regulatory requirements and limitations.

A Liaison Office, also referred to as a Representative Office, acts as a communication channel between the foreign parent company and stakeholders in Bangladesh. It lacks legal personality and is strictly prohibited from engaging in income-generating activities. All operational expenses, including salaries of local or expatriate staff, must be met through inward foreign remittance. Liaison Offices must obtain prior approval from the Bangladesh Investment Development Authority (BIDA) and register with the Registrar of Joint Stock Companies and Firms (RJSC). While the scope of a Liaison Office is limited, it is ideal for conducting market research and initial business outreach.

A Branch Office, though also not a separate legal entity, may engage in specific business activities, subject to BIDA’s approval. It serves as an operational arm of the foreign company and is allowed to generate income within the boundaries of its license. Branch Offices are also required to be registered with the RJSC and are governed by exchange control regulations under the Companies Act, 1994. Though they offer operational advantages over Liaison Offices, they may not be suitable for entities seeking long-term market integration.

The most flexible option is the incorporation of a Locally Registered Company, either as a wholly owned subsidiary or a joint venture. A company incorporated under the Companies Act, 1994 is treated as a domestic entity for tax purposes, and most sectors allow 100% foreign ownership. The incorporation process involves name clearance, submission of the Memorandum and Articles of Association (MoA and AoA), and capital structuring. Once registered with RJSC, such companies enjoy the full rights and obligations of local entities, making them ideal for long-term, revenue-generating activities.

Sectoral Restrictions and Prior Approvals

While Bangladesh maintains a largely liberal investment regime, there are specific sectors where foreign investment is either prohibited or requires prior government clearance.

Sectors completely closed to foreign and local private investment include arms and ammunition, nuclear power, security printing and minting, and commercial exploitation within reserved forests. In addition, seventeen controlled sectors require prior permission from respective line ministries or authorities. These include industries such as banking, insurance, telecommunication services, power generation, exploration of oil and gas, satellite broadcasting, sea and air transport, and large-scale infrastructure development.

Prospective investors must conduct thorough regulatory due diligence and secure necessary ministerial approvals before entering these controlled sectors. Kazi Law Chamber assists clients in identifying sector-specific regulatory obligations and securing the relevant clearances in a timely and strategic manner.

Funding of Foreign-Invested Businesses

Foreign-funded companies in Bangladesh can be capitalized in two principal ways: Equity Share Capital and Borrowings.

Equity Share Capital is the most straightforward mechanism. Shares can be issued up to the limit set by the authorized capital mentioned in the company’s MoA. The company may increase its authorized capital through shareholder resolution if required. Foreign equity investments must be brought into the country via inward remittance, duly reported to Bangladesh Bank. Repatriation of capital is permitted in the event of share transfer or liquidation, subject to regulatory compliance.

Foreign Borrowings are another mode of financing, especially useful for working capital and project expansion. However, loans from foreign lenders usually require prior approval from Bangladesh Bank and sometimes from BIDA, depending on the nature of the loan, the lender, and the repayment terms. Loans must comply with interest rate ceilings, debt-equity ratio guidelines, and tenure restrictions.

Repatriation of Funds and Exit Procedures

Foreign investors are allowed to repatriate dividends, capital gains, and residual funds following the winding up of business, provided all statutory dues have been cleared and the process complies with Bangladesh Bank’s Guidelines for Foreign Exchange Transactions (GFET) 2018.

Court-Supervised Winding Up is suitable where the company has outstanding liabilities or disputes requiring court oversight. In such cases, Kazi Law Chamber assists with preparation of court petitions, obtaining orders specifying distributions, and securing liquidator’s certificates confirming full settlement of obligations.

In contrast, Voluntary Winding Up is applicable to solvent companies that can independently settle their affairs. This process involves board and shareholder resolutions, clearance of all taxes, submission of audited financials, and final reporting to RJSC. After fulfilling these formalities, permission for repatriation of residual funds can be sought from Bangladesh Bank.

Authorized Dealer (AD) banks are required to conduct due diligence before permitting outward remittance. ADs must verify KYC details, compliance with Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) norms and verify all documentary evidence.

Repatriation of Funds Following Share Transfer

Foreign investors transferring shares in private or public limited companies not listed on a stock exchange are entitled to repatriate the sale proceeds, subject to compliance with Bangladesh Bank regulations. In this context, FEID Circular No. 1 provides the basis for valuation and repatriation procedures.

Under this guideline, share valuation is typically conducted using the Net Asset Value (NAV) method, based on audited financial statements and filed tax returns. It is essential to ensure that adjustments are made for impaired assets, and that asset growth has remained stable over the past three years. For remittances up to Tk 10 million, no Bangladesh Bank permission or external valuation reports are required. However, for remittances exceeding Tk 10 million but not exceeding Tk 100 million, the valuation report must be submitted to the Foreign Exchange Investment Department within 30 days of the remittance.

Repatriation must be conducted in strict compliance with Paragraphs 2(A) and 2(B), Chapter 9 of the Guidelines for Foreign Exchange Transactions-2018, and the Foreign Exchange Regulation Act, 1947 (amended up to 2015). Authorized Dealer (AD) banks are responsible for ensuring KYC, AML, and CFT compliance before processing any foreign exchange transaction.

Short-Term Working Capital Loan Facilitation

Foreign-owned or controlled companies operating in Bangladesh may secure short-term working capital loans from their parent companies or foreign shareholders, subject to approval under Paragraph 9, Chapter 15 of the Guidelines for Foreign Exchange Transactions-2018, Volume 1. These loans may be interest-bearing or interest-free, with a general cap of one year, and must not be used for input procurement.

Where interest is applicable, the interest rate must conform to the prevailing 3-month interest rate at the time of disbursement. The lender and borrower must ensure accurate calculation of accrued interest, and such interest must be repatriated to the source country in compliance with Bangladesh Bank’s tax and documentation requirements.

The facility may be utilized for up to three years from the commencement of commercial manufacturing. Beyond that, companies must seek timely renewal or extension approval from the regulatory authority.

Repatriation of Dividends and Profits

Foreign investors are entitled to repatriate post-tax dividends and profits without seeking prior permission from Bangladesh Bank. This is applicable to equity investments in private and public companies, as well as to branches of foreign entities, except in the case of banks and financial institutions.

Repatriation is executed via Authorized Dealer banks, provided the investor has fulfilled all corporate tax obligations and submitted supporting documentation such as audited financial statements, board resolutions, and shareholding records. In most instances, dividend repatriation is categorized as an automatic transaction, thus eliminating procedural delays.

Royalty, Technical Know-How, and Operational Fees

Bangladeshi companies may enter into technical collaboration agreements with foreign companies involving royalty payments, technical assistance fees, know-how licensing, operational service charges, and marketing commissions. Remittances under such agreements are allowed within certain limits and require regulatory disclosure.

In general, technical assistance fees and royalty payments must not exceed 6% of the prior year’s revenue or the value of imported machinery, whichever is relevant. The agreements must be filed with Bangladesh Bank and may require clearance from BIDA if falling within a controlled sector. 

Additionally, companies producing for local markets may remit payments related to training and consultancy services, up to a percentage of the previous year’s declared sales as per their income tax return. These payments must be supported by formal service contracts and processed through authorized channels.

Restrictions and Requirements on Foreign Exchange Remission

All foreign investments in Bangladesh must be made in freely convertible foreign currency via official banking channels. While foreign investors enjoy the right to buy and sell shares in local companies at fair market value, share transfers from non-residents to residents are subject to valuation oversight by Bangladesh Bank, especially when it involves repatriation of funds.

Authorized Dealer banks are responsible for obtaining necessary approvals and ensuring that repatriation requests are accompanied by proper documentation. This includes remittance of:

• Dividends and profits;
• Capital gains on share transfers;
• Liquidation proceeds;
• Loan repayments (principal and interest).

Foreign borrowings must be registered and approved by the authorities before remittance of repayment. Shareholder loans are allowed for working capital purposes with a tenure of up to six years and a maximum interest rate of 3% per annum. Although the opening of foreign currency bank accounts onshore is permissible with central bank consent, the operation of offshore bank accounts is generally prohibited.

Import of Plant and Machinery

Bangladesh permits the import of capital machinery and equipment essential for industrial and infrastructure development. However, all such imports must adhere to procedural requirements laid down by various regulatory bodies.

For importing capital machinery, investors must obtain a recommendation from BIDA and secure approval from the Chief Controller of Imports and Exports (CCIE). For other imports, such as spare parts and consumables, companies must possess a valid Import Registration Certificate (IRC) issued by the CCIE.

All imports must be transacted via Authorized Dealer banks, using either a Letter of Credit (LC) or a fully prepaid method, in accordance with the current Import Policy Order and foreign exchange guidelines. Kazi Law Chamber assists foreign investors in completing the licensing, documentation, and customs clearance procedures, enabling a seamless setup of manufacturing and production facilities in Bangladesh.

Restrictions and Requirements on Foreign Workers and Experts

Foreign entities seeking to employ foreign nationals in Bangladesh must adhere to strict criteria laid out by BIDA and other regulatory bodies. Only nationals from countries officially recognized by Bangladesh may be considered for work permit applications. Furthermore, such permits are granted only where qualified local professionals are not available, ensuring that foreign employment complements rather than replaces domestic capacity.

The employment ratio of expatriates to local staff is tightly regulated. In the industrial sector, the allowable ratio is 1:20, while in the commercial sector, it is 1:5. These ratios are enforced to encourage skill transfer while preserving employment opportunities for Bangladeshi citizens. Individuals below the age of 18 are strictly prohibited from applying for work permits.

Work permits are initially granted for a maximum duration of two years, with renewals assessed on a case-by-case basis. Approval also requires security clearance from the Ministry of Home Affairs, which conducts background checks prior to granting permission. Additionally, before any permit application, employers must demonstrate a minimum paid-up capital or initial foreign remittance of USD 50,000 into the company’s bank account in Bangladesh.

Foreign nationals must also obtain an e-visa endorsed for “employment” purposes before entering Bangladesh. Only upon arrival can they proceed to apply for a work permit through BIDA.

Key Legal Instruments Governing Foreign Investment in Bangladesh

Bangladesh’s FDI regime is shaped by a comprehensive network of acts, regulations, circulars, and institutional guidelines. These instruments collectively ensure transparency, investor protection, environmental compliance, and financial accountability. Below are the primary legal frameworks applicable to foreign investors:

• Foreign Private Investment (Promotion and Protection) Act, 1980: This foundational legislation guarantees non-discriminatory treatment for foreign investors and ensures repatriation of capital, dividends, and profits. It also offers protection against expropriation without compensation.
• Bangladesh Export Processing Zones Authority Act, 1980: Governs the establishment and management of Export Processing Zones (EPZs), offering tax holidays, duty exemptions, and streamlined regulatory approvals for businesses operating within EPZs.
• Bangladesh Economic Zones Act, 2010: Facilitates the creation of Economic Zones (EZs) under public-private and foreign-investor-led initiatives, providing long-term fiscal and regulatory incentives.
• Companies Act, 1994: This is the primary law for the incorporation, operation, and liquidation of companies in Bangladesh. It outlines shareholder rights, board responsibilities, and corporate governance principles.
• Bangladesh Investment Development Authority (BIDA) Act, 2016: Establishes BIDA as the apex body for investment facilitation. BIDA provides single-window services, sectoral clearances, and policy advocacy for both local and foreign investors.
• Income Tax Ordinance, 1984: Determines the tax obligations and exemptions available to foreign-invested businesses, including reduced rates in priority sectors and tax holidays in EPZs and EZs.
• Value Added Tax (VAT) and Supplementary Duty Act, 2012: Sets out the framework for VAT registration, collection, input credits, and duties applicable to goods and services, including those imported or supplied by foreign-owned entities.
• Bangladesh Labour Act, 2006: Governs employment terms, working conditions, and labor rights, including rules for appointment, wages, working hours, leave, retrenchment, and dispute resolution. It applies to both local and foreign entities operating in Bangladesh.
• Customs Act, 1969: Provides the legal basis for import and export duties, exemptions, and customs procedures. It plays a key role in capital machinery and raw material imports related to foreign investment projects.
• Foreign Exchange Regulation Act, 1947 (as amended): Regulates foreign exchange dealings, including remittances, borrowings, account openings, and currency conversions. It forms the backbone of financial transaction compliance for foreign investors.
• The Arbitration Act, 2001: Enables arbitration as an alternative dispute resolution mechanism, including cross-border commercial disputes involving foreign parties. It recognizes international arbitral awards under the New York Convention.
• Environment Conservation Act, 1995: Requires all industrial and infrastructure projects to comply with environmental clearance procedures, including Environmental Impact Assessments (EIA) and compliance monitoring by the Department of Environment.
• Securities and Exchange Ordinance, 1969: Overseen by the Bangladesh Securities and Exchange Commission (BSEC), this law regulates the issuance, listing, and trading of securities, including offerings made by foreign or foreign-controlled entities.
• The Public-Private Partnership (PPP) Act, 2015: Offers a clear structure for foreign investors to partner with government agencies in infrastructure development projects through Build-Operate-Transfer (BOT) or similar models.
• Investment Promotion and Financing Facility (IPFF): Developed in collaboration with the World Bank, the IPFF offers guidelines and financing opportunities for private sector infrastructure investments, particularly in energy, transport, and waste management.
• Bangladesh Bank Circulars and Guidelines: Numerous circulars issued by the central bank govern capital account transactions, loan approvals, inward and outward remittances, and foreign currency account regulations. These circulars are binding on both banks and foreign investors.
• Board of Investment (now merged into BIDA) Rules and Circulars: Previously issued procedural guidelines remain valid and continue to shape FDI documentation, capital remittance, and permit processing.