The Government of Bangladesh has introduced specific tax exemptions and regulations for new business entities classified as “Startups.” These provisions, primarily outlined in the Income Tax Act, aim to support and incentivise the growth of new ventures, fostering innovation and contributing to the nation’s economic development. This article details the key tax-related benefits, eligibility criteria, and definitions relevant to startups in Bangladesh.
Key Tax-Related Provisions for Startups#
Registered startups in Bangladesh are entitled to several tax advantages designed to ease their financial burden during their initial growth phases.
1. Exemption from Specific Income Calculation Methods#
For the purpose of determining income under the head “Income from Business,” registered startups are exempt from the application of Section 55 (relating to income from construction, etc.) and Section 56 (relating to income from supply) of the Income Tax Act. This exemption simplifies income computation for qualifying new businesses.
2. Carry-Forward of Losses#
A significant benefit for startups is the provision for loss carry-forward. If a registered startup incurs a loss in a particular assessment year that cannot be fully offset against its income in that year, such loss can be carried forward. The startup is permitted to offset this carried-forward loss against its profits for the next nine (9) consecutive assessment years. This allows startups more time to achieve profitability without immediately losing the tax benefit of initial losses.
3. Minimum Tax Rate#
Registered startups benefit from a reduced minimum tax rate. As per Section 163, subsection (5) of the Income Tax Act, the applicable minimum tax rate for a registered startup will be 0.1% of its turnover. This is considerably lower than the standard minimum tax rates, providing substantial relief.
4. Simplified Reporting for Accounting System Access#
If a startup provides tax officials access to its accounting system or information solely for the purpose of verifying turnover, it will not be obligated to maintain any reporting requirements other than filing tax returns under Section 166 (Return of income) and Section 177 (Statements of assets, liabilities and expenses) of the Income Tax Act. This provision aims to reduce the compliance burden on new ventures.
Eligibility Criteria for Startup Status#
To avail these tax benefits, a business entity must be formally registered with the National Board of Revenue (NBR) as a “Startup.” However, certain conditions will disqualify a business from obtaining or maintaining startup registration:
- The company was incorporated before July 1, 2017.
- The company was incorporated between July 1, 2017, and June 30, 2023, but failed to register with the NBR as a startup by June 30, 2024.
- The company was incorporated on or after July 1, 2023, and fails to register with the NBR under the relevant startup clauses by June 30 of the year immediately following its year of incorporation.
Definition of Key Terms#
Understanding the specific definitions used in the context of startup taxation is crucial.
“Growth Years”#
The definition of “growth years,” during which certain benefits may apply, varies based on the incorporation and registration timeline:
- For startups incorporated between July 1, 2017, and June 30, 2023 (and registered with NBR by June 30, 2024): The “growth years” are defined as the three (3) years from July 1, 2024, to June 30, 2027.
- For startups incorporated on or after July 1, 2023 (and registered with NBR by June 30 of the year following incorporation): The “growth years” are defined as the five (5) years from the end of the year of incorporation.
“Innovation”#
“Innovation” is defined as the process of creating value by providing a new solution to a significant problem or by substantially improving an existing solution. This highlights the government’s focus on fostering businesses that bring novel ideas and improvements to the market.
“Startup”#
A “Startup” is defined as a company that meets the following criteria:
- Its annual turnover does not exceed 100 crore Taka in any financial year.
- It is incorporated under the Companies Act, 1994.
- It is involved in innovation, development, processes, or the expansion or commercialisation of new intellectual property-driven products.
- It is not formed through an amalgamation or demerger of existing companies.
These measures collectively aim to create a supportive ecosystem for startups in Bangladesh, encouraging entrepreneurship and driving economic growth through innovation and new business development.
For detailed advice on startup registration, tax implications, and eligibility for your new venture in Bangladesh, please contact:
- Ariful Hasan
- Phone: +8801975603559
- Email: [email protected]