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 September.

What is the tax year-end?

30 June.

What are the compliance requirements for tax returns in Bangladesh?

Residents

After 30 June of every year within 30 September of every year, every resident and non-resident Bangladeshi assignee has to submit Income Tax Return in Bangladesh for the income earned during the period from 01 July to 30 June, if the income exceeds certain amount (BDT 250,000 per year, in general, BDT 300,000 per year for woman and the assignee aged more than 65) or the assignee was assessed any of the previous three years. Before submitting Income Tax Return in Bangladesh, an assignee has to obtain e-TIN (electronic tax identification number) in Bangladesh. Tax authority by its own discretion may extend the deadline for two to three months.

Non-residents

In terms of non-resident (except non-resident Bangladeshi), compliance requirement for tax return in Bangladesh is same as like as resident. Additionally, non-resident foreigner has to obtain work permit and SB & NSI clearance certificate for extension of work permit (if the assignee comes through A3 or E1 visa then work permit will not be required. Then visa copy itself will be considered work permit). The person has to 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% of tax imposed on the last assessed income (subject to minimum of BDT one thousand). In case of a continuing default further penalty of BDT fifty for every day during which default continues.

In case of an individual assesse whose income was not assessed previously Tk.5000.

In case of an individual assesse whose income was assessed previously, 50% of the tax payable on the last assessed income or Tk.1000, whichever is higher.

Tax rates

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

Residents

For every resident and non-resident Bangladeshi, tax liability is calculated on average rate as follows;

Income tax table for Income Year 2014-2015

Taxable income bracket Tax rate on income in bracket
First 250,000 0
Next 400,000 10%
Next 500,000 15%
Next 600,000 20%
Next
3,000,000 25%
Rest of the amount   30%

For women and senior persons aged 65 or over, tax slab starts from BDT 300,000.

Non-residents

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

Residence rules

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

Under section 2(55) of income tax ordinance 1984, ‘resident’ in respect of any income year means, an individual who has been in Bangladesh-

  1.  For a period of, or for periods amounting in all to, one hundred and eighty- two days or more in that year; or
  2.  For a period of, or period amounting in all to, ninety days or more in that year having previously been in Bangladesh for a period of, or periods amounting in all to three hundred and sixty five days or more during four years preceding that year.

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 for more than 10 days after their assignment is over and they repatriate.

No.

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

Residential law in Bangladesh does not depend on particular 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?

When entering into the country, Bangladesh, the assignee has to obtain his/her 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 parmanaently.in such case the period of the tax return should be the period from the beginning of the income year (01 July) to the date of his departure. Such final tax return can be submitted before his departure by incorporating his estimated income in the return up to his departure so that tax clearance certificate can be obtained at the time of his/her departure.

If the assignee departs from Bangladesh in the middle of an income year with the intention of returning to Bangladesh, an exemption certificate which shall be issued for the period he would not be in Bangladesh only if Deputy Commissioner of Taxes is satisfied that such person has such intention and such exemption certificate may be either for a single journey and for all journeys within the period specified in the certificate.

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

In such case if he/she comes back for a trip but not for work, then he/she is not required submit any tax return. But if he/she comes with valid work visa, he/she is required submit any 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. 

Filing requirements

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

As per our tax law the assignee has to submit tax return and obtain tax clearance certificate before leaving the country permanently. Also after leaving the country permanently he cannot remit the money from Bangladesh as his/her bank account is normally closed at the time of his/her departure permanently. This is because of the fact that his/her work permit 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 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

Minimum 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 (cost of living adjustment)
  • Conveyance allowance
  • Medical allowance
  • Festival allowance
  • Leave encashment
  • Performance bonus
  • Car benefits (5% of basic salary)
  • Other benefits

Tax-exempt income

Are there any areas of income that are exempted from taxation in your country?

If so, please provide a general definition of these areas.Yes, the assignee will avail the following exemptions from his income:

  • House rent (25% of basic salary or monthly 25,000 which one is higher)
  • Conveyance paid in cash (maximum BDT 30,000). In case of car facility for office and personal purpose (higher of 5% of basic salary or BDT 60,000).
  • Medical allowance (10% of basic salary or BDT 120,000 which one is lower)

Expatriate concessions

Are there any concessions made for expatriates in your country?

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 him in Bangladesh during that year is taxable. For residents (regardless of local or foreign nationals) all income from all sources of income 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? If so, how?

Yes, capital gain tax for non-resident shareholder is 10% 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%. 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 his/her home countrhowever any income which is exempted in other countries, will be exempted in Bangladesh.

Dividends, interest, and rental income

Dividend income:

Dividend income is tax free up to BDT 25,000 and excess over BDT 25,000 is taxable.

A company paying dividend shall withhold tax at the rate of 10% on dividend payable to a resident individual (subject to having 12 digit TIN) or 15% (if the individual doesn’t have 12 digit TIN). In case of non-resident foreigner, 30% 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%
  • Interest on saving instruments at the rate of 5%
  • Interest on saving deposits and fixed deposits at the rate of 10% (subject to having 12 digit TIN) otherwise 15%. 
  • Interest on deposit of post office & saving bank account at the rate of 10%.

For non-residents 20% 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 income 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%.
  • Deduction at source from rental value of vacant land or plant or machinery at the rate of 5%.

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 part of salary income in the period when it has been vested. Gain on stock option will be taxable if the gain araises 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 Tk. 5000 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 him liable to gift tax under the Gift Tax Act shall before the fifteenth 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 Tk. 500,000 of the value of all taxable gifts 5
On the next Tk. 1,000,000 of the value of all taxable gifts  10
On the next Tk. 2,000,000 of the value of all taxable gifts 15
On the balance amount of above       
20

Gifts received from any source by an individual exceeding Tk500, 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? If so, please discuss.

None, except those mentioned above.

General deductions from income

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

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 BDT two crore fifty lakh 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?

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? 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)

Relief for foreign taxes

Is there any Relief for Foreign Taxes in your country? 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 to have the tax relief. 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? Please list below.

Assignee (only resident and non-resident Bangladeshi) can get investment tax credit through investing in government specified area. Amount of investment tax credit is lower of 30% of total taxable income less contribution to PF or actual investment or BDT 15,000,000.

Expatriates are not allowed to tax credit or investment allowance even though he becomes a tax resident in Bangladesh. Double taxation treaties are not applicable in Bangladesh. If income accrues or arises in Bangladesh to the assignee is taxable.

Sample tax calculation

Particulars Gross Amount (A)  Exempted Amount(B)  Taxable Amount(C=A-B) 
Basic salary 5,000,000 - 5,000,000
House rent 2,500,000

300,000

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

2,200,000
Medical allowance 400,000

120,000

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

280,000
Conveyance allowance 200,000

30,000*

If both conveyance allowance and full time car facility provided, no exemption will be allowed

170,000
Full time car facility 250,000 5% of basic salary or BDT 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

Calculation of tax liability

  Slab (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

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