The repatriation of foreign investment involves the return of capital from a host country to the home country, and it encompasses a complex interplay of various factors. Foreign Direct Investment (FDI) is a key component, reflecting the capital injected by multinational corporations (MNCs) into host nations. Capital outflow refers to the movement of funds across borders, shaped by investment repatriation policies, cross-border capital flows, and currency conversion dynamics.
Legal frameworks, such as Bilateral Investment Treaties (BITs) and Double Taxation Treaties (DTTs), play a crucial role in shaping the conditions for repatriation. Exchange controls and regulations in the host country can influence the ease with which profits are remitted. Sovereign risk and the potential for capital flight underscore the importance of understanding the host country’s economic and political stability.
Repatriation of Foreign Investment
This article will explore the concept of repatriating foreign investment, its significance, and the general procedural framework investors need to follow. Repatriation of foreign investment is a crucial aspect of international finance as it helps manage cross-border investments.
What is the Repatriation of Foreign Investment?
Repatriation of foreign investment refers to bringing back or transferring foreign investment funds from a host country to the investor’s home country. It entails exchanging foreign money and bringing any profits or capital gains back home.
Procedure of Repatriation of Foreign Investment
The legal framework in Bangladesh allows non-resident shareholders to repatriate their investments and dividend earnings fully. To achieve this, investors must follow a sequence of steps. Here is a step-by-step guide to the repatriation of foreign investment in Bangladesh:
Step 1: Repatriation Preparation
Before initiating the repatriation process, investors must have the required licenses from relevant authorities, such as the Bangladesh Investment Development Authority (BIDA) and industry-specific regulatory organizations. Additionally, Transactions relating to such investments, including repatriation of dividend/ interest earnings and sale proceeds, shall be made through a Non-resident Investor’s Taka Account (NITA). After payment, all relevant taxes, including capital gains, income, and withholding tax, must be settled with the National Board of Revenue (NBR). Investors must prepare the necessary documentation, including financial statements and evidence of tax clearance.
Step 2: Authority for Foreign Investment Repatriation
The Bangladesh Bank, the central bank of Bangladesh, primarily governs the repatriation of foreign investment. Bangladesh Bank issues regulations and guidelines for repatriating foreign investments, including procedures for repatriating profits, dividends, and capital gains earned by foreign investors.
Step 3: Eligibility Check
Non-resident shareholders seeking to repatriate their final and interim dividend income must obtain approval from the Bangladesh Investment Development Authority (BIDA). The application for dividend remittance must be submitted in the prescribed format and verified by an auditor. Branches of international businesses, banks, and insurance companies registered in Bangladesh can remit their post-tax earnings back to their parent companies through an authorized dealer. BIDA and Bangladesh Bank approval is required to remit profits for branch offices other than banks and insurance companies.
Step 4: Approval for Sales Proceeds Repatriation
Prior approval from Bangladesh Bank is necessary to repatriate sales proceeds of non-resident equity investments in specific types of companies, including public limited companies not listed with the stock exchange and private limited companies.
The fair value of the shares as of the date of sale must be determined for such investments since there is no established market price. This fair value will be based on three valuation approaches: Net Asset Value, Market Value, and Discounted Cash Flow.
Step 5: Application Submission
Applications for the repatriation of sale proceeds of shares must be submitted to the Foreign Exchange Investment Department (FEID) at the head office of Bangladesh Bank. A Valuation Certificate for the shares issued by either a Merchant Banker licensed by the Bangladesh Securities and Exchange Commission (BSEC) or a Chartered Accountant experienced in company valuation must accompany the application.
Step 6: Valuation Guidelines
Indicative guidelines for determining the fair value of shares can be found in Appendix-6/3 of the provided Guidelines for Foreign Exchange Transactions-2018 (GFET), Vol-1. The valuation certificates issued by eligible valuers must be accompanied by a comprehensive explanation justifying the fair value arrived at.
Step 7: Capital Gain Repatriation
If the calculated fair value, as Bangladesh Bank accepts, exceeds the share’s face value, capital gains from this difference may also be repatriated. However, only the accepted fair value is repatriable or available for reinvestment in Bangladesh.
Step 8: Exemption for Non-Resident to Non-Resident Transfers
Prior permission from Bangladesh Bank is not required to sell or transfer shares of public limited companies not listed with the stock exchange from one non-resident to another non-resident.
Step 9: Use of Non-Resident Investor’s Taka Account (NITA)
All transactions related to foreign investments, including repatriation of dividend/interest earnings and sale proceeds, should be conducted through a Non-Resident Investor’s Taka Account (NITA). The procedure for these transactions is outlined in Section IV, Para 24, Chapter 14.
Step 10: Definition of Securities
The Foreign Exchange Regulation Act (FER Act) of 1947 defines securities in the context of investments made through stock exchanges or new public offerings by non-residents.
Step 11: Approval and Transfer
Once Bangladesh Bank approves the repatriation request, the bank will process the transfer of funds to the foreign investor’s designated foreign bank account. This is typically done through the bank’s authorized dealer for foreign exchange transactions. If the issuing company does not withhold the taxes, the AD will ensure that the taxes are withheld from the gross amount received. Remittable dividends earned through these investments can be credited to foreign currency accounts held by non-resident shareholders by the regulations outlined in FE Circular No.29 (July 2020) issued by Bangladesh Bank.
Step 12: Documentation Retention
Authorized Dealers (ADs) must ensure compliance with regulations and maintain five years of transaction records, including KYC, and AML/CFT standards. This requirement is based on the June 18, 2020, and May 6, 2018, circulars. Both the bank and foreign investors should retain repatriation-related documents for future audits. Note that rules may vary based on investment type, sector, and Bangladesh Bank’s approval conditions.
In the Context of Foreign Direct Investment (FDI), Repatriation
Foreign investors who participate in FDI projects must follow FDI policies and regulations. Profits, dividends, and initial investments can usually be repatriated without major complications, subject to the specific conditions outlined in the FDI policy.
Other Important Considerations
Investors should be aware of the following additional factors that may have an impact on their particular situation:
- Investors should know any sector-specific regulations that may apply to their investments. Investors may choose to repatriate funds in US dollars or Bangladeshi taka at Bangladesh Bank’s buying rate;
- Bangladesh offers a variety of investment incentives, such as tax holidays and reduced tax rates, which may impact the repatriation process.
Processing Timeframes and Timelines for Repatriation
The Schedule of the OSS Rules 2018 specifies timeframes for services by Bangladesh Bank:
- 10 days for dividend and profit repatriation services.
- 15 days have been set aside for services related to approval of the repatriation of sale proceeds from the sale of shares held by a non-resident to a resident in a company that is not listed on a stock exchange, as well as approval of the proportionate repatriation of the remaining amount if the company is wound up.
Safeguarding Investments: Repatriation of Foreign Investment and Legal Protections in Bangladesh
The Foreign Private Investment (Promotion & Protection) Act of 1980 in Bangladesh safeguards foreign investments from nationalization and expropriation, ensures fair treatment, and allows the repatriation of proceeds. Furthermore, Bangladesh has bilateral agreements with 29 countries to prevent double taxation and protect investments. In disputes, the Arbitration Act of 2001 enables alternative dispute resolution (ADR).
Lawyers Role in Foreign Investment Repatriation in Bangladesh
Lawyers play an important role in foreign investment repatriation in Bangladesh. Their responsibilities include the following:
- Offering legal guidance to foreign investors on Bangladeshi repatriation laws.
- Assisting in compliance with repatriation rules, approvals, and documentation.
- Preparing and reviewing essential documents like investment agreements.
- Navigating complex regulatory landscapes, including FX controls, tax, and policies.
- Representing investors in disputes or legal matters.
- Conducting due diligence for legal and financial assessment.
- Advising on optimal investment structures to minimize risks.
- Monitoring legal changes affecting repatriation.
Overall, lawyers ensure legal compliance, offer expertise, and resolve challenges in foreign investment repatriation in Bangladesh.
Legal Advice on Foreign Investment Repatriation at CLP
Please do not hesitate to contact us for any queries or legal assistance regarding Foreign Investment Repatriation matters. Our dedicated professionals are ready to guide you through the legal complexities, offering tailored solutions to meet your needs.
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