Equity investment from foreign shareholders (kept as share money deposit) in a Bangladeshi registered company must be converted into shares within 1 year from the date of receipt. On February 05, 2020, Bangladesh Bank issued FEID Circular No. 02 to this effect. Previously there was no time limit to convert the share money deposit of the foreign shareholders into shares.

In the circular, Bangladesh Bank provided the following guidelines:

• Bangladeshi companies shall complete the formalities of issuance of shares within 360 days of receiving money for this purpose – meaning the company should file the return with RJSC.
• Share Money Deposit must not be used for any purpose other than the main business of the company i.e. the fund cannot be used in any interest/profit bearing financial instruments;
• In case of calculating Debt Equity Ratio for according permission of foreign loan/foreign currency loan to industrial enterprises and of Taka term loan to foreign owned/controlled company as per Para-4(C), Section-1, Chapter-16 of Guidelines for Foreign Exchange Transactions, 2018 etc., share money deposit will not be considered as equity component if the company fails to convert it into share within 360 days of such receipt. However, the company will show Share Money Deposit in their financial statements as per IAS/BAS;
• If total share capital of the company exceeds the exemption limit as fixed by the Bangladesh Securities and Exchange Commission (BSEC) after receiving Share Money Deposit, consent from BSEC has to be obtained. Since this approval process from BSEC usually takes time, it is our advice that companies will act expediently to make sure they are compliant with this circular.
• Companies having share money deposit before the issuance of this circular are advised to complete the formalities of share issue within 360 days from the date of this circular.

Download: FEID Circular No. 02 dated February 05, 2020.