Incorporate a Company in Bangladesh by Indian Resident: FEMA & ODI Compliance Guide
An Indian resident can set up a company in Bangladesh, but must maintain compliance with Bangladesh company law requirements and India’s FEMA overseas investment (ODI) regulations. This involves both incorporation and ODI reporting, remittance, and compliance requirements applicable in India.
A main issue arises while incorporating because Bangladesh may require foreign share capital to be remitted before incorporation, while India’s ODI generally requires the overseas entity’s incorporation and UIN-related reporting process before the investment can be remitted.
This article highlights practical considerations while setting up a private limited company in Bangladesh by resident Indian individuals.
Can Indian Residents Set up a Company in Bangladesh?
For Indian residents planning to expand into Bangladesh, setting up a local private limited company can provide a practical operating structure for activities such as marketing, e-commerce, and other permitted business activities. They can also become directors in the Bangladesh entity.
As per Bangladesh laws, first the name approval of the company is sought from the regulatory bodies. Then the temporary Non-Resident Taka Account (NRTA) is opened and the share capital of the company is to be remitted by the foreign shareholders before the company is incorporated.
However, in India, the reporting requirement triggers on the date of signing the Memorandum and Articles of Association of the Foreign Company. However, remittance of the share capital is possible only after the Foreign Entity is incorporated and a UIN is allotted post-reporting.
Thus, there is a procedural conflict between the laws of the two countries as Bangladesh requires the capital to be remitted before the company is incorporated whereas in India, the share capital is to be remitted after the company is incorporated and an UIN is generated.
However, we have experience to deal with such type of complex cases and can assist our clients to navigate this practical problem.
Key Procedural Difference Between Bangladesh Incorporation and India’s ODI Framework
Bangladesh Requirement:
- Share capital may need to remitted before incorporation.
- Temporary NRTA may be opened.
- Capital is required for incorporation process.
Indian FEMA/ODI requirement:
- Remittance is subject to the applicable ODI reporting.
- ODI reporting is required for the Investment.
- AD bank facilitates remittance after satisfying FEMA requirements.
Consequences when the entity in Bangladesh is set up before completing FEMA Compliances in India
As per FEMA Regulations, where an Indian resident subscribes to the memorandum of a foreign entity, ODI reporting requirements need to be completed at the time of initial subscription of shares within the applicable regulatory timeline. This reporting needs to be done before the remittance of the investment amount.
However, if the initial reporting of the subscription of shares is not done at the time of incorporation of Bangladesh’s entity, then a late submission fee of Rs.7,500 plus 0.025% of the share capital needs to be paid. However, this option shall be available for any delay up to three years from the due date of reporting/submission. If this non-compliance comes to surface after 3 years from the due date, then the matter may have to be referred to the RBI for compounding.
Conclusion:
Setting up company in Bangladesh can provide Indian residents with the opportunity to establish a business presence in the country. However, this requires the careful process between the incorporation requirements in Bangladesh and the FEMA and ODI compliance requirements applicable in India.
At KDP Accountants, we assist Indian residents and businesses with FEMA and ODI compliance, including overseas investment structure, ODI reporting, and AD banks coordination. For professional assistance with your Bangladesh investment and ODI compliance, connect with us at enquire@kdpaccountants.com
FAQs:
Can Indian resident set up an entity in Bangladesh?
Yes, Resident individuals or Resident Indian Entity can set up an entity in Bangladesh. However, there could be potential challenges while reporting the ODI and remitting the funds which the bankers may allow on case-to-case basis.
Are there any procedural conflicts between Bangladesh laws visa Indian laws for setting up a company overseas?
Yes. In Bangladesh, share capital is remitted before the overseas entity is incorporated whereas in India, the share capital is remitted after the company is incorporated. This is a major procedural difference between the two countries.
Do Indian residents need RBI approval before investing in Bangladesh?
Not in every case. The current overseas investment framework is designed to permit eligible overseas investments under general permission, subject to the conditions under the FEMA rules/regulations. For a standard eligible investment, the designated AD bank processes the ODI documentation, obtains the UIN through the RBI system and facilitates the remittance after satisfying itself about FEMA compliance. However, in such cases the AD Bank may refer the case to RBI to obtain a no objection or clearance to process the remittance prior to the entity set up.
Can an Indian resident become a director of the company in Bangladesh?
Yes, an Indian can become a director of a company in Bangladesh, subject to Bangladesh laws and relevant FEMA requirements in India.