Bangladesh exports footwear at zero percent duty rate and that is maybe another motivation behind why international purchasers are anxious to come and put resources into Bangladesh.
The fundamental advantage of the leather business of Bangladesh is the plentiful stockpile of crude materials.
The following are the advantages which are availed by the investors in this sector:
There are several ways available by which an investor can invest into Leather industry, i.e. Sole Proprietorship, Partnership Business and Private Limited Company. The first two options are not obtainable by Foreign investors and branch office is only 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.
To set up a sole proprietorship business in Bangladesh, the following steps need to be followed:
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.
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”).
A Name Clearance for the proposed name of the Partnership Business, must be obtained from the Registrar of Joint Stock Companies And Firms (RJSC).
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.
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.
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.
STEP 1 - A Name Clearance for the proposed name of the Company, must be obtained from RJSC.
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.
Import Registration Certificate (IRC) & Export Registration Certificate (ERC)- Entities which shall require to import and/or export goods and/services shall require to obtain IRC and/or ERC respectively. Investors who need to import Leather and Leather products or machineries, IRC is a very important certificate to be obtained by them. An exporter can export any quantity of Leather and Leather goods at any price from Bangladesh after obtaining ERC.
The applications for IRC and/or ERC need to be made to the Office of Chief Controller of Imports and Exports, with entity incorporation documents, TIN certificate, trade license, solvency certificate from the bank and chamber of commerce membership certificate and relevant government fees. Both the certificates need to be renewed annually.
In order to have a Leather and Leather products manufacturing factory in Bangladesh the entity must obtain approval of its factory plan and must register the same with the Department of Inspection for Factories and Establishment. In every financial year, it should be renewed.
The following documents required for issuance of the approval and the certificate of registration
1. Land document;
2. Detailed construction plan;
3. Site plan/master plan/layout;
4. Machine layout;
5. flow chart of manufacturing process;
6. Electricity demand note
7. Trade license;
8. Fee payment slip;
9. Entity incorporation and related documents
To all existing industrial units and projects and proposed industrial units and projects falling in the Green Category, Environmental Clearance Certificate shall be issued. Firstly,first a Site Clearance Certificate and thereafter an Environmental Clearance Certificate shall be issued For industrial units and projects falling in the Orange-A, Orange-B. In situation of Red category industries, at first a Location Clearance Certificate, then Environment Impact Assessment (EIA) approval and subsequently an Environmental Clearance Certificate shall be issued.
Step 1: Submit application along with supporting documents.
Step 3: Inspection conducted by the authorized officer after verification of all report and documents.
Step 4: Meeting of Environmental Clearance Committee (for Orange-B and Red Category)
Fire License - It is mandatory for buildings and business organizations to obtain fire license bearing in mind the environment and to ensure the safety of the establishment along with the workers engaged in the business. Fire license is issued by the Fire Service and Civil Defense (FSCD) authority operating under the Ministry of Home Affairs, Bangladesh.
In order to obtain a fire license, the following documents are required to be submitted: -
1. Prescribed application form;
2. Deed of agreement;
3. Yearly valuation certificates;
4. Layout of the establishment;
5. Memorandum and Articles of Association;
6. Certificate of Incorporation;
7. Trade license;
8. No objection certificate from the local authority;
9. Clearance certificate from the FSCD office;
10. Deposit slip/treasury challan.
BIDA Registration (Local and Foreign Investment Projects)
If it is a manufacturing company, either local or foreign, have to be registered with the BIDA in order to obtain various monetary and non-monetary benefits from the Government of Bangladesh.
The documents required for registration with BIDA for local investment projects comprise of: -
1. Prescribed application form;
Background of directors or partners;
2. Deed of proposed land;
3. Project profile;
4. Memorandum and Articles of Association;
5. Certificate of incorporation;
7. nk draft of registration fee or pay order;
8. Trade License;
9. TIN Certificate.
The documents required for registration with BIDA for foreign investment projects consist of: -
1. Prescribed application form;
2. Deed of proposed land;
3. Project profile;
4. List of shareholders/directors;
5. List of machinery;
6. Memorandum and Articles of Association;
7. Joint Venture Agreement;
8. Encashment Certificate;
9. Certificate of incorporation;
10. Bank draft of registration fee or pay order;
11. Trade License;
12. TIN Certificate.
MEMBERSHIP CERTIFICATE OF The goods and Footwear Manufacturers and Exporters Association of Bangladesh (LFMEAB) ----
Most of the key export-oriented manufacturers & exporters of goods & footwear in Bangladesh are represented by the recognised trade body, the goods and Footwear Manufacturers and Exporters Association of Bangladesh (LFMEAB).
In order to get provisional membership of LFMEAB, the following steps need to be followed:
• A company shall have manufacturers of goods or Footwear or Both. And it is mandatory provision that the company must be at least 80% export oriented.
• Fulfilling these requirements, a company need to submit the legal documents (listed below (along with 45000 BDT (for the proprietorship) and 60000 BDT (for Limited Company) and an application written in company letter head pad.
• After the submission of all legal documents the compliance team conducts an assessment to the factory. If everything meets with LFMEAB standard then the factory entitled for the provisional membership.
• After application for membership is made, survey and analyze will take place by LFMEAB in order to consider the status of the company to make certain whether it meets all the standards set by LFMEAB.
• After inspection if they are satisfied that the company fulfills the requirements, then a membership of the organization shall be granted.
Timeline - Provisional membership certification will take 20 days from the submission of the legal document by checklist.
Required Documents for Provisional Membership :
1. Application in Letterhead Pad.
2. Application form duly filled and signed.
3. Copy of Company’s Memorandum. (For Limited Company)
4. Articles of Association. (For Limited Company)
5. Certificate of Incorporation (COI). (For Limited Company)
6. Copy of Registration from Bangladesh Investment Development Authority (BIDA) [Sell: Local-20%, Foreign-80%]
7. Updated Trade License.
8. Updated Tin Certificate.
9. List of Machineries.
10. Fire Service License.
11. Factory License. (If available)
12. Factory Layout plan that is certified by concerned authority with detailed plan. (If available)
13. Factory Structure Layout / Building Design Document approved from competent Authority.
14. Group Insurance Copy as per Bangladesh Labour Act-2006. (If applicable)
15. ECC (Environmental Clearance Certificate) from DOE (Directorate of Environment) / NOC (No
Objection Certificate) from Local Authority.
16. Two (2) copy passport size photographs of Managing Director/ Owner/ Proprietor
17. Factory Profile.
18. Generator Certificate. (If available)
19. IRC / ERC. (If any)
20. Custom Bond License. (If available)
21. Membership Fee: For Limited Company: BDT 60,000 (Renewal Fee BDT 23,000)
For Proprietorship: BDT 45,000 (Renewal Fee BDT 20,000)
22. KRC Membership Fee: BDT 8,000
23. Provisional Membership Certification will take One (01) Month from the receiving date.
Certification From Bureau Veritas Bangladesh
Bureau Veritas helps the business to meet the growing challenges of quality, safety, social responsibility and sustainability. For products the business needs a certificate from Bureau Veritas. This certificate is recognized globally, therefore, helps the business to work internationally. The organization follows three steps – testing, inspection and certification.
To determine the products are safe, of the right quality, and conform to specifications and applicable regulations testing stage takes place.
In this stage, it is verified whether a product, asset or system meets certain criteria.
Inspection includes services intended to improve performance, diminish risk, verify quantity control quality and meet other regulatory requirements. Verification of documents, visual inspection, manufacturing supervision, electronic and mechanical testing are also included.
Assurance is provided by serving customised, independent certification.
A certificate is a third party stamp of approval which conforms a specified standard of a product, service or system. This certification services cover people, products and systems.
Membership of Bangladesh Tanners Association (BTA)
BTA is a non-profit Association of Industry in Bangladesh, playing an important role in various aspects such as the issue of export certificates, Implementing an EU Funded Project entitled “Implementation of Environmental Management Systems and eco-labeling schemes in the SMEs of the Sector in Bangladesh (ECOLEBAN)liaison with the Govt. Departments in regards to the development of sector. BTA works for the welfare of the tanneries all over Bangladesh
There are two types of Bangladesh Tanners Association Membership – General Membership and Associate membership.
For General Membership the required documents are as follows :
1. Ownership documents of Land or Lease deed
2. Plan or lay-out of tannery factory
3. Tannery factory clearance (if applicable)
4. Information regarding factory construction (must be written on the organization’s pad)
5. Copy of Trade license (updated)
6. Copy of National Identity Card
7. 2(two) copies of each of the proprietor/chairman/ management director/director/ management partner (photo with the name written on the back)
8. Applicant’s photo must be attested by the proposer/ supporter
9. Copy of Bank Solvency Certificate
10. Copy of E-TIN/TIN Certificate
11. Copy of E-BIN/BIN Certificate
12. Each of the proprietorship/ chairman/ managing director/ director/ managing partner have to fill the prescribed form
13. The updated and qualified members of the association must be proponents and supporters. Proponent or supporter. Anyone must be a General Member of the Association.
14. List of machineries of tannery factories. [If any]
15. Copy of Memorandum of Association and Articles of Association / Partnership Agreement. [if applicable]
16. Admission fee ................................ money and amount of annual subscription ................................ Money that must be submitted at the time of application submission.
17. The association must be notified in writing if the address of the organization changes.
18. Copy of updated trade license and payment of annual subscription for membership certificate. Subject to written application. 2 (two) working days are applicable for the certificate.
19. Member Card, Voter ID Card and Correspondence will be issued on behalf of the approved Associate Member and will be contacted if required. However, in the case of nomination of a representative, a normal person will be nominated following the rules accordingly.
For Associate Membership the required documents are as follows :
1. Ownership documents of Land or Lease deed
2. Copy of National ID
3. Copy of Deed/Rent Agreement
4. 2(two) copies of each of the proprietor/chairman/ management director/director/ management partner (photo with the name written on the back)
5. Applicant’s photo must be attested by the proposer/ supporter.
6. Copy of ERC
7. Copy of Bank Solvency Certificate
8. Copy of E-TIN/TIN Certificate
9. Copy of E-BIN/BIN Certificate
10. Each of the proprietorship/ chairman/ managing director/ director/ managing partner have to fill the prescribed form
11. The updated and qualified members of the association must be proponents and supporters. Proponent or supporter. Anyone must be a General Member of the Association.
12. List of machineries of tannery factories. [If any]
13. Copy of Memorandum of Association and Articles of Association / Partnership Agreement. [if applicable]
14. Admission fee ................................ money and amount of annual subscription ........... ..................... Money which should be submitted at the time of application submission.
15. The association must be notified in writing if the address of the organization changes.
16. Copy of updated trade license and payment of annual subscription for membership certificate. Subject to written application. 2 (two) working days are applicable for the certificate.
17. Member Card, Voter ID Card and Correspondence will be issued on behalf of the approved Associate Member and will be contacted if required. However, in the case of nomination of a representative, a normal person will be nominated following the rules accordingly.
Bond License: Interested enterprises will have to obtain a Bond License from the Customs Bond Commissionerate, to use the Bonded Warehousing facility. Bond Licenses are issued and maintained as per the Bonded Warehouse Licensing Rules, 2008. Licensee industries will be able to take clearance of their inputs/raw materials or packing materials imported under Back-to-Back Letter of Credit without paying any import duty or other taxes, after obtaining the Bond Licenses. However, the volume of these inputs and packing materials will have to remain within the boundaries of the entitlements referred to in their Bond Licenses. Any amount of inputs/raw materials that exceed the entitlements referred to in the Licenses, full duty and taxes will be applicable on them.
In order to achieve a bonded warehouse license, applicants need to complete a bond license application form and submit the same with necessary documents and application fee to the respective Bond Commissionerate, or any Customs, Excise and VAT Commissionerate authorized by the NBR to issue bonded warehouse license.
Annul General 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 for limited liability companies and renewing branch office permission at BIDA after it expires.
Implication of Contract Law – The entities’ relationship with dealers/vendors is quite an integrate part who provides products or services for the business. There should be a presence of dealership/vendor Agreement while selling products to dealers or 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.
The franchise agreement is also an important aspect in this sector as a lot of entities brings the product of international bands on franchisee- franchisor basis. It is crucial that such agreement is drafted clarifying all the legal aspect specially in compliance with the foreign exchange guidelines of Bangladesh Bank. This shall be helpful while remitting the royalty by banking channel to the franchisor. In addition to the royalty payment, the foreign shareholders can also remit the dividend after deducting the applicable taxes.
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. For the factory workers there are some other provisions that needs to be ensured according to the Labour laws of Bangladesh. Such as- Health & Safety Issues:
1. Emergency exit door is essential at the opposite side of the main exit (that must be in outward direction).
2. It requires having an emergency exit stair with handle, if the facility / factory is in a multi storied building.
3. An emergency assembly point in front of the building is also required.
Foreign Exchange regulations– The entities with foreign investors shall need to ensure that the initial investment are 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.
INTRODUCTION OF FMA AND ITS SERVICES
Being a full service law firm, FM Associates, 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 ongoing Covid-19 pandemic has put the business at risk of incredible financial misfortune. Bangladesh will be greatly affected by the Chinese slowdown through worldwide value chains. It is anticipated that USD 15 million loss will be experienced in the leather industry alone.
The shutdown of the factories the leather products could not be manufactured in time. The finished goods cannot be exported in time or at all due to the lockdown of multiple country’s borders. The investors of this industry are struggling to complete their running contracts let alone the new orders. All these obstructions of the footwear industry are adding up to the catastrophe of the global crisis. Representatives from Bangladesh’s leather sector predicts that exports of leather goods and footwear could decline 20% - 25% this fiscal year due to the COVID-19 crisis. Furthermore, in the the up- come Eid festival, which is one of the pick season for the domestic market for the leather footwear industry, the businessmen are forecasting that they would be deprived of a huge profit due to the lockdown and then overall recession of the economy as the spending capacity of the local market is forecasted to shrink.
The government would have to increase the liquidity flow to the country’s economy to face this crisis. The government should allow loans with less interest so that the investors in this industry can get over from this crisis.
Entities are considering whether they are entitled to invoke force majeure under the contracts. 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 wholly, but only suspends it for the duration of the force majeure event. 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 choice, terminate the contract without any financial consequences to each other, if properly drafted.
All contracts are regulated by the Contract Act 1872 (the "Act of 1872") which are governed by Bangladeshi law. The doctrine of frustration is preserved 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 as per 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 can be summarized that, 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, in the absence of an appropriately worded force majeure clause in a contract,
General rate of tax is 32.5% currently in the laws of Bangladesh. 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.
Current demand for the leather goods and footwear in the world is nearly $215 billion where Bangladesh exports only US$ 1.08 billion. If more investors invest in this leather industry there is a tremendous possibility to grasp the market with our maximum level of efficiency and proper strategic planning. The demand of the leather products will increase only as people all over the world are lining towards fashionable leather products. Therefore, the industry will keep upgrading its position in the business industry.
The Industry of Leather and leather goods is the second largest industry after RMG sector in Bangladesh. The main elements that are helping the industry to achieve a desired level is the availability of raw material and cheap labour. In FY’2018-19 (July- November), the overall export of the leather and footwear industry was 626.57 million USD.
There is a great scope in manufacturing sector as the demand of leather goods and shoes are increasing globally.
Bangladesh exports footwear 0% duty rate and that encourages international purchasers to put resources into Bangladesh.
To become a part of this Electrical industry there are various options of entities, Sole Proprietorship, Partnership Business, Branch Office and Private Limited Company are available for investors.
To become a part of this Leather industry there are various options of entities, Sole Proprietorship, Partnership Business and Private Limited Company are available for investors. Trade License and VAT certificate are requirement for all three types of business. 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 leather industry is facing serious problem as all the borders are closed down and our industry is mostly relied on import and export sector. Factories are closed down so even if there is lots of scope of business, due to Covid-19 it has become very difficult to fulfill the obligation. However, it is expected that, as the epidemic starts to decline, business shall resume and find its steady growth in a short period of time, if it receives the due support from the recently announced financial package by the government t revive the economy from the damages caused by the pandemic.