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The Financial Express

Foreign investment: Need for simplification of repatriation rules and regulations

Ferdaus Ara Begum | Published: September 25, 2016 20:06:48 | Updated: October 22, 2017 14:51:35


Foreign investment: Need for simplification of repatriation rules and regulations

Foreign investors invest in a country with a hope that they will earn more money than they can in their own country and they will be able to send home their money with profit in a smooth way following the rules and regulations of the respective country. Like other countries, there are also policies on repatriation and specific foreign exchange guidelines prepared by the Bangladesh Bank (BB) in this country. The Board of Investment which has recently been renamed as the Bangladesh Investment Development Authority (BIDA) looks after repatriation issues of those who are registered with them as foreign investors, no matter if it is in joint ventures or otherwise. Authorized dealers (AD) of different banks are supposed to abide by the rules of the BB while transferring money requested by the entrepreneurs.
There are different types of repatriation and processes are also different. Entrepreneurs mostly depending on foreign expertise and companies for technical know-how, need foreign consultants. Royalties for using brand names, hiring consultants and arranging training, they need to pay money and the payees are required to remit their earnings in foreign currency. Profit repatriation is another dimension which is clearly mentioned in the policy that foreign investors are allowed to remit with tax exemption in some cases.
The Business Initiative Leading Development (BUILD) has been conducting a small study aimed at finding a process of simplification and development of an integrated process for certain types of repatriation allowing for entrepreneurs to bypass certain processes now known to create obstacles and increases time for approval. The BB  statistics show that the country remit in favour foreigners different amounts in USD every year but hassles of repatriation is manifold.
The Foreign Private Investment Act (Promotion and Protection) 1980 or FPIA, guarantees the right to repatriation of invested capital, profits, capital gains, post-tax dividends, and approved royalties and fees for businesses. Foreign companies operate their businesses in Bangladesh through liaison office, project office and branch office or wholly owned subsidiary. Liaison offices are meant to promote companies' business interest, spread awareness of a company's product and explore further opportunities for business. They are not allowed to undertake any business activities and thus cannot earn any income. Expenses must be met through their remittances.  Project office, branch office or wholly owned subsidiary can remit their profits. Depending on businesses of entrepreneurs repatriation of profit can be of different types, mainly repatriation associated with profit and payment income for services.
Branches of foreign firms/companies including foreign banks, insurance companies and financial institutions are free to remit their post-tax profits to their head offices through banks authorised to deal in foreign exchange (authorised dealers) without prior approval of the central bank.   Earlier restrictions imposed on remittance of profit on sale of fixed assets and other capital gains (excluding immovable property such as land, buildings, etc) by foreign firms have been withdrawn.  
Banks may remit, without prior approval of the BB, dividends and capital gains of foreign investors on shares and securities purchased through the Dhaka and Chittagong Stock Exchanges Limited after withholding the tax payable, if any. There are about 558 listed organisations in Dhaka Stock Exchange. Remittance of sale proceeds of shares of companies not listed in stock exchange requires prior permission from the Bangladesh Bank, which is accorded for amounts not exceeding the net asset values of the shares.
Remittance from salaries/savings of expatriates can be dealt with by the authorised banks  in foreign exchange, without the BB's approval. Banks may remit savings of expatriate personnel at the time of their departure from Bangladesh without prior approval of the BB so long as the salary benefits are clearly stated in the employment contract approved by the BIDA. Expatriates working in Bangladesh with the approval of the government may remit through an authorised dealer 50 per cent of salary and 100 per cent of leave salary as also actual savings and admissible pension benefits. Even if it is stated in writing that no prior BB approval is necessary for such remittances, in practice cases are not so simple.  
Industrial enterprises may enter into agreements for payment of royalties, technical know-how/technical-assistance fees abroad without prior permission if the total fees and other expenses involved with technology transfer do not exceed (a) 6.0 per cent of the previous year's sales of the enterprises as declared in their tax returns, or (b) 6.0 per cent of the cost of imported machinery in the case of new projects. These agreements, however, need to be registered with the BIDA. Agreements not in conformity with these general guidelines require prior permission of the BIDA. The organisations registered with the BIDA can only repatriate through it but the non-registered organisations need to deal with BB. ADs may remit royalties, technical know-how/technical-assistance fees payable as per agreements registered with/approved by BOI without prior approval of the BB.   
Foreign shipping lines, airlines and courier services may send abroad, through an AD, funds collected in Bangladesh towards freight and passage, after adjustment of local costs and taxes, if any.
Requirement of prior permission of Bangladesh Bank has been done away with for outward remittance of surplus earnings of foreign airlines, shipping companies and courier service firms, current expenses of foreign offices of the Bangladesh Biman and the Bangladesh Shipping Corporation, consular fees of foreign embassies, pre-shipment inspection fees and accepted claims not exceeding ten per cent of export proceeds realised, membership fees, annual fees, registration fees of international bodies and examination fees, cost of medical treatment abroad up to US $ 10,000 and evaluation fees in connection with immigration, cost of ships purchased in the private sector from abroad and  charter rent.
The Foreign Exchange (FE) Circular No. 22 which was published on August 09, 2016 with the title of 'Foreign Exchange Regulations applicable for enterprises and developers operating in Economic Zones (EZs) in Bangladesh'-ADs/OBU or Offshore Banking Units(for Type A units) may remit the royalty, technical know-how and technical assistance fees of enterprises located in EZs from their FC accounts without prior permission from the BB or the Bangladesh Economic Zones Authority (BEZA) if the total fees and other expenses involved with above mentioned purposes do not exceed the following limits: for new projects, 6.0 per cent of the cost of imported machinery; for ongoing concerns, not exceeding 6.0 per cent of the previous year's sales as declared in the income tax returns.  However, remittance of such fees in excess of the prescribed limit is subject to prior specific approval by the BEZA. Beside usual reporting to the BB, each transaction shall have to be reported to BEZA also.
The procedural steps of repatriating royalties, technical know-how/assistance fees, and franchise-related fees are almost similar and the application form, required documents, fees for repatriation of royalties, technical knowhow/assistance fees, franchise-related fees are also same but many investors are not aware of this.  The BIDA handbook and foreign exchange guidelines have specifications about remittance of royalties, technical know-how/assistance fees but there is no mention of procedural steps or related information in a detailed form. There is a need for a circular from the BB to the effect that repatriation of these kinds can be done through an integrated process in order to eliminate hassles and expedite the process.
There are mainly two problems in the whole process of remittance: one is difficulties in maintaining standard  order procedure(SOP)/ limitation of existing law and another is gap in limitation of execution. There are organisations running businesses with imported finished goods with no production in the local market but are still remitting royalties. Organisations engaged in manufacturing rather than importing finished goods should get  priorities in repatriation.
Repatriation by foreign investors is sometimes carried through over-invoicing/under-invoicing. Some industries take advantage of it and others cannot. So they face discrimination and leave the country with their capital. If the process of repatriation in Bangladesh were fair and easy, over-invoicing or under-invoicing would not have taken place. The rules of repatriation vary from one industry to another. The rules and guidelines are not synchronised. In case of any training or consultancy, air fare/hotel fees etc. are included in consultancy fees of foreigners and for payment of these fees post-approval is required after their arrival but there should be separate agreements for this payments so that extravagance can be avoided.
Foreign investors  are not fully aware of the respective government  bodies acting as the main authorities. The processes are sometimes unclear and thus  investors get puzzled. There is need for bringing about clarity in investment policies of the country by making the existing rules and regulations simpler and straightforward. An integrated approach to policies is necessary.
Currently, the duration for repatriation is 1-2 months  because of executive committee meeting of the BIDA,  submission of income tax certificate for the running year. It is a long time. If an integrated policy for repatriation of royalty, technical assistance, technical know-how, franchise-related fees is formulated, companies  would  benefit greatly.
In the application form of outward remittance there is no clear definition of "Other Technical Fees". There should be a clear mention of these fees to be handled by the BIDA.  Similarly  BB guidelines should also be clear enough in this respect and a special circular can be issued informing companies of the areas of repatriation to be handled by the central bank.
As per guidelines on foreign exchange transaction issued on May 31, 2009, Volume-1 (Chapter 10, page-82 section 27), industrial enterprises producing for local markets may remit through their nominated ADs up to 1.0 per cent of annual sales as declared in their previous years' income tax return towards costs of training and consultancy services under relevant contract with the foreign trainer/consultant without prior approval of the BB. In this connection industrial enterprises will mean firms and companies engaged in manufacturing or processing or assembling.  The FE Circular No. 08, published on February18, 2014, holds that the above facilities will also be applicable to service sector industries which are within the purview of the Industrial Policy in force. But there is no mention of commercial firms, inclusion of which is warranted.
There are other small policy loopholes which can easily be addressed in order to relieve companies of the hassles they face in remitting their foreign currencies for hiring services from abroad.
The writer is CEO, BUILD
ceo_build@outlook.com

 

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