Special Economic Zone- Open Doors for Foreign Investors
Special Economic Zones will provide secured & financially viable environment for Foreign Investors.
The Government has implemented a number of policy reforms designed to create more open and competitive climate for private investment, both foreign and local. Government is fostering rapid economic development through increase and diversification of industries, employment, production and export. The Special Economic Zones are designed to provide a hassle-free environment for foreign investors. The incentive and services offered in the Special Economic Zones are lucrative to pull the interest of right minded foreign investors who are willing to relocate or start fresh in Bangladesh.
Bangladesh as an Investment Destination-
Low wages, competitive production cost, availability of trained resources, availability of energy and a large domestic market makes Bangladesh as one of the top investment destinations for many foreign investors.
In a recent survey conducted by JETRO in 2015 amongst 20 countries in Asia and Oceania, Bangladesh had been found as the most attractive place for investment both in the manufacturing and non-manufacturing sectors. Bangladesh offers the most illiberal FDI regime in South Asia. Bangladesh has seen a steady GDP growth over 6% for the last ten years and there has been increase in FDI. As per World Investment Report 2016 of United Nation Conference on Trade and Development, FDI inflows to Bangladesh rose by 4.38% to $ 2.33 billion in 2016, which was $2.23 billion in 2015.
According to IMF, the Bangladesh economy will rise to $322 billion by 2021 creating enormous economic opportunities. Young and energetic work force, nearly 60% of the total population is economically active and almost a million graduates enter the workforce annually. Bangladesh’s Geo-strategic location in the vicinity of China and India also puts further credence to the argument that the country’s economy would forge ahead in the future. Bangladesh has overcame the energy crisis as the current installed capacity is 13,705 MW and Government is importing LPG & LNG through private initiatives. Bangladesh has already graduated to a lower mid-income state and targets to be a mid-income state by 2021 and a developed nation by 2041.
What is Special Economic Zone-
To increase and diversify the industries, Bangladesh Economic Zones Authority ( BEZA) has taken initiatives to set up 100 Special Economic Zones (EZ) on 30,000 hectares of land with aim to generate ten million labour force and a sustainable industrialization. EZ are industrial parks/areas which will foster the need of foreign and domestic industries. EZ are being built on Public-Private partnership models or private owned model or Government owned model. Investors can either lease land or lease factory spaces within EZ with a very competitive rate. Govt. has provided many fiscal incentives for investors who intend to set up factories and plants in EZ. Due to close governmental connection and sponsorship, these EZ will serve as a hassle free preferred locations for foreign investors aiming to set up factories and plants in Bangladesh.
Various Fiscal Incentives in Economic-Zones-
1 Tax Holiday 100% for 1st three years of operation; 80% for 4th year; 70% for 5th year; 60% for 6th year; 50% for 7th year; 40% for 8th year; 30% for 9th year and 20% for 10th year.
2 Exemption on Customs Duty- Duty-free import of raw materials, construction material, capital machineries and goods.
3 Dividend Tax Exemption-Exemption from dividend tax for 10 years.
4 VAT on Local Purchase -All purchases excluding petroleum product from Domestic Tariff Area (DTA) shall be exempted from VAT, sales tax etc.
5 Backward Linkage-100% backward linkage raw-materials and accessories to sell for Export Oriented Industries in Domestic Tariff Area.
6 VAT on electricity-Exemption of VAT on electricity for 10 years.
7 Stamp Duty-50% exemption on stamp duty and registration fees for registration of leasehold land/factory space.
8 Exemption on VAT on utilities-80% exemption of VAT on all utility services consumed inside the zone.
9 Export Duty Exemption-Duty exemption on Export.
10 Local Sale-20% sale of finished product to Domestic Tariff Area
11 Duty-free vehicles-Exemption of CD for import of 2 vehicles within 1st 5 years for foreign investors (for one time)
12 Avoidance of Double Taxation-Exemption of double taxation subject to Double Taxation Treaty Agreement
13 Repatriation -Full repatriation of capital and dividend.
14 Exemption of Income Tax on Expatriates-50% Rebate of income tax on salary income of expatriates for 5 years.
15 Bonded Warehouse- Economic Zones are considered as custom bonded area.
16 Foreign Loan-Foreign loan availability (to ease business activity)
17 Joint Venture -Investors can establish fully foreign owned or joint venture company.
18 Exemption on Royalty and Technical Fees- Royalty, technical fees will be exempted from income tax for 10 years.
19 Exemption of Tax on capital gains-Tax exemption on capital gains.
20 Share Transfer-Share transfer allowed.
21 Work Permit for Expatriates-Can be issued for up to 5% of the total number of employees.
22 Reinvestment-Reinvestment of remittable dividend to be treated as new foreign investment.
23 Resident Visa Resident visa for investment of US$ 75,000 or more.
24 Citizenship-Citizenship for investment of US$ 500,000 or more.
25 Protection of Foreign Investment Protected from government expropriation under Foreign Private Investment (Promotion & Protection) Act 1980.
ABOUT THE AUTHOR: Sakib Sikder
Sakib Sikder is an Advocate of the Supreme Court of Bangladesh & Barrister of Lincoln's Inn. Mr. Sakib completed his LL.M in International Business Law from City University of London & LL.B (Hons) from University of London. Mr. Sakib has professional experience of over 12 years and is an expert on Commercial Law, Business Law, and Investment Law.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.