The IT services and software sector is regarded by the government as a thrust sector and foreign companies investing in Bangladesh can benefit from a range of incentives.

Incentives

Incentives are mainly available to investors in the form of tax exemptions. There is no discrimination in the case of duties and taxes payable by the same type of industry, whether foreign or locally-owned. Foreign investors may set up wholly-owned subsidiaries or joint ventures with local partners. They may also wind up an investment and repatriate the sales proceeds after securing authorization from the central bank. Major incentives include:

• Tax holidays – Exemption from payment of tax is available for periods of five to seven years, depending on the location of the investment. In Dhaka and Chittagong city, the period is five years; in Khulna, Sylhet, Barisal, Rajshahi, and the Chittagong Hill Tracts the period is seven years.
• Accelerated depreciation – Enterprises not enjoying a tax holiday will benefit from an accelerated depreciation allowance at a rate of 100% of the cost of the plant or machinery if the industrial undertaking is set up in the cities of Dhaka, Narayangonj, Chittagong, or within 10 miles of the city limits. Plants set up elsewhere qualify for lesser allowances.
• Concessionary duty on imported capital machinery – For 100% export-oriented industries, no duty is payable on imported capital machinery or spares up to 10% of the value of the machinery. However, import duty at 5% is payable as a bank guarantee or indemnity bond, to be returned to the investor after the machinery is installed.

Other forms of tax relief include:

• Facilities for the full repatriation of capital, profits and dividends.
• Avoidance of double taxation subject to the existence of bilateral double taxation agreements.
• Exemption from income tax for up to three years for foreign technicians employed in industries specified in the income tax ordinance.
• Tax exemption on royalties and technical know-how fees received by any foreign collaborator, firm, company or expert.
• Tax exemption on the interest on foreign loans (subject to conditions).
• Exemption from capital gains tax following the transfer of shares of public limited companies listed on a stock exchange.
• The re-investment of repatriable dividends is treated as new investment.

Going forward, the system for duty drawbacks is to be further simplified, and exporters will receive duty drawback at a flat rate directly from the relevant commercial banks. The export credit guarantee scheme is also to be further expanded and strengthened.

Other issues

With respect to immigration, prospective new investors are entitled to a six month multiple re-entry visa.