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The growth of this sector is attracting both the local and foreign companies to invest in the automotive industry in Bangladesh.
Bangladesh Automotive Industry is subject to section 84 of the Motor Vehicles Ordinance, 1983. The Government may make rules regulating the construction, equipment and maintenance of motor vehicles and trailers and the establishment, registration, operation and supervision of motor vehicles repairing workshop.
1. LICENSE AND REGISTARTION PROCESS (in details)
In Bangladesh, automotive industry business can be operated through forming a company:
A Company duly registered in Bangladesh may engage in any business activities as per the Object Clause of the Company, set out in the Memorandum of Association of the Company. In Bangladesh, a company can be either public or private. To form a public company minimum seven shareholders shall be required. On the other hand minimum two shareholders are necessary to incorporate a private company. Private company cannot any issue invitation to the public to subscribe for its shares, while, public company can offer general public to acquire its shares. In practice, private company is the most popular form of company to foreign and local entrepreneurs. For foreign direct investment, there is no limitation pertaining to foreign equity participation, i.e. 100 percent foreign equity is allowed. Foreign investment enjoys full protection and security in Bangladesh, like other Locally Invested Companies. The laws of Bangladesh guarantees non-discriminatory treatment between foreign and local investment, and repatriation of proceeds from sales of shares and profit.
The following steps needs to follow to form Company:
1. A Name Clearance for the proposed Company needs to be obtained from Registrar of Joint Stock and Companies.
2. Drafting and signing the following:
• Memorandum and Articles of Association of the company;
• Form I: Declaration On Registration Of Company;
• Form VI: Notice Of Situation Of Registered Office;
• Form IX: Consent of director to act;
• Form X: List of Personal Consenting to be Directors;
• Form XII: Particulars of the directors, manager and managing agents.
3. Opening a temporary bank account for the Proposed Company in any scheduled Bank in Bangladesh.
4. Remit the paid up capital amount from the account of each foreign shareholders to the Bank Account of the Proposed Company in Bangladesh.
5. Obtain encashment certificate for each foreign transactions from the Bank of the Proposed Company.
6. Submit all the required to the Company House.
7. Pay the Govt Fees for the registration.
8. Obtain the registration certificate from the Company House.
Required Documents for forming a Company:
a) Copy of Valid Name Clearance for the proposed company;
b) Executed copy of Memorandum and Articles of Association of the Company.
c) Executed copy of Form I: Declaration On Registration Of Company;
d) Executed copy of Form VI: Notice Of Situation Of Registered Office;
e) Executed copy of Form IX: Consent of director to act;
f) Executed copy of Form X: List of Personal Consenting to be Directors;
g) Executed copy of Form XII: Particulars of the directors, manager and managing agents;
h) Copies of National ID of shareholders and directors (for Bangladeshi Nationals);
i) Copies of TIN Certificate of shareholders and directors (for Bangladeshi Nationals);
j) Copies of passport of shareholders and directors (for Foreign Nationals);
k) Passport size photos of shareholders and directors;
l) Bank Encashment Certificate with respect to each foreign shareholder;
m) Receipt of payment of the governmental fees.
Apart from setting up the above respective format a 100% foreign owned company can also register as Branch Office to initiate automotive business. Though, Branch office can only perform the function envisaged by the parent company by taking prior approval from Bangladesh Investment Development Authority. After setting up the respective company, some additional license or permissions may be required, depending on the expansion/scope of the business.
The additional licenses required for establishing an automotive industry are mentioned below:
I. Trade License;
II. TIN Certificate;
III. VAT Registration Certificate;
IV. Registration of Industrial Investment Project;
V. Factory Layout Approval;
VI. License of Factory;
VII. Membership Certificate;
VIII. Import Registration Certificate (applicable for Import Business);
IX. Export Registration Certificate (applicable for Export Business);
X. Environment Clearance Certificate;
XI. Fire License;
XII. Registration of Trademark.
The process to obtain the additional licenses has been specified below:
In order to start up a business in Bangladesh, the most important requirement is acquisition of a trade license. It is compulsory for every business entity to obtain Trade License from the respective local governmental authority. In order to obtain the Trade License an application enclosed with necessary documents needs to be submitted to the concerned local governmental authority (i.e. City Corporation/Municipal Corporation/Union Parishad).
The Government of Bangladesh provides a TIN Certificate, to individual or company to track tax payments. The National Board of Revenue (NBR) is the sole authority to provide TIN Certificate. In order to obtain the TIN Certificate an online application needs to be submitted to the NBR.
Every Business in order to operate is required to have a Business Identification Number (BIN). A BIN can be obtained by VAT registration process to the National Board of Revenue. Every business entity must obtain a VAT registration certificate. In order to obtain the VAT Certificate an online application along with necessary documents needs to be submitted to the NBR.
Registration of Industrial Investment Project:
The Industrial enterprises in Bangladesh, either local or foreign, have to be registered with the Bangladesh Investment Development Authority (BIDA). In order to Registration of Industrial Investment Project an application along with necessary documents needs to be submitted to the BIDA.
Factory Layout Approval:
Before use, change or expansion of any houses, building or premises as factory, an approval in writing from the Department of Inspection for Factories and Establishments (DIFE) shall be taken. In order to get the approval of the layout an application along with necessary documents needs to be submitted to the DIFE.
License of Factory:
Each of the owners or occupiers shall have to submit an application with necessary documents to the Department of Inspection for Factories and Establishments (DIFE) for registration and license of factory within 30 (thirty) days before start of work for factories.
After setting up the respective business, the entrepreneur needs to be a member of a local Chamber of Commerce and Industry or relevant Trade Association. The application form to be a member is available at the office of the concerned Chamber of Commerce or Trade Association.
Import Registration Certificate and Export Registration Certificate:
An importer having Import Registration Certificate (IRC) and an Exporter having Export Registration Certificate (ERC) can Import & Export any permissible item without any value and quantity restrictions and without obtaining any permission from any authority. The Office of the Chief Controller of Imports and Exports (CCI&E) issues Import Registration Certificate and Export Registration Certificate to the desired applicant. In order to obtain the IRC or ERC an online application along with necessary documents needs to be submitted to the CCI&E.
Environment Clearance Certificate
Environment Clearance Certificate (ECC) is one of the vital approvals in order to initiate an industrial unit or project in Bangladesh. In order to obtain such Certificate, the concerned entrepreneur of the industrial unit or project need to make an application to the Department of Environment along with the necessary documents.
Considering the environment and to ensure the safety of the establishment along with the workers engaged in the business, it is mandatory for buildings and business organizations to obtain fire license. It is issued by the Fire Service and Civil Defense (FSCD) authority operating under the Ministry of Home Affairs, Bangladesh. In order to obtain such license, the concerned entrepreneur of the industrial unit or project need to submit an application to the FSCD along with the necessary documents.
Registration of Trademark
In order to protect trademark and other IP related matters, after the registration of the entity, it can apply to the Department of Patents, Designs and Trademarks (DPDT), operated under the Ministry of Industries, for registering its trademarks and/or any other Intellectual Property. An applicant in the prescribe manner has to file with necessary documents for the registration of a trademark to the Trademark Registry Wing of the DPDT.
Foreign Investment Law:
Foreign entities or individuals who are considering investing in Bangladesh can get generous opportunities for investment under its liberalized Industrial Policy and export-oriented, private sector-led growth strategy. All sectors are open for private investment in Bangladesh except for some restricted sectors. Automotive sector is open to 100% foreign investment. The aim of the government is to serve as a facilitator to help create an enabling environment for the expansion of private investment, both domestic and international. The policy framework for foreign investment in Bangladesh is based on 'The Foreign Private Investment (Promotion & Protection) Act 1980, which ensures legal security for foreign investment in Bangladesh against nationalization and expropriation. This also ensures non-discriminatory treatment between international and local investment and the repatriation of proceeds from the selling of shares and income.
Apart from the above Act, the following Acts also deals with the foreign investment: Foreign Exchange Regulations Act 1947, The Bangladesh Export Processing Zones Authority Act 1980, Bangladesh Private Export Processing Zone Act 1996, Bangladesh Economic Zone Act 2010, and Bangladesh Investment Development Authority Act 2016.
The employment law in Bangladesh is mainly governed by the Labour Act, 2006. Apart from this Statute there are other rules and regulations in regards to this issue, the Labour Rules 2015, National Labour Policy 2012, Bangladesh Labour Welfare Foundation Act 2006, Bangladesh Labour Welfare Foundation Rules 2010, National Occupational Health and Safety Policy 2013, Domestic Workers Protection and Welfare Policy 2015 and National Child Labour Elimination Policy 2010. The Labour Act of 2006 deals with employment of labour, relation between employers and employees, payment of wages and compensation for injuries to workers, leaves, benefits, formation of trade unions, settlement of industrial disputes, welfare, health, safety and working condition in the establishment etc. Maternity benefits are also provided for a female employee. It should be noted, if the company is establish in an EPZ then, Bangladesh EPZ Labour Act 2019 shall be applicable.
Contractual agreement is the heart of the commercial world. It sets out the duties and responsibilities between the parties relating to the subject matter of the contract. A contract binds both parties of its all agreed and stipulated clauses, for example, what would be the party’s liability in the event of committing breach of contract and how far shall it cover the losses of the opposite party. It is advisable that, to take highest care during stipulating the terms and conditions of the contract so that it expresses the real intention of the parties. Every contract in Bangladesh is governed by the Contract Act, 1872.
A force majeure event means an unusual occurrence or situation beyond the control of the contracting parties, such as an act of God, war or a natural calamity. An effective application of the force majeure clause usually relieves the parties of their respective contractual obligations and/or liability. A force majeure provision does not completely justify the non-performance of a faction, but only suspends it for certain period. In Bangladesh, the Contract Act 1872, contains the doctrine of frustration, which is provided in Section 56 of the Act of 1872. As per this doctrine, a contract becomes void when it becomes impossible to perform due to occurrence of an event; it becomes unlawful after it was entered into.
Compliances of the business entities- The entities are required to comply with the annual filing requirements, such has updating trade license at the respective city corporation, renewal of chamber membership, renewal of IRC & ERC, filing taxes, updating the annual filings at the RJSC, reporting to Bangladesh Bank, NBR etc.
Property Law: In order to complete the registration of the lease or purchase of the land, the laws in regards to property shall also be applicable. The key statutes in these areas are Land Reform Act 2014, East Bengal Tenancy Rules 1954, The Survey Act 1875, The Non-Agricultural Tenancy Act 1949, Registration Act 1908, and Transfer of Property Act 1882.
Introduction of FMA and its services
FM Associates (FMA), is a full-service corporate law firms, which aims to offer a comprehensive range of services to the clients rather than focusing on just one specific area of law. It is one of the largest and well reputed law firms in Bangladesh offering clients, legal advice that meets needs and expectations of both domestic and International clients. FMA provides all range of services related to Company Incorporating, Sole Proprietorship business, Partnership Business, Foreign Company Registration etc. FMA law firm has legal experts who can assure smooth legal process and assist in obtaining Certificates or License needed for Company Incorporation, such as VAT Certificate, IRC/ERC, Name Clearance, Factory/Fire/Environmental License, TIN, Trade License and other types of certificates.
In Order to set up Automotive Business in Bangladesh, the services FMA can provide are as follows:
FMA can advise and assist to satisfy the regular legal compliances to smooth the regular run of the company.
COVID-19 impact on business
Currently the world is witnessing the darkest chapter in history due to the outbreak of COVID-19 worldwide, which has been declared by the World Health Organization (WHO) as being a ‘pandemic’. The novel coronavirus epidemic has exposed the global economy into a serious risk of its downfall. Meanwhile, the epidemic has drawn deadly impact on the international trade. The pandemic has badly hit the Commercial world where it has made it impossible to perform thousands and more of commercial or business contracts. This in turn causing breaches of contracts and exposing the non-performing parties to serious penalty by way of damages or compensation. Nevertheless, contracts which are covered by the force majeure clause have been protecting the parties from such danger for their failure to carry out the contractual obligation due to the situation which is out of their control.
The doctrine of force majeure refers to the situation where due to an unforeseeable circumstance or acts of God, a party to a contract fails to perform what he is obliged to do under the contract. The presence of such a clause in a contract terms protects the non-performing party since if it applies then it thereby defer the performance of their contractual obligations without penalty. In other words, force majeure clauses are an agreement between the contracting parties that refers to exceptional circumstances where a party to the contract is entitled to invoke the force majeure clause under a contract, thereby either waived from its obligations or grantextended time to complete its part of the contractual obligations.
Whether the COVID-19 epidemic can be invoked in any contracts that has term as to force majeure clause depends entirely upon the wording or drafting of that contract. To put simply, whether the situation of COVID-19 covers by the force majeure clause of the contracts depends upon the events specified in the contract. From the current perspective, it is inevitable to advice that, to draft the terms contract containing force majeure clause very carefully and without making the list of circumstances limited. The drafting must be done in a way so that it covers ay epidemic. The parties are also free to do so as there is not constraint upon doing so as it the doctrine of force majeure is not governed by any statute in Bangladesh. Therefore, in the absence of any express provision, it is up to the parties’ agreement as to what they mutually agree to define the events as to what circumstances shall constitute force majeure events.
Currently, Automotive sector in Bangladesh is going through some notable changes in respect of taxation. Foreign investors as well as local companies play equal role in this sector. Generally, industries need to form a Limited Company in RJSC to operate within Bangladesh as a Limited Company. Currently Tax rate for this sector is 32.5%. A number of benefits are offered in forms of accelerated depreciations, reduced customs import taxes for CKD/locally manufactured machines 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.
Automotive Industry in Bangladesh is expanding. The industry has the potential to contribute to Bangladesh’s economy. The increasing demand of transport and variety of vehicles in the country is attractingbig investment in the sector.The procedure of establishing a vehicle manufacturing factory and the other business along with the requirement of variety of registration and licenses are discussed above.
Automotive Industry is becoming next major economic industry of Bangladesh. Currently, it is the third largest in South Asia. The demand of vehicles is increasing at a rapid speed with the growth of industrialization and establishments. To establish a factory requires to follow a number of procedures. First, a company must be incorporated with the RJSC and after that, general licenses such as TIN, VAT and Trade License need to be obtained. The next step is to obtain the license for establishing the cement factory from DIFE. Here, first the building layout plans approval need to be obtained first and then the factory license. Since, the cement factory requires to import raw materials for the production of cement, therefore an Import Registration Certificate is required. Being an export oriented sector, it also requires Export Registration Certificate to export the cement beyond Bangladesh. Other licenses such as, Environment Clearance Certificate, Fire License, Trade Mark are necessary. FM Associates, being a leading corporate law firm in Bangladesh, can certainly help its client to open their business in this sector. The experienced company lawyers of the firm provide full service to their clients. The service includes, drafting MoA and AoA for the proposed company; drafting Form IX and XII;executing registration and obtaining TIN certificate, VAT registration certificate; IRC & ERC, Trade License, Work Permit, Factory license, ECC, Fire license, Trade Mark, CM License etc. Furthermore, the services such as executing different types of contractual agreement (Agreement of Partnership, Lease Deed etc.); legal opinion of various matters (such as labour).