How do Bangladesh’s SEZs really lure Foreign Direct Investment (FDI)?

Bangladesh has become an attractive destination for foreign investors in recent years, immense thanks to the country’s successful implementation of special economic zones (SEZs). These designated areas offer a range of benefits to investors, including tax breaks, streamlined regulations, and improved infrastructure. As a result, Bangladesh has seen a significant increase in foreign direct investment (FDI) in recent years, with many investors choosing to establish their operations within the SEZs. In this article, we will delve into why SEZs in Bangladesh are so effective at luring foreign direct investment, examining the various factors contributing to their success and exploring their impact on the country’s economy. Whether the investor is looking to explore new opportunities or is simply interested in the economic development of Bangladesh, this article provides valuable insights into the benefits of SEZs and their potential for future growth.

Introduction

In its first 50 years of independence, Bangladesh has made significant progress. Since its independence, Bangladesh has experienced remarkable economic growth and social progress, steadily reducing poverty and enhancing living conditions. This extended period of steady economic development failed by the COVID-19 pandemic, which exacerbated some prior vulnerabilities. Continued challenges include stagnant employment growth, growing inequality, sluggish poverty reduction: low revenues, and persistently significant financial sector vulnerabilities. To reach upper-middle income status by 2031, significant investments in infrastructure, human capital, and climate resilience are necessary.

Bangladesh as a Destination for foreign direct investment (FDI)

In Bangladesh, manufacturing and service sector activities rebound led to solid growth in FY21 and the first half of FY22. Over the next few years, GDP growth is likely to stay strong. Headline inflation rose to 6.2 percent in February 2022, driven by food and non-food prices. The war in Ukraine and associated sanctions may lead to a higher current account deficit and rising inflation as global commodity prices surge. Public debt remains sustainable, and the March 2022 joint World Bank-IMF Debt Sustainability Analysis assessed that Bangladesh remained at low risk of external and public debt distress.

Bangladesh is one of the top investment destinations for many foreign investors due to its low wages, competitive production costs, training resources, energy availability, and sizable domestic market. In 2022, Bangladesh’s gross national product climbed to 31520.93 BDT billion from 12821.19 BDT billion in 2021.

In its World Investment Report for 2022, UNCTAD reports that FDI in Bangladesh increased by 13 percent to $2.9 billion in 2021. In 2020, the JETRO Survey on Business Conditions of Japanese Companies Operating Overseas (Asia and Oceania) will demonstrate the favorable impact of reforms in Bangladesh’s trading environment.

Bangladesh is creating immense economic opportunities. Nearly 60 percent of the population is economically active, and almost one million graduates enter the workforce each year.

Furthermore, Bangladesh’s geostrategic proximity to China and India lends credence to the claim that the nation’s economy will advance in the future. Bangladesh’s installed capacity currently stands at 25,514 MW as of March 2022, and the government is importing LPG and LNG through private initiatives. Bangladesh has already achieved lower-middle-income status and aims to achieve middle-income status by 2021 and developed nation status by 2041.

What exactly is a Special Economic Zone?

The Bangladesh Economic Zones Authority (BEZA) has taken initiatives to establish 100 Special Economic Zones (EZ) on 30,000 hectares of land to generate ten million laborers and sustainable industrialization to expand and diversify the industries. EZ are industrial parks/zones that will foster the growth of domestic and foreign sectors. Public-private partnership, private, and government ownership models construct EZ. Investors can lease land or industrial spaces at a competitive rate within EZ. The government offers numerous financial incentives to investors who intend to establish factories and plants in the Economic Zones. Due to close government ties and sponsorship, these Economic Zones will be hassle-free preferred locations for foreign investors wishing to develop factories and plants in Bangladesh.

Diverse Fiscal Incentives in Special Economic Zones for foreign direct investment (FDI)

BEZA would provide a variety of incentives, not just to the people who developed Economic Zones but also to those who invested in industrial units. The zone developer may reap benefits such as increased income tax exemptions and decreased capital expenditures. The incentive system for investment includes tax exemptions, exemptions from customs and excise charges, and non-financial benefits, such as having no limit on foreign direct investment, issuing work permits, and recommending residents for citizenship or resident ship.

SL No.	Incentives	Explanation	Gazettes
01	Exemption from paying income tax varies over 12 years, including the complete exemption for the first ten years.	1st 10 years – 100%   11th year – 70%   12th year – 30%	SRO No 227-Law/Income Tax/2015   Date: 08 July 2015 of Internal Resources Division
02	Income tax exemption on dividends for ten years	100% Exemption	SRO No 299/Law/Income Tax/2105   Date: 8 Oct 2015 of Internal Resources Division
03	Income tax exemption on capital gains from transfer of shares for ten years	100% Exemption	SRO No 299/Law/Income Tax/2105   Date: 8 Oct 2015 of Internal Resources Division
04	Income tax exemption on royalties, technical know-how, technical assistance fees, Etc for ten years	100% Exemption	SRO No 299/Law/Income Tax/2105   Date: 8 Oct 2015 of Internal Resources Division
05	Duty-free import of goods to be used for the development of Zones (except for MS Rod/Bar, Cement, Pre-fabricated Building, Iron/Steel Sheet)	100% Exemption	SRO No 208- Law/2015/45/Customs   Date: 1 July 2015 of Internal Resources Division
06	Land development tax exemption	100% Exemption	SRO No. 05-Law/2016   Date: 11 Jan 2016 of Ministry of Land
07	Exemption from tax sub tax, rate, toll, fees Etc, imposed under section 65 of Local Government (Union Parishad) Act, 2009	100% Exemption	SRO No. 333-Law/2015   Date: 12 Nov 2015 of Local Government Division
08	Exemption from tax on transferring immovable property imposed under section 44 of the Upazilla Parishad Act, 1998	100% Exemption	SRO No. 328-Law/2018   Date: 11 Nov 2018 of Local Government Division
09	Exemption of Stamp Duty on registration of loan document with Scheduled Bank	100% Exemption	SRO No. 7-LW/2016   Date: 12 January 2016 of Internal Resources Division
10	Stamp duty is exempted when transferring land in favor of the Consortium, Joint Venture (Private EZ developers) formed to set up the zone.	100% Exemption	SRO No. 287-Law/2017/08.00.0000.040.22.005.15   Date: 21 Sep 2017 of Internal Resources Division
11	Income Tax deducted at source (under section 53H of the Income Tax Ordinance 1984) is exempted when transferring land in favor of the Consortium, Joint Venture (Private EZ developers) formed to set up the zone.	100% Exemption	SRO No. 120-Law/Income Tax/2018   Date: 26 Apr 2018 of Internal Resources Division
12	Registration fees (Registration Act 1908) are exempted when transferring land in favor of the Consortium, Joint Venture (Private EZ developers) formed to set up the zone.	100% Exemption	Circular No. R-6/1M-11/2017-269   Date: 19 Sep, 2017
13	The land leasing contract between BEZA and Developers is exempt from paying stamp duty.	100% Exemption	SRO No. 07-Law/2016   Date: 12 Jan 2016 of Internal Resources Division
14	Exemption from the stamp fee is generally associated with the registration of a lease.	50% Exemption	SRO No. 06-Law/2016   Date: 12 Jan 2016 of Internal Resources Division
15	EZ investors are waived from the Board of Investment Act of 1989	Completely Exempted	SRO No. 108-Law/2016   Date: 21 April 2016 of Prime Minister’s Office

SL No.	Incentives	Explanation	Gazettes
01	Income Tax exemption for 10 years (except edible oil, sugar, flour, cement, iron, and iron-related products)	Extent -100% (for 1st, 2nd , 3rd  year)   4th year – 80%   5th year – 70%   6th year – 60%   7th year – 50%   8th  year – 40%   9th  year – 30%   10th year – 20%	SRO No 104-Law/Income Tax/2020   Date: 25 March 2020 of  Internal Resources Division
02	Income tax exemption on dividends for ten years	100% Exemption	SRO No 299/Law/Income Tax/2105   Date: 8 Oct 2015 of Internal Resources Division
03	Income tax exemption on capital gains from transfer of shares for ten years	100% Exemption	SRO No 299/Law/Income Tax/2105   Date: 8 Oct 2015 of Internal Resources Division
04	Income tax exemption on royalties, technical know-how, technical assistance fees, Etc, for ten years	100% Exemption	SRO No 299/Law/Income Tax/2105   Date: 8 Oct 2015 of Internal Resources Division
05	Exemption from Income Tax on the income of expatriate for three years	50% Exemption	SRO No. 298- Law/Income Tax/2015   Date: 8 Oct 2015 of Internal Resources Division
06	Exemption from double taxation subject to the existence of a double taxation agreement	subject to the double taxation agreement	National Board of Revenue
07	Duty-free import of capital machinery and construction material (except for MS Rod/Bar, Cement, Pre-fabricated Building, Iron/Steel Sheet)	100% Exemption	SRO No 209- Law/2015/46/Customs   Date: 1 July 2015 of Internal Resources Division   List of capital types of machinery SRO No. 121- Law/2020/72/Customs Date: 3 June 2020 of Internal Resources Division
08	Warehousing Station	Entire EZ has been declared as warehousing station.	SRO No 211/Law/2015/48/Customs     Date:1 July 2015 of Internal Resources Division   Amendment:  SRO No 203/Law/2017/48/Customs Date: 20 June 2017 of Internal Resources Division
09	Home Consumption & Other Bond Facilities, Warehouse Operator	All the unit investors in EZs are entitled to this facility.	1.       SRO No 211/Law/2015/48/Customs   Date: 1 July 2015 of Internal Resources Division   Amendment:   SRO No 203/Law/2017/48/Customs   Date: 20 June 2017 of Internal Resources Division   2.       SRO No 181/Law/2008/2209/Customs   Date: 26 June 2008 of National Board of Revenue   Amendment:   SRO No. 203-Law/2017/48/Customs   Date: 20 June 2017 of National Board of Revenue   Amendment:   SRO No. 136-Law/2020/87/Customs   Date: 03 June 2020 of National Board of Revenue   Amendment:   SRO No. 194-Law/2020/104/Customs   Date: 30 June 2020 of National Board of Revenue   3.       Notification No. 42/2017/Customs/199   Date: 2 May 2017 of National Board of Revenue   Amendment:   288/2017/Customs/529   Date: 21 Dec 2017 of National Board of Revenue   Amendment:   195/2018/Customs/197   Date: 6 May 2018 of National Board of Revenue
10	Dedicated Customs Procedure (Economic Zone)	All the industries in EZs are eligible.	Notification No. 42/2017/Customs/199   Date: 2 May 2017 of National Board of Revenue   Amendment:   288/2017/Customs/529   Date: 21 Dec 2017 of National Board of Revenue   Amendment:   195/2018/Customs/197   Date: 6 May 2018 of National Board of Revenue
11	20% sale of the finished product to the Domestic Tariff Area (DTA)	20% of the export volume of the last fiscal year	Notification No. 42/2017/Customs/199   Date: 2 May 2017 of National Board of Revenue   Amendment:   288/2017/Customs/529   Date: 21 Dec 2017 of National Board of Revenue   Amendment:   195/2018/Customs/197   Date: 6 May 2018 of National Board of Revenue
12	Sub-contracting with Domestic Tariff Area (DTA) allowed	100% Allowed	Notification No. 42/2017/Customs/199   Date: 2 May 2017 of National Board of Revenue   Amendment:   288/2017/Customs/529   Date: 21 Dec 2017 of National Board of Revenue   Amendment:   195/2018/Customs/197   Date: 6 May 2018 of National Board of Revenue
13	Exemption of Customs Duties, Regulatory Duty, VAT, and Supplementary Duty for import of vehicles (up to 2000 cc, one sedan car and one microbus/pick up van/ double cabin pick up)	100% Exemption	SRO No. 210- Law/2015/47/Customs    Date: 1 July 2015 of Internal Resources Division   Amendment:   SRO No. 312- Law/2015/57/Customs   Date: 28 Oct 2015 of Internal Resources Division
14	Duty exemption on export	100% Exemption	1st Schedule of The Customs Act, 1969
15	Exemption from VAT on Utility services related to the production of goods	100% Exemption	SRO No. 190-Law/2019/47-VAT   Date: 13 June 2019 of Internal Resources division
16	Land development tax exemption	100% Exemption	SRO No. 05-Law/2016   Date: 11 Jan 2016 of Ministry of Land
17	Exemption of stamp duty on lease registration	50% Exemption	SRO No. 06-Law/2016   Date: 12 Jan 2016 of Internal Resources division
18	Exemption from tax sub tax, rate, toll, fees, Etc, imposed under section 65 of Local Government (Union  Parishad) Act, 2009	100% Exemption	SRO No. 333-Law/2015   Date: 12 Nov 2015 of Local Government Division
19	Exemption from tax on transferring immovable property imposed under section 44 of the Upazilla Parishad Act, 1998	100% Exemption	SRO No. 328-Law/2018   Date: 11 Nov 2018 of Local Government Division
20	EZ investors are waived from the Board of Investment Act of 1989	Completely Exempted	SRO No. 108-Law/2016   Date: 21 April 2016 of Prime Minister’s Office
21	Framework for the regulation of businesses operating inside EZs that engage in foreign currency transactions	Completely	FE Circular No. 21 of 11 May 2017 incorporated in chapter 20 of the Guidelines for Foreign Exchange Transactions-2018 (GFET), Vol-1 of Bangladesh Bank
22	Foreign investment in Bangladesh, including EZs	No restrictions except few sectors	As per appendix-6 of Industrial Policy-2022
23	Ceiling of FDI	No ceiling of foreign contents	1. Industrial Policy- 2022 of Ministry of Industries   2. FE Circular No. 21/2017 of Bangladesh Bank
24	Repatriation of dividend earned against the investment	100%	1. No permission from Bangladesh Bank (paragraph 31, chapter 10 of GFET, paragraph 9 of FE Circular No. 21/2017, and paragraph 9, chapter 20 of GFET by  Bangladesh Bank)   2. Dividends can be credited to foreign currency accounts maintained by foreign investors in Bangladesh (FE Circular No. 26 of 7 July 2020 of Bangladesh Bank)
25	Repatriation of sales proceeds of investment	100%	1. Detailed instructions outlined at FEID Circular No. 01 of 6 May 2018 of Bangladesh Bank   2. Relaxation vide FEID Circular Letter 01 of 18 June 2020 of Bangladesh Bank in the following counts:   a)       No approval from Bangladesh Bank is needed for remitting share sales proceeds, regardless of quantity. Fair value is assessed using the net asset value technique based on the latest audited financial statements, and the financial statements include no revalued assets.   b)       Bangladesh Bank requires no permission to repatriate sales proceeds of shares up to Tk 10.00 million without valuation reports.   c)       Sales proceeds exceeding Tk 10 million up to Tk 100 million may be remitted abroad based on the fair value determined based on appropriate valuation methods. Repatriation of sales proceeds of investment.
26	Loan from external sources	100%	Paragraph 8 of FE Circular No. 21/2017 and paragraph 8, chapter 20 of GFET of Bangladesh Bank
27	Repatriation of Royalty, Technical Know-how & Technical Assistance Fees	1. For the new project, they are at most 6% of the cost of the imported machinery.   2. For ongoing concerns, they were not exceeding 6% of the previous year’s sales as declared in the income tax return.	Paragraph 11 of FE Circular No. 21/2017 and paragraph 11, chapter 20 of GFET of Bangladesh Bank
28	Telephonic Transfer (TT)	No limit	Paragraph 7 of FE Circular No. 21/2017 of Bangladesh Bank
29	FC Accounts for EZ enterprises	Extent – Full	Paragraph 4 of FE Circular No. 21/2017 and paragraph 4, chapter 20 of GFET of Bangladesh Bank
30	FC Accounts for foreign nationals working in EZ enterprises	Extent – Full	Paragraph 1, chapter 13 of GFET of Bangladesh Bank
31	Remitting income of foreign nationals working in EZs	75 % of current income	1. Paragraph 12 of FE Circular No. 21/2017 and paragraph 12, chapter 20 of GFET of Bangladesh Bank   2. FE Circular No. 24 of 23 June 2020 of Bangladesh Bank
32	Industries operating in the Domestic Processing Area (DPA) of EZs can meet their foreign payment obligation on Royalty, Technical Know-how& Technical Assistance Fees from their Taka Account.		FE Circular No. 41 of 04 October 2020
33	Market exploration assistance for Type C industries operating in EZs against the export of   1. Sandals and bags made of synthetic & fabrics   2. Agro-processing goods	4% Cash Incentive on the condition of minimum value addition of 30%	Paragraph 9 of FE Circular No. 35, dated 22 September 2019 of Bangladesh Bank
34	Backward Linkages of raw materials to sell for export-oriented industries	100%	Paragraph 06 of FE Circular No. 21/2017 of Bangladesh Bank
35	Formation of Joint Venture Industries		FE Circular No. 21/2017 of Bangladesh Bank
36	Special cash incentives against the export of textile goods, including ready-made garments		FE Circular No. 01, dated 07 January 2020 of Bangladesh Bank
37	Issuance of work permits to foreigners is allowed.	Up to 5% of total officers/employees of an industrial unit	Notification No. 03.068.004.09.00.00.016.2018-664 (7 Nov,2018)
38	Permanent Resident	For investment of USD$ 200,000 or above	Industrial Policy- 2022 of Ministry of Industries
39	Citizenship	For investment of at-least USD$ 1,000,000 or  transfer at-least USD$ 2,000,000 to any recognized financial institute.	Industrial Policy- 2022 of Ministry of Industries
40	No Visa Required (NVR)	For investment of USD$ 10,000,000 or above in any heavy or long term industry.	Industrial Policy- 2022 of Ministry of Industries

Conclusion

Bangladesh is a popular place to relocate labor-intensive industries. The government has implemented several policies to create a more open and competitive environment for foreign and domestic private investment. The government encourages rapid economic growth by expanding and diversifying industries, employment, production, and export. The Special Economic Zones offer foreign investors a secure, financially attractive, and convenient environment. The incentives and services provided in the EZs are pretty enough to attract the attention of foreign investors with the right mindset who are willing to relocate to or establish a new business in Bangladesh.

In conclusion, special economic zones (SEZs) have proven to be a successful strategy for attracting foreign direct investment (FDI) to Bangladesh. With tax incentives, streamlined regulations, and improved infrastructure, SEZs offer a range of benefits to investors that make Bangladesh an attractive destination for FDI. As a result, the country has seen a significant increase in FDI in recent years, with many investors establishing their operations within the SEZs. The impact of these zones on the economy has been significant, and their potential for future growth remains high. For those interested in investing in Bangladesh or learning more about the country’s economic development, SEZs and their effectiveness in luring FDI are certainly worth exploring.