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How to Setup Construction and Infrastructure Business in Bangladesh

Bangladesh is well on its way to become a middle-income country by 2021 – requiring investments of $24 billion dollars in the infrastructure sector of the country annually. As the country modernizes and expands its abilities to moderate systems for the major infrastructure projects like energy, telecommunications, transportation, water and sanitation infrastructure projects, the Government aims to do much of it through the private sector. With the Asian Infrastructure Investment Bank(AIIB), Asian Development Bank(ADB) identifying Bangladesh with significant opportunities for infrastructure investment – we are witnessing several infrastructure projects all over the country that have been initiated and will affect the economy of the country significantly in the years to come.
A rise in the number of development activities and mega projects has been sustained by an increase in government expenditure and a stable growth of the economy. More than ten mega projects under construction, including Dhaka Mass Rapid Transit (MRT) and the Padma bridge. For the MRT, ADB has agreed to provide loan of 33.36 million US dollars while the remaining 11.32 million US dollars will be financed by the Government of Bangladesh. Development works for both infrastructure and civil engineering sector have been undertaken in 2019, resulting in a pivoting point for major construction companies in the country. In addition, foreign competition has created a healthy market in the construction sector. As Bangladesh takes major steps towards urbanization and more public expenditure is ensured, more investment is injected in the form of mega infrastructure projects while the housing sector also experienced an increase in private spending.  2019 saw a growth of the construction sector by 9.6%, according to the Development Update published by World Bank in October of the fiscal year.
How to Setup Construction Business in Bangladesh

Foreign investors push for Construction Management like UK or USA; but local construction companies using labor intensive technology which is less expensive and believe they can contribute more to the GDP growth of Bangladesh. A number of big construction companies are involved in overseas construction projects and this number can be increased further through joint ventures. In addition, construction companies now have workers, architects and engineers with foreign and local experience which is a huge boost for the industry. 

The Construction and Infrastructure industry includes; the construction of infrastructure by individuals or by companies and the Public Sector Infrastructures.  

The Public Sector Infrastructure includes construction of roads and highways, flyovers, bridges, power plants, LNG terminals, railways, dams, seaport, river port etc;  and such projects are either fully funded and regulated by the Government/ Government agencies under the public procurement Act 2006, the Public Procurement Rules 2008 or via the Public Private Partnership agreement under the Public Private Partnership (PPP) Act 2015 whereby the Government has permitted private investments in Government owned  projects.

REGISTRATION AND LICENSING PROCEDURE IN CONSTRUCTION INDUSTRY

Since 1990, the construction industry has shown a dynamic growth in increasing the GDP of Bangladesh. which resulted in encouraging both local and foreign investors to invest in this sector. Interested investors who wish to commence business in this field, must as of first step decide to form an entity. How to go about it? They have the option either to incorporate a private limited company, branch office, sole proprietorship or even a partnership as an entity, all of them explained briefly below;

Company 

The procedure of incorporating a Company commences with the obtaining of the  Name Clearance certificate from the Company House, Registrar of Joint Stock and Companies (RJSC) along with the preparation of the Articles and Memorandum of Association of the Company and  Form XII (Director’s particulars) and FORM, IX (Director’s Consent) each of which must be by the shareholders. The signed MOA and AOA, the relevant forms mentioned above along with the requisite fees needs to be submitted with the RJSC. Upon finding all correctness and the authenticity of all the documents, the RJSC shall issue a certificate of incorporation along with RJSC certified memorandum and article of association which shall confirm that the company has been duly registered. The procedure is slightly different if a foreign shareholder is involved.

Branch office 

A Branch office is incorporated under the Bangladesh Investment Development Authority (BIDA), by making an online application with the required set of documents, as BIDA has specific requirements for the setting up of a branch office in Bangladesh. A Branch office in Bangladesh does not create a separate legal business entity in Bangladesh, while it is materially separated from the Parent Company. Foreign investors who are planning for a short-term project in Bangladesh usually establish a branch office to operate business. 

Partnership 

A partnership business can be established by executing a partnership deed between the partners and registering the partnership at the Registrar of Joint Stock Companies And Firms (RJSC). 

Sole Proprietorship – 

This type of entity is established by one person only and has no partners. In order operate business through such entity, one has to obtain trade license and personal TIN and VAT certificate and it can only be established by a Bangladeshi citizen.

In order to commence the business, the TIN certificate and the Value Added Tax (VAT) Certificate are required to be obtained from the online portal of the National Board of Revenue (NBR) whereas the trade license can be obtained from the respective city corporation/local government office.

LEGAL ISSUES 

Legal Assistance is required before and after the setting up of a company/branch office/sole proprietorship or partnership in Bangladesh. While incorporating a company/branch office/sole proprietorship or partnership, it is essential that all the original signed documents along the relevant forms are to be submitted at the relevant government authority or else the application for incorporation of the entity shall fail without a doubt. In case of company incorporation, a new rule has been implemented in the year of 2019 which declared that the validity of the name clearance shall remain for only one month which shall be required to be renewed every month until the company is fully incorporated. A yearly renewal requirement is also declared mandate for Trade License. 

Essentially, the Infrastructure Construction by Individuals/Companies and Public Sector Infrastructure compliances are different from each other.  Infrastructure Projects related  to construction of buildings and housing requires a construction contract to be executed with the landowner and the construction owner detailing out the terms and conditions of the agreement under the Contract Act 1872 including the time limit within which the construction will be completed, handover date of the property, termination clause etc and adherence to the Bangladesh National Building Code (BNBC) 2006 is obligatory for the construction company. Construction Companies or the landowners must be ready to encounter legal implications for breach of any terms of the contract. 

On the other hand, the projects for infrastructure which are solely funded by the Government must follow the Public Procurement Act 2006 and the Public Procurement Rules 2008. The building, construction and upgrading of Large Infrastructure projects partnered between the Government and the private sectors must strictly comply with the public private partnership (PPP)Act 2015 which mandates the execution of a PPP contract between the contracting agency and the private investor. The terms and conditions strictly agreed between them must be adhered to and violation of any terms or conditions must be resolved mutually by them or by neutral expert mediator or via arbitration. In case of Public- Private Partnership projects for construction or reconstruction of infrastructure, it is mandatory that the private investor incorporates a private limited company as per the Public- Private Partnership Act 2015. 

In the era of globalization, Bangladesh has significantly failed to provide the construction Labours, working at the construction site, a safe environment to work in. Unfortunate accidents in recent years have resulted in heavily penalties which in turn forced the employer to follow the health, safety and welfare laws provided by the labour laws of Bangladesh.

Other than that, every employee employed at the construction company regardless of their nationality must have an appointment letter executed with the company. Many foreign employees are employed in Bangladesh to design and execute construction projects and in such cases they must be employed as per the labour and the Immigration laws of Bangladesh. As per the immigration laws, each foreign employee shall be required to have a proper employment visa and a valid work permit. 

INTRODUCTION OF FM ASSOCIATES AND ITS SERVICES 

FM Associates being an international law firm, has been serving both national and international clients diligently since its inception. The dedicated team of lawyers and barristers have gathered exemplary skill and expertise to deal with issues stemming out of this sector of construction business. 

 FMA can also provide assistance in the entire procedure of the incorporation of the company starting from the drafting of the AOA and MOA including all other relevant forms to obtaining name clearance and submission of all the documents to RJSC. FMA supports companies in the renewal procedure of the Trade Licenses and as well as the Name Clearance.

In relation to the immigration services required for foreign consultants employed by the companies, FMA’s immigration law team can assist the Company to obtain the E-visa (employment visa) recommendation letter and work permit on behalf of the foreign employee and can also assist to obtain the extension of the work permit and the E visa for the foreign employee. The service shall include drafting all the necessary application and documents and collecting the relevant documents from the foreign employee and the Company; and submitting the same to the relevant government authorities and also liaise with them to obtain the necessary work permit and visa extension.

FMA has supported the companies in drafting and reviewing of PPP contracts executed between the government and the private investor. They have also assisted landowners and construction company to review or draft their agreement adhering to the BNBC 2006 when it comes to construction of buildings and houses projects. 

Additionally, the legal team of FMA, due to their years of experience in employment law, has attained proficiency in drafting and reviewing employment agreements for the companies and they are also equipped powerfully to represent employers and employees both in the Labour Courts in case of any industrial dispute. 

EFFECT OF COVID ON CONSTRUCTION AND INFRASTUCTURE:

COVID 19 has halted the economic growth of many countries around the world including Bangladesh. In Bangladesh, the availability of cheap skilled and unskilled labour has been one of the strengths of the construction industry. Due to COVID 19, many of these workers are unable to go their workplaces as a result of which they are either laying off or retrenched. Under the layoff scheme, the employees who have completed at least 1 (one) year of service shall be entitled to the compensation which shall be half of the total basic salary of the employees and full amount of housing allowances. If the employer does not wish to retain the employees, he may terminate them on the ground of redundancy. 

Large and Small Infrastructure projects have come to a halt. Raw materials such as bricks are unable to travel from the rural sites to the major cities due to travel restrictions. Any foreign workers that were involved in infrastructure projects have also returned to their respective countries. Any PPP contracts or contracts executed between the parties with inclusion of Force Majeure clause shall either be at halt, granting extension for completion, without any penalties being imposed on party who has the task of deliverables or it shall stand terminated as a result of frustration. As such, there has been a delay in the timeline planned out for such projects and completion period will be pushed back further – increasing cost, reducing GDP growth for the next quarter and above all halting the momentum that was promised in the last few years. 

Taxation:

General rate of tax is 32.5% currently in the laws of Bangladesh. Withholding requirement while providing service under this category is 7.5% at source. 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.  

CONCLUSION 

Conventionally, under the public sector infrastructure, works have to be purchased or obtained from contractors or suppliers following a tender and competitive bidding process. The procurement and planning methods for construction projects in Public Sector Infrastructure was under scrutiny for past infrastructure projects – which has prompted the implementation of electronic procurement system for this industry which still leaves room for proper procurement routes. Price hike of raw materials is met by increasing demand of these materials and suppliers oversaturate the market, which is still controlled by large companies who expand into more areas amongst the raw material providers. Despite all this, substantial growth is predicted for the construction industry as more infrastructure developments in power generation, highways, bridges, buildings and telecom are being implemented. The timeline for completion for many of these are well beyond 2020 – the momentum gained by the construction sector is expected to continue.

Summary 

In this era of globalization, Bangladesh is not lagging behind and it has contributed to the increased height of GDP due to investment in the major infrastructure projects like gas, energy, telecommunications, transportation, power plant water and sanitation infrastructure projects. This has not only affected the country’s economic growth but also offered employment opportunities at the sector and assisted in the vision of alleviation of poverty from Bangladesh. In addition to this, foreign competition has created a healthy market in the sector.

Construction and infrastructures industry include; construction of infrastructure by individual or by companies and Public Sector infrastructure. The Public Sector Infrastructure on the other hand includes construction of roads and highways, flyovers, bridges, power plants, LNG terminals, railways, dams, seaport, river port etc

Initially, the public sector has been the main contributor to the large infrastructure projects but however when their investment alone could not generate adequate investment for infrastructure facilities, the government in order to narrow down the deficit in the construction of infrastructures  joined hands with the private sectors establishing private sector participation in infrastructure development through Private Public Partnership agreement under Private Public Partnership Act 2015.

If any construction company wishes to commence its business in Bangladesh. then they need to establish a company/branch office/partnership by submitting all the relevant documents and fees either at the RJSC or BIDA office and obtain all the operating licenses from the relevant government authority. However, there is no requirement of registration at any relevant government authority in regards to sole proprietor and attainment of only a trade license along with VAT certificate and TIN shall suffice for commencement of the business.

FM Associates, an international law firm is known as one of the best law firms in Bangladesh. They have assisted several clients in setting up an entity to obtaining all the required licenses from the relevant authority in the construction industry. FMA has enormous experience of vetting and/or drafting agreements such as PPP contracts for government bodies/agencies, commercial contracts for construction companies. They also have a team dedicated to deal with employments matters in Bangladesh. 

The recent outbreak of the novel coronavirus - Covid 19, had an adverse impact on the construction and infrastructure industry, withholding projects under construction and putting the employees at desolation.