BANGLADESH LAW AND PRACTICE Contributed by: Shahwar Nizam, Tarannum Tasnim, Mahboob Aziz, Saif Bhuiyan, Farhan Kabir, Tanzim Ahmed and Rizvi Khan, DFDL Bangladesh
Unless eligible for exemptions, VAT is imposed on all taxable goods and services, and the standard rate is 15%. However, certain goods and services are subject to reduced rates, such as 5%, 7.5%, 10% or other specific rates depending on the quantity of goods. Goods and services that are considered luxury items under the VAT law are also subject to supplementary duties. Depending on the nature of the goods and services, supplementary duties can range from 10% to 350%. Imported goods are subject to import duties depend - ing on their HS code classifications. Customs authori - ties collect applicable duties from importers before releasing the goods from the port of entry. 9.2 Withholding Taxes on Dividends, Interest, Etc Bangladesh operates as a withholding tax jurisdic - tion. Unless exempted by the law or specific orders from the National Board of Revenue (NBR), all forms of payment are subject to withholding taxes. Under the local tax law, dividend and interest payments to non- resident entities are subject to 20% withholding taxes. However, if there is a DTT between the governments of Bangladesh and the country of the non-resident that is receiving the payment, there may be exemp - tions or reductions on the withholding taxes depend - ing on the nature of payments. Such reductions or exemptions are not automatic. The non-resident will have to apply to the NBR with reference to the applicable DTT and provide certain supporting documentation. It takes around 30 days for the regulator to grant an approval in this regard. So far, Bangladesh has executed DTTs with 44 coun - tries, the most recent being Hong Kong SAR. 9.3 Tax Mitigation Strategies Foreign investors in Bangladesh commonly employ tax planning strategies such as cross-licensing and cost allocations. This involves charging their sub - sidiaries royalties and technical service fees for the utilisation of licences and specific technical services. Simultaneously, the head office costs are distributed among subsidiaries to lower their taxable income. However, local tax laws in Bangladesh impose caps
on the deductibility of such expenditures, which can - not exceed 10% of Bangladeshi companies’ pre-tax profits. Amounts exceeding the deductibility thresh - old are deemed inadmissible, and the company is required to pay corporate tax on this portion at the corporate tax rate applicable to the company. 9.4 Tax on Sale or Other Dispositions of FDI Under the Bangladesh tax law, capital gains are sub - ject to tax at 15%. Capital gains tax also applies to foreign investors that sell their investments in Bang - ladesh. Capital gains can be either direct gains or indirect gains. The latter occur when the sale trans - action happens at the parent level of the Bangladeshi company where the parent is a non-resident. Until recently, there was no guidance on the taxation of indirect capital gains in Bangladesh. However, in 2022 the NBR issued the Offshore Indirect Transfer Rules. These rules establish a framework for taxing offshore indirect transfers in Bangladesh, to promote transpar - ency and deter tax evasion. In a strategic effort to stimulate investment in key sectors, the GOB provides investors with exemp - tions from capital gains taxes. Notably, these sec - tors include automobile manufacturing and physical infrastructure development (under the PPP regime), among others. In addition to the foregoing exemptions from capi - tal gains taxes, relief may also be available through a relevant DTT. In such instances, non-residents seek - ing the benefits of these exemptions must submit an application to the NBR along with certain specific documents. 9.5 Anti-Evasion Regimes Bangladesh currently does not enforce specific anti- avoidance rules targeting foreign investors. However, the newly enacted income tax law, effective since July 2023, introduces general anti-avoidance provisions applicable to all taxpayers. Within this framework, tax authorities possess the authority to make adjustments if they identify undue benefits obtained through the misuse of a tax arrangement. These adjustments may encompass increasing income, amending tax liabili - ties, adjusting tax returns, and revising allowances and rebates, among other measures.
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