Bangladesh Income Tax

WHAT INVESTORS SHOULD KNOW Tax implications in each country are an important consideration for an investor. Here is an overview of taxation in Bangladesh. What is the tax structure for individual tax payers? If an individual has been in Bangladesh for a period/period totaling 182 days or more in the income year, he/she is considered a resident. In case an individual has been in the country for 90 days in the income year and 365 days in four years preceding this year, he/she will also be considered a resident. Each individual is entitled to an investment tax credit of 15 percent of the total income or Tk 100,000 whichever is less. Incomes from small and cottage industries are entitled to a 5 to 10 per cent tax rebate depending on the production volume. On the first Tk. 60,000.00 of total income - no tax obligation On the next Tk. 40,000.00 of total income - 10% On the next Tk. 50,000.00 of total income - 15% On the next Tk. 1,50,000.00 of total income - 20% On the balance of total income - 25% What is the percentage of corporate tax levied? Any income collected or gained by a company doing business in Bangladesh, whether resident or not is taxable. Corporate tax rates for industrial companies whose shares are publicly traded is 35% and the rate of those whose shares are not publicly traded is 40%. Tax rates on income of all other companies including banks, financial institutions, insurance companies and local authorities is 45%. Companies enjoying tax holiday are required to invest only 25% to 30% of their income in other activities as per rules of the National board of Revenue (NBR). How is the period for assessment determined? Income tax is levied on all companies and individuals for the previous year and payable for the year of assessment of fiscal year (July to June). If a company adopts an accounting period different from the fiscal year, the business period is a 12 month accounting period preceding the year of assessment. Taxable income is calculated after adjusting for incurred expenses in the production of income. Returns filed received by or due to foreign technician under contract if it is accompanied by audited accounts and certified by a chartered accountant as to the correctness of the total income of the assessee.

Salary income received by or due to a foreign technician under contract of service approved by the NBR is fully exempted from paying tax (subject to prescribed conditions and limitations) for a period of three years from the date of his arrival in Bangladesh. Expenditure incurred by an employer in respect of remuneration of a foreign technician is also fully exempted from income tax (subject to stipulated conditions). Expenditure incurred as a remuneration payable to a foreign technician by a Bangladeshi firm carrying on the business of consultant and engineers in Bangladesh is fully exempted from tax (subject to prescribed conditions and limitations). Who is entitled to a Tax Holiday? Tax holiday is allowed to industries subject to the relevant rules and procedures set by the National Board of Revenue (NBR) for the following period according to the location of the establishment. In Dhaka and chittagong Divisions (excluding 3 hill districts): 5 years. In other divisions (including 3 hill districts of chittagong Division): 7 years. The period of such tax holiday will be calculated from the month of commencement of commercial production. The eligibility of tax holiday to be determined by the NBR and the time of the commencement of commercial production is certified by the respective sponsoring agencies. The industrial establishment should be registered under the companies Act. 1994. Tax holiday facility can be availed by industries coming into commercial production within 30 June 2000 A.D. What are the other tax incentives in Bangladesh? Other tax incentives: Exemption of tax on interest of foreign loan. Exemption of tax on Royalty/Technical know-how. Tax exemption on capital gains. Avoidance of double taxation. Liberal investment allowance for tax assessment. An accelerated depreciation instead of a tax holiday of a tax holiday is allowed at the rate of 80 per cent of the actual cost of the machinery or plant from the year the plant starts production and 20 per cent for the following year provided the industry is located within a "developed area". the depreciation is 10 per cent if the industry is set up in a location considered less than a "developed area".

Corporate tax: Corporate tax rates for industrial companies whose shares are publicly traded is 35% and the rate of those whose shares are not publicly traded is 40% Tax rates on other companies: Tax rates on income of all other companies including banks, financial institutions, insurance companies and local authorities is 45% Investment requirement by companies enjoying tax holiday: Companies enjoying tax holidays are required to invest only 25% to 30% of their income in other activities as per rule of N.B.R.

Accepted of returns of public limited companies: Returns filed by the public limited companies shall be accepted as correct if it is accompanied by audited accounts and certified by a chartered accountant as to the correctness of the total income of the assessee Salary of foreign technicians: Salary income received by or due to a foreign technician under contract of service approved by the National Board of Revenue is fully exempted from paying tax (subject to prescribed conditions and limitations) for a period of three years from the date of his arrival in Bangladesh Tax payable by employer on remuneration of foreign technician: Expenditure incurred by an employer in respect of remuneration of a foreign technician is also fully exempted from income tax (subject to the stipulated conditions) Remuneration of foreign technicians employed by the firms of consultancy and engineers: Expenditure incurred as remuneration payable to a foreign technicians by a Bangladeshi firm carrying on the business of consultant and engineers in Bangladesh is fully exempted from tax (subject to prescribed conditions and limitations).

(1) Basis of Residence for Taxation Under the Income Tax Ordinance a person is charged to tax on the basis of his residential status in Bangladesh during the relevant 'income year'. An individual is treated as a resident in Bangladesh in respect of any income year; (a) If he or she has been in Bangladesh for a total period of 182 days or more in that year; or (b) If he or she has been in Bangladesh for a period of or for periods amounting in all to ninety days or more in that year having previously been in Bangladesh for a period of or for periods amounting in all to three hundred sixty-five days or more during four years preceding that year. If individual fails to fulfill the above conditions, he or she will be treated as a 'Non-Resident' for the purpose of taxation. It is important to note here that the concept of residence as defined in the Income Tax Ordinance has nothing to do with the nationality of a particular individual. A foreign national may be treated as a 'Resident' for a particular year if 'he or she fulfills the legal requirements as above, whereas a Bangladeshi national may be treated as a 'Non-Resident' if he, or she does not fulfill the legal requirements.

(2) Tax Treatment On the Basis of Residence Any individual resident assessee will be liable to tax for all his income, profits and gains from whatever sources derived irrespective of the place of receipt or accrual, be it inside Bangladesh or outside.

(3) Incidence of Tax on Non-Resident A person who is non-resident is liable to tax on the incomes, profits and gains which are received or deemed to have been received or are deemed to accrue or arise to him in Bangladesh. A Non-Resident assessee is not entitled to any sort of allowance and relief as are admissible to resident assessee for the purpose of tax rebate. A non-resident assessee other than Bangladeshi non-resident is liable to tax on his total income at 25%. A Bangladeshi non-resident is subject to tax at normal rate as applicable in the case of a resident assessee. The remittance to Bangladesh through official channel, of income earned abroad by the residents in Bangladesh will be exempted from tax.

(4) Tax Exemptions (a) Interest on Securities: Interest on Securities of the Government received by individual upto a maximum of Tk 25,000 (Twenty five thousand taka only). (b) Interest on debentures - Any interest not exceeding Tk. 25,000/- received by an assessee other than a company on debentures approved by the Securities and. Exchange Commission for the purpose of this paragraphs. The exemption together with any exemption available in respect of interest on securities shall not exceed Tk. 20,000/-. (c) Dividend income Dividend income not exceeding Tk. 25,000/- received by an assessee other than a company.

(5) Investment Allowance for Tax Rebate (a) Investment in Stock and Shares - Investment in the acquisition of any stock or shares of a company or a body corporate by an assessee, not being a company: (i) Company: A company listed with a Stock Exchange in Bangladesh. (ii) Body corporate: Established by or under an Act of Parliament. (b) Investment in debentures or debenture-stocks Investment by an assessee other than a company in the purchase of approved debentures or debentures-stocks subject to the conditions that (i) The assessee is the first allottee of such debentures or debenture-stocks. (ii) Exemption is allowable on the amount which is in excess of the sale proceeds received during the year and in the preceding two years in the aggregate or of the cost price of debenturestocks purchased in the year and the preceding two years whichever is greater, out of disposal of debentures or debenture-stocks purchased during the year and the preceding two years.

(c) Investment in Unit Certificate etc. Investments in such savings certificates or instruments as the Board may specify in this behalf; Unit Certificate and mutual fund certificate of Investment Corporation of Bangladesh and such Government Securities including Development Loans or Bonds and shares of such Investment Companies as may be specified by the National Board of Revenue in this behalf. The period for retention of the above mentioned instruments have been fixed at five years from the date of purchase or the maturity period, as the case may be. Where the instruments are disposed of in any income year before the prescribed period, tax credit allowed in respect of such instruments will be collected back as tax for the income year and be added to tax for that year. (d) Inclusion of Income For Rate Purpose (i) Share of income from an association of persons (other than a Hindu undivided family, a company or a firm) on which tax has been paid by the association. (ii) Share of income from a firm on which tax has been paid by the firm.

(6) Tax Exemption on Capital Gains (a) Transfer of stocks and shares: Capital gains which arises from transfer of stocks and shares of public companies listed with a Stock Exchange in Bangladesh is exempted from tax. (b) Transfer of stocks and shares of a public company by a non-resident: Capital gains which arises to an assessee, being a non-resident from transfer of stocks or shares of a public company as defined in the Companies Act,1913 or Companies Act,1994 is exempted from tax provided such assessee is entitled to similar exemption in the country in which he is a resident.

(7) Deduction of Tax at Source Deduction from Dividend: The payment of dividend to both resident and non-resident assessee is subject to deduction of tax at source. (a) In the case of non-resident assessee(i) if the shareholder is a company, at the rate applicable to a company; (ii) If the shareholder is a person other than a company, at the maximum rate i.e. 25%. (b) In the case of resident assessee(i) if the shareholder is a company, at the rate applicable to a company; (ii) if the shareholder is a person other than a company, at the rate of 10% if the amount exceeds Tk. 25,000/-

(8) Rates of Income Tax for the Assessment year 2002-2003 A. In the case of every individual including Bangladeshi non-resident, Hindu undivided family, firm, association of persons and every artificial juridical person, not being a case to which paragraph (b) appliesRates (1) On the first Taka 75,000/- of total income (2) On the next Taka 150,000/- of total income (3) On the next Taka 150,000/- of total income (4) On the next Taka 250,000/- of total income (5) On the balance of total income Nil 10% 15% 20% 25%

Provided that the minimum tax shall in no case be less than Tk.1,200/-. Tax Credit is allowable at 15% of the investment allowance equal to 20% of total income or Tk. 200,000/- whichever is less. However if investment is made in IPOs then allowable limit will be Tk. 225,000 instead of Tk. 200,000. B. In the case of every company and local authority and in every case in which under the provisions of the Income Tax Ordinance, 1984 (XXXVI of 1984), income tax is to be charged at the maximum rateRates (1) On the whole of the total income excluding the amount representing income from dividends from a company having its registered office in Bangladesh(a) in case of every company being a publicly traded company; 30% of such income

(b) in case of every company not being a publicly traded 35% of such company; and income In case of local authorities and for companies as Mentioned in sub-clauses (a), (b), (bb), (bbb) and c) of clause (20) of Section 2 of Income Tax Ordinance, 1984. (2) On the amount representing income from dividends declared and paid by a company registered in Bangladesh under the, Companies Act, 1913 (VII of 1913), or the Companies Act, 1994 or a body corporate formed in Pursuance of an Act of Parliament in respect of the share capital issued, subscribed and Paid after the 14th day of August, 1947. 15 percent

(3) In the case of an individual non-resident assessee (other than Bangladeshi non-resident), other than a company.

25% of such income

Bank, Insurance and financial institution tax rate will remain unchanged i.e. 40% Explanation - The term "publicly traded company", as used in this paragraph, means a public limited company which fulfills the following conditions: (i) The sponsors and the members of the Board of Directors shall not purchase any share in benami. (ii) The shares of the company are listed in a Stock Exchange before the end of the year for which assessment is to be made.