Sunday, March 8, 2020

Foreign Direct Investment Policy

Its a liberal investment policy, there are very few restrictions on foreign ownership of businesses or property in Bangladesh.

FDI comprises an overwhelming part of the economy of Bangladesh in its contribution to Gross Domestic Product (GDP), export and domestic investment as well as overall economic growth. FDI inflows have traditionally been in the form of equity, reinvestment and intra-organisation acquisitions. While there are generally very few restrictions on FDI, private sector investment is prohibited in the following sectors: arms and ammunition, defence, forest plantation, extraction of reserved forests, nuclear energy, security printing and mining.

Furthermore, the following sectors will require investors to obtain licenses before they are able to commence business: banking, finance, insurance, telecommunications, aviation and broadcasting. Foreign investors that wish to acquire stakes in local companies will need to obtain approval from the Bangladesh Bank if the control of the business is subsequently transferred to foreign shareholders.

Government incentives

Alongside the incentives outlined in the tax section, the government provides cash assistance and other incentives for doing business in Bangladesh in certain export-oriented industries. Cash incentives are available in the following sectors, with different cash incentive rates:

• Textile

• Agro products

• Bicycle

• Crashed bone

• Poultry

• Light engineering products

• Liquid glucose used in agro product

• 100 per cent Halal meat

• Frozen shrimp & other fish

• Leather

• Ship export

• Finished leather

• Crushed leather

• Plastic pet bottle

• Jute products


Bangladesh’s imports mostly comprise petroleum and oil (11 per cent of the total imports), textile (10 per cent) and food items (nine per cent). The import regime comprises: a banned list, a restricted list, freely importable items and certification requirements for all food products. All other permitted imports require a Letter of Credit Authorisation to be completed.

The Financial System of Bangladesh

The financial system of Bangladesh is comprised of three broad fragmented sectors:

• Formal sector

• Semi-formal sector

• Informal sector

The sectors have been categorised in accordance with their degree of regulation. The formal sector includes all regulated institutions, such as banks, non-bank financial institutions (FIs), insurance companies, capital market intermediaries such as brokerage houses, merchant banks and micro finance institutions (MFIs).

The semi-formal sector includes those institutions which are regulated but do not fall under the jurisdiction of the Central Bank, Insurance Authority, Securities and Exchange Commission or any other enacted financial regulator. This sector is mainly represented by specialised financial institutions, such as House Building Finance Corporation (HBFC), Palli Karma Sahayak Foundation (PKSF), Samabay Bank, Grameen Bank, Non-Governmental Organizations (NGOs) and discrete government programs.

The informal sector includes private intermediaries which are completely unregulated.

Capital markets

The Bangladesh Securities Exchange Commission (BSEC) is the primary regulator for all activities of the bourses and its members. The BSEC is a ‘Category A’ member of International Organisation of Securities Commission (IOSCO).

 With over 300 listed companies, the capital market of Bangladesh s considered to be one of the emerging markets in the context of the global financial system. The market has immense potential for the country’s industrialisation, development of infrastructure, in particular, and economic growth in general.

Bangladesh’s capital markets comprise the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE), incorporated in 1954 and 1995, respectively. Some of main features of the market are as follows:

• Both Dhaka and Chittagong Stock Exchanges are members of South Asian Federation of Exchanges (SAFE), a forum in South Asia to promote the development of securities markets in the region

• Automated trading facilities have been available at both bourses since 1998

• The Central Depository Bangladesh Limited (CDBL) introduced its first electronic book entry in 2004 • Market intermediaries include 250 Trading Right Entitlement Certificate (TREC) holders of Dhaka Stock Exchange (DSE), 135 TREC holders of Chittagong Stock Exchange (CSE), 55 registered merchant banks, 17 asset management companies, and 10 custodians

Banking system

The banking system of Bangladesh consists of Bangladesh Bank (BB) as the Central Bank, six state owned commercial banks (SCB), two specialised banks (SDBs), 39 private commercial banks (PCBs) of which 31 are commercial PCBs, eight Islamic Sharia-based PCBs, nine foreign commercial banks (FCBs) and four non-scheduled banks.

Bangladesh Bank, as the central bank, has legal authority to supervise and regulate all banks and non-bank financial institutions. It performs the traditional central banking roles of note issuance and of being the banker to the government and banks. Given some broad policy goals and objectives, it formulates and implements monetary policy, manages foreign exchange reserves and implements prudential regulations and conducts monitoring thereof as they are applied to the entire banking system. Its prudential regulations include, among others: minimum capital requirements, limits on loan concentration and insider borrowing and guidelines for asset classification and income recognition. Bangladesh Bank has the power to impose penalties for non-compliance and also to intervene in the management of a bank if serious problems arise. It also has the delegated authority of issuing policy directives regarding the foreign exchange regime.

Under the financial sector reform program, a flexible interest policy was formulated. According to that, banks are free to charge/fix their deposit and lending rates, other than those related to export credit. Banks can differentiate interest rates up to three per cent. With progressive deregulation of interest rates, banks have been advised to announce the mid-rate of the limit (if any) for different sectors and the banks may charge interest 1.5 per cent more or less than the announced mid-rate on the basis of the comparative credit risk. Banks upload their deposit and lending interest rate to their respective website.

Insurance industry  

The insurance sector is regulated by the Insurance Act, 2010. The Insurance Development and Regulatory Authority (IDRA) was instituted on 26 January 2011 as the regulator of the insurance industry being empowered by Insurance Development and Regulatory Act, 2010 by replacing its predecessor, Chief Controller of Insurance. General insurance is provided by 45 companies and life insurance is provided by 30 companies. The industry is dominated by the two large, state-owned companies: SBC for general insurance and JBC for life insurance, which together command most of the total assets of the insurance sector

Investment management industry

Bangladesh’s asset management industry is very immature. Nevertheless, a stable economic outlook, political stability and growing population have attracted a number of global fund managers. The primary regulator for the industry is the BSEC which has, so far, licensed 17 asset management companies in the country. The asset management companies manage approximately BDT50 billion, comprising less than three per cent of the total market capitalisation. Asset management companies are authorised to act as issue and portfolio managers of the mutual funds which are issued under the SEC (Mutual Fund) Rules 2001.

Labour Law in Bangladesh

In Bangladesh, employment is regulated by the contractual agreement between employer and employee. Other than the contract, the Bangladesh Labour Act 2006 (as amended in 2013) and Bangladesh Labour Rules 2015 govern the employment of ‘workers’. ‘Worker’ is defined under Section 2(65) of the Bangladesh Labour Act 2006 to mean “any person including an apprentice employed in any establishment or industry, either directly or through a contractor in whatever name referred to, to do any skilled, unskilled, manual, technical, trade promotional or clerical work for hire or reward, whether the terms of employment be expressed or implied, but does not include a person employed mainly in a managerial or administrative, supervisory role or managerial capacity.” The main issues covered in the Act include:

• Conditions of service and employment

• Employment of adolescents

• Provisions relating to health, hygiene

• Employee welfare

• Working hours and leave

• Wages and payment

• Wages boards

• Workers compensation for injury by accident

• Trade union and industrial relations

• Disputes, labour court, labour appellate

• Tribunals, legal proceedings

• Workers participation in companies’ profits

• Regulation of employment and safety of dock workers

• Provident funds

• Apprenticeship

• Penalties and procedure

Moreover, as per the Bangladesh Labour Act 2006, organisations which do not fall within the scope of the Act, cannot have any employee rules, regulations and benefits less favourable than those provided under the Act. Under the Bangladesh Labour Act 2006, read with Bangladesh Labour Rules 2015, any contracting agency which, on contract, supplies workers to different organisations in different posts has to obtain a license from the Chief Inspector.

Employment contract In Bangladesh, a letter of appointment is mandatory in the absence of a written contract. The terms of the contract are binding between the employee and employer, providing they do not contravene the provisions of the Labour Act. Typically, the letter of appointment or written contract will include:

• Working hours

• Salary

• Role title

• Nature of work

• Working time and leave

• Procedures for dismissal

Minimum wage

Wages and benefits of public sector employees are, determined by the government on recommendation from the Pay Service Commission. For the private sector, in certain sectors such as for workers in trade and industry the government through the Minimum Wages Board fixes the minimum wages. Otherwise, there is no regulatory body for the private sector to determine the wages and benefits.

On 5 December 2013, the government of Bangladesh issued the Gazette on Minimum Wages which defined a new wage structure for the readymade garment (RMG) industry with an increase of the gross monthly minimum wage from BDT3,000 to BDT5,300. No increases have been announced since.

Working time and leave 

As per the Bangladesh Labour Act 2006 (amended in 2013), no adult shall ordinarily be required or allowed to work in an establishment for more than eight hours in any day and more than 48 hours in any week.

No women shall, without her consent, be allowed to work in an establishment between the hours of 10.00 PM and 6.00 AM. Consent must be given in a prescribed form, as per the Bangladesh Labour Rules 2015.

Where an employee works in an establishment on any day or week for more than the hours fixed under Bangladesh Labour Act 2006, he shall, in respect of overtime worked, be entitled to an allowance at the rate of twice his ordinary rate of basic wage and dearness allowance and ad-hoc or interim pay, if any

The Bangladesh Labour Act 2006 (as amended in 2013) stipulates that any worker employed in a shop, commercial establishment or industrial establishment is entitled to one and a half days of rest per working week. Those employed in a factory are entitled to one day. Those employed in an establishment which is a road transport service are entitled to 24 consecutive hours of rest in each working week. This should not have any effect on wage allowances.

Annual leave

As per Bangladesh Labour Act 2006 (amended in 2013), every adult, who has completed one year of continuous service in an establishment, shall be allowed fully paid annual leave calculated as follows:

• In the case of a shop or commercial or industrial establishment or factory or road transport service, one day for every 18 days of work

• In the case of a tea plantation, one day for every 22 days of work • In the case of a newspaper worker, one day for every 11 days of work

Healthcare and benefits

Large local and multinational companies typically provide employees with private health care, car facilities, subsidised meals and other fringe benefits. Employers must also pay compensation to employees who suffer a personal injury arising out of and in the course of his employment. Most of the companies in Bangladesh provide provident and gratuity benefits to permanent employees. Provident funds are generally built through the contribution of both the employees and employers. Provident funds for ‘workers’ within the meaning of the Bangladesh Labour Act 2006 have to be as per the requirements set out in the said Act.

Maternity benefit 

A woman is entitled to maternity leave of eight weeks before and eight weeks after the delivery provided she has worked with the employer for a minimum of six months prior to the delivery. No maternity benefit shall be payable to any woman if at the time of her confinement she has two or more surviving children. However, she will get leave if she is entitled to sick and/or annual leave. Thereafter, if further leave is required, the employer can grant further leave without pay. A government female employee is entitled to maternity leave of six months, twice during her job-life.


The maximum probationary period in Bangladesh is six months for workers operating in a role of a clerical nature and three months for other workers. The period of probation for skilled workers can be extended by an additional three months if it has not been possible to determine the quality of the work within the first three months.


The termination of employment contracts can be done through discretionary termination, discharge, disciplinary termination or collective redundancies. Typically, to terminate a permanent employment contract unilaterally, a period of notice must be given. The employer must give 120 days’ notice, while the employee is required to give only 60 days’ notice. The period is shortened for temporary workers, whereby both employee and employer must only give 30 days’ notice.

Notice does not need to be given in the case of disciplinary termination on the basis of conviction for a criminal offence. For other disciplinary reasons, eg theft, fraud, habitual late attendance, negligent work or disorderly behaviour, the employee is given seven days to justify his misconduct. If the employee is unsuccessful in this, the employer is then obliged to call a hearing to determine whether the employee should be dismissed.

Social security 

Employees in Bangladesh are not obliged to contribute towards any social security funds. Companies satisfying the criteria set out in the Bangladesh Labour Act 2006 (as amended in 2013) must pay five per cent of their profits into a Workers Profit Participation Fund which is provided to all employees except those who are the owner, partner or directors who have been in employment with the said employer for a minimum of nine months.

Employment of non-resident :

Non-residents require a work permit to take up employment contracts in Bangladesh. This is subject to a number of conditions. Only residents of countries specified by the Bangladesh government can apply for work permits. Furthermore, employers cannot employ expatriates if there is a local expert available for the position. The number of expatriate employees in an industrial enterprise should not exceed 1:20 (foreign: local) ratio at any time during regular production. The ratio for commercial offices is 1:5 (foreign: local).

Prospective employers Prospective employers must be registered with the appropriate authorities (BOI) before they can employ expatriates. An initial work permit can be obtained for two years; this may be extended as reviewed by the relevant authorities.

To obtain a work permit, the prospective employer must file an application with the Board of Investment for an E-visa recommendation. Once received, the Bangladesh Embassy provides the employee with an e-visa which lasts three months. Once the individual arrives in Bangladesh, the employer must apply to the BOI for the work permit on behalf of the expatriate. This application will be filed alongside a number of documents, including: copy of the employer’s incorporation certificate, board resolution for the position of employment, contract, a copy of the advertisement for local recruitment and an encashment certificate of inward remittance of a minimum of USD50,000.

Trade unions

The Bangladesh Labour Act 2006 (amended in 2013) contains a number of provisions regarding the establishment of trade unions. Employees have the right to join and form a trade union primarily for the purpose of regulating the relations between employees and employers or between employees themselves. Employers shall have the right to form a trade union to regulate the relations between employers and workers or between employers. They are also free to join any trade unions of their choice.

Trade unions of employees and employers shall have the right to form and join federations and any such union and federation shall have the right to affiliate with any international organisation and confederation of employees’ or employers’ organisation.

Trade unions and employers’ associations shall have the right to draw up their constitutions and rules, to elect their representatives in full freedom, to organise their administration and activities and to formulate their programmes.

An application for the registration of a trade union shall be made to the Registrar of Trade Unions of the relevant area. A trade union of workers shall not be entitled to registration unless it has a minimum membership of 30 per cent of the total number of employees working in the establishment in which it is formed.

Overview of Corporate Income tax

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.


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.


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.


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

How to Start Business in Bangladesh

To establish a company in Bangladesh, the promoters must register with the Registrar of Joint Companies & Firms (RJSC&F). The following documents must be registered:

Name Clearance: this involves submitting an application to the office of RJSC&F through the website alongside the applicable fees. The name cannot match or closely resemble any other name already taken

Memorandum and Articles of Association: the Memorandum and Articles of Association must be prepared and submitted, alongside a scanned copy of the encashment certificate received from a local bank. A registration fee must also be paid to the designated bank

Registration: the promoters of the new entity (having name clearance) apply for registration with necessary documents, prescribed forms & fees as appropriate to the type of entity with the office of the RJSC&F.

Certificate of Incorporation: RJSC&F issues a Certificate of Incorporation upon satisfaction that the promoters submitted the above mentioned documents properly.

Following registration, companies must also obtain the following before commencing business:

Trade License from City Corporation/Municipality/ Union Council (Local Government Bodies)

Taxpayer’s Identification Number (Twelve Digit TIN)

VAT Registration (in the cases where applicable) • Import Registration Certificate (in the case of business related to import)

Export Registration Certificate (in the case of business related to export)

• License/Permission from the authorities according to the nature of business/profession

Bank account

Membership of trade body

Foreign investors will also need to register with the Board of Investment. This comprises submitting an application form, alongside the MOA/AOA, attested copies of deed/documents in support of project land, background of the promoters, a project profile (if the total project cost exceeds BDT100 million) and a fee. Further information may also be required if the project is financed by a loan.

After receiving the application duly filled in, signed and with the required documents enclosed, the BOI reviews the application and, if found suitable, the registration certificate is issued. BOI registration makes the industrial unit eligible for all the incentives and facilities provided by the Government of Bangladesh.

Capital requirement 

Companies do not have any minimum capital requirements unless they appoint expatriates as employees. In this case, the minimum capital requirement is USD 50,000.


The constitution of the company is set out in the Memorandum of Association (MOA) and Articles of Association (AOA). The MOA states the name of the company, whether it is public, private or limited and the location of the registered office.

The MOA should clearly spell out the main objectives, the authorised capital, the divisions of this capital into shares of fixed amount and liability of its members. The AOA are the regulations governing the internal management of the affairs of the company and the conduct of its business. These articles are subordinate to and controlled by the MOA.


The business of a company is managed by the Board of Directors. The company may appoint or employ any individual as its Managing Director for a term not exceeding five years at a time. The business and all other affairs of the company are managed by the Managing Director who is in turn supervised by the Board of Directors. The Board of Directors may elect a Chairman and decide his/her tenure of service and his/ her function. The Chairman shall preside all the meetings of the Board of Directors and other meeting(s) whether an Annual or Extra-Ordinary General Meeting of the Company. The Chairman and the managing director shall not be the same person.

Filing requirements:

Companies must file annual reports and directors notes alongside audited accounts within 21 days of the annual general meeting. Other statutory returns may be required, eg tax and VAT returns.


A Partnership can be established with at least two and no more than 20 persons, with the aim of making and sharing profits among themselves. An organisation can emerge as an aftereffect of an agreement or contract, communicated or inferred between the partners. In Bangladesh, a partnership firm is to be structured under the provisions of the Partnership Act 1932.  Under the Partnership Act 1932, the deed of partnership does not need to be registered. Furthermore, the enrolment of such firm is not legally required. However, once registered, a partnership firm may receive some legitimate rights and facilities.

Business Entities of Bangladesh

Any foreign company or individual wanting to do business in Bangladesh will need to decide under which form they want to operate. The various business entities available in Bangladesh are described below. It is important to note that those that do not create a legal entity in Bangladesh in order to carry business in the country might still be subject to certain limitations and obligations under state law. Companies wanting to provide goods or services in Bangladesh need to carefully assess whether their activities establish a presence in Bangladesh which might make them liable to pay taxes in the country and oblige them to make public filings.

As per the relevant publications of the Board of Investment (BOI), local investors may setup a business under several organisational structures such as sole proprietorship, partnership and limited company. In the case of a foreign investor, only a limited company may be established.

Companies limited by shares 

Business in Bangladesh may be led by an organisation framed and incorporated locally or by an organisation incorporated abroad, however enrolled in Bangladesh. The incorporation or enrolment is carried out by the Registrar of Joint Stock Companies and Firms (RJSC) under the provisions of the Companies Act 1994. The following corporate forms are available:

Company Limited by Shares 
– Private Limited Company
– Public Limited Company

Company Limited by Guarantees

Unlimited Company

Private Limited Company::

The main characteristics of a Private Limited Company are:

• Restricts the rights to transfer the shares

• Limits the number of its members to minimum two and maximum 50 excluding the persons employed in the company

• Prohibits any invitation to the public to subscribe for the shares or debentures of the company and
is entitled to commence business from the date of its incorporation.

Public Limited Company:

A Private Limited Company may be converted into a Public Limited Company or a company can be incorporated as Public Limited Company.

Public limited company can be of two types:

 i) listed and

ii) unlisted The main characteristics of a Public Limited Company are:

• May issue invitation to the members of the public to subscribe the shares and debentures of the company through a prospectus which complies with the requirements of the Companies Act, 1994, Has a minimum of seven members with no maximum limit

• Has at least three directors

• Shall not commence any business until obtaining the Certificate of Commencement of Business

For listed public limited companies (which are listed with BSEC for trading shares in public), in addition to the above, they must also comply with the requirements of the Securities and Exchange Ordinance 1969 and the Securities and Exchange Commission Act 1993.

Monday, March 2, 2020

What is Foreign Investment

Foreign investments can be made by individuals, but are most often endeavors pursued by companies and corporations with substantial assets looking to expand their reach. As globalization increases, more and more companies have branches in countries around the world. For some companies, opening new manufacturing and production plants in a different country is attractive because of the opportunities for cheaper production, labor and lower or fewer taxes.

Direct vs Indirect Foreign Investments

Foreign investments can be classified in one of two ways: direct and indirect. Foreign direct investments (FDIs) are the physical investments and purchases made by a company in a foreign country, typically by opening plants and buying buildings, machines, factories and other equipment in the foreign country. These types of investments find a far greater deal of favor, as they are generally considered long-term investments and help bolster the foreign country’s economy.
Foreign indirect investments involve corporations, financial institutions and private investors buying stakes or positions in foreign companies that trade on a foreign stock exchange. In general, this form of foreign investment is less favorable, as the domestic company can easily sell off their investment very quickly, sometimes within days of the purchase. This type of investment is also sometimes referred to as a foreign portfolio investment (FPI). Indirect investments include not only equity instruments such as stocks, but also debt instruments such as bonds.

Other Types of Foreign Investment

There are two additional types of foreign investments to be considered: commercial loans and official flows. Commercial loans are typically in the form of bank loans that are issued by a domestic bank to businesses in foreign countries or the governments of those countries. Official flows is a general term that refers to different forms of developmental assistance that developed or developing nations are given by a domestic country.
Commercial loans, up until the 1980s, were the largest source of foreign investment throughout developing countries and emerging markets. Following this period, commercial loan investments plateaued, and direct investments and portfolio investments increased significantly around the globe.