On 16 January 2022, the Financial Institutions Division of Ministry of Finance issue a new regulation titled Capital Account Transaction (Overseas Equity Investment) Rules, 2022, providing guidelines on overseas equity investment.
This is the first time the government promulgates a guideline on overseas equity investment. Previously it was on an ad-hoc basis.
Eligibility and Procedural Requirements
The rules set forth specific prerequisites and qualifications for entities seeking to invest overseas. These include maintaining sufficient balances in retention quota accounts, demonstrating financial solvency through audited financial statements, and possessing a minimum credit rating. The proposed investment must align with the applicant’s domestic business activities, be supported by a robust feasibility study, and demonstrate the potential to generate foreign exchange earnings and create employment opportunities.
The application process mandates the submission of a comprehensive set of documents to the General Manager, Foreign Exchange Investment Department, Bangladesh Bank. These documents include detailed applicant information, investment specifics, directors’ undertakings, and a business environment report for the proposed investment destination.
Evaluation and Approval Mechanism
A high-level “Selection Committee,” chaired by the Governor of Bangladesh Bank, is tasked with reviewing and approving investment proposals. The committee comprises representatives from various government bodies and may consult with experts and relevant authorities to assess the viability and potential impact of the proposed investments.
Investment Parameters and Conditions
The regulations also define the permissible limits of overseas equity investment, restricting it to the lower of 20% of the applicant’s average annual export earnings over the preceding five years or 25% of the net worth as per the latest audited financial statement. The invested funds must be transferred directly to the subsidiary company’s bank account, and any repatriation of funds must adhere to specified procedures.
The introduction of the “Capital Account Transactions (Overseas Equity Investment) Rules, 2022” marks a significant step in Bangladesh’s efforts to regulate and facilitate overseas investments.