Corporate Income Tax (CIT)
Income tax in Bangladesh is administered under the Income Tax Ordinance, 1984 and the Income Tax Rules, 1984, as well as notifications made under said Ordinance.
Scope :
For the purposes of CIT, no major distinction is made between foreign owned companies and Bangladeshi-owned companies; although some companies may qualify for certain tax incentives depending on the nature of their business. Companies incorporated in Bangladesh and foreign companies registered in Bangladesh (eg branch offices) are tax resident. Tax resident businesses are taxed on their worldwide income, subject to International Financial Reporting Standards and any double taxation avoidance agreements that may be in place. Non-tax resident businesses are subject to tax on any income accrued in Bangladesh.
Capital gains
Every company is liable to pay tax at the rate of 15 per cent on the capital gains derived from transfer of capital assets and at 10 per cent on the capital gain derived from the transfer of shares of listed company.
Groups
Bangladesh tax laws do not specifically address the issue relating to tax on group consolidation. In practice, the members of a group are taxed separately.
Thin capitalisation
All foreign borrowing by private sector industrial enterprises requires permission from the Board of Investment. Approval is subject to the fulfilment of a number of conditions namely:
• The debt-to-equity ratio must be within 70:30; this may vary as determined by BOI
• The fund cannot be used exclusively as working capital.
Losses
The Income Tax Ordinance 1984 provides for the offsetting of losses and carrying forward of losses under the relevant categories of income. Losses can be carried forward for six years. Unabsorbed depreciation can be carried forward for an unlimited time period.
Dividend income
Dividends paid to shareholders are subject to withholding taxes at the following rates:
• Resident/non-resident Bangladeshi company: 20 per cent
• Resident/non-resident Bangladeshi individual:10 or 15 per cent (subject to having twelve digit TIN)
• Non-resident non-Bangladeshi individual: 30 per cent
The rate of deduction of tax at source from the remittance of dividends to foreign investors is determined upon the consideration of the provisions of the applicable double taxation avoidance agreement. Tax credits are available regarding tax deducted at source.
Withholding tax
Interest payments are subject to a withholding tax at a rate of 20 per cent if paid to non-residents; the rates for companies are listed above. Intellectual property royalties payable to non-residents are subject to a withholding tax at a rate of 20 per cent; this is the final tax settlement.
Administration
A company is obliged to submit an annual income tax return by 15 July following the income year or, where 15 July falls before the expiry of six months from the end of the income year, before the expiry of such six months.
Controlled foreign companies
The profits of a foreign subsidiary are not required to be imputed to a parent company that is tax resident in Bangladesh.
Transfer pricing
The transfer pricing regulations in Bangladesh were enacted on 1 July 2014 by the Finance Act, 2014. Under these regulations, the pricing of any income or expense arising from international transactions between associated enterprises will need to be determined with regard to the arm’s length price principle applying the appropriate method(s) prescribed in Section 107C of the Income Tax Ordinance, 1984.
The most appropriate method or methods will be selected from the prescribed methods on the basis of the nature of transaction, the availability of reliable information, functions performed, assets employed, risks assumed or such other factors as may be prescribed. Every person who has entered into an international transaction shall provide, along with the annual income tax return, a statement of international transactions in the form and manner as may be prescribed. The statement of international transactions, to be provided under section 107EE of the Income Tax Ordinance, 1984, shall be in the form specified in Rule 75A of the Income Tax Rules, 1984, and signed and verified by the person responsible for signing the return of income under Section 75 of the Income Tax Ordinance, 1984.
Tax incentives
The following tax incentives are available for companies:
• Newly established industrial undertakings and physical infrastructure facilities set up between the periods of July 2011 to June 2019 will enjoy exemption from tax at varying rates for certain periods
• Industrial undertakings engaged in the manufacturing of goods, not eligible for a tax holiday, set up between the periods of July 2014 to June 2019 outside the territory of City Corporation will enjoy exemption from tax at varying rates for certain periods
• Accelerated depreciation on the cost of machinery and plant is admissible for new industrial undertakings, set up between the periods of July 2014 to June 2019, in the first three years of commercial production at 50, 30 and 20 per cent respectively
• Exemption on income derived on the export of handicrafts for the period from July 2008 to June 2019
• 50 per cent exemption on income derived from export business
• Exemption on income derived from Information Technology Enabled Services or software development or Nationwide Telecommunication Transmission Network until 30 June 2024
• Exemption on income of Private Power Generation Companies
• Initial depreciation in addition to normal depreciation where any building has been newly constructed or any machinery or plant has been installed in Bangladesh after the thirtieth day of June, 2002
• Reduced tax rates are applicable for specific types of business and certain areas subject to conditions set forth in the relevant provisions of laws
• Rebate on the amount spent to perform specified CSR activities
• Avoidance of double taxation on the basis of bilateral Double Taxation Avoidance Agreements
Income tax in Bangladesh is administered under the Income Tax Ordinance, 1984 and the Income Tax Rules, 1984, as well as notifications made under said Ordinance.
Scope :
For the purposes of CIT, no major distinction is made between foreign owned companies and Bangladeshi-owned companies; although some companies may qualify for certain tax incentives depending on the nature of their business. Companies incorporated in Bangladesh and foreign companies registered in Bangladesh (eg branch offices) are tax resident. Tax resident businesses are taxed on their worldwide income, subject to International Financial Reporting Standards and any double taxation avoidance agreements that may be in place. Non-tax resident businesses are subject to tax on any income accrued in Bangladesh.
Capital gains
Every company is liable to pay tax at the rate of 15 per cent on the capital gains derived from transfer of capital assets and at 10 per cent on the capital gain derived from the transfer of shares of listed company.
Groups
Bangladesh tax laws do not specifically address the issue relating to tax on group consolidation. In practice, the members of a group are taxed separately.
Thin capitalisation
All foreign borrowing by private sector industrial enterprises requires permission from the Board of Investment. Approval is subject to the fulfilment of a number of conditions namely:
• The debt-to-equity ratio must be within 70:30; this may vary as determined by BOI
• The fund cannot be used exclusively as working capital.
Losses
The Income Tax Ordinance 1984 provides for the offsetting of losses and carrying forward of losses under the relevant categories of income. Losses can be carried forward for six years. Unabsorbed depreciation can be carried forward for an unlimited time period.
Dividend income
Dividends paid to shareholders are subject to withholding taxes at the following rates:
• Resident/non-resident Bangladeshi company: 20 per cent
• Resident/non-resident Bangladeshi individual:10 or 15 per cent (subject to having twelve digit TIN)
• Non-resident non-Bangladeshi individual: 30 per cent
The rate of deduction of tax at source from the remittance of dividends to foreign investors is determined upon the consideration of the provisions of the applicable double taxation avoidance agreement. Tax credits are available regarding tax deducted at source.
Withholding tax
Interest payments are subject to a withholding tax at a rate of 20 per cent if paid to non-residents; the rates for companies are listed above. Intellectual property royalties payable to non-residents are subject to a withholding tax at a rate of 20 per cent; this is the final tax settlement.
Administration
A company is obliged to submit an annual income tax return by 15 July following the income year or, where 15 July falls before the expiry of six months from the end of the income year, before the expiry of such six months.
Controlled foreign companies
The profits of a foreign subsidiary are not required to be imputed to a parent company that is tax resident in Bangladesh.
Transfer pricing
The transfer pricing regulations in Bangladesh were enacted on 1 July 2014 by the Finance Act, 2014. Under these regulations, the pricing of any income or expense arising from international transactions between associated enterprises will need to be determined with regard to the arm’s length price principle applying the appropriate method(s) prescribed in Section 107C of the Income Tax Ordinance, 1984.
The most appropriate method or methods will be selected from the prescribed methods on the basis of the nature of transaction, the availability of reliable information, functions performed, assets employed, risks assumed or such other factors as may be prescribed. Every person who has entered into an international transaction shall provide, along with the annual income tax return, a statement of international transactions in the form and manner as may be prescribed. The statement of international transactions, to be provided under section 107EE of the Income Tax Ordinance, 1984, shall be in the form specified in Rule 75A of the Income Tax Rules, 1984, and signed and verified by the person responsible for signing the return of income under Section 75 of the Income Tax Ordinance, 1984.
Tax incentives
The following tax incentives are available for companies:
• Newly established industrial undertakings and physical infrastructure facilities set up between the periods of July 2011 to June 2019 will enjoy exemption from tax at varying rates for certain periods
• Industrial undertakings engaged in the manufacturing of goods, not eligible for a tax holiday, set up between the periods of July 2014 to June 2019 outside the territory of City Corporation will enjoy exemption from tax at varying rates for certain periods
• Accelerated depreciation on the cost of machinery and plant is admissible for new industrial undertakings, set up between the periods of July 2014 to June 2019, in the first three years of commercial production at 50, 30 and 20 per cent respectively
• Exemption on income derived on the export of handicrafts for the period from July 2008 to June 2019
• 50 per cent exemption on income derived from export business
• Exemption on income derived from Information Technology Enabled Services or software development or Nationwide Telecommunication Transmission Network until 30 June 2024
• Exemption on income of Private Power Generation Companies
• Initial depreciation in addition to normal depreciation where any building has been newly constructed or any machinery or plant has been installed in Bangladesh after the thirtieth day of June, 2002
• Reduced tax rates are applicable for specific types of business and certain areas subject to conditions set forth in the relevant provisions of laws
• Rebate on the amount spent to perform specified CSR activities
• Avoidance of double taxation on the basis of bilateral Double Taxation Avoidance Agreements
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