Bangladesh Bank, through its Foreign Exchange Investment Department (FEID), has issued FEID Circular No. 02 dated March 27, 2025, introducing major changes regarding the establishment of legal entities abroad by Bangladeshi residents. This move appears aimed at supporting the burgeoning startup ecosystem in Bangladesh, and potentially creating pathways for future inward investment and repatriation of earnings.
Key Provisions of the Circular:
- General Permission for Startups: The circular grants general permission for resident enterprises (specifically those operational for less than 10 years in Bangladesh) and individual Bangladeshi nationals to remit up to USD 10,000 (or equivalent) to establish a legal entity abroad. This investment must be intended to support a startup business based in Bangladesh.
- Focus on Innovation and Repatriation: A key condition for individuals availing this facility is having innovative ideas to explore business opportunities abroad, with a clear linkage to rerouting investment and earnings back into Bangladesh in the near future. Authorized Dealers (ADs) are required to assess the innovativeness, commercial viability, and scalability of the proposed business model.
- Investment via Share Swaps: In a strategic move beyond cash remittances, Bangladesh Bank will now consider proposals from resident companies to acquire shares in foreign companies by exchanging their own shares/securities, rather than using cash. This is envisioned as a way to bring financial benefits to resident companies, provided the swap ratio aligns with global best practices. Applications for share swaps must be forwarded by ADs to the FEID.
- Procedural Requirements:
- Applicants must submit applications to their ADs using the prescribed format (Annexure-A).
- Remittances must be made from internal sources, not borrowed funds.
- ADs must report remittances made under paragraph 2 to Bangladesh Bank within one month of the foreign entity’s incorporation (or maximum six months from remittance) using Annexure-B.
- ADs must conduct thorough due diligence, including KYC and AML/CFT checks.
- Investors must submit annual progress reports (Annexure-D) and audited financial statements of the overseas entity to Bangladesh Bank via their AD.
- Unutilized funds remitted abroad must be repatriated.
- Changes in the ownership structure of the overseas entity must be promptly notified.
Historically, outward remittances for investment purposes by Bangladeshi residents have been heavily restricted under the Foreign Exchange Regulation Act, 1947. This circular marks step towards liberalization, specifically targeting the startup sector.