Article contains Comparative Chart of Foreign Investment in India and Bangladesh and compares Regulating Laws, Investment Promotion Agency, Free Trade Agreements (FTAs), Business Vehicle Used, Tax Rates, Key Tax Incentives, Land and Property and Ownership by Non-Resident and Restricted sectors/industries.
India and Bangladesh
|Regulating Laws||Foreign Exchange Management Act 1999 (FEMA), Foreign Direct Investment (FDI) issued by Department of Industrial Policy & Promotion (DIPP), Income Tax Act 1961, Finance Act, Reserve Bank of India||Foreign Exchange Regulation Act, 1947 (FERA), Bangladesh Investment Development Authority Act, 2016 (BIDA), Finance Acts, Income Tax Act, Foreign Private Investment (Promotion & Protection) Act, 1980 (FPI), Bangladesh Bank|
|Investment Promotion Agency||Invest India is the Investment Promotion & Facilitation Agency of India. It acts as the first point of reference for investors in India.
Invest India was set up in 2009 as a non-profit venture under the Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, Government of India.
|Bangladesh Investment Development Authority (BIDA) is the Apex Investment promotion Agency in Bangladesh. BIDA was Established under Bangladesh Investment Development Authority (BIDA) Act 2016 and is the principal private investment promotion and facilitation agency of Bangladesh. It provides diversified promotional and facilitating services with an objective of accelerating industrial development of the country.|
|Free Trade Agreements (FTAs)||FTAs are arrangements between two or more countries or trading blocs that primarily agree to reduce or eliminate customs tariff and non-tariff barriers on substantial trade between them. The major bilateral FTAs are signed with countries including Sri Lanka, Malaysia, Japan, Singapore, South Korea. In addition to this, India has Multilateral FTAs like, South Asia Free Trade Agreement (SAFTA) and India ASEAN Trade in Goods Agreement.||Bangladesh has signed bilateral investment treaties with 32 countries for promotion and protection of investment; including Austria, DPR Korea, Thailand, Belgium, Republic of Korea, UK, Canada, Malaysia, USA, China, Pakistan Uzbekistan, France, Poland, Vietnam, Germany, Romania, Singapore, Indonesia, Switzerland, Denmark, Iran, The Netherlands, India, Italy, The Philippines, UAE, Japan, Turkey, and Belarus.
In addition to this, Bangladesh has also signed multilateral and regional treaties such as Asia-Pacific Trade Agreement (APTA), Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), Indian Ocean Rim Association (IORA), South Asian Preferential Trade Arrangement (SAPTA), South Asia Free Trade Agreement (SAFTA) to conveniently access market and investment opportunities.
|Business Vehicle Used||The business vehicle that can be sued by a foreign investor are –
1. As an incorporated entity by incorporating a company under the Companies Act, 2013 through a:
– Joint Venture; or
– Wholly Owned Subsidiary
2. As an office of a foreign entity through:
– Liaison Office /
– Project Office
– Branch Office
3. As a Limited Liability Partnership
|The business vehicle that can be sued by a foreign investor are –
1.Incorporating a limited (or unlimited) liability company;
2. Establishing a place of business in Bangladesh (i.e. a branch, project or liaison office etc.) as an overseas company.
|Tax Rates||The corporate tax at present is fixed at 25% (plus surcharge and cess) for domestic companies (any company incorporated in India) with annual turnover of up to Rs 400 crore (INR 4 billion) and for other domestic companies, the tax rate is 30% (plus surcharge and cess).
The domestic companies are given with an option to pay tax at a reduced rate of 22% (plus surcharge and cess), provided they do not claim certain deductions under the Income Tax Act. The effective tax rate will be 25.17% including surcharge and cess. The rate is to be effective from Financial Year i.e. 2019-20.
New local manufacturing companies (those incorporating after 1st October 2019 and commencing manufacturing before 1st April 2023) will be eligible to opt for special corporate tax @ 15% (plus surcharge and cess), provided that the company does not claim other deductions or exemptions under Income Tax Act. The effective tax rate will be 17.01%, inclusive of surcharge and cess.
|The corporate tax at present is fixed at 25% (on net profit) for publicly traded companies and 35% (on net profit) for non-publicly traded companies.|
Key Tax Incentives
1. Export Promotion
Applicability: SEZ units operational before 1st April 2020
Incentive: Deduction of 100% of profits and gains derived from export business for first 5 years of commencement, 50% of profits and gains derived from export business for next 5 years, 50% of ploughed-back profits and gains from export business for next 5 years.
2. Research & Development
Applicability: Companies in respect of any expenditure on R&D in an approved in-house facility
Incentive: Weighted tax deduction of 200% granted to companies
Validity: 31st March 2020
Incentive: To incentivize investment in certain sectors, any capital expenditure incurred for specified businesses is allowed as a deduction in the year in which it is incurred.
4. Startup India Scheme
Incentive: Tax incentives granted to eligible start-ups are the tax holiday for any consecutive 3 years (from initial 5 years) in respect to 100% of their profits, including fast-tracking of patent applications with 80% rebate.
5. International Financial Services Centre
Applicability: Caters to customers outside the jurisdiction of the domestic economy. Such centres deal with flows of finance, financial products and services across borders.
Incentives: Tax concessions on capital gains, Minimum Alternate Tax and Dividend Distribution Tax.
|1.Special Economic Zone and Hi-Tech Park Zone
Incentive for investment in the said zone: Business income exempted for next 10 years from the date of commercial operation in a specified manner;
Incentive for developing unit in the said zone: Business income exempted for next 12 years from the date of commercial operation in a specified manner.
2. Concessionary duty on imported capital machinery
Incentive: Import duty, at the rate of 5% ad valorem, is payable on capital machinery and spares imported for initial installation. For 100% export-oriented industries, no import duty is charged in case of capital machinery and spares.
3. Tax exemption for Public Private Partnership (PPP) Project
Incentive:(i) Business income 100% exempted for next 10 years from the date of commercial operation;
(ii) Income tax exemption of capital gains arising from the transfer of share capital of PPP Project company, royalty, technical know-how and technical assistance fee paid by such company;
(iii)Income Tax exemption for foreign technicians’ employees in PPP Project company.
4. Accelerated depreciation: Industrial undertakings not enjoying tax holiday will enjoy accelerated depreciation allowance. The concession rate varies as per the industry and set up location of the undertakings.
5. Export Processing Zones
Incentive: Exemption on business income from 25% to 100% for a period of 5 to 7 years expending on the location where the undertaking is set.
|Land and Property Ownership by Non-Resident||Regulated by – FEMA and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018. Non-Resident Indian (NRI) and Person of Indian Origin (PoI) are permitted to purchase or transfer any immovable property in India unless otherwise specified.
Foreign nationals of non-Indian origin resident outside India are not permitted to acquire any immovable property in India unless such property is acquired by way of inheritance from a person who was resident in India.
A person (RoI) who has established in India, a branch/project office or other place of business (excluding a liaison office) in accordance with the provisions of FEMA and rules thereunder, for carrying on in India any activity can acquire any immovable property in India that is necessary for or incidental to carrying on such activity, subject to compliance with other applicable laws and RBI reporting in a prescribed format.
Lease – A foreign national of non-Indian origin can acquire or transfer immovable property in India, on lease, not exceeding 5 (five) years with the prior permission of the RBI.
|Regulated by – Transfer of Property Act, 1882 and the Registration Act 1908.
These two laws do not have any provisions related to foreign national to acquire land in Bangladesh
Foreign exchange regulation Act also does not exclusively provide for provisions regarding restrictions or non-restrictions for acquisition orr transfer of property in Bangladesh.
Foreign nationals and entities are generally not allowed to own property in Bangladesh. However, a company incorporated in Bangladesh with 100% foreign ownership can own company on the name of the company.
Lease – A foreign national may lease an immovable property in certain specialized areas like export processing zones as per the latest schemes and regulations of the government.
|The present foreign trade policy prohibits Foreign Direct Investments in the following sectors-
1.Lottery Business including Government/private lottery, online lotteries, etc.*
2.Gambling and Betting including casinos*
5.Trading in Transferable Development Rights (TDR)
6.Real Estate Business or Construction of farmhouses **
7.Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
8.Sectors not open to private sector investment- atomic energy, railway operations (other than permitted activities mentioned under the Consolidated FDI policy)
|Bangladesh offers the most congenial investment regime in South Asia. According to Industrial Policy 2016, Bangladesh welcomes foreign private investment in all areas of the economy and there is no restriction on the amount of share of the investment.
However, following sector industries are exclusively reserved for public sector investment:
1. Arms and ammunition and other defence equipment and machinery
2. Forest Plantation and mechanized extraction within the bounds of reserved forests
3. Production of nuclear energy
4. Security printing (currency notes) and minting.
Except reserved sectors, private sector investment has been kept open without any ceiling. Private investment both local and foreign or joint venture between local and foreign or with public sector is allowed.
*Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business and Gambling and Betting activities
**Real estate business shall not include development of town shops, construction of residential/ commercial premises, roads or bridges and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations, 2014