ICT Industry in Bangladesh
The ICT industry can be categorized into two comprehensive categories; IT and ITES.
IT services comprises of two kinds of services –
• Application Services (which include systems integration, IT infrastructure and consulting;
• Engineering Services (which include hardware and software development and testing.
The ITES category then again can be classified as following:
• Horizontal Process Outsourcing (which include call centers and business process management such as HR and Supply Chain functions),
• Vertical Process Outsourcing (which include banking, manufacturing, telecom, pharmaceutical),
• Knowledge Process Outsourcing (which include business research, animation, data analytics, other specialized processes) and
• Automation Services (which include task automation and Business Process as a Service; BPaaS).
Software and IT Industry at a Glance
Number of registered ICT Companies: 4,500+
Number of BASIS Member Companies: 1,031
Demand for software within the domestic market: US$ 1.18 Billion
No. of IT/ITES Professionals: 3,00,000 (appr.)
Market price of IT/ITES: US $400+ (Ministry of Finance
Professionals: 3,00,000 (appr.)
Market price of IT/ITES: US $400+ (Ministry of Finance)
Over 400 IT companies currently exports to over 60 countries such as USA, UK, Canada and Australia are the top outsourcing destinations for Bangladesh.
LICENSE AND REGISTRATION PROCESS
There are several ways by which an investor can start a business by establishing an entity into ICT industry, eg Sole Proprietorship, Partnership Business and Private Limited Company. The first two options are not available for Foreign investors.
In Bangladesh, a Sole Proprietorship does not constitute a separate legal entity, therefore, it is not distinct from the owner/ proprietor. During the course of business if any liability arises, the business owner will be personally accountable for all liabilities. Any Bangladeshi citizen of a minimum age of 18 years is eligible for a sole proprietorship.
In order to set up a sole proprietorship business in Bangladesh, the following steps need to be followed:
Step 1- Proposed business name in Bangla
Step 2- Obtaining Trade License.
Trade License --- It is the basic requirement for proprietorship. This can be obtained by making an application to the respective City Corporation/local government along with the lease/rent document of the office space of the business. Entities which shall operate in commercial sector and the entities which shall operate in industrial sector shall have to apply for commercial trade license and industrial trade license respectively.
TIN Certificate --- The application needs to be made through online portal of National Board of Revenue (NBR).
VAT certificate ---- The application needs to be made through online portal of National Board of Revenue (NBR).
A partnership business need to be registered with Registrar of Joint Stock Companies and Firm of Bangladesh (“RJSC”).
STEP 1- CHOOSING THE PARTNERSHIP NAME
A Name Clearance for the proposed name of the Partnership Business, must be obtained from the Registrar of Joint Stock Companies And Firms (RJSC).
STEP 2 – PREPARE A PARTNERSHIP DEED
The Partnership Deed should be written on a stamp paper in accordance with the Stamp Act and all partners should sign it and subsequently be notarized.
STEP 3- REGISTER PARTNERSHIP DEED WITH RJSC
The partnership deed along with filled up Form I should be filed with RJSC. The officials of the RJSC will review the documents shall issue a Certificate of Registration.
Timeline – It usually takes around two weeks to obtain the Certificate of Registration from RJSC after the submission of the documents as per STEP 3.
TIN Certificate ------- The application needs to be made through online portal of National Board of Revenue (NBR).
Trade License -The application needs to be made, along with the appropriate government fees, to the relevant city corporation office/ local government office along with the business documents and the lease/rent deed of the office space of the Business. Entities which shall operate in commercial sector and the entities which shall operate in industrial sector shall have to apply for commercial trade license and industrial trade license respectively.
VAT certificate ---- The application needs to be made through online portal of National Board of Revenue (NBR).
PRIVATE LIMITED COMPANY
Procedure for company setup:
The procedure of setting up a company are as below:
STEP 1 - A Name Clearance for the proposed name of the Company, must be obtained from RJSC.
STEP 2 – Drafting and signing the following:
• Memorandum and Articles of Association of the company;
• Filled in Form IX: Consent of director to act;
• Filled in Form XII: Particulars of the directors, manager and managing agents.
STEP 3 – Opening the bank account for the Bangladeshi Company and remitting the share capital amount of the foreign shareholders (not required for local shareholders)
STEP 4 – Bank to issue encashment certificate of such foreign remittance (not required for local shareholders)
STEP 5 – The signed documents, as mentioned in step 2, shall be required to be submitted to the RJSC along with the encashment certificate and the government fees for the incorporating the company.
STEP 6 – RJSC shall verify the documents and provide the certified incorporation documents.
Timeline – It usually takes 3 to 4 weeks, after submitting the documents as per Step 5, for RJSC to issue the certificates.
TIN certificate - In order to obtain the certificate, an online application needs to be made after the company has been duly formed. Additionally, a local phone number and registered office address are required to complete the application.
Trade License - The application needs to be made, along with the appropriate government fees, to the relevant city corporation office along with the company documents and the lease/rent deed of the office space of the Company. Entities which shall operate in commercial sector and the entities which shall operate in industrial sector shall have to apply for commercial trade license and industrial trade license respectively.
VAT certificate - The application needs to be made through online portal along, with Company documents.
The above entities, i.e. Company, Sole Proprietorship & Partnership, shall require to have a membership of BASIS in addition to import license, if they would like to import.
BASIS Membership Enrollment Process:
To enroll as a Member (General or Associate) of BASIS, the following process need to be followed:
01. Filled in the Membership Online Application Form
02.The following documents need to be attached with the form:
• Copy of work order related to Software/ITES (At least 3)
• Copy of up to date trade license mentioning the nature of business in line with the scope of membership criteria
• Copy TIN Certificate.
• Attested photocopy of updated Income Tax clearance certificate
• Brief profile the entity on the entity letterhead (including human resources with organogram, list of infrastructure, area of business with the product line up, client List etc.).
• Memorandum and Articles of Association to be provided in case of companies, Partnership deed in case of partnership
• Details of the representative, in terms of educational and professional background with two copy passport size photograph with signature.
• Board Resolution Copy in favor of BASIS representative.
• Printed corporate brochure (if available)
Fees for Membership
• One Time Admission Fees-Tk. 20,000/- for General and Tk. 10,000/- for Associate member (non-refundable)
• Annual Subscription Fees as applicable on membership category
• All Papers (including membership application form) must be attested by the entity’s owner.
• Reference from two registered BASIS member companies needed at application form (List available at www.basis.org.bd)
Once BASIS Secretariat receives the complete documents, they will verify the information forward this application to Membership Approval Committee for their recommendation and then to Executive Council for approval.
Import Registration Certificate (IRC)- Entities which shall require to import goods and/services shall require to obtain IRC. IRC is a very important certificate to be obtained by investors who need to import ICT products or machineries.
The applications for IRC needs to be made to the Office of Chief Controller of Imports, with entity incorporation documents, TIN certificate, trade license, solvency certificate from the bank and chamber of commerce membership certificate and relevant government fees. The certificates need to be renewed annually.
Rider sharing service provider's certification
As per the Ride Sharing Guidelines 2017, the Ride Sharing Service Provider like Uber, Pathao, Shohoz requires to obtain an enlistment certificate for their entity. The service provider must be a limited liability company and in order to obtain such certificate the following needs to be complied with:
• Online application to be made to BTRC as per Form “Ka”
• Submit copy of E-TIN certificate, VAT certificate and other relevant document of the service provider company along with the government fees of BDT 1,00,000
Upon verification of the application and the documents, the certificate shall be provided for a period of one year which needs to be renewed from time to time. The renewal fees for the certificate shall be BDT 10,000.
As per the same 2017 guidelines, the vehicle used by the ride sharing service providers must also have a vehicle enlistment certificate. In order to obtain such certificate, the following needs to be complied with:
• Online application to be made to BTRC as per Form “Ga”
• Submit copy of
up-to-date fitness certificate and
up to date tax token of the vehicle
up to date driving license of the driver
Nation ID of both the owner and the driver of the vehicle
E-TIN certificate of the vehicle owner.
Upon verification of the application and the documents, the certificate shall be provided for a period of three years which needs to be renewed from time to time. The renewal fees for motorcycle shall be BDT 500 and for that of other vehicles shall be BDT 1000.
Annul General Compliances of the business entities - The entities are required to comply with the annual filing requirements, such has updating trade license, BASIS membership, IRC, filing taxes, updating the annual flings at the RJSC for limited liability companies.
Implication of Contract Law – The entities’ relationship with vendors is quite a integrate part who provides products or services for the business. There should be a presence of vendor Agreement while receiving any goods and/or services from the vendors. Vendor Agreements can cover a diverse area comprising software, professional services, office supplies, technology services, event planning, marketing, consultants and many others. In the time of dispute, in additional to the applicable laws, the agreement plays a vital role to resolve the disputes, hence it is very important to safe guard one’s the interest while drafting the agreements.
Requirements Labour laws – The entities need to ensure that its relation with the employees are coordinated with the labour laws of Bangladesh. The employees shall have an appointment letter which shall duly mention their job title, job description, salary, benefits and welfare, applicable working hours and leaves etc, It is to be noted that the employer cannot, by contract or appointment letter, provide anything less than that is provided by the labour laws. It is also the employer’s duty to provide a safe and healthy environment for the employees.
Foreign Exchange regulations– The entities with foreign investors shall need to ensure that the initial investment is made via proper banking channel, eg. at the time of company incorporation or buying shares of an existing company, the foreign investors should be remitting the share capital amount from their foreign bank account Company’s bank account with a note ‘investment in the share capital of the (Name of the Company)”. This will show that the investment has been made via proper channel and while remitting the profit such initial investment documents/information shall allow a smooth transection as per Bangladesh Bank guidelines.
Ride Sharing Guidelines - Ride Sharing Guidelines 2017 requires the ride sharing services provider to abide by the various conditions and requirements, some of the important ones are as follows:
The software application of the ride sharing service provider needs to be duly approved by BTRC or other relevant government authorities.
The software application shall have a SOS option, where the information of the driver and the GPS location of the passenger shall automatically be send to 999 when such option is pressed
The ride sharing service provider shall maintain strict confidentially in relation to the information received in relation to the ride, including the information of the driver, owner and the customers. The information in relation to each rides needs to be kept at least for three months in the record of the service provider
The software application must have a complain receiving option and shall also duly notify the outcome of the complaint to the complainant
The ride sharing service provider shall not at any time claim the ownership of the vehicles registered under their service
The service provider shall have an agreement with the vehicle owner and the driver where the rights and the obligation of all the parties are duly mentioned and parties shall have the option to terminate the agreement with a one-month notice period.
The vehicle can only be registered by the service provider once one year has elapsed from the date of the registration of the vehicle from Bangladesh Road Transport Authority (BRTA).
Mobile application-based food service – There is no particular regulation yet to regulate the service of mobile application-based food delivery service from restaurants. However, they shall require to take a license from the licensing authority under the Ministry of Posts, Telecommunications and Information Technology as per the Mailing Operator and Courier Service Rules, 2013 as they fall under the definition of courier services as per the above Rule and Post Office Act, 1898.
Mobile Financial Service - Bangladesh Bank may allow Mobile Financial Services such as- Disbursement of inward foreign remittances, Cash in /out using mobile account through agents/Bank branches/ ATMs/Mobile Operator’s outlets, Person to Business Payments, Business to Person, Government to Person Payments ,Person to Government Payments, Person to Person Payments (One registered mobile Account to another registered mobile account), other payments like, overdrawn facility, insurance premium, microfinance, DPS etc.
• To provide this service approval from Bangladesh Bank must be taken.
• Need to provide full details of the services of the interested bank including tentative implementation schedule to Bangladesh Bank.
• Signed agreement(s)/MOU(s) containing Service Level Agreement (SLA)
between banks and their partners/agents should have to be submitted before launching the product.
• The bank will select the Cash Points/Agents and a list of the Cash Points/ Agents should submitted to the Department of Currency Management and Payment System (DCMPS) , Bangladesh Bank with their names and addresses and will be updated on monthly basis.
• The inward foreign remittance transfer arrangement through designated Cash Points/Agents will be used only for delivery in local currency.
• Without prior approval from Bangladesh Bank, The platform should not be used for cross border outward remittance of funds.
• if Bangladesh Bank considers any action by any of the parties involved in the system detrimental to the public , it may withhold, suspend or cancel approval for providing MFS services.
• To avail MFS with all the required documents, a 'Mobile Account' has been opened for each customer
• The transaction limit and overall cap will be fixed by the Bangladesh Bank
• Banks and its partners shall have to comply with AntiMoney Laundering and Combating the financing of Terrorism related laws
• Transaction‐records of MFS must be retained for six (06) years from the origination date of the entry. If requested by its customer, or the Receiving Bank(s), The Participating Bank(s) must provide the information relating to the transaction with a printout or reproduction of Banks.
Information and Communication Technology Act 2006 - To validate legally and provide security of Information and communication technology and other related matter, the regulating law is ICT ACT 2006.The validity of the Digital Certificates is apportioned by this law. The ICT law provides legal recognition to electronic documents and a framework to support commerce, m-commerce and e-filing, e-. It also provides guidance on keeping record of deed, information etc. electronically. It also deals with the matter regarding – License, such as application for license, license renewal, cancellation or stay of license, display of license, surrendering license etc. This act gives the power to the controller to investigate, enter into the information stored in computer. ICT law also provides a legal framework to mitigate and investigate cybercrimes. ICT ACT 2008 (amendment) and ICT ACT 2009 (amendment) are the two amendments to the Information and Communication Technology Act, 2006.
Digital Security Act 2008 – The Act is enacted to ensure National Digital Security and enact laws regarding Digital Crime Identification, Prevention, Suppression, Trial and other related matters. The act deals with preventive measures like power to remove or block some data-information which threatens the Digital Security. If there is any cyber or digital attack or if the cyber or if cyber or digital security is hampered then Emergency Response Team take immediate necessary remedial measures. This act includes crime and punishment such as punishment for Illegal Entrance in Critical Information Infrastructure, Illegal Entrance in computer, digital device, computer system, etc. and punishment, damage of Computer, Computer System, etc. and punishment, offenses relating to Computer Source Code Change and Punishment, Punishment for any propaganda or campaign against liberation war, cognition of liberation war, Father of the nation, National Anthem or National Flag, Digital or Electronic Forgery, Digital or Electronic Fraud, identity Fraud or Being in Disguise, Publishing, sending of offensive, false or fear inducing data-information, punishment for Collecting, using identity Information without permission, punishment for committing Cyber-terrorism, publication, broadcast, etc. of such information in any website or in any electronic format that hampers the religious sentiment or values, To publish, broadcast, etc. defamation information, E-Transaction without legal authority Offence and Punishment, Deterioration of Act-order, etc. and Punishment, breaching Government Secret Offence and Punishment, Illegal transferring, saving etc. of data-Information, Punishment, hacking Related Offence and Punishment, aiding in commission of Offence and its Punishment, offence committed by Company. Investigation related matters such as Time limit of Investigation, Power of Investigation Officer: -Search and Seizure through Warrant, Search, Seizure and Arrest without Warrant, Data preservation, Secrecy of the Information obtained in the Investigation.
INTRODUCTION OF FMA AND ITS SERVICES
FM Associates, as a full-service law firm, provides all types of legal and financial services with its experienced and skilled teams.
Entity registration and licenses: FM Associates provide the services for establishment of entities, i.e. sole proprietorship, partnership business and/or limited liability company, in Bangladesh, and obtaining the required licenses from the relevant government authority. The services include drafting relevant documents, forms and providing the required document list and procedure and subsequently file the application with the relevant documents to the relevant government office and liaising with them throughout the verification process and obtain the necessary certified documents.
Drafting, vetting agreement: The entities, as mentioned above, requires drafting of various types of agreements, eg, vendor, employment, franchises agreement, which are require to be drafted as per the applicable laws of the Bangladesh and at the safe time is requires to safe guard their interest in order to use these agreements for their favour in relation to any future disputes.
Legal Opinion and/or due diligence report: FM Associates provides legal opinion to the clients, in relation to implication of laws and its impact in various matters which enables them to take informative business steps by considering the legal aspect.
Additionally, FM Associates also provides due diligence report to the interested clients for their entities which flags out all the legal requirements which are required to be followed and also non – compliances, if any, which needs to be fixed.
Litigation services: FM Associates has a very strong litigation team which assist and represent the clients to defend/file disputes at court or tribunals in relation to all types of litigation.
COVID-19 IMPACT ON BUSINESS
The novel coronavirus or Covid-19 has brought a severe attack in the overall life style and economy of the world and Bangladesh became one of the victims of it. The domestic ICT sector will be hit hard by the rapid spread of this pandemic across different countries and territories. The coronavirus pandemic which has started from China, rapidly spread outside, affected countries like Europe, Iran, US and Canada, which is one of the main target markets for the ICT companies of Bangladesh, more importantly the companies who are doing outsourcing business. Borders have been closed in most of the countries and those who have symptoms of COVID-19 have been asked to quarantine themselves which is affecting ICT industry tremendously.
Among several other problems not getting proper loan support is one. Banks are reluctant to consider intellectual property as an asset, therefore, IT companies face serious problem regarding getting proper loan supports from bank. Now, in this difficult time ICT companies are facing a serious crisis in cash flow as they are not getting loans like other industries.
Due to Coronavirus pandemic, companies who are working in the local market have lost 52 per cent of the work orders. On the other hand, and those who are working in the global market have lost 35 per cent, in March 2020. In the last three months, the companies have lost 74 per cent of their international buyers as most of the companies are working in the EU and the US, the two regions badly affected by coronavirus.
According to the survey some 69 per cent of the ICT companies, they are assuming they can run their business for a maximum one to two months under this adverse condition, 24 per cent said they can survive for a maximum of three to four months and only 7 per cent companies assume they can run for more than four months.
Another critical problem which the entities are facing is that in addition to the existing the clients cancelling their current work orders, there is no chance of acquisition of new clients for the time being.
The operational costs like paying employee salaries, office rent, office expenses and other overhead costs will become a burden as the entities are losing their clients and could not secure new works.
BASIS, is now working hard to make the government understand the seriousness of the issue and the struggle under which the entities are going through. BASIS has requested the government for financial support to pay the salary of the employees, a portion of the operational costs to pay rents and bills for at least six months. BASIS proposed that the value-added tax on the local software should also be exempted for at least up to 2024.
The government has also declared a loan facility at 2 per cent interest for export-oriented industries. The loan will go directly to the employees' bank accounts. Local entities, are also entitled to another type of loan facility which comes with an interest rate of 4 per cent under the small- and medium-sized enterprise category. Effectively a few banks have guaranteed BASIS that they will offer credits to its individuals from up to Tk 1 crore without security.
The government wants to present progressively online-based services in regions like health, entertainment and emergency response during the epidemic. BASIS is prepared to provide assistance in those areas.
Entities are considering whether they are entitled to invoke force majeure under the contracts, and thereby defer the performance of their contractual obligations without penalty. A force majeure event is an extraordinary events or circumstance which is beyond the control of the contracting parties. These events or circumstances generally include an act of God (like a natural calamity) or events such as a war, pandemic, strike, riots etc. Generally, the parties get relieved from their respective contractual obligation and/or liability if a force majeure clause can be invoked successfully. A force majeure clause does allow a party's non-performance entirely, but only suspends it for the duration of the force majeure event. If properly drafted, the force majeure clause may provide that where a force majeure event continues for more than a stipulated period then either party may, at its own option, terminate the contract without any financial consequences to each other.
Its reliance is based primarily on the parties' agreement and the respective terms of the contract entered into between the contracting parties, since the doctrine of force majeure does not have any direct statutory basis under the laws of Bangladesh,
All contracts are regulated by the Contract Act 1872 (the "Act of 1872") which are governed by Bangladeshi law. The doctrine of frustration is enshrined in Section 56 of the Act of 1872 which provides that a contract becomes void when it becomes impossible to perform or, by reason of some event, it becomes unlawful after it was entered into. Therefore, if the contract becomes impossible to perform for reason of Corona pandemic, it can be treated as void under the laws of Bangladesh, provided that the defaulting party did not know, or with reasonable diligence, could not have known that the contract would be so frustrated. In simple terms, the effect of a void contract is that it cannot be enforced by law and the parties are relieved from their respective obligations.
It is intermittent that, to attract the doctrine of frustration, the performance of the contract must become absolutely impossible due to the happening of some unforeseen event such as Corona virus pandemic.
It can be summarized that in the absence of an appropriately worded force majeure clause in a contract, the parties in Bangladesh may have the option of relying on the existing provisions of Bangladeshi law - particularly, Section 56 of the Act of 1872 - in order to excuse itself from the timely performance of their respective obligations under the contract.
Currently, Information Technology enabled services are exempted from tax according to the laws of Bangladesh. However, 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.
The ICT sector has created around 300 thousand job opportunities. Not only that, the horizontal and vertical integration of the software and IT-enabled services (ITES) sector has upgraded the lifestyle of the people alongside industrial and government efficiency in several ways. The number of people who are using internet now 80.83 million people (as per BTRC, 2018) and 59 million are registered under the mobile financial services until January this year (Bangladesh Bank, 2018). Bangladesh is going through a digital revolution which is principally backed by its home-grown multi-dimensional ICT industry. At this point of time, it is highly essential to support the country's thriving ICT industry. There is no option to disagree that all the sectors have been affected due to this Corona virus pandemic and asking for support from the government. The government should give it special importance on the ICT industry, as it's the IT and IT-enabled service (ITES) entities that will be the main partner of the government in materializing the vision of Digital Bangladesh.
To achieve the dream of “Digital Bangladesh” development of ICT industry should be a prime concern. ICT sector of the country has been keeping up 57.21 per cent export growth on an average. Bangladesh ICT industry has prominent development in IT outsourcing, business processing outsourcing (BPO) and software development. The ICT industry is developing over the last three decades, therefore investing in such industry will definitely be a profitable decision.
To become a part of this ICT industry there are various options of entities, Sole Proprietorship, Partnership Business and Private Limited Company are available for investors. To create a business-friendly environment, BIDA has now open up a one stop services center for investors where all the services from incorporation of entities to post incorporation licenses are available.
FM Associates is a full-service law firm – it provides all sort of legal and financial assistance starting from registering entities to obtaining required licenses; drafting agreements and notices to providing annual compliances and litigation services. FM Associates is enriched with experienced Barristers and Advocates who have expertise in different legal sectors which enables to provide the required services with high standard and the clients can obtain all the essential and ancillary legal services under one umbrella.
Due to Corona virus pandemic, ICT industry is facing serious problem, including our local market. Most of the clients are cancelling their orders and there is no scope to acquire new clients at this moment. ICT industry of Bangladesh was going strong before this severe unfortunate situation.
Nonetheless, it is expected that, as the epidemic starts to decline, business shall resume and with the help of the financial package announced by the government and the potential of the ICT market in Bangladesh will most likely allow it to overcome the collapsing market in upcoming future.