Bangladeshinfo.com : The Leading Portal of Bangladesh

INCOME TAX

In each and every nation state across the globe, governments impose taxes on its citizens in accordance with their status, standings and of course income, which varies from person to person, to run the government machineries. So, to simplify the taxation system and bring more people to the 'tax net', there are some criteria upon which income tax of a person depends. Following are the details of the criteria:

1. Basis of Residence for Taxation Under the Income Tax Ordinance a person is charged to tax on the basis of his residential status in Bangladesh during the relevant 'income year'. An individual is treated as a resident in Bangladesh in respect of any income year;

(a) If he or she has been in Bangladesh for a total period of 182 days or more in that year; or (b) If he or she has been in Bangladesh for a period of or for periods amounting in all to ninety days or more in that year having previously been in Bangladesh for a period of or for periods amounting in all to three hundred sixty-five days or more during four years preceding that year.

If individual fails to fulfill the above conditions, he or she will be treated as a 'Non-Resident' for the purpose of taxation.

It is important to note here that the concept of residence as defined in the Income Tax Ordinance has nothing to do with the nationality of a particular individual. A foreign national may be treated as a 'Resident' for a particular year if 'he or she fulfills the legal requirements as above, whereas a Bangladeshi national may be treated as a 'Non-Resident' if he, or she does not fulfill the legal requirements.

2. Tax Treatment On the Basis of Residence Any individual resident assessee will be liable to tax for all his income, profits and gains from whatever sources derived irrespective of the place of receipt or accrual, be it inside Bangladesh or outside.

3. Incidence of Tax on Non-Resident A person who is non-resident is liable to tax on the incomes, profits and gains which are received or deemed to have been received or are deemed to accrue or arise to him in Bangladesh.

A Non-Resident assessee is not entitled to any sort of allowance and relief as are admissible to resident assessee for the purpose of tax rebate. A non-resident assessee other than Bangladeshi non-resident is liable to tax on his total income at 25%. A Bangladeshi non-resident is subject to tax at normal rate as applicable in the case of a resident assessee.

The remittance to Bangladesh through official channel, of income earned abroad by the residents in Bangladesh will be exempted from tax provided the income is invested in any new industry set up in Bangladesh or in the purchase of industrial units sold in auction by Government owned financial institutions or in stocks, shares or Government Bonds and Securities.

Tax Exemptions

Deduction of Tax at Source

Avoidance of DTA

Status of Bangladesh DTA

4. Tax Exemptions

(a) Interest on Securities: Interest on Securities of the Government received by individual upto a maximum of Tk 5,000 (five thousand taka only).
(b) Interest on debentures: Any interest not exceeding Tk. 20,000/- received by an assessee other than a company on debentures approved by the Securities and. Exchange Commission for the purpose of this paragraphs. The exemption together with any exemption available in respect of interest on securities shall not exceed Tk. 20,000/-.
(c) Dividend income: Dividend income not exceeding Tk. 40,000/- received by an assessee other than a company out of investments made on or after 1st July 1984 in the purchase of shares of public limited companies listed with the Stock Exchange.

5. Investment Allowance for Tax Rebate

(a) Investment in Stock and Shares - Investment in the acquisition of any stock or shares of a company or a body corporate by an assessee, not being a company:
i. Company: A company listed with a Stock Exchange in Bangladesh.
ii. Body corporate: Established by or under an Act of Parliament.

(b) Investment in debentures or debenture-stocks

Investment by an assessee other than a company in the purchase of approved debentures or debentures-stocks subject to the conditions that -

i. The assessee is the first allottee of such debentures or debenture-stocks.
ii. Exemption is allowable on the amount which is in excess of the sale proceeds received during the year and in the preceding two years in the aggregate or of the cost price of debenture-stocks purchased in the year and the preceding two years whichever is greater, out of disposal of debentures or debenture-stocks purchased during the year and the preceding two years.

(c) Investment in Unit Certificate etc.

Investments in such savings certificates or instruments as the Board may specify in this behalf; Unit Certificate and mutual fund certificate of Investment Corporation of Bangladesh and such Government Securities including Development Loans or Bonds and shares of such Investment Companies as may be specified by the National Board of Revenue in this behalf.

The period for retention of the above mentioned instruments have been fixed at five years from the date of purchase or the maturity period, as the case may be. Where the instruments are disposed of in any income year before the prescribed period, tax credit allowed in respect of such instruments will be collected back as tax for the income year and be added to tax for that year.

(d) Inclusion of Income For Rate Purpose

i. Share of income from an association of persons (other than a Hindu undivided family, a company or a firm) on which tax has been paid by the association.
ii. Share of income from a firm on which tax has been paid by the firm.

6. Tax Exemption on Capital Gains (a) Transfer of stocks and shares: Capital gains which arises from transfer of stocks and shares of public companies listed with a Stock Exchange in Bangladesh is exempted from tax.
(b) Transfer of stocks and shares of a public company by a non-resident: Capital gains which arises to an assessee, being a non-resident from transfer of stocks or shares of a public company as defined in the Companies Act, 1913 or Companies Act, 1994 is exempted from tax provided such assessee is entitled to similar exemption in the country in which he is a resident.

7. Deduction of Tax at Source

Deduction from Dividend:

The payment of dividend to both resident and non-resident assessee is subject to deduction of tax at source.

(a) In the case of non-resident assessee: -
i. If the shareholder is a company, at the rate applicable to a company;
ii. If the shareholder is a person other than a company, at the maximum rate i.e. 25%.

(b) In the case of resident assessee: -
i. If the shareholder is a company, at the rate applicable to a company;
ii. If the shareholder is a person other than a company, at the rate of 10% for an amount exceeding Tk. 40,000 only

8. Rates of Income Tax for 1999-2000 A. In the case of every individual including Bangladeshi non-resident, Hindu undivided family, firm, association of persons and every artificial juridical person, not being a case to which paragraph (b) applies-

Amounts	Rates
(1) On the first Taka 100,000/- of total income	Nil
(2) On the next Taka 50,000/- of total income	10%
(3) On the next Taka 150,000/- of total income	18%
(4) On the balance of total income	25%

Provided that the minimum tax shall in no case be less than Tk.1000/-.

Tax Credit is allowable at 15% of the investment allowance equal to 20% of total income or Tk. 200,000/- whichever is less. However if investment is made in IPOs then allowable limit will be Tk. 225,000 instead of Tk. 200,000.

B. In the case of every company and local authority and in every case in which under the provisions of the Income Tax Ordinance, 1984 (XXXVI of 1984), income tax is to be charged at the maximum rate-

Descriptions	Rates
(1) On the whole of the total income excluding the amount representing income from dividends from a company having its registered office in Bangladesh-
(a) In case of every company being a publicly traded company;	35% of such income
(b) In case of every company not being a publicly traded company; and	40% of such income
In case of local authorities and for companies as Mentioned in sub-clauses (a), (b), (bb), (bbb) and c) of clause (20) of Section 2 of Income Tax Ordinance, 1984.
(2) On the amount representing income from dividends declared and paid by a company registered in Bangladesh under the, Companies Act, 1913 (VII of 1913), or the Companies Act, 1994 or a body corporate formed in Pursuance of an Act of Parliament in respect of the share capital issued, subscribed and Paid after the 14th day of August, 1947.	15 percent
(3) In the case of an individual non-resident assessee (other than Bangladeshi non-resident), other than a company.	25% of such income

Avoidance of Double Taxation Agreement (DTA)

1. Avoidance of Double Taxation Agreement:
Avoidance of Double Taxation Agreement is an agreement between two countries seeking to avoid double taxation by defining the taxing rights of each contracting state with regard to cross-border flows of income and providing for tax credits or exemptions to eliminate double taxation. It also provides for exchange of information between treaty partners regarding evasion of tax.

2. The objectives of Bangladesh DTA are as follows:

to obtain a more effective relief from double taxation compared to relief provided under unilateral measures;

to create a favorable climate for the inflow of foreign investment into the country;

to make special tax incentives provided by Bangladesh fully effective for taxpayers of capital exporting countries; and

to prevent evasion and avoidance of tax.

3. The Bangladesh model of Avoidance of Double Taxation Agreement consists of 29 Articles that are as follows:

Article 1 - Persons Covered
Article 2 - Taxes Covered
Article 3 - General Definitions
Article 4 - Resident
Article 5 - Permanent Establishment
Article 6 - Income from Immovable Property
Article 7 - Business Profits
Article 8 - Shipping and Air Transport
Article 9 - Associated Enterprises
Article 10 - Dividends
Article 11 - Interest
Article 12 - Royalties
Article 13 - Fees for Technical Services
Article 14 - Independent Personal Services
Article 15 - Dependent Personal Services
Article 16 - Director's Fees
Article 17 - Artists and Sportsmen
Article 18 - Pensions
Article 19 - Government Service
Article 20 - Students and Trainees
Article 21 - Lecturers and Researchers
Article 22 - Other Income
Article 23 - Elimination of Double Taxation
Article 24 - Non - Discrimination
Article 25 - Mutual Agreement Procedure
Article 26 - Exchange of Information
Article 27 - Diplomatic Agents and Consular Officers
Article 28 - Entry into Force
Article 29 - Termination

3. The status of Bangladesh DTA' s are as follows:

A. Names of countries with which Agreement on Avoidance of Double Taxation is in force.

Sl. No.	Name of the Country	Date of Signing	SRO No.	Date
Sl. No.	United Kingdom of Great Britain and Northern Ireland	08/08/1979	227-L/80	08/07/1980
Sl. No.	Singapore	01/01/1980	124-L/82	21/04/1982
Sl. No.	Kingdom of Sweden	03/05/1982	382-L/84	19/10/1983
Sl. No.	Republic of Korea	10/05/1983	433-L/84	02/10/1984
Sl. No.	Canada	15/02/1982	248-L/85	06/06/1985
Sl. No.	Srilanka	24/07/1986	365-L/88	10/12/1988
Sl. No.	Islamic Republic of Pakistan	15/10/1981	221-L/88	11/07/1988
Sl. No.	The Socialist Republic of Romania	13/03/1987	348-L/88	23/11/1988
Sl. No.	France	09/03/1987	2-L/89	04/10/1989
Sl. No.	Malaysia	19/04/1983	67-L/90	15/02/1990
Sl. No.	Japan	28/02/1991	235-L/91	06/08/1991
Sl. No.	India	27/08/1991	45-L/93	27/02/1993
Sl. No.	Federal Republic of Germany	29/05/1990	1-L/94	01/01/1994
Sl. No.	Kingdom of Netherlands	13/07/1993	267-L/94	14/09/1994
Sl. No.	Kingdom of Denmark	16/07/1996	72-L/97	17/03/1997
Sl. No.	People's Republic of China	12/09/1996	114-L/97	13/05/1997
Sl. No.	Republic of Italy	20/03/1990	63-L/97	12/03/1997
Sl. No.	Kingdom of Belgium	18/10/1990	11-L/98	14/01/1998
Sl. No.	Kingdom of Thailand	20/04/1997	222-L/98	07/10/1998
Sl. No.	Poland	08/06/1997	39/L/99	03-03-1999

B. Names of countries with which Agreement on Avoidance of Double Taxation for Air Transport has been concluded and ratification is under process:

Kingdom of Saudi Arab.

United Arab Emirates.

Sultanate of Oman.

C. Names of countries with which negotiation has been concluded for Agreement on Avoidance of Double Taxation (comprehensive) and ratification is under process:

Mauritius.

Kingdom of Norway.

Republic of Indonesia.

Turkey

Iran.

Qatar.

United States of America.

Philippines.

D. Names of countries with which first round of talks for Agreement on Avoidance of Double Taxation (comprehensive) has been completed:

Nepal

Egypt

By Abu Sayed Khan