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Bangladesh - Income Tax

Bangladesh - Income Tax

Taxation of international executives.

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Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

30 of November.

What is the tax year-end?

30 June.

What are the compliance requirements for tax returns in Bangladesh?

Residents

After end of the income year and within the tax return due date, every resident assignee must submit tax return for the period from 1 July to 30 June or the period delegate stays. Before submitting Income Tax Return in Bangladesh, an assignee must obtain e-TIN (12-digit electronic tax identification number) from tax authority. Individuals may file returns under universal self-assessment scheme, but the assessing tax authority have discretion to scrutinize the returns. Tax authority by its own discretion may extend the deadline of submission subject to application for 2-4 months.

Non-residents

Compliance requirement for tax return of non-resident international executives is same as resident with the condition that non-resident foreigner has to obtain work permit and SB & NSI clearance certificate. If assignee comes through A3 or E1 visa, then visa copy itself considered as work permit. The person must obtain e-TIN in Bangladesh for submission of Tax return.

Penalty for non-submission of Income Tax Return on due time

If the assignee fails to submit Income Tax Return on due time, the penalty will be 10 percent of tax imposed on the last assessed income (subject to a minimum of 1,000 Bangladeshi taka (BDT)). In case of a continuing default further penalty of BDT50 for every day during which default continues.

Provide that such penalty shall not exceed,

  • In case of an individual assessee whose income was not assessed previously BDT5000.
  • In case of an individual assessee whose income was assessed previously, 50 percent of the tax payable on the last assessed income or BDT1000, whichever is higher.

Tax rates

What are the current income tax rates for residents and non-residents in Bangladesh?

Residents

No tax is payable by tax residents on income not exceeding BDT250,000. The following rates are applicable to resident individual:

Income tax table for income year 2018-2019

 

Tax rate

Nil

10%

15%

20%

25%

On the balance


*Initial exemption limit for women and senior citizens aged 65 years or over is BDT300,000, for physically challenged persons, it is BDT400,000 and for gazetted war-wounded freedom fighters, it is BDT425,000.

In case of parent/legal guardian of a physically challenged person, they will get a further initial exemption of BDT50,000 in addition to above limit.

Non-residents

For non-residents other than Bangladeshi non-residents, tax rate is 30 percent (flat rate) on total taxable income.

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Bangladesh?

An individual is treated as a resident of Bangladesh if that person stays in Bangladesh for 182 days or more in any income year; or 90 days or more in an income year if that person has previously resided in Bangladesh for a period of more than 365 days during the 4 preceding years. Residence is determined in Bangladesh purely on the period of presence in Bangladesh irrespective of residency in other countries/jurisdictions. Short-term visitors and dependents of foreign nationals not earning any income in Bangladesh are not taxed in Bangladesh and are not required to file tax return.

Is there a minimum number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country/jurisdiction for more than 10 days after their assignment is over and they repatriate.

No.

What if the assignee enters the country/jurisdiction before their assignment begins?

Residential law in Bangladesh does not depend on assignment. It rather depends on how many days the assignee stays in Bangladesh. It might be with assignment or without any assignment.

Termination of residence

Are there any tax compliance requirements when entering or leaving the country/jurisdiction?

When entering into the country/jurisdiction, Bangladesh, the assignee has to obtain their work permit/A3 Visa/E1 Visa followed by obtaining tax registration number (which is known as e- TIN in) in Bangladesh. Security Clearance Certificate is also required to be obtained from NSI/SB under Home Ministry of Bangladesh.

Departure tax

If any assignee leaves Bangladesh with the intension of not coming back to Bangladesh again, the assignee has to submit an Income Tax Return and obtain tax clearance certificate before leaving the country/jurisdiction permanently. In such cases the period of the tax return should be the period from the beginning of the income year (1 July) to the date of departure. Such final tax return can be submitted before departure by incorporating the assignee’s estimated income in the return up to the departure so that tax clearance certificate can be obtained at the time of departure.

If the assignee departs from Bangladesh in the middle of an income year with the intention of returning to Bangladesh, an exemption certificate requires, which is issued by Deputy commissioner of taxes upon their satisfaction of the valid reason of the applicant. Such certificate issues either for a single journey and for all journeys within the period specified.

What if the assignee comes back for a trip after residency has terminated?

In such case if they come back for a trip but not for work, then they are not required to submit any tax return. But if they come with valid work visa, they are required to submit tax return.

Communication between immigration and taxation authorities

Do the immigration authorities in Bangladesh provide information to the local taxation authorities regarding when a person enters or leaves Bangladesh?

Our tax environment and immigration department have not yet been fully digitalized and synchronized each other. In general, immigration authorities do not proactively send information regarding entry and departure of foreign nationals to local taxation authorities. Besides, international airport sets an Income tax booth to check Income tax clearance certificate (TCC) at the time of departure.

Filing requirements

Will an assignee have a filing requirement in the host country/jurisdiction after they leave the country/jurisdiction and repatriate?

As per our tax law the assignee has to submit exit tax return and obtain tax clearance certificate before leaving permanently and subsequently tax authority closed the respective tax file after exit tax return processed. Also, after leaving the country/jurisdiction permanently the assignee cannot remit the money from Bangladesh as their bank account is normally closed at the time of their departure permanently. This is because of the fact that their work permits normally cancelled at the time of departure permanently.

Economic employer approach

Do the taxation authorities in Bangladesh adopt the economic employer approach to interpreting Article 15 of the Organisation for Economic Co-operation and Development (OECD) treaty? If no, are the taxation authorities in Bangladesh considering the adoption of this interpretation of economic employer in the future?

Not applicable in Bangladesh.

Minimus number of days

Are there a minimum number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimum number of days?

Not applicable in Bangladesh

Types of taxable compensation

What categories are subject to income tax in general situations?

Below are the elements of an assignee compensation, which are subject to income tax in general situation:

Basic Salary, House Rent, Dearness Allowance, COLA (cost of living adjustment), Conveyance allowance

Medical allowance, Festival allowance, Leave encashment, Performance bonus,

Car benefits (5 percent of basic salary) and Other benefits (including all benefits not mentioned above).

Intra-group statutory directors

Will a non-resident of Bangladesh who, as part of their employment within a group company, is also appointed as a statutory director (i.e. member of the Board of Directors in a group company situated in (Bangladesh) trigger a personal tax liability in (Bangladesh), even though no separate director's fee/remuneration is paid for their duties as a board member?

Will the taxation be triggered irrespective of whether or not the board member is physically present at the board meetings in (Bangladesh)?

Yes, any kind of benefit will be taxable.

Will the answer be different if the cost directly or indirectly is charged to/allocated to the company situated in (Bangladesh) (i.e. as a general management fee where the duties rendered as a board member is included)?

No, any kind of benefit will be taxable.

In the case that a tax liability is triggered, how will the taxable income be determined?

At the time of submission of the tax return total income will be taxable.

Tax-exempt income

Are there any areas of income that are exempted from taxation in your country/jurisdiction? If so, please provide a general definition of these areas.

Yes, the assignee will avail the following exemptions from their income:

House rent (50 percent of basic salary or monthly BDT25,000 whichever is lower)

Conveyance paid in cash (maximum BDT30,000). In case of car facility for office and personal purpose (higher of 5 percent of basic salary or BDT60,000).

Medical allowance (10 percent of basic salary or BDT120,000 whichever is lower)

Expatriate concessions

Are there any concessions made for expatriates in your country/jurisdiction?

There are no concessions for expatriates in Bangladesh.

Salary earned from working abroad

Is salary earned from working abroad taxed in Bangladesh? If so, how?

Yes, a person who is a non-resident, all income from whatever source derived, which- accrues or arises to them in Bangladesh during that year is taxable. For residents (regardless of local or foreign nationals) income from all sources regardless of location is required to be declared in Bangladesh. However, in reality resident foreigner declares all sources of income earned in Bangladesh only and the tax authority has accepted this so far.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in your country/jurisdiction? If so, how?

Yes, capital gain tax for non-resident shareholder is 10 percent in Bangladesh (capital gains on sale of shares of listed companies). Tax rate from capital gain received from selling capital asset (other than securities of listed companies) is 15 percent. Capital gain tax arising from sale of shares of listed entity in the hands of non-resident is exempt from tax provided that the non-resident has similar tax exemption in their home country/jurisdiction, however any income which is exempted in other countries/jurisdictions, will be exempted in Bangladesh.

Dividends, interest, and rental income

Dividend income:

Dividend income is tax free up to BDT50,000 and excess over BDT50,000 is taxable.

A company paying dividend shall withhold tax at the rate of 10 percent on dividend payable to a resident individual (subject to having 12-digit TIN) or 15 percent (if the individual doesn’t have 12-digit TIN). In case of non-resident foreigner, 30 percent tax rate will be applicable.

Interest income:

In Bangladesh interest income means- Interest on securities, Bank Interest on Fixed Deposits Receipts (FDR) and Bank Interest on savings account. These sorts of income are chargeable to tax and tax will be deducted at source as follows:

  • interest on securities at the rate of 5 percent
  • interest on saving instruments at the rate of 5 percent
  • interest on saving deposits and fixed deposits at the rate of 10 percent (subject to having 12-digit TIN) otherwise 15 percent
  • interest on deposit of post office & saving bank account at the rate of 10 percent.

For non-residents 20 percent tax rate is applicable on interest and royalty income.

Rental Income:

In Bangladesh rental income means- income from house property and rental value of vacant land or plant or machinery. These incomes are chargeable to tax and tax will be deducted at source as follows:

  • Deduction at source from house property income at the rate of 5 percent.
  • Deduction at source from rental value of vacant land or plant or machinery at the rate of 5 percent.

Gains from employee stock option exercises

No specific guideline mentioned in the tax law of Bangladesh for employee stock option. However, stock option will be taxable in Bangladesh and be part of salary income in the period when it has been vested. Gain on stock option will be taxable if the gain arises in Bangladesh.

Foreign exchange gains and losses

No specific guideline mentioned in the tax law of Bangladesh for foreign exchange gain/loss. However, it will be considered as ‘other income’, and will be taxed at an average rate.

Principal residence gains and losses

In practice resident foreign national declares only all sources of income earned in Bangladesh.

Capital losses

Capital loss suffered in Bangladesh can be carried forwarded in excess of BDT5,000 to the following years for setting off with any capital gain.

Personal use items

Not addressed in tax law of Bangladesh.

Gifts

Every person who had made taxable gift during any financial year of an amount as to render them liable to gift tax under the Gift Tax Act shall before the 15th day of September of the corresponding assessment year furnish a return to the Deputy Commissioner of Taxes in the prescribed form and in the prescribed manner. Tax on the basis of the return is payable on or before the date on which such return is furnished. Gift Tax Rate as follows from the schedule of the Gift Tax Act 1990.

Particulars

(Slab Amount of Taxable Gifts)

Rate (%)

On the first BDT500,000 of the value of all taxable gifts

5

On the next BDT1,000,000 of the value of all taxable gifts

10

On the next BDT2,000,000 of the value of all taxable gifts

15

On the balance amount of above

20


Gifts received from any source by an individual exceeding BDT500,000 without crossed cheque or bank transfer shall be treated as income under the head ‘income from other sources’.

Foreign property reporting

Not applicable in Bangladesh.

Non-resident trusts

Our tax law does not specifically address this.

Additional capital gains tax (CGT) issues and exceptions

Are there capital gains tax exceptions in your country/jurisdiction? If so, please discuss.

None, except those mentioned above.

General deductions from income

What are the general deductions from income allowed in your country/jurisdiction?

Followings are the general deductions from income of a foreign executives:

  • Any special allowance, benefits or perquisite specifically granted to meet expenses wholly and necessarily incurred in the performance of the duties of an office or employment of profit.
  • Any income up to BDT25,000,000 received by an assessee as gratuity.

Also referred to the section of tax-exempt income.

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in your country/jurisdiction?

Normally in Bangladesh cash tax refund is not possible even though there is a provision of cash tax refund in our law. Excess tax payment is generally adjusted with next year’s tax liability.

Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in your country/jurisdiction? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.

Withholding of tax in Bangladesh is handled through Pay-As-You-Earn (PAYE). Where total income exceeds BDT600,000 during the income year for any individual, they are required to pay advance tax as either 100 percent of last assessed tax or 75 percent of current estimated income tax and pay the outstanding tax (if any) at the time of filing the return. Tax on an employee’s salary is required to be withheld on a monthly basis by the employer.

Relief for foreign taxes

Is there any Relief for Foreign Taxes in your country/jurisdiction? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

In Bangladesh there is Double Taxation Avoidance Agreement (DTAA) with other countries/jurisdictions to have the tax relief, however these are subject to certain conditions and obtaining tax exemption certificate from NBR.

General tax credits

What are the general tax credits that may be claimed in your country/jurisdiction? Please list below.

Assignee (only resident and non-resident Bangladeshi) can get investment tax credit through investing in government specified area.

Expatriates are not allowed to tax credit or investment allowance even though they become tax resident in Bangladesh. Double taxation treaties are not applicable in Bangladesh. If income accrues or arises in relation to Bangladesh delegation, it is taxable.

The investment tax rebate is calculated as follows:

Total Taxable Income

Amount of Credit

Total income up to BDT1.5 million.

 15% of the eligible amount

Total income above BDT1.5 million.

10% of the eligible amount


Eligible amount is higher of 25percent of taxable income or 15 million or Actual investment.

Sample tax calculation

Particulars

Gross

Amount

(A)

(in BDT)

Exempted Amount

 

(B)

(in BDT)

Taxable Amount

 

(C=A-B)

(in BDT)

Basic salary

5,000,000

-

5,000,000

House rent

2,500,000

300,000

50% of basic salary or monthly 25,000 which one is lower

2,200,000

Medical allowance

400,000

120,000

10% of basic salary or 120,000 which one is lower

280,000

Conveyance allowance

200,000

30,000

* If conveyance paid in cash

170,000

Full time car facility

250,000

 

5% of basic salary or 60,000 which one is higher

250,000

Festival bonus

450,000

-

450,000

Performance bonus

150,000

-

150,000

Leave encashment

325,000

-

325,000

Education allowance

150,000

-

150,000

Employer’s contribution to recognized provident fund

410,000

 

410,000

Total

9,835,000

-

9,385,000


Calculation of tax liability

 

Slab (in BDT)

Tax rate

Tax (in BDT)

Up to

250,000

0%

Nil

On next

400,000

10%

40,000

On next

500,000

15%

75,000

On next

600,000

20%

120,000

On next

3,000,000

25%

750,000

On remaining

4,635,000

30%

1,390,500

Gross tax liability

 

 

2,375,500

 

Disclaimer

All information contained in this publication is summarized by KPMG Tax and Legal Advisers, the Bangladesh member firm affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, based on the Income Tax Ordinance 1984 as amended up to the Finance Act 2019 and major changes brought in by the Finance Act 2019 in respect of the Value Added Tax and Supplementary Duty Act 2012 and Rules 2016, Web site http://nbr.gov.bd. The provisions of the laws relied on or referred to are subject to change occasioned by future legislative amendments and court decisions.

Copyright

© 2020 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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