Outward remittance from investment: A legal perspective

Bangladesh is currently experiencing impressive progress in terms of economic growth, which is accelerated to a great extent by foreign investments from all over the globe. Investors from countries like Japan, China, Netherlands, Germany, Russia, USA and India have always been major contributors in terms of foreign direct investment (FDI) in Bangladesh but now even France, South Korea, Qatar etc., have also shown keen interest of doing business with Bangladesh. Bangladesh has several sectors including garment, leather, power, banking, construction and technology where FDI has increased exponentially. One of the major reasons behind the economic success of Bangladesh is because it has fostered an investment friendly environment by way of passing legislations which promote and protect foreign investment.

Section 4 of the Foreign Private Investment (Promotion and Protection) Act 1980 (1980 Act) states clearly that the government shall accord fair and equitable treatment to foreign private investment which shall enjoy full protection and security in Bangladesh. Section 7 of the 1980 Act goes on to state that foreign private investment shall not be expropriated or nationalised or be subject to any measures having effect of expropriation or nationalisation except for a public purpose against adequate compensation which shall be paid expeditiously and be freely transferable. Furthermore, the same law guarantees transfer of capital, returns from foreign investment and the proceeds of liquidation.

Foreign investors have a large number of options for entering the market of Bangladesh. These include, but not limited to, opening branch or liaison or representative offices, entering into joint venture agreements, creation of companies, portfolio investments and alternative investment funds.

There are various laws, regulations and guidelines in place pertaining to outward remittance that are made and amended from time to time in order to accommodate the needs of the investors. As a matter of fact, apart from remittances of certain special nature (pre-liberation dividend), most outward remittances are capable of being approved by the authorised dealers (ADs) i.e. scheduled banks having licence from Bangladesh Bank, the central bank of Bangladesh.

As per a Bangladesh Bank circular dated 19 September 2019, all entities including branches of foreign firms and companies established in Bangladesh with permission from competent authorities for business/profit motive and operating in compliance with reporting formalities under Section 18B(1) of the Foreign Exchange Regulation Act, 1947 (FERA) are allowed to remit profits to their head offices abroad through their nominated ADs without prior approval of Bangladesh Bank in terms of paragraph 28 of chapter 10 of the Foreign Exchange Guideline. ADs are only required to submit applications for post-facto checking within 30 days of profit remittance along with relevant documents to the Foreign Exchange Investment Department (FEID) of Bangladesh Bank. It is apparent that the said circular is referring to branch office or liaison office or representative office particularly because Section 18B(1) of FERA deals with such offices.  

Foreign banks and financial institutions operating in Bangladesh may also remit profits to their head offices abroad through their nominated ADs without Bangladesh Bank's prior approval. Foreign insurance companies operating in Bangladesh may likewise remit the shareholders' portion of profits through their nominated ADs without Bangladesh Bank's prior approval. Attested copies of all papers/documents related to remittance of profits of foreign banks, financial institutions and insurance companies are to be forwarded to the FEID by the AD, within one month of remittance, for post facto checking. Any sum remitted in excess (as may be determined by the Bangladesh Bank during post facto checking) shall have to be repatriated immediately.

There are several companies registered in Bangladesh that have foreign shareholders (or non-residents) holding equity in such companies. Such non-resident shareholders are those persons residing or companies or firms having a place of business outside Bangladesh. Prior permission of the Bangladesh Bank is not required for issue of shares in favour of non-residents against foreign investment in Bangladesh; general permission is accorded in this regard. Nonetheless, the FEID must be informed through the concerned AD about the issue of shares to non-residents within 14 days of such issue, along with necessary documents/papers.

Such non-resident shareholders, like resident shareholders, are entitled to the dividends declared by the company they have invested in. The ADs are allowed to remit dividends (both final and interim) to the non-resident shareholders on receipt of the application in the prescribed form from the companies concerned duly certified by their auditors and supported by documents including certificate of incorporation, audited balance sheet and profit & loss account, Board resolution declaring the dividend, undertaking to the effect that in case of remittance of any ineligible amount, the amount so remitted will be repatriated to Bangladesh on demand by the Bangladesh Bank/by the AD. While allowing remittance of dividend, the ADs should satisfy themselves that profit shown in the balance sheet and profit & loss account has arisen out of the normal trading/business activities of the company or out of past accumulated reserves which were remittable. In arriving at the profit out of which dividend has been declared and applied for remittance, ADs should particularly verify to ensure that all previous losses/tax liabilities, if any, have been fully adjusted against current year's net profit or against general/revenue reserve.

Bangladesh Bank's prior approval is also not required in respect of sale proceeds of non-resident equity investment in public limited companies not listed with the stock exchanges and private limited companies. As far as valuation of the shares are concerned, Bangladesh Bank would accept fair value of the shares as on the date of sale based on appropriate combination of three valuation approaches (net asset value approach, market value approach and discounted cash flow approach) depending on the nature of the company.

For the purpose of transfer of shares from non-resident shareholders to resident shareholders, the Memorandum of Understanding (MoU) for share sale-purchase agreement between buyer and seller needs to be concluded on receipt of approval from Bangladesh Bank regarding determination of the fair value of shares. Bangladesh Bank will accept the fair value of the shares as repatriable abroad or for re-investment in Bangladesh determined as on the date of MoU for share sale-purchase agreement based on the latest audited financial statements of the company. The fair value of the shares shall be determined by weighted average calculation of all the 3 (three) valuation approaches.

The harmony of flexible regulations in respect of inflow of investment into Bangladesh and outflow of remittance from investment has strongly contributed towards making the country an ideal choice for investment. Foreign investors are not only able to invest in a flexible manner, but they also have the ability to comfortably claim remittance on their investment and to make a safe and easy exit with their investment from the country. It is thus advised that investors remit their money into and out of Bangladesh by using formal banking channels as otherwise they will not be entitled to the protection accorded by the foreign exchange laws and guidelines. Such investment through improper channels will be deemed as illegal and may constitute the offence of money laundering.

Mohammad Taqi Yasir, Barrister-at-law, is an associate of Hossain & Khan, and Anam Hossain, Barrister-at-law, is a partner of Hossain & Khan.

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