Doing business in Bangladesh

Can you provide an overview of environmental regulations and compliance requirements for businesses in Bangladesh?

Under section 12 of the Environment Conservation Act 1995, all businesses, in particular, industrial units and/or projects shall obtain an environmental clearance certificate from the director general. Under section 3, the director general shall be appointed by the government and shall be the head of the Department of Environment. If any business, industrial unit and/or project fails to obtain an environmental clearance certificate, they run the risk of getting a sentence of imprisonment not exceeding three years or paying a fine not exceeding Tk 300,000 (taka three lacs) or both (section 15(1) SL. 8).

How are health and safety standards monitored and enforced?

So far as health and safety standards in a workplace are concerned, these are governed by the Bangladesh Labour Act 2006 and is monitored by the Department of Inspection of Factories and Establishments (DIFE). Chapter V (sections 51-60) of the 2006 Act deals with the health and hygiene of a specific workplace, including provisions related to cleanliness, ventilation and temperature, dust and fume, overcrowding, lighting, toilets, and dustbin etc. Chapter VI (sections 61-78) deals with the safety of a specific workplace, including provisions related to safety of the building, precaution as to fires, hoists and lifts, excessive weights, and precautionary measures against dangerous fumes etc.

Further, under section 307, if any person fails to comply with any provision of the 2006 Act, they shall be punished with imprisonment for a term which may exceed to three months, or a fine which may exceed to Tk 25,000 or both.

What cultural and social factors should be considered in our business dealings in Bangladesh?

There are many cultural and social factors to be taken into account by any keen businessmen looking to do business in Bangladesh.

  1. Building professional relationships, which last a long time, is very important in Bangladesh. In Bangladesh, long-term business relationships are an essential part of the business culture, as such relationships are based on trust and belief. An ancillary part of this includes maintaining good communication and showing respect.
  2. Bangladeshis are known for certain beliefs and traditions, such as a sense of family, having respect for elder members of society and maintaining peace within a community. Therefore, these are important values that will have to be taken into consideration when entering the business market in Bangladesh.
  3. Bangladeshis are incredibly frugal in their business, in the sense that they are very calculated with their business decisions. In practice, this means that they are reluctant to take impulsive decisions. As a result, for anyone planning to enter into or choosing a partner within the Bangladeshi industry must keep in mind that any decisions offered or proposed must be well thought out and properly presented, as Bangladeshis will be very calculative regarding their decisions.
  4. Bangladeshi business people also seek very high value for money. In some cases, this will take precedence over other things. Therefore, if they believe that they will not get much value for money for a business idea proposed by someone, it is more than likely that they will refuse to act on it. They believe that this mindset will serve them in the long run.

Are there any specific business etiquette or local customs that we should be aware of?

There are no specific etiquettes and/or customs in Bangladesh but there are some aspects to keep in mind when conducting a business in Bangladesh.

  1. Bangladeshi business people are very traditional and cultural, and this often leads them to prioritising personal and professional relationships rather than certain documents or paperwork. Bangladeshis are always more willing to work with people that they are comfortable with rather than people with polished resumes.
  2. There is a culture in Bangladesh where elder businessmen are more well-respected than young businessmen, simply because of age. Bangladeshi businessmen hold high esteem for elder members simply because it shows resilience and experience, which, they believe, is a crucial trait for any entrepreneur.
  3. Bangladeshi businessmen are also very averse to documentation, and according to their ideology, the less paperwork, the better. They would much rather prefer in-person discussions than drawing up paperwork, including small addendums or supplements etc. Businessmen in this country are not paper heavy, and this can be seen as both a blessing and a curse.
  4. If a business meeting consists of only men, then shaking their hands is the appropriate gesture. However, if there are women present, then it is best to refrain from shaking their hands unless they initiate the gesture first.
  5. The timing of meetings in Bangladesh must also be carefully selected. Since, Bangladesh is a Muslim country, you must take into consideration the prayer timings before scheduling a meeting. For example, an afternoon meeting should not be scheduled before 2pm, as prayers are offered at 1pm, after which lunch is consumed. This is standard practice in Bangladesh.
  6. Bangladeshis are mostly indirect speakers. In a meeting or any conversation, it is normal practice to firstly start with some small talk, which usually involves some general personal questions, and then getting to the purpose of the meeting or conversation. Even then, Bangladeshis tend to express themselves without using blunt terms.

How would you assess the current political climate and overall stability in Bangladesh?

The political climate in Bangladesh is the most stable it has been since Bangladesh’s independence in 1971. The same government has been in power for the past three terms and as a result, has done wonders for the nation during it’s long reign. Bangladesh is also set to graduate from UN’s Least Developed Countries by 2026. Bangladesh’s economic growth is also set to be the sixth highest in Asia this financial year. This shows that Bangladesh’s economy is at an excellent stage at the moment, and with the current government, is set to achieve even higher heights in the upcoming years.

What is the regulatory landscape for forming partnerships or joint ventures with local entities?

In order to set up a partnership, the following steps must be completed:

  1. Obtain a TIN certificate from the National Board of Revenue (for each partner).
  2. Obtain a trade license.
  3. Rent or purchase a space for setting up industry.
  4. Open a bank account in the name of the business.
  5. If the industry is located outside BEZA, BEPZA, BHIPA, BSCIC, then BIDA’s registration must be obtained. If it is located inside these areas, then their particular procedures must be followed.
  6. Obtain a fire license from FSCD.
  7. Obtain environmental clearance from the Department of Environment.
  8. Obtain approval of layout plan from DIFE.
  9. Obtain VAT registration from NBR.
  10. Obtain membership of business/trade body.
  11. Obtain a ‘No Objection Certificate’ from the ministry/division to set up controlled industries.
  12. Follow RAJUK/CDA/RDA processes for building/plant construction approval.
  13. Apply for BIDA’s recommendation to get ad hoc IRC approval from CCI&E for importing capital machinery and/or raw material.
  14. Obtain ad hoc approval from CCI&E.
  15. Import capital machineries and raw materials.
  16. And then start the operation.

The following documents have to be submitted, along with the application for registration of local and foreign joint venture industry:

  1. Certificate of Incorporation.
  2. Memorandum and Articles of Association attested by an authorised person of the applicant company.
  3. Trade license from the concerned authority. The applicant must mention the specific sector.
  4. Tax Identification Number (TIN) certificate of the company.
  5. Land purchase agreement or rental agreement for the proposed project.
  6. List of directors with information on their nationality and address.
  7. Profile of the proposed investment project (if the project cost exceeds BDT100m).
  8. No objection certificate (NOC) from the concerned ministry/directorate/department for industries falling under the category of the controlled sector as per the industry policy (which can be found on the website).
  9. Attachments of the company’s comments as per BIDA’s requirement. The following documents are additionally required for foreign/joint-venture projects.
  10. Encashment certificate (proof of inward remittance of foreign currency into the company account issued by the concerned bank).
  11. List of local and imported machineries printed on the official letterhead of the company signed by an authorised person of the company (which must include serial number, name of machineries, H.S. code, quantity, and value in million BDT/USD).

What due diligence processes should be followed when considering local partners?

The due diligence process for considering local partners in Bangladesh is pretty much the same as it would be for any other jurisdiction. We recommend carrying out the following tasks prior to choosing a business partner:

(i) Carrying out research regarding their reputation:

Choosing a business partner is a big commitment, and therefore, performing adequate research is a must. This includes their online presence, recognition in the particular industry, media coverage, customer reviews etc. It will also be helpful to check their credentials and ensure that they possess the necessary licenses, permits and certifications required to operate in their relevant industry.

(ii) Perusing their financials:

It is crucial to review the financials of a potential partner. This includes reviewing their income statement, balance sheet, cash flow statement, tax returns etc. Further, it is also recommended to review their financial performance, stability, growth in the market etc. Their financial statements can be accessed from the partner themselves or can also be obtained from third-party sources.

(iii) Reviewing their compliance:

It is essential to review and evaluate the compliance history of your potential partner. This includes their compliance with relevant laws, regulations and codes of conduct in their specific industry and market. It is also very important to identify whether they have any impending lawsuits or legal issues as well as disputes or liabilities, which runs the risk of potentially affecting their partnership with you.

(iv) Ensure that your views align:

It’s a significant part of any partnership to be on the same page as your partner. Therefore, you must ensure that your goals, values and vision are the same as your potential partner. It is also important to analyse their strengths, weaknesses and threats as a partner. This will help you better understand whether you are compatible with your partner, in order to ensure a successful partnership.

(v) Doing a test-run:

The last step is to conduct a test-run with your potential partner, in order to cover all your bases. This may include sharing your system, resources and tools with your potential partner and have them do the same.

These are some basic steps to use when performing due diligence on a potential partner.

Are there industry-specific regulations and standards that we need to be aware of?

Yes, there are separate regulations and standards for each industry, with different rules applying to the food industry, the garments industry, the agriculture industry, the electronics industry, and many more. Each regulations and standards is specific to a certain industry, with provisions available for every one of them.

What are the prevailing market trends and potential challenges in our industry in Bangladesh?

The legal sector in Bangladesh is much less adaptable and is incredibly hesitant to accept new things and/or concepts. Even where there are provisions for certain procedures or concepts, in practice, it can often be seen that the procedures are not readily accepted by the courts. One such example is the concept of digital signatures. Under the Information and Communication Technology Act 2006, digital signatures are recognised by the law and courts. However, in practice, it is still not properly recognised by the courts. The legal sector is incredibly paper heavy, and hence, digitalisation is still at a very nascent stage.

In addition, sexual offence cases are still viewed as taboo in Bangladesh, as well as cases related to the LGBTQ+ community. The legal sector’s thinking is not as expansive as it ought to be regarding these types of cases. Female representation is also significantly low in the legal sector.

With regard to current market trends, the start-up sector is booming in the industry at the moment, leading to companies seeking legal help with company incorporation and establishment. Joint venture agreements are also very common nowadays, with more and more companies executing them. Companies today are far more willing to adhere to legal compliance, which has led to them seeking legal help in recent years compared to the previous ones.