Investment strategies for Japanese companies in Bangladesh
2 April 2025
Bangladesh’s fast expanding economy, strategic geographical position, competitive labour costs and government efforts to promote foreign direct investment (FDI) make it a desirable investment destination for diverse industries from across the globe. Bangladesh’s booming consumer market, infrastructure development initiatives and special economic zones offering a wide range of incentives to foreign investors have proven to be driving factors for Japanese businesses investing in the country.
What key legal and regulatory considerations should Japanese companies be aware of when investing in Bangladesh?
Bangladesh typically upholds the non-discrimination principle and allows 100% foreign ownership in most sectors. However, the National Industrial Policy 2022 reserves and/or controls certain industries including nuclear energy, railway signalling, security printing and minting, weapons and ammunition, and forest plantations in reserved forests.
Asif Hasan
Barrister-at-Law, Advocate
and Associate
Tanjib Alam and Associates
Dhaka
Tel: +8802818924042; +8801922798622
Email:
[email protected]
By guaranteeing equitable treatment and protection against expropriation – apart from compensatory use for public purposes – the Foreign Private Investment (Promotion and Protection) Act, 1980, aims to protect foreign investment. In addition, the 1999 Japan-Bangladesh Bilateral Investment Treaty (BIT) aids in this objective.
Bangladesh allows foreign investors to form joint ventures or wholly owned subsidiaries. Obtaining name clearance from the Registrar of Joint Stock Companies and Firms (RJSC) and adhering to the Companies Act of 1994 are prerequisites for the incorporation process.
Other key legal and regulatory considerations that Japanese companies may take into account while investing in Bangladesh include the following:
- The necessity to obtain permission for the FDI project in Bangladesh;
- Securing work permits for foreign expats from the Bangladesh Investment and Development Authority (BIDA);
- Regulations relating to the repatriation of profits framed by the Bangladesh Bank from time to time;
- The tax laws of Bangladesh;
- Consider the Bangladesh Labour Act, 2006, and Bangladesh Labour Rules, 2015; and
- Various incentives offered by several authorities including the National Board of Revenue (NBR) specifically for foreign investment entities.
In addition, specific to certain industrial sectors, laws relating to environmental aspects, banking and finance, and the Bangladesh Securities and Exchange Commission may be of relevance.
How do Bangladesh’s current investment climate and economic policies impact Japanese companies seeking to expand or invest in the country?
Bangladesh presents a favourable investment environment for Japanese businesses, propelled by trade advantages, economic expansion and strategic bilateral ties. In 2022, Japan made USD390 million in FDI in Bangladesh, primarily in the areas of industry, energy and infrastructure. In various regions, the Bangladesh Special Economic Zone (BSEZ) provides several incentives to draw in Japanese investment.
Maliha Zami
Research Associate
Tanjib Alam and Associates
Dhaka
Tel: +8801772561828
Email:
[email protected]
To facilitate FDI in Bangladesh, which also applies to investment by Japanese companies, the government along with various enforcement agencies such as the BIDA have taken measures to create welcoming FDI climate for FDI. For instance, the BIDA has established a one-stop services department for expediting several procedures in FDI.
In addition, Bangladesh allows: 100% foreign equity; remittance of royalties, repatriation of technical know-how and technical assistance fees; repatriation facilities of dividends and capital at exit; permanent residence permits on investing USD75,000; and a wide range of tax benefits and so on.
Therefore, despite some challenges, Bangladesh can be seen as a land of opportunities specifically for Japanese foreign investors. In addition, Bangladesh provides various incentives in the form of tax exemptions to encourage foreign investment.
What investment structures are most suitable for Japanese businesses entering the Bangladeshi market?
The best investment structures for Japanese companies wishing to enter the Bangladeshi market are public-private partnerships (PPPs), joint ventures (JVs), and wholly owned subsidiaries; each meets a distinct set of business requirements.
For Japanese businesses looking to have total control over operations, strategy and branding, a wholly owned subsidiary is frequently the best option.
A JV may also be a good choice for businesses looking to take advantage of local knowledge and market networks, especially in regulated sectors such as insurance, telecoms and pharmaceuticals. A joint venture with a Bangladeshi partner can facilitate market entry, assist in overcoming regulatory obstacles and offer access to pre-existing distribution networks.
PPPs provide alluring incentives such as tax reductions, land allocation and duty exemptions, for larger-scale infrastructure projects such as those in the energy, transportation or industrial sectors. The advantages of a PPP model in promoting industrial growth are best illustrated by the Bangladesh Special Economic Zone (BSEZ), a journey which began with a significant milestone in September 2014, when the development of an economic zone was mentioned in the joint statement between the governments of Bangladesh and Japan.
What are the tax implications for Japanese companies investing in Bangladesh, and how can these companies optimise their tax strategies?
Japanese projects registered with the BIDA can access several tax-related fiscal incentives, including:
• Import duty exemption. A 1% import duty exemption on capital machinery and spare parts for export-oriented industries, with the allowance to import spare parts duty-free up to 10% of the machinery value every two years. A 3% import duty exemption applies to capital machinery and spares for other industries. Additionally, VAT is not applicable on imported capital machinery and spares.
• Accelerated depreciation. Newly established industrial undertakings can benefit from accelerated depreciation in place of tax exemptions on factory buildings and machinery/plants. Depreciation rates are 50% in the first year, 30% in the second year, and 20% in the third year. Initial depreciation allowances are also available for machinery and plants.
• Other tax exemptions. Exemptions are available on interest paid on foreign loans (under certain conditions), royalties, franchises, technical licence/know-how/assistance fees paid to foreign entities and personal income tax for foreign technicians employed in industries specified in the Income Tax Act, 2023, for up to three years.
Companies located in economic zones (EZs) or export processing zones (EPZs) are eligible for a separate set of incentives, which include tax exemptions.
The primary strategy for an individual or business in Bangladesh to optimise tax outcomes is to be aware of tax law provisions. One way to optimise tax outcomes for businesses is corporate restructuring, which may require consultation with specialised, skilled and experienced legal consultants. As such, it would be prudent for individuals and businesses to retain skilled and experienced tax practitioners.
What challenges and risks do Japanese companies face when investing in Bangladesh, and what legal protections are available to mitigate them?
Japanese companies investing in Bangladesh face several challenges including legal inefficiencies, administrative hurdles, and political instability. A Japan External Trade Organisation (Jetro) survey highlighted that 77.1% of Japanese businesses identified legal inefficiencies and 74.7% cited administrative challenges. Additionally, 71% of Japanese firms identified issues such as exchange rate volatility and difficulties in local procurement of raw materials.
The key challenges in conducting business include various drawbacks associated with an ineffective justice system. To elaborate on , the dispute resolution mechanism in Bangladesh has proven to be heavily time consuming which, at times, discourages foreign investors from investing in Bangladesh as the enforcement of contracts becomes challenging. However, given Bangladesh’s large and dense population, the scope for doing business is endless.
To mitigate the challenges and risks, Japanese companies may be advised to retain expert and experienced legal counsel, tax counsel, financial eadviseors, and consult with the BIDA, which frequently provides resources and support to foreign investors.
To reiterate, several initiatives have been taken to promote further foreign investment in Bangladesh by offering a convenient business environment. These initiatives include reducing the time needed to obtain electricity, trade licence, TIN number, land registry, customs clearance and VAT registration for businesses. The latest amendments to the Companies Act bring further ease to doing business.
To avoid the avenue of time-consuming litigation, businesses are rapidly shifting towards adopting alternative dispute resolution mechanisms. Therefore, it is anticipated that Bangladesh’s reputation as a top destination for foreign direct investment will continue to grow.
Bangladesh’s fast expanding economy, strategic geographical position, competitive labour costs and government efforts to...
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