Top Law Firm in Bangladesh

Leading Law Firm in Chittagong

Leading Law Firm in Bangladesh

Leading Law Firm in Dhaka

Ease of Doing Business in Bangladesh

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

Doing_business_in_bangladesh

A Full Service Law Firm

doing business in Bangladesh | FM Consulting International

Provider of Financial, Auditing, Payroll & Business Consulting Services

How to Setup Ready Made Garments (RMG) Business in Bangladesh

Fashion defines us. How we look, what we wear chronicles our taste to the world. There is a tag below the collar of your shirt or inside the beltline of your pants which tells you the birthplace of the item you have chosen to portray your fashion with. A major chunk of it comes from the ready-made garments industry or RMG all around the world. RMG is the biggest exporting sector in Bangladesh. It has been the dominant wing of business for over a decade now and has put Bangladesh firmly on the map. Only in 2019 alone, RMG exports has accounted for USD 34.13 Billion, which is 84 % of the country’s total exports and that ranks it as the 2nd biggest RMG exporter in the world. 

The RMG sector has many parts and the production is not a small process by any means. The whole process starts with the vision of a designer who puts a sketch on paper. The same is then communicated to the companies and factories making the product. Then once it is approved, there is the sourcing of the materials which mostly happens from outside Bangladesh, followed by getting the materials into Bangladesh, making sure that it is the proper material which has been ordered. Then comes the matter of production, explaining the vision of the product to the labour force who will actually make the product and then finally once it is prepared, exporting the product to the customer. There is a huge amount of legal services involved in these matters from the beginning to the end and a lot of times even after the work is complete when disputes arise which is quite common in the garments industry. Such legal services include execution of commercial contracts between buyer and seller, LC (Letter of credit) related disputes, breach of contract, debts recovery etc. Other than that, labour disputes are also quite common in the RMG sector owing to the fact that this is a purely labour-intensive industry with a high number of labours employed.

Also, another part of it involves a lot of foreign investment in the garments industry in both factories and in the form of buying houses which represent some of the biggest brands outside the country. As a result of the foreign investments, it also attracts a lot of foreign expatriates who come to work in Bangladesh. There are also a number of Export Processing Zones in the country which serve specifically to the RMG sector and their exports. 

How to Setup Ready Made Business in Bangladesh

LICENSE AND REGISTARTION PROCESS 

For setting up any garments factory in Bangladesh, it generally starts with the registration of a company at the Registrar of the Joint Stock of Companies also known as RJSC. The options are a public or a private limited company. Public limited companies have the option of raising funds from the public by selling shares where as private limited companies have their set list of shareholders. For any company, the process starts with a Name Clearance Certificate and so on and so forth as per the required document list of the RJSC for incorporation of the company. The companies’ ownership and operation are defined in the Articles and Memorandum of Association. 
When foreign shareholders are involved, the document requirements will differ depending on the requirements of the RJSC. Foreign owners have the option of opening a subsidiary company which would be a limited liability company where the ownership will belong to the parent company.

Once a company has been set up, the next requirements are related to licenses for setting up factory. Depending on the type of operations the following is a rough list of the licenses that may be required by garments factory for operation. This list is non-exhaustive:
1. Export Registration Certificate (E.R.C)
2. Import Registration Certificate (I.R.C)
3. Factory Layout Plan Approval.
4. Fire License.
5. Factory License
6. Environment Certificate.
7. Membership of the Chamber of Commerce.
8. Membership & certification of Bangladesh Garments Manufactures & Exporters Associate (BGMEA)
9. Value Added Tax Registration Certificate.
10. Trade License.
11. Export Promotion Bureau Enrolment Certificate.
12. Tax Identification Number. (TIN)
13. Bank Solvency Certificate.
14. BOND License & General BOND (if applicable)  etc.
  
Buying houses play a big role in the garments industry. Some of the bigger brands around the world place order in the local companies and factories through buying houses. Buying houses can be set up in the form of a Sole Proprietorship, Partnership or Company. The Sole Proprietorship is the simplest form of ownership for which the owner will be responsible for all the liabilities i.e. profits, dues and taxes. It can be set up by simply purchasing a Trade License which has to be annually renewed. Partnerships in Bangladesh requires a minimum of Two to the highest of Twenty partners. It can be executed by a partnership agreement registered with the RJSC. There is also the option of setting up a buying house in the form of a subsidiary company with its’ share being held by the parent company. However, most foreign owners prefer having a branch office or liaison office specifically for this operation. Such branch/liaison office is required to obtain Bangladesh Investment Development Authority (BIDA) permission to run business.

Other than that, any foreigner, who is willing to work in Bangladesh must have a Work Permit. The process starts with an application to BIDA for an E-visa recommendation with all the requisite documents recommended by BIDA. Once the recommendation is received, the expatriate is then requested to apply to the respective Bangladesh Embassy or High Commission in their country with their recommended documents to receive the initial E-visa which the expatriate will use to travel to Bangladesh. The tenure of this visa is usually Three to Six months. Once inside Bangladesh, the expatriate will then have Fourteen days to apply for a Work Permit to BIDA with documents as per BIDA’s recommended list. The Work Permit is approved by an inter-ministerial meeting at BIDA usually for a period of One year. Once the Work Permit, is approved, it automatically triggers the process of the Security Clearance, which is then conducted by the National Security Intelligence and the Special Branch of Police. They perform the necessary checks and publish the name of all the expatriates who have been cleared. Only after the Security Clearance is obtained, the expatriate can extend the initial E-visa to the whole period of the Work Permit. Similarly, there is the FE visa which is required for any family members joining the expatriate in Bangladesh.

LEGAL ISSUES 

As mentioned above, the whole process has a lot of legal issues from the beginning to the end. Outside the registration and licenses, there are issues of land acquirement, which involves acquiring proper land with the right documentation for the factories to be set up. Usually setting up factories requires quite a bit of land. It is necessary for the ownership and title of the land to be transferred properly to the factory owners who intend to own land to set up factories. Therefore, it is necessary to conduct land search to check the ownership of the lands, to verify the title and interest of the rightful owners as per the laws of Bangladesh. In order to transfer the ownership of the land, it is necessary to execute and register the sale of deed & change the records in the name of the new owner (known as Mutation) as per the laws of Bangladesh. 
Legal issues arise from implementation of the banking laws, as there are lots of foreign transactions involved in the garments industry. For example, when the materials for the garment are bought from outside the country, the company has to open a Letter of Credit and thus the banking regulations specifically with regards to foreign exchange comes into play. The same way, when the ready-made garment is sent to its’ customers, the foreign currency has to enter the country in a safe manner. Bangladesh Bank plays a major role in regulating these transactions under the foreign exchange regulations of Bangladesh.
There are legal conundrums arising out of the contracts. There are lots of bi-lateral agreements signed between different countries and disputes are common when deadlines are not met. Claims arise from parties in Bangladesh, for example: against a party who was supposed to send a particular material in time but failed to do so. The same way foreign companies may claim against Bangladeshi factories for not delivering on time. Since, most of the garments materials and the garments themselves are transported by ships and by air cargo, sometimes legal implications with regards to transportation of goods by cargo arise from these consignments. Most of the legal disputes involve breach of international commercial contracts and such disputes are generally resolved through international arbitration. 
Quite naturally with the high number of workers involved in the industry, legal issues arise often regarding termination, unfair dismissal, leaves, payment etc. In recent years, working environment has become very important for the workers and compliance departments. It is necessary to comply with the working hours, number of leaves, all employment benefits, termination benefits, trade union issues, workers’ welfare matters etc. under the Bangladesh Labour laws. The Department of Inspection for Factories and Establishments (DIFE) is the statutory body who has the authority to monitor all labour related issues.  

Due to the large scale of the business all around Bangladesh, and because the RMG sector is deeply rooted with the Textile industry there are environmental implications stemming from their operation. Even though Environment Clearance Certificates are a necessity while setting up a factory, it is not uncommon to see legal implications arising out of this. 

Introduction of FMA and its services

FMA is one of the best law firms in Bangladesh with extensive experience in working with the garments industry with clients both foreign and domestic. FMA has established an extremely reliable image with its’ work over the tenure of its’ existence. FMA being a full-service law firm, can provide legal assistance in almost all areas of the RMG industry from setting up a company starting from the name clearance to drafting of the company articles and memorandum of association and registration with the RJSC. FMA also provides support in obtaining all sorts of licenses including I.R.C, E.R.C, VAT, TIN, Trade License etc.

FMA also specializes in all sorts of immigration matters with regards to expatriates and provides support in obtaining the E-visas, FE visas and the Work Permit. FMA works with some of the biggest firms both local and foreign with regards to their expatriates. Also, services like assistance with obtaining encashment certificates and account openings are provided. FMA has a whole wing dedicated to the financial and taxation issues which can take care of all the tax matters, payroll etc.
FMA’s expertise in labour issues are unparalleled regularly providing advice on all sorts of labour issues including termination, payments etc. FMA’s legal team consists of some excellent lawyers who can efficiently represent any aggrieved in the court system of Bangladesh regarding any labour, contract or relevant issue related to the RMG industry.
Most importantly, in the RMG sector, since disputes quite regularly arise between entities in different countries and time is usually short to sort out these issues, parties generally opt for alternative dispute resolution. FMA has a very capable team for representation in arbitration, mediation and negotiation. All in all, FMA is a total service provider for sorts of legal issues.

COVID-19 impact on business
Bangladesh has since its’ inception, never faced a crisis so unique. The resulting effect on the global economy has been devastating. Locking down and quarantining the mass has been a challenge in its’ own right. RMG sector in Bangladesh has taken the largest hit at over USD 2.5 Billion in cancelled orders approximately already.

The cancelled orders along with the very important requirement of social distancing has probed a lot of factories to shut down operation completely. For the first time in the history of the RMG sector, most of the factories have shut down in unison without any further notice of when they might re-open. This is a new and challenging territory both logistically and legally. For instance, what happens now to the workers? Do they get paid for their jobs, do they lose their jobs or does it stay in a stalemate situation?

The good news is that the government has declared incentive packages for the RMG sector which will enable them to pay the labour for the upcoming months, however, this pandemic can extend beyond that period and the effect of that is already visible. The labour laws of Bangladesh provide a lot of protection for workers from wrongful termination and has laws in place for lay-off situations and what kind of payment the workers can receive under these circumstances. In case of lay-off, the employees, who have completed at least 1 (one) year of service shall be entitled to the amount of compensation which shall be equal to half of the total basic salary of the employees and equal to the full amount of housing allowances that would have been payable to them if they had not been so laid-off. Retrenchment is an option available to the Employer after the initial lay-off period of 45 days. Retrenchment can take place on the ground of redundancy which means the owner can declare that there is no work available for the workers, and thereby, they may be retrenched. 

In summary, under this current unforeseen crisis created by the Novel Corona Virus, it is extremely difficult to evaluate what kind of situation the RMG sector will face. It has already costed billions to the economy. Work needs to resume soon enough to recoup the losses from this sector but since it is a labour intensive industry, the fight is presently more for life than the economy.

Taxation

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.  

Conclusion
In conclusion, the RMG sector is still one of the booming sectors in the country. Bangladesh government has been very supportive of this sector which is why it has declared the opening of new export processing zones. Also, the government has mandated a deep sea port and another airport along with heavy investment on internal infrastructure, which means that trade will become even more easier in the near future. Bangladesh government is also encouraging foreign investors to invest in Bangladesh. Considering the condition of the sector, this might not be a bad idea.

EXECUTIVE SUMMARY
The Ready-Made Garments or RMG sector is the highest exporting sector in Bangladesh. The sector has grown over the few years like clockwork and still making steady progress. The RMG industry is a very labour intensive industry with factories all over the country. It is an industry where local and foreign investors have made huge investments.


It is not the hardest industry to enter especially in Bangladesh, where the Government has been very forward thinking regarding this sector. Outside the general industrial zones, the government has developed export processing zones to help increase the productivity of this industry. Once a company is formed with the Registrar of Joint Stock of Companies, the establishment of factories requires a number of licenses from different departments of the government to ensure health, safety and good working environment for the labour and the business overall. Textiles and buying houses also play major roles in the RMG industry, one bringing orders for the factories while the other providing raw materials.
The RMG sector is related to a lot of other industries which directly affect its outcome, especially import/export, labour and banking etc. Based on that, the legal issues involving the RMG industry has also been huge. From the creation of a company, to setting up the factory, which is the minimum of the ground work any entity has to do to survive in this sector, there are lots of legal services to be provided especially with regards to the licenses, for example, trade license, TIN, VAT, I.R.C, E.R.C etc.. In addition, because there is a huge amount of foreign investor coming in to invest in this particular area, there is a presence of expatriates, who require work permit to work in the country.

FMA is one of the finest full-service law firms in Bangladesh well capable of providing any solutions in the legal industry for the RMG sector. FMA has a lot of experience with the setting up of companies and obtaining licenses as required in this case. FMA also has teams dedicated to the immigration matters of expatriates and for the financial department which works matters such as taxation and payroll etc.
Even with the recent outbreak of the Covid-19 and its’ profound effect on the RMG sector, it is still the best sector to invest in Bangladesh. The Government of Bangladesh has been forward with this sector and it can only flourish going forward. For all your legal issues, FMA has the answer.