The government is set to approve the proposed 'Overseas Investment Guideline 2021' to allow outbound investment opportunities to local exporters, and any company running their business in the domestic market for 10 years.
This will allow local companies, SME's and NGO's with outbound investments to enlist in foreign stock markets. However, Bangladesh's total outbound investment in a single fiscal year will not exceed 5% of the central banks foreign exchange reserves for that particular fiscal year.
Bangladesh Investment Development Authority (BIDA) has been working to formulate a workable policy regarding this since 2016. Sources at BIDA said that the draft has been sent to the ministries concerned for final review and feedback. As the guideline is a very important and sensitive document, it will be finalized in consultation with stakeholder after consultation with the ministries. Thereafter, BIDA will submit it to the Prime Minister Office (PMO) for approval.
Eligibility criteria for investment destination
According to the draft guidelines, Bangladeshis can make invest in countries where there are no restrictions on investing, working and sending money earned to Bangladesh. Investments will be allowed in countries with which Bangladesh has dual taxation avoidance agreement. However, investments will not be allowed in countries with which Bangladesh has no diplomatic relations or where sanctions have been imposed by the United Nations, European Union, Office of Foreign Asset Control (OFAC).
Eligibility criteria for outbound investment
The guideline requires companies to invest in business of similar nature they have in the country. A company who wants to make overseas investment in a particular sector has to have at least three years of business or manufacturing experience in that field, and of the three years, at least two must be profitable.
The company also has to have a clean record in loan repayments in the financial system and having no unresolved restructured large loan and tax payment.
The guidelines state any misuse of funds would be treated as an offence of money laundering. Under the Prevention of Money Laundering Act, 2012 and the Foreign Exchange Control Act, 1947, the owner, directors, beneficiary owners of the applicant organization will be liable and be punishable under these two laws.
General terms and conditions
According to the draft guideline, exporters will be allowed to make outbound investments abroad up to 25 per cent of their average exports in the past five years. Other companies and NGO's will be able to invest up to 25 per cent of their net assets – per their latest audited balance sheet.
The investors will have to bring in the country their receivable profits, dividends, salaries, royalties, technical fees, consultancy fees. The companies will need to have potential for future earnings of foreign exchange coupled with other advantages to the country, such as enhancement of exports from Bangladesh and employment opportunities for Bangladeshi nationals.
A company interested in making outbound investment must possess $5 million worth of net assets – reflected by their audited balance sheet in the last 5 years.
BIDA executive chairman will form an inter-ministerial committee to review outbound investment proposals and submit recommendation to the Bangladesh Bank for final approval. However, overseas investments up to $1 million will not require the committee's recommendation.
Organizations approved for investing overseas will be able to take out loans from their mother/parent companies, Bangladeshi banks or any commercial banks in the countries they are investing in. During the initial phase, these organizations will be allowed to operate under the 70:30 debt-to-capital ratio. They will also be able to provide corporate, personal or any other property location in Bangladesh as a guarantee to finance their overseas projects.
Lack of an existing guideline
The absence of a guideline for overseas investment has held back local investors to invest in other countries. Although some local companies were given opportunity to invest outside the country on a case – to – case basis, difficulty arose in granting permission to others because of lack of a proper guideline.
The formulated guideline will witness changes, refinement and reorganization while going through the process of approval. However, once approved, it will meet a long-standing demand of the private sector entrepreneurs, building a brighter imagine of Bangladesh in the international arena.
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