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Establishing a Provident Fund in Bangladesh

Table of Contents

This article provides a step-by-step guide for private sector establishments in Bangladesh on the process of establishing a Provident Fund. The information is based on the provisions of the Bangladesh Labour Act, 2006 and the Bangladesh Labour Rules, 2015.

Step-by-Step Guide to Setting Up a Provident Fund in Bangladesh (Private Sector)
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1. Initiation of the Fund:
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An employer in the private sector can voluntarily establish a Provident Fund for the benefit of their workers. It becomes mandatory for an employer to establish a Provident Fund if at least three-fourths (75%) of the total workers in the establishment submit a written application demanding its formation. If demanded by workers, the employer must establish the fund within six months of receiving the application, as stipulated by the Bangladesh Labour Act, 2006.

2. Establishment Rules for the Fund:
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The establishment can formulate its own rules for the management and governance of the Provident Fund. However, these internal rules cannot conflict with the provisions of Chapter XVII of the Bangladesh Labour Act, 2006, or the Bangladesh Labour Rules, 2015. If an establishment does not have its own specific rules for the Provident Fund, its operation will be governed by the Bangladesh Labour Rules, 2015.

3. Formation of the Trustee Board:
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Immediately after establishing the Provident Fund, the employer is required to form a Board of Trustees to manage it. The Trustee Board will consist of an equal number of representatives from the employer and the workers. The maximum number of trustees is seven. The Chairman for the Board will be nominated by the Government.

Employer representatives are nominated by the employer, preferably from the accounts department or senior management. Worker representatives are nominated by the Collective Bargaining Agent (CBA). If no CBA exists, the Participation Committee nominates them. If neither a CBA nor a Participation Committee exists, workers shall elect their representatives under the supervision of the establishment’s Welfare Officer. Trustees hold their position for a term of two years.

4. Worker Eligibility and Enrolment:
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All permanent workers (excluding owners, partners, or members of the management board) who have completed at least one year of continuous service are eligible and required to become members of the fund. Within 15 days of a worker becoming eligible, the employer must submit the worker’s details and nominee information (using Form-67 as prescribed by the Bangladesh Labour Rules, 2015) to the Board of Trustees.

The employer must direct eligible workers to provide nomination details (using Form-41 as per the Bangladesh Labour Rules, 2015) and photographs within 10 working days. This information must then be forwarded to the Trustees within the subsequent 5 working days.

5. Issuing Account Numbers:
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The Board of Trustees will issue a unique Provident Fund account number (using Form-68 as per the Bangladesh Labour Rules, 2015) to each enrolled member and inform both the worker and the employer.

6. Contributions:
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Each member worker must contribute a minimum of 7% and a maximum of 8% of their monthly basic wage to the fund, unless a different rate is mutually agreed upon between the employer and workers. The employer must contribute an amount equal to the worker’s contribution for that month.

The employer is responsible for deducting the worker’s contribution from their wages and depositing both the worker’s and the employer’s contributions into the fund’s designated bank account within 15 days of the end of the month in which the wages are paid.

7. Fund Management and Investment:
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The Trustee Board is responsible for the overall management of the fund. A separate bank account titled “Provident Fund Account” must be opened in a scheduled bank, as determined by the Board of Trustees. Withdrawals from the fund require joint signatures as determined by the board (typically the Chairman and another approved member).

A significant portion of the fund, specifically at least half of the total accumulated amount, must be invested in specified government securities, Investment Corporation of Bangladesh (ICB) certificates, or other approved sectors, which may include the purchase of immovable property under specific conditions outlined in the Bangladesh Labour Rules, 2015.

8. Record Keeping, Audit, and Reporting:
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The employer and the Board of Trustees must maintain proper accounts and records of all contributions, earnings, advances, and other relevant financial transactions of the fund. An annual statement must be provided to each member, detailing the status of their individual Provident Fund account.

The fund’s accounts must be audited annually by a recognised chartered accountant firm, with the audit expenses borne by the employer. The Board of Trustees must submit an annual report and the audited accounts to the employer. The employer, in turn, is required to submit a copy of this report and audited accounts to the Department of Inspection for Factories and Establishments.

It should be noted that this guide outlines the primary steps for establishing a Provident Fund in a private sector establishment in Bangladesh. There are separate specific procedures for tea plantation gardens or newspaper establishments.

Obtaining NBR Recognition for the Provident Fund
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After establishing a Provident Fund in compliance with the Bangladesh Labour Act, 2006, and the Bangladesh Labour Rules, 2015, obtaining recognition from the National Board of Revenue (NBR) is essential for securing tax advantages and other associated benefits. This section details the necessary conditions and the procedural steps for acquiring and sustaining NBR recognition for a Provident Fund.

Conditions for Approval and Maintenance of Recognition for a Provident Fund
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To get recognition and maintain it, a provident fund must meet the following conditions:

  • All employees must be employed in Bangladesh, or the employer’s main business location must be in Bangladesh.
    • However, if no more than 10% of employees are employed outside Bangladesh, the Commissioner may grant approval, with conditions, even if the employer’s head office is outside Bangladesh.
  • The amount of an employee’s annual contribution must be a specific proportion of their annual salary, and the employer must deduct contributions from the employee’s salary at the same rate.
  • The employer’s contribution to an employee’s account cannot be more than the employee’s contribution for that year, and the employer must deposit this amount into the employee’s account within one year.
    • However, the Commissioner can relax these rules for certain funds, such as allowing employers to contribute more to employees earning less than 500 taka per month, and allowing employers to make temporary or periodic bonus contributions, as long as these are according to the fund’s regulations.
  • The fund must consist of employee and employer contributions, any donations received by trustees, interest from accumulated funds, and capital gains from the sale or transfer of the fund’s assets.
  • The fund must be managed by two or more trustees, and this arrangement cannot be changed without the consent of all beneficiaries.
  • If an employee is dismissed for misconduct (unless due to ill health or other unavoidable reasons) or voluntarily leaves before the term of employment, the employer cannot claim any contributions made to the fund.
    • However, in such cases, the employer can recover its contributions and any interest on those contributions from the employee’s account, as per the fund’s regulations.
  • The fund must also meet any other conditions specified by the Board through circular in the official gazette.
graph TD; A["Employer Applies to Commissioner for PF Approval"] --> B{"Commissioner Reviews Application"}; B --> C["Commissioner May Request Additional Documents from Trustees"]; C --> B; B -- "Within 60 Days" --> D{"Decision Made?"}; D -- "Yes" --> E["Approval Order Issued (Conditions, Effective Date, Duration)"]; D -- "No (After 60 Days)" --> F["Fund Deemed Approved"]; E --> G{"Is Approval for a Specific Period?"}; G -- "Yes" --> H["Employer Applies for Extension Before Expiry"]; G -- "No" --> I["Approval Maintained"]; H --> E; F --> I;

Process for Obtaining Approval
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  • To get a provident fund approved, the employer must apply to the Commissioner in the prescribed manner.
  • The Commissioner will review the application and may ask the trustees for additional documents.
  • The Commissioner must make a decision within 60 days of receiving the application, and if no decision is made within this period, the fund is considered approved.
  • If approved, the order will include the conditions of approval, the effective date, and the duration of approval.
  • If the approval is for a specific period, the employer must apply for an extension before it expires.
Key Contact

For assistance with establishing and managing a Provident Fund for your establishment in Bangladesh, please reach out to: