Ins and outs of Branch Office and Liaison Office/ Representative Office in Bangladesh.

Bangladesh’s dynamic business landscape has garnered the attention of foreign investors seeking opportunities in this rapidly developing nation. To facilitate foreign investment and business activities, Bangladesh offers the option to establish branch and liaison offices. Branch/Liaison/Representative office plays an important role for maintaining the business relationship with forward and backward linkage.

?Foreign investors can benefit from this guide as they explore opportunities in Bangladesh, making informed decisions on the establishment of Branch and Liaison Offices while adhering to the legal and regulatory framework in this promising and rapidly growing nation.

?In this comprehensive guide, we will discuss the differences, advantages, and disadvantages of setting up these offices in Bangladesh.

What's role of Branch and Liaison Office:

In Bangladesh, a liaison office acts as a channel of communication between the principal place of business or head office overseas and entities within Bangladesh.? A liaison office cannot undertake any commercial activity directly or indirectly and cannot, therefore, earn any income in Bangladesh.

?Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in Bangladesh for the following purposes:

• Export and import of goods.
• Providing professional or consultancy services.
• Carrying out research work in which the parent company is engaged.
• Promoting technical or financial collaboration between Bangladeshi companies and the parent or overseas group company.
• Representing the parent company in Bangladesh and acting as buying or selling agents.
• Providing services in Information Technology and development of software in Bangladesh.
• Providing technical support for the products supplied by a parent or group companies.
• Foreign airlines, shipping companies, and foreign consultancy firms (educational/professional institutions).

A branch office is not allowed to carry out manufacturing activities on its own, but it is permitted to subcontract them to a Bangladeshi manufacturer.?It can earns locally and remit the money with permission from BIDA.

Formation of a Branch Office:

A Branch Office of a foreign company in Bangladesh enables engagement in commercial activities with prior approval from the Board of Investment (BIDA). It may also have a local source of income from approved business activities within Bangladesh, subject to prior approval from the Inter-Ministerial Committee, supported by proper justification and necessary documents.

The documents required to form a Branch Office in Bangladesh are the same as those for a Liaison/Representative Office, making this option accessible to foreign investors. However, it’s important to note that the renewal of branch office permission is required, which can be a limitation. Additionally, it may not be a suitable choice for special-purpose projects that require a clear separation of balance sheet functions from the parent company.

Formation of a Liaison/Representative Office:

Under the laws of Bangladesh, both Liaison and Representative Offices are synonymous. These offices are designed for very limited activities, including:

i.???? Maintaining liaison and coordination between the principal company and local agents, distributors, and exporter institutions through various forms of communication.

ii.??? Collecting, compiling, analyzing, and disseminating business information related to their approved field of activities, as specified in the BIDA’s approval letter.

A crucial point to note is that a Liaison/Representative Office will not generate any local source of income in Bangladesh. All setup and operational costs, including salaries of expatriates and local employees, must be borne by the parent company abroad. Furthermore, no outward remittances of any kind from Bangladesh sources will be allowed, except for the amount initially brought in from abroad, which is the unspent part.

Branch and Liaison Office as a Type of Business Entity:

Both a Branch and Liaison Office are considered legal entities in Bangladesh after registration with the Board of Investment. However, they are viewed as extensions of the foreign company rather than separate legal entities. This distinction is significant because it implies that the parent company is implicitly liable for all the debts and liabilities of the Branch or Liaison Office. Consequently, the activities of these offices are limited, making them unsuitable for certain projects.

?Key Facts about Branch and Liaison Offices in Bangladesh:

To understand the implications and requirements for establishing Branch and Liaison Offices in Bangladesh, consider the following key facts:

1. The name of the Bangladeshi Branch or Liaison Office must correspond to the name of the foreign company.
2. The structure and activities of the Branch or Liaison Office are governed by the foreign company’s Memorandum and Articles of Association. There is no separate Memorandum and Articles of Association for the Branch or Liaison Office.
3. A Branch or Liaison Office must have a physical office address located in Bangladesh.
4. The activities of a Branch or Liaison Office are confined to the areas and timeframes mentioned and approved in the approval letter issued by BIDA. If the foreign company wishes to continue the Branch or Liaison Office beyond the approved period, they must apply for necessary renewal or extension at least two months before the current approval expires.
5. If a Branch or Liaison Office plans to employ foreign nationals, it must obtain work permits from BIDA and seek permission from Bangladesh Bank under section 18A of the Foreign Exchange Regulation Act, 1947.
6. An amount of foreign exchange equivalent to at least US$ 50,000 or the equivalent, estimated as the initial establishment cost and six months of operational expenses, must be brought into Bangladesh as an inward remittance within two months from the date of issuance of the BIDA permission letter. For this purpose, the Branch or Liaison Office must open an account with a scheduled bank in Bangladesh.
7. Quarterly income and expenditure reports from remittances received from abroad must be submitted to BIDA, the concerned bank, the National Board of Revenue, and Bangladesh Bank, along with supporting documentation.
8. Any change of the office address must be reported to BIDA for necessary action and approval before the proposed change is implemented.
9. The Branch or Liaison Office must obtain clearances and licenses from relevant government agencies where required, in accordance with the country’s existing rules.
10. The office must pay duties, income tax, VAT, revenues, and other taxes as per the laws of Bangladesh. The VAT rate is 15%, and the income tax rate is 27.5% or 30%. The duty varies depending on the assessable value of imports.
11. Deductions for taxes at source, while paying office and house rent, salaries, and bills for purchased goods, services, and contract work, are mandatory and must be deposited in designated government accounts in accordance with the Bangladesh Income Tax Act 2023 (Previously Income Tax Ordinance, 1984). Enterprises must obtain a Taxpayer Identification Number (TIN) from the National Board of Revenue.
12. Approval for Branch and Liaison Offices and work permits for foreign nationals are contingent upon security clearance from the Ministry of Home Affairs. The Ministry typically provides security clearance within 45 days of the issuance of the permission letter, in line with the existing Visa policy.
13. If a foreign company wishes to establish more than one Branch or Liaison Office in Bangladesh, separate prior permission must be obtained from BIDA for each.

?Documents Required for BIDA Approval:

To obtain BIDA approval for a Branch or Liaison Office, the following documents and information are generally required:

1.??? An application in the prescribed form, signed by the authorized person for the establishment of a Branch/Liaison/Representative Office (4 copies).

2.??? The Memorandum and Articles of Association and Certificate of Incorporation of the parent company.

3.??? Information about the names and nationalities of the directors/promoters of the parent company.

4.??? Audited accounts of the last financial year of the parent company.

5.??? The parent company’s board of directors’ resolution regarding the opening of a Branch/Liaison/Representative Office in Bangladesh.

6.??? A proposed organogram of the Branch/Liaison/Representative Office, showing the positions to be held by both expatriates and local personnel.

7.??? Details of the activities to be carried out through the proposed Branch/Liaison/Representative Office in Bangladesh.

8.??? A forwarding letter to BIDA.

Documents, such as items 2 to 5, must be attested by the concerned Bangladesh mission or the mission of the respective country in Bangladesh or the respective country’s apex business chamber or local business chambers. Any documents not in English must be translated into English before submission. Moreover, it’s essential to provide four copies of all documents to BIDA. Additional documents may be requested after an initial review of the materials.

?A fee of Tk. 25,000 must be paid through a treasury challan (code no. 1-3901-0001-1876) of Bangladesh Bank or any branch of Sonali Bank. The original challan copy must be submitted to BIDA.

Registration Procedure and Timeline:

All documents must be physically submitted to BIDA for approval. Following a thorough review of the documents, BIDA officials will present the application and documents to the Inter-Ministerial Committee. The Committee will scrutinize the documents, and if satisfied, it will provide approval. The Committee typically meets twice a month, and the usual timeline for obtaining approval from BIDA is approximately one month. Initially, approval is granted to open a Branch or Liaison Office for a period of three years, with the possibility of extensions.

?This structured approach ensures that the foreign investor’s rights are upheld, and all legal requirements are met. The BIDA permission letter empowers foreign investors to commence business activities in Bangladesh within the framework of the law.

?Foreign investors are increasingly drawn to the burgeoning opportunities in Bangladesh, and establishing Branch and Liaison Offices is a viable way to tap into this dynamic market. These offices allow foreign companies to connect with local stakeholders, agents, distributors, and export institutions, enhancing their business operations and market presence in Bangladesh.

?However, it’s imperative to understand the limitations associated with these offices. The implicit liability of the parent company for debts and liabilities of the Branch or Liaison Office can be a deterrent, especially for projects that require greater autonomy and separation of activities. Consequently, foreign investors must weigh the advantages of market access against the potential limitations on the scope of their operations in Bangladesh.

?With a well-defined process for approval and a clear timeline, BIDA makes it feasible for foreign investors to navigate the bureaucratic landscape and initiate business activities in a reasonable timeframe. This process allows for security clearances and ensures that all tax, VAT, and revenue obligations are met, thus promoting a favorable business environment.

?Certainly, here’s a table with structured overview of the key aspects related to Branch and Liaison Office Registration in Bangladesh:

This table provides a structured overview of the key stages and considerations for foreign investors looking to establish Branch and Liaison Offices in Bangladesh. It outlines the necessary steps, required documents, and timelines for a successful registration and operation process.

?In conclusion, while the establishment of Branch and Liaison Offices in Bangladesh offers access to an expanding market, foreign investors should be mindful of the constraints and responsibilities associated with these entities. Careful consideration and expert legal counsel are essential for a successful and legally compliant venture in Bangladesh.

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