Branch, Liaison, Subsidiary: Regulatory Scope, Tax & Permissibility

Legal Framework for Foreign Presence in Bangladesh

Establishing a business presence in Bangladesh as a foreign entity involves navigating specific regulatory frameworks. The choice between a Branch Office, Liaison Office, or Subsidiary Company depends on the intended scope of activities, long-term objectives, and risk appetite. This guide outlines the key legal and tax considerations for each structure.

1. Liaison Office (LO)

A Liaison Office, also known as a Representative Office, is established by a foreign company to facilitate communication, explore business opportunities, and promote the parent company's products or services. It is strictly prohibited from undertaking any commercial or trading activities, earning local income, or entering into contracts on behalf of the parent company.

Regulatory Scope & Permissibility:

• Governing Authority: Bangladesh Investment Development Authority (BIDA) for initial approval, and Bangladesh Bank (BB) for foreign exchange matters.
• Permitted Activities: Liaisoning, communication, coordination, market research, and promotion of the parent company's business.
• Prohibited Activities: Any commercial, industrial, or trading activities; earning local income; entering into contracts; or engaging in manufacturing.
• Statutory Basis: Primarily governed by BIDA's guidelines for setting up Liaison/Branch Offices and the Foreign Exchange Regulation Act 1947 (FERA).

Tax Implications:

• Income Tax: A Liaison Office is generally not subject to income tax in Bangladesh as it is not allowed to generate any income. However, it must comply with all tax filing obligations, including submitting annual tax returns (even if 'nil' returns) under the Income Tax Act 2023.
• VAT: Not applicable as no commercial transactions occur.
• Withholding Tax: May be applicable on certain expenses (e.g., rent, professional fees) if paid to local residents, as per the Income Tax Act 2023.

2. Branch Office (BO)

A Branch Office is an extension of the foreign parent company and can engage in commercial activities, provided they are approved by the regulatory authorities. Unlike a Liaison Office, a Branch Office can generate income in Bangladesh, but its scope of activities is typically limited to those specified in its approval.

Regulatory Scope & Permissibility:

• Governing Authority: Bangladesh Investment Development Authority (BIDA) for initial approval, and Bangladesh Bank (BB) for foreign exchange matters.
• Permitted Activities: Specific commercial activities approved by BIDA, which may include import/export, construction, consultancy, etc.
• Prohibited Activities: Activities not specified in the approval letter.
• Statutory Basis: BIDA's guidelines for setting up Liaison/Branch Offices and the Foreign Exchange Regulation Act 1947 (FERA).

Tax Implications:

• Income Tax: A Branch Office is treated as a permanent establishment (PE) and is subject to corporate income tax on its Bangladesh-sourced income as per the Income Tax Act 2023. The corporate tax rate for non-publicly traded companies is currently 27.5% (as of the Income Tax Act 2023).
• VAT: Applicable on taxable supplies of goods and services as per the Value Added Tax and Supplementary Duty Act 2012.
• Withholding Tax: Applicable on various payments (e.g., salaries, rent, professional fees, interest) as per the Income Tax Act 2023.

3. Subsidiary Company

A Subsidiary Company is a separate legal entity incorporated in Bangladesh under the Companies Act 1994. It is distinct from its foreign parent company and enjoys full operational autonomy, subject to Bangladeshi laws. This structure offers the most flexibility for conducting business activities and is often preferred for long-term investments.

Regulatory Scope & Permissibility:

• Governing Authority: Registrar of Joint Stock Companies and Firms (RJSC) for incorporation, Bangladesh Bank (BB) for foreign exchange matters, and BIDA for foreign investment registration.
• Permitted Activities: Any legal commercial, industrial, or service activity permitted under Bangladeshi law, as specified in its Memorandum and Articles of Association.
• Statutory Basis: Companies Act 1994, Foreign Exchange Regulation Act 1947, and BIDA regulations for foreign investment.

Tax Implications:

• Income Tax: A Subsidiary Company is treated as a resident company and is subject to corporate income tax on its global income. The corporate tax rate for non-publicly traded companies is currently 27.5% (as of the Income Tax Act 2023). Publicly traded companies enjoy a lower rate.
• VAT: Applicable on taxable supplies of goods and services as per the Value Added Tax and Supplementary Duty Act 2012.
• Withholding Tax: Applicable on various payments (e.g., salaries, rent, professional fees, interest, dividends) as per the Income Tax Act 2023.
• Dividend Withholding Tax: Dividends paid to the foreign parent company are subject to withholding tax at a rate specified in the Income Tax Act 2023 or relevant Double Taxation Avoidance Agreements (DTAAs).

Key Procedural Steps for Establishing a Foreign Presence:

1. Choose the Appropriate Structure: Based on business objectives, evaluate the pros and cons of Liaison Office, Branch Office, or Subsidiary.
2. BIDA Approval: For Liaison and Branch Offices, apply to the Bangladesh Investment Development Authority (BIDA) for permission. For Subsidiaries, BIDA registration is required for foreign investment.
3. Bangladesh Bank Approval: Obtain necessary approvals from the Bangladesh Bank for foreign exchange remittances and operations under the Foreign Exchange Regulation Act 1947.
4. RJSC Incorporation (for Subsidiary): If establishing a Subsidiary, register the company with the Registrar of Joint Stock Companies and Firms (RJSC) under the Companies Act 1994.
5. Tax Identification Number (TIN): Obtain a TIN from the National Board of Revenue (NBR) for all entities, as per the Income Tax Act 2023.
6. VAT Business Identification Number (BIN): Obtain a BIN from the NBR if engaging in commercial activities (for Branch Office and Subsidiary), as per the Value Added Tax and Supplementary Duty Act 2012.
7. Bank Account Opening: Open a bank account in Bangladesh, typically a Non-Resident Taka Account (NRTA) or a Foreign Currency Account, as per Bangladesh Bank guidelines.
8. Other Licenses: Obtain any sector-specific licenses or permits required for the intended business activities.