Answer ... The Alternative Investment Rules include no specific provisions on alternative investment funds (AIFs) that do not have a permanent establishment in Bangladesh.
We are not aware of any exemption or other rules which would prevent AIFs from having a permanent establishment or a taxable presence in Bangladesh.
Under the Income Tax Ordinance 1984, the term ‘permanent establishment’ in relation to income from a business or profession means a place or activity through which the business or profession is wholly or partly carried on. It includes:
- a place of management;
- a branch;
- an agency;
- an office;
- the furnishing of services, including consultancy services, by a person through employees or other personnel engaged for such purpose, if activities of that nature continue (for the same or a connected project) in Bangladesh; and
- any associated entity or person that is commercially dependent on a non-resident person, where the associated entity or person carries out any activity in Bangladesh in connection with any sale made in Bangladesh by the non-resident person.
The term ‘person’ includes an individual, a firm, an association of persons, a trust, a fund, a local authority, a company, an entity and every other artificial juridical person.
Further, under the Income Tax Ordinance, 1984, the term ‘resident’ is defined as “a trust, a fund or an entity, the control and management of whose affairs is situated wholly in Bangladesh in that year”. An AIF established in Bangladesh shall be regarded as a permanent establishment.
Answer ... Fund management companies shall pay corporate tax at the rate of 35% for income earned from the income derived from management of the funds. The reasoning behind this decision is that the income is not directly derived from the profits of the investment itself.
Answer ... The income earned from any AIF recognised by the Bangladesh Securities and Exchange Commission (BSEC) is exempt from taxation and shall be excluded from the computation of total income under the Income Tax Ordinance, 1984.
Any income earned from an AIF recognised by the BSEC shall be excluded from the computation of total income under the Income Tax Ordinance, 1984. As a result, the fund manager shall be entitled to an exemption from tax on any income earned from carried interest.
Answer ... ‘Banks’, as defined in the Bank Company Act, 1991, fall within the provisions of the Foreign Account Tax Compliance Act (FATCA). As the government of Bangladesh has not yet decided to execute an intergovernmental agreement with the United States, these obligations may alternatively be discharged at individual bank level by registering and signing participation agreements with the Internal Revenue Service (IRS). Therefore, banks which conclude that FATCA may have implications for their customers and operations should register with the IRS and implement appropriate processes and controls to ensure compliance with FATCA. The National Board of Revenue has also consented to register with the IRS if a bank has US taxpayer accounts on its books.
As the agreement requires disclosures which would normally constitute breaches of the bank’s general duty of confidentiality under Bangladeshi law, including the Bankers’ Books Evidence Act 1891, banks must obtain written consent from their customers before reporting the requested information to the IRS. Banks should communicate with existing customers well in advance of executing a participation agreement with the IRS, enabling account holders to comply with reasonable requests for information or to provide acceptable documentation to meet the FATCA obligations.
Answer ... The effective tax rate on profit and income is high. There is a 35% corporate tax along with 2% stamp duty on the total capital of the fund. As yet, it is unclear which tax strategies should be adopted, as the Alternative Investment Rules came into force in 2015 and the industry is still in its infancy. Therefore, businesses are still engaging with the regulators to introduce efficient and effective changes that would provide an impetus for investors to come forward and subscribe and entrepreneurs in investments to take risks.