Bangladesh’s economy has grown by around 6% a year since 2005, largely driven by exports. It has been named one of the ‘Next Eleven’ countries that are expected to become among the biggest economies in the world in the 21st century and is classified as a frontier market by the OECD.
It has a growing industrial sector, of which the garment industry is the key contributor, accounting for around 80% of total exports. Many multinational companies use the market as a manufacturing base. Bangladesh also has a developing services sector, which now accounts for more than half of GDP.
The market has a young, well-educated workforce. English is widely spoken as a second language and wages are among the lowest in the region. Its geographical location between India and China makes it well-placed to access these markets as well as the ASEAN countries.
The government has introduced a series of economic reforms to encourage foreign direct investment and has established more than 80 economic zones. Bangladesh allows 100% foreign ownership in all but a few restricted industries, as well as easy remittance of profits, subject to approval from Bangladesh Bank (the market’s central bank).
Corporate Treasury in Bangladesh
Bangladesh is a fast-growing, emerging economy and has been named one of the ‘Next Eleven’ countries (N-11, a term coined by researchers at Goldman Sachs in 2007) that are expected to become among the biggest economies in the world in the 21st century. Here, we highlight some of the key factors relevant to treasury and cash management in Bangladesh.
Financial Market Development
- The World Economic Forum ranks Bangladesh 103rd in the world for its financial system in The Global Competitiveness Report 2018.
- It ranks Bangladesh 124th for the soundness of its banks, 116th for banks’ regulatory capital ratios, and 92nd for non-performing loans.
- Bangladesh has foreign exchange controls in place, which are overseen by the central bank. Prior approval from Bangladesh Bank is required for the remittance of funds from certain transactions. Branches of foreign firms can repatriate post-tax profits without prior approval, but they may only do so through banks that are authorised to deal in foreign exchange.
- The Bangladesh taka is currently convertible for current accounts.
- The market has a young, well-educated workforce. English is widely spoken as a second language and wages are among the lowest in the region.
Sophistication of Banking Systems
- There are 59 scheduled banks in Bangladesh, including six state-owned commercial banks and 41 private commercial banks, of which eight are Shariah banks and nine are branches of foreign commercial banks. There are also five non-scheduled banks.
- Total turnover of inter-bank foreign exchange transactions by authorised dealers was USD17.3 billion in 2017.
- Bangladesh’s bond market is dominated by government issues. Treasury bills and bonds totalling BDT1,073 billion were issued in the year to the end of March 2019.
- Bangladesh is a member of the Asian Clearing Union.
- The banking system in Bangladesh is regulated by Bangladesh Bank, which is also the central bank. It is introducing Basel III regulations in phases between 2015 and 2019. Prior approval of Bangladesh Bank is required for some foreign exchange transactions.
- The corporate income tax rate is 25% for publicly-traded companies and 35% for other companies. Banks, insurance companies and financial institutions are taxed at 40%, falling to 37.5% if they are publicly-traded. Mobile phone operators and cigarette manufacturing companies are taxed at 45%.
- A minimum tax of 0.6% on gross receipts from all sources of income is charged on companies (other than mobile phone operators and manufacturers of cigarettes and other tobacco products) or a firm that has gross receipts above BDT5 million, irrespective of profit or loss, if the minimum tax is higher than the corporate tax liability. The minimum tax is 0.1% of gross receipts for firms manufacturing goods for the first three years after production commences.
- Dividends received from resident companies are generally taxed at 20%.
- Resident companies are taxed on worldwide income. Foreign companies are taxed on income that is received or generated in Bangladesh.
- A branch remittance tax of 20% is charged on the remittance of profits to the head office by the branch of a foreign company.
- The standard rate for Value Added Tax (VAT) is 15%; certain supplies of goods and services are exempted, zero rated or lower rates of 5%, 7.5% and 10%.
- Capital gains are taxed at 15%, although there are some exceptions.
- Interest expenses that are used for business purposes are generally tax deductible. There are no thin capitalisation rules in Bangladesh.
- Stamp duty is charged on financial instruments, property and other transactions.
- Withholding tax of 20% is charged on interest and dividends paid or payable to non-resident companies where no tax treaty is in place.
- Tax incentives are in place for certain sectors, such as IT, and for industrial companies operating in specific regions.
- Bangladesh has tax treaties with more than 30 countries and territories.
Benefits for Local Treasury
- Bangladesh has a pro-business government that allows 100% foreign ownership in all but a few industries.
- Bangladesh’s geographic location offers easy access to India, China and ASEAN markets.
- Bangladesh is a low-cost market in which to operate, with an educated, English-speaking workforce.
- Cash concentration is limited to accounts belonging to the same parent company and accounts must be BDT-denominated. Cross-border cash concentration is not available.
- Notional pooling is not permitted in Bangladesh.
- Bangladesh has 57 scheduled banks, which are licensed under the Bank Company Act. Within this total, six are fully or majority state-owned commercial banks, and three are specialised banks established for specific objectives, such as agriculture or industrial development. These are also fully or majority government-owned. There are 39 private commercial banks, including eight Shariah banks, and nine branches of foreign commercial banks.
- The market also has five non-scheduled banks which were created for specific purposes and cannot perform all of the functions of a scheduled bank.
- The top five banks held 30.8% of assets at the end of 2017, while the top ten banks held 44.3%. Six of the top ten banks are private commercial banks and four are state-owned commercial banks. Foreign commercial banks held 4.6% of assets.
- The eight Islamic banks collectively had 1,120 branches and accounted for nearly a fifth of total banking assets.
- The banking sector has a high proportion of non-performing loans, which accounted for 10.4% of all loans in the financial year 2017/2018. Nearly half of all non-performing loans were concentrated in the six state-owned commercial banks.
- Residents may open foreign currency accounts domestically if they are Bangladesh nationals working or residing abroad, foreign nationals residing abroad or in Bangladesh, or Bangladesh nationals who have travelled abroad. Accounts must be opened with authorised dealer banks.
- Non-residents who meet certain conditions can open both BDT accounts and foreign currency accounts through authorised dealer banks.
Legal and Regulatory
- Bangladesh Bank overseas regulation of the banking sector. It also oversees foreign currency controls. The Securities and Exchange Commission regulates capital market intermediaries and the issuance of capital and financial instruments by public limited companies. Microfinance institutions are regulated by the Microcredit Regulatory Authority.
- Bangladesh allows 100% foreign ownership in most sectors. A number of different corporate structures are available.
- Under the Bangladesh Companies Act, foreign entities looking to set up a branch in Bangladesh must register with the Board of Investment and comply with its regulations.
- Bangladesh has anti-money laundering registration in place and is a member of the Asia/Pacific Group on Money Laundering (APG). It also operates the Bangladesh Financial Intelligence Unit under Bangladesh, which is tasked with analysing suspicious transactions for money laundering and terrorism financing and exchanging information with its foreign counterparts.
Bangladesh Electronic Funds Transfer Network
Bangladesh Automated Cheque Processing Systems
National Payment Switch Bangladesh
Real Time Gross Settlement System
Bangladesh Automated Clearing House
- High-value (more than BDT100,000) and urgent credit transfers are made through the Real Time Gross Settlement System in real time.
- Low-value, non-urgent, bulk credit transfers are settled through the Bangladesh Electronic Funds Transfer Network on the same day.
- One-to-one electronic payments are settled through the National Payment Switch Bangladesh on the same day.
Direct Debits (auto debits)
- Direct debits are available in Bangladesh but not widely used. They are made through the Bangladesh Electronic Funds Transfer Network.
- 53 of Bangladesh’s 58 banks provide payment cards for ATM withdrawals and/or point of sale transactions. Debit card users increased by 17.1% in 2017.
- Visa and MasterCard are the main brands of credit card available in Bangladesh. Credit card users declined by 4.1% in 2017.
- As of June 2019, there were almost 17 million bank cards in circulation, representing a low debit and credit card penetration of 9.6% and 0.7% respectively.
- National Payment Switch Bangladesh is the domestic debit and credit card payment network.
- Bangladesh Bank recently approved the rollout of contactless payment cards.
- Electronic money schemes are available through top-up prepaid cards.
- A Mobile Financial Services (MFS) system was introduced by Bangladesh Bank in 2011 to help drive financial inclusion. The system enables person-to-person and business-to-business transactions via mobile phone numbers, and facilitates payments to and by businesses and government. As of 2018, 17% of the population had a registered mobile money account.
- Available through 18 banks, MFS has 67.5 million registered users – over 40% of the market – and has made a significant impact on Bangladesh’s rural economy.
- 36 banks in Bangladesh offered internet banking services as of the end of 2017.
- Bangladesh has an Online Payment Gateway Service established by several banks and a couple of technology companies to enable e-merchants to receive payments online from domestic and international buyers.
- Bangladesh Bank has permitted six banks to collect inward remittance through PayPal.
- iPay has been granted a licence by Bangladesh Bank to provide a digital wallet service across the market.
- Over 90% of e-commerce customers prefer to pay cash-on-delivery.
- Visa is currently developing a QR payment system for Bangladesh where sellers will no longer need a POS terminal and customers just need a mobile banking app linked to their debit, credit or prepaid card.
- Cryptocurrency is not legal tender in Bangladesh, and the central bank has warned that using the currencies could breach foreign exchange, anti-money laundering and anti-terrorism regulations. Bangladesh Bank is exploring the use of digital money to help Bangladesh move towards a cashless economy.
Cash, Cheques and Money Orders
- Cash remains widely popular and highly used in Bangladesh, with around 75% of the population unbanked in 2018. This 5% decrease from 2017 is mainly attributed to the aggressive expansion of agent banking in Bangladesh.
- Cheques are the most widely-used form of cashless payment. The use of cheques for high value payments is increasing, but their use for low-value payments fell by 14.5% in 2017.
- Money orders are handled by Bangladesh Post, which has bilateral agreements with 15 countries, as well as Western Union and MoneyGram. Bangladesh Post currently developing an instant Mobile Money Order service, vastly improving the current 7-10-day processing time.
1 (Variable) max rate for companies in certain sectors; rate varies 25-45% depending on public/private and sector designations
2(Progressive) max rate on incomes over BDT3,000,000
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Sources: World Bank, OECD, Bangladesh Bank, National Board of Revenue Bangladesh, Deloitte, CIA World Factbook, The World Economic Forum, Dhaka Tribune, PKF Asia Pacific Tax Guide
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