Bangladesh

Bangladesh Market Profile

Corporate Treasury & Cash Management in Bangladesh 

Bangladesh Market Profile

Corporate Treasury & Cash Management in Bangladesh 

At a glance

About Bangladesh 

Bangladesh’s economy is largely driven by exports and has averaged close to 6% growth per annum since the early 2000s, even through the COVID-19 pandemic. Very few countries in the same tier (the World Bank now classifies it as a lower-middle-income economy) have sustained this level of growth. 

The rising industrial sector is led by the garment industry, which accounts for more than 80% of total export earnings, according to The Bangladesh Garment Manufacturers and Exporters Association. Numerous multinational garment companies use the country as a manufacturing base. Bangladesh also has a developing services sector, which now accounts for more than half of its gross national product (GDP). 

The country has a young, well-educated workforce, and English is widely spoken as a second language. Wages are among the lowest in the region, making goods and services economical. Its geographical location between India and China makes it well-placed to access these markets as well as the countries of the Association of Southeast Asian Nations (ASEAN).  

The government has introduced a series of economic reforms to encourage foreign direct investment and has established nearly 100 economic zones. Bangladesh allows 100% foreign ownership in all but a few restricted industries. Additionally, it allows remittance of profits, subject to approval from Bangladesh Bank, the country’s central bank.  

Bangladesh GDP

Corporate Treasury in Bangladesh  

Bangladesh is a fast-growing, emerging economy. In this section, we highlight some of the key factors relevant to treasury and cash management in Bangladesh.  

Financial Market Development  

  • Dhaka is Bangladesh’s financial centre.  
  • Bangladesh has foreign exchange (FX) 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 (BDT) has been convertible since 1994.  

Sophistication of Banking Systems  

  • There are more than 60 scheduled banks and five non-scheduled banks in Bangladesh, including six state-owned commercial banks and 43 private commercial banks, of which 10 are Shariah banks and nine are branches of foreign commercial banks.  
  • Bangladesh’s bond market is dominated by government issues. Efforts are underway to encourage more corporate bond listings.  
  • Bangladesh is a member of the Asian Clearing Union.  

Regulatory Bodies  

  • The banking system in Bangladesh is regulated by Bangladesh Bank, which is also the central bank. Regulations are in line with Basel III. Prior approval of Bangladesh Bank is required for some foreign exchange transactions.   

Tax  

  • The corporate income tax rate is 25% for publicly traded companies and 32.5% for other companies. Banks, insurance companies and financial institutions are taxed at 40%, reduced 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 to companies (other than mobile phone operators, and manufacturers of cigarettes and other tobacco products) or firms that have gross receipts above BDT5 million, regardless of profit or loss, if the minimum tax is higher than the corporate tax liability.  
  • 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 categories of goods and services are exempted, zero rated or have lower rates. 
  • 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 paid or payable to non-resident companies where no tax treaty is in place. Rates range from 5% to 15% where a tax treaty is in place and the non-resident can provide a Certificate of Residence.   
  • Tax incentives are in place for certain sectors, such as information technology (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 country to operate in, with an educated English-speaking workforce. 
Banking

Bank accounts

  • 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 oversees 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 pertaining to money laundering and terrorism financing and exchanging information with its foreign counterparts.  
Payments

Payment Systems

BEFTN  

Bangladesh Electronic Funds Transfer Network   
  • For paperless electronic inter-bank funds transfer.  
  • Operated by Bangladesh Bank.  
  • Offers secure, fast, cost-effective electronic debit and credit transactions between participating banks.  
  • Handles payments including payrolls, foreign and domestic remittances, government payments and commercial payments.  
  • Offers real-time batch processing, with payment transactions calculated into a single multilateral netting figure for each individual bank.  
BACPS   Bangladesh Automated Cheque Processing Systems  
  • Processes cheque payments and other paper-based instruments in Bangladesh.  
  • Operated by Bangladesh Bank.  
  • Uses Cheque Imaging and Truncation (CIT) technology for electronic presentment and payment of paper-based instruments.  
  • High value cheques of up to BDT500,000 must be received before 12pm, while lower value cheques are to be received before 12.30pm. Settlement is made by 3pm and 5pm respectively on the relevant day of clearing.   

NPSB   

National Payment Switch Bangladesh  
  • Operated by Bangladesh Bank, it is a system offering interoperability among participating banks for account and card-based transactions.  
  • Used for automated teller machine (ATM), point of sale (POS) and internet banking fund transfer (IBFT) transactions. Mobile phone transactions could be added in the near future.  
  • The maximum limit per IBFT transaction is BDT50,000.  
  • 53 banks use the system for ATM transactions, 48 for POS transactions and 6 for IBFT transactions.  

Participating banks must use two factor authentication for all card not present (CNP) transactions.   

RTGS

 

Real Time Gross Settlement System  
  • For real-time settlements of high value, time critical interbank payments.  
  • Operated by Bangladesh Bank.  
  • For payments of BDT100,000 or more.  
  • Payments can be made in local currency or domestically held foreign currency.  
  • Available at 7,000 bank branches of 55 scheduled banks.   
BACH   Bangladesh Automated Clearing House  
  • An electronic clearing house with two components: Automated Cheque Processing and Electronic Funds Transfer.  
  • Operated by Bangladesh Bank.  
  • Transactions received by banks during the day are processed at a pre-fixed time.   
  • System operates through a Virtual Private Network established between participating commercial banks and the system’s Data Centre and Disaster Recovery Sites.  

Payment Instruments  

Credit Transfers 

  • 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 BEFTN. 

Card Payments  

  •  53 of Bangladesh’s 58 banks provide payment cards for ATM withdrawals and/or point of sale transactions. 
  • As of January 2020, there were 20.17 million bank cards in circulation, representing a low debit and credit card penetration of 11.2% and 0.93% respectively.  
  • National Payment Switch Bangladesh is the domestic debit and credit card payment network while MasterCard and Visa are the main brands of credit cards available. 
  • The rollout of contactless cards has been hastened by COVID-19 concerns and the growth in e-commerce.  
  • Electronic money schemes are available through top-up prepaid cards. 

Online Payments 

  • Initially developed to drive financial inclusion, the Mobile Financial Services (MFS) system enables person-to-person and business-to-business transactions via mobile phone numbers, and facilitates payments to and by businesses and government. 
  • Available through 15 banks, MFS has 102.8 million registered users – over 60% of the country – and has made a significant impact on Bangladesh’s rural economy.  
  • Bangladesh has an Online Payment Gateway Service established by several banks and some 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, while iPay has been granted a licence by Bangladesh Bank to provide a digital wallet service across the country.  
  • Over 90% of e-commerce customers prefer to pay cash-on-delivery.  

 Digital Currencies 

  • Cryptocurrency is not a 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 50% of the population unbanked in 2020. The recent decrease in the population which is unbanked can be attributed to the aggressive expansion of agent banking in Bangladesh. However, around two-thirds of all transactions are completed through cash payments.  
  • Cheques are the most widely used form of cashless payment. The use of cheques for high value payments is increasing, but its use for low-value payments fell by 14.5% before 2020.   
  • Money orders are handled by Bangladesh Post, which has bilateral agreements with 15 countries, as well as Western Union and MoneyGram. Bangladesh Post is currently developing an instant Mobile Money Order service, to vastly improve the current 7-10-day processing time.  

Sources (Intro & Corporate Treasury) 
Bangladesh Economic Zones Authority, World Economic Forum, Bangladesh Bank, Deloitte, Trading Economies, OECD, CIA World Factbook, the World Bank, CEIC 

Sources (Banking & Payments) 
World Bank, IMF, OECD, Bangladesh Bank, National Board of Revenue Bangladesh, Deloitte, CIA World Factbook, The World Economic Forum, Bloomberg, Dhaka Tribune, PKF Asia Pacific Tax Guide, Financial Inclusion Insights, The Daily Star, Export.gov, Payments Journal, Bangalink, Hello Soda, The Daily Star 

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