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FM Associates | A Full Service Law Firm | Offices in Bangladesh, India, UAE & UK

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A Full Service Law Firm

doing business in Bangladesh | FM Consulting International

Provider of Financial, Auditing, Payroll & Business Consulting Services

How to Setup Agro Business in Bangladesh

In order to have a comprehensive guideline as to how to setup agro/agricultural businesses in Bangladesh, FM Associates, a leading law firm in Bangladesh have created the following niche specific Doing Business guideline specifically for agricultural sector in Bangladesh.
How to Setup Agro Business in Bangladesh

What is Agro/agricultural businesses in Bangladesh

What is Agro/agricultural business means and how to do Agro/agricultural businesses in Bangladesh are the two most significant question that requires a brief discussion and instruction which can be understood from the layman’s perspective. In the light of which we can define the term “Agro”, which is extremely broad and lacks a proper definition and it is inclusive of a lot of different kinds of businesses. Let’s say for example, the regulatory compliance or applicable laws can be different for a seed importer than any other businesses which deals with fertilizers.

Therefore, in the following discussion, the focus shall be mainly on the agriculture side of things. Agro-business/Agribusiness is the business of agricultural production. Bangladesh is an agriculture-based country. Even though the essence of agriculture here has changed quite a bit over the last two decades, the focus remains the same. Whether it’s the rice on the paddy fields or growing fruits and vegetables, the knowledge, the techniques and the structure of business have expanded rapidly.

Agriculture was a family business not too long ago. Now a days, automation, scientific advances and better transportation have allowed for industrialization of this ancient occupation. There are lots of factories growing up catering to the agriculture industry. With these advances, the updating of the legal requirements also become of paramount importance. The type of crops that were cultivated have changed significantly and most farmers have different kind of yields at different times of the year to make sure the fertility of the land is not compromised. Department of Agricultural Extension under the Ministry of Agriculture plays a major role in maintaining the agribusiness in Bangladesh. 

LICENSES AND REGISTRATION PROCESS FOR AGRO/AGRICULTURAL BUSINESSES IN BANGLADESH 

Before addressing the license and registration requirement for businesses involved in agriculture in Bangladesh, one needs to understand the type of agricultural business that they are involved in. For an example a farmer may not need any business license for harvesting in general. However, any businesses that are involved in production, import, sell, marketing, management and storage of fertilizer and/or seeds may require to comply with certain types of laws and regulatory compliances in Bangladesh.

As everything is more digitalized and farmers are being brought more under surveillance by the Government, the requirements for license and registration have increased. 

Fertilizer

Fertilizer is an essential product in the agriculture industry. The production and distribution of fertilizer cannot be done without the required registration as mentioned in the Fertilization Management Act (2006) read along with Control of Essential Commodities Act 1956. There are several prescribed forms under the Fertilization Management Rules (2007) for, as follows:
1. Production of fertilizer 
2. Import of fertilizer 
3. Collection, marketing, transportation and selling of fertilizer; and/or
4. For renewal of registration. 

When the forms are submitted along with other required documents regarding the type of fertilizer, the scheme of investment, necessary test results, other documents such as Trade License, Tax Identification Number (TIN), Value Added Tax (VAT) Registration certificate are also required to acquire the license from Department of Agricultural Extension.

Seed

As per the Seed Act (2018), any person willing to be the dealer of seeds, cannot do the business without the requisite registration from the Seed Certification Agency. The application shall be done as per the prescribed rules and registration requirements in the Seed Rules (1998). The registration for seed dealership also requires Trade License, TIN and VAT Registration certificate as pre-requisites. 

The concept of plant quarantine has been introduced to make sure that there is no pest infestation or spread of diseases while the international trafficking of plants and such related and scheduled organisms take place. For quarantine of plants, the main requirement is the registration for import and export, but this is not covered exclusively by the general Import Registration Certificate (IRC) or Export Registration Certificate (ERC) used in Bangladesh. The importer must also apply to the National Plant Quarantine Authority to obtain the necessary license for import of plants or plant products as prescribed by the Plant Quarantine Rules (2018). Similarly, for the export of such plants, the exporter must apply for the Plant Health Certificate from the authority before they can export a plant or plant product.

Pesticide

Pesticides have become a necessity in agriculture, from paddy to fruits and vegetables. All sorts of crops require some sort of pesticides to protect it from insects and pest infestations. For the import, production, re-production, packaging and re-packaging of a pesticide, the brand of the pesticide has to be registered as per the Pesticide Act (2018). Also, a license must be obtained from the Department of Agricultural Extension for the commercial marketing, sale and advertisement of the pesticide along with the import, production, packaging etc. as prescribed by the Pesticide Rules (1985). 

General Requirements

With regards to all the above registrations and licenses, to conduct business some operational requirements are common. For any entity to operate as a company doing business in the agriculture industry, for example, selling seeds or fertilizers etc., the entity must be incorporated as a company in the Registrar of Joint Stock of Companies or RJSC. As mentioned above, Trade License, VAT and TIN registration are also necessary to operate the business. Other than that, if a company is establishing a factory for the purpose of manufacturing or processing, they would further require Factory license, Fire License and Environmental Clearance from the respective departments of the Government.

For importing and exporting of the agricultural products, the company would require Import Registration Certificate (IRC) and Export Registration Certificate (ERC). As mentioned above, in addition to the IRC and ERC, there are some additional requirements in some cases such as those levied by the Plant Quarantine Act (2018). 

LEGAL ISSUES 

Labour issues are quite common in this industry. Labour issues can range from wages & leaves of the workers, unfair dismissal, termination benefits, Trade Union and its activities, health & safety of the workers etc. Accidents can occur at factories and the proper compensation to be paid for such accidents often become the central legal issue. These issues are well addressed in the Bangladesh Labour Act (2006) and the Bangladesh Labour Rules (2015). The Agricultural Labour (Minimum Wages) Ordinance, 1984 fixes minimum rates of wages for agricultural labourers.

With regards to fertilizer, persisting legal issues arise mainly with fertilizers which can be polluting the environment, misbranding of the fertilizer or adulteration of the fertilizer etc. There are penalties in place if an entity is found responsible for these legal situations under the Fertilization Management Act (2006). Similarly, for seeds, the legal issues mainly start from the certification of the seeds. Seeds cannot be imported or exported if the proper certification with regards to the quality of the seeds cannot be determined under the Seed Act (2018). If anyone stops an inspector from carrying out his service duties as per the laws of Bangladesh, he/she can be punished for the same.

For pesticides, the legal issues arise with mis-labelling the pesticide or use of pesticides which has not been approved by the Government or reduce the quality of the approved product or cause adulteration under the Pesticide Act (2018). Also, another very important matter is warranty of the pesticide which the manufacturer must provide properly to the dealer. If anyone willingly misleads or causes hindrance to the inspector in executing his Government duties, he or she shall be considered of committing a crime under the Pesticide Act (2018). 

Taxation

Finally, Bangladesh is a country where 100% foreign direct investment is allowed except for some controlled sectors. In the agricultural sector, such investments are allowed and thereby foreign entities can enter the industry and make investments as they seem fit. They can incorporate companies under RJSC or set up branch offices as necessary through the Bangladesh Investment Development Authority (BIDA) and register with the RJSC as appropriate.

Agro business sector in Bangladesh has always been a prominent sector to invest and deal business with. Foreign investors as well as local companies play equal role in this sector. Generally, businesses need to form a Limited Company in RJSC to operate within Bangladesh as a Limited Company, as well as individual ones. Currently Tax rate for this sector is 32.5% for established businesses. However, having an agriculture based economy enables Bangladesh to enjoy a number of benefits related to tax such as: enhanced depreciation rates enjoyable as defined by Income Tax Act, even if no accounts are maintained, 40% of the revenue can be put as cost of sales, Income upto 2,00,000 BDT is exempted of an individual person if his/her only source of income is agriculture in an income year, exemption from tax in case of any industrial undertakings specifically meant to be used for agricultural purpose, relief from paying quarterly advance tax, Agricultural college enjoys tax free income generation derived from its agricultural educational activities etc. Nominal requirements for a limited company formed locally includes a number of reporting to be done to NBR, such as: Opening a TIN, Monthly Tax deduction statement, Half Yearly Withholding Tax statement, Yearly statement related to tax return submission of its employees, Yearly statement related to salary disbursed from company to its employees, Quarterly Advance tax deposition, Yearly Tax return submission, attending appeal/hearing session as required on behalf of the company, Monthly VAT return etc. FMA can advise and assist to satisfy all regulatory compliances to enable the company to run smooth and hassle free.  

Introduction of FMA and its services


FMA is a full-service legal firm with pristine experience in the agribuisness industry. FMA can provide valuable assistance to any business working in the agriculture industry. FMA can work with setting up the company, starting from the Name Clearance Certificate to drafting the Articles and Memorandum of Association and any additional documents required for company incorporation. FMA can also help in obtaining any licenses such as Trade License, IRC, ERC, VAT registration, TIN registration etc. FMA can provide legal assistance to obtain licenses for the business of seeds, fertilizers & pesticides from relevant government departments. 

FMA has an expert team dealing with labour laws of Bangladesh. FMA can draft company’s labor guidelines, provide advice on provident funds, worker’s profit participation fund etc. Also, FMA is able to provide all advice on labour disputes with regards to payments, unfair dismissal, termination benefit, leaves etc. FMA’s legal team consists of experienced lawyers who can efficiently represent any aggrieved in the court system of Bangladesh regarding any labour agreements or relevant issue related to the agriculture industry. 

FMA also has a full-fledged financial division dedicated to tax laws, payroll maintenance etc. With import, export and foreign exchange matters, this team can provide absolute guidance. Further, with regards to any breach of contract or agreement FMA can provide full assistance. Also, for any disputes pertaining to land, FMA can help with vetting all the documents and make sure they are in order. At the same time, any drafting related to land issues such as power of attorneys etc. can be easily taken care of by FMA.
FMA has a very capable team for representation in arbitration, mediation and negotiation. All in all, FMA is a total service provider for sorts of legal issues that may stem from an agriculture business.

COVID-19 Impact on Business

Covid-19 has created an unprecedented situation all around the world. Even the World Wars, did not shut down the entire planet to this extent. It has already counted trillions of dollars in losses with businesses shutting down all around. The agriculture industry is one of the few industries which had to be kept open as an essential industry because food is a must and agriculture provides the staple like rice, vegetables etc.
This however does not mean that the agriculture sector has not taken a financial hit. In Bangladesh, locking down most of the country to stop the spread of the Covid-19 has caused the workers to get into a standstill, which is why they are unable to move around easily into their area to support the farmers when it is time to reap the crops from the fields. For the lack of the availability of labour, a lot of crops are lost every day. On an industrial level, the crops, seeds and fertilizers are rotting in the storage as import and export have hampered on a major scale. Pesticides are not available due to the shutdown of the production. A lot of produce are also getting wasted at different ports as it is not possible to release them. 

Agriculture being essential to the survival of the world will have to go through this crisis but still be the biggest contributor under these circumstances. Bangladesh Government has taken steps to provide help to the farmers as much as possible by maintaining social distancing to save the crops. At the same time, government is providing financial incentives to help keep the agricultural industry afloat for the foreseeable future.