When starting a business, one should always perform a preliminary regulatory diligence exercise to determine the licenses he/she would be needing.
Bangladesh has ranked 168th among 190 countries in the ranking of “Ease of the Doing Business 2020” by the World Bank. Last year, Bangladesh ranked 176th. One of the reasons for this improvement is that starting a new business has now become less expensive with the reduction of registration and name clearance fees and removal of the licensing fee for digital licenses.
But, when you are embroiled in the zeal of starting a new business, it is easy to be tempted to avoid the need for licensing. But, presumably, you are in it for the long-haul, and staying non-compliant could not only get you in trouble with the various regulatory authorities in the future but may also have adverse effects on your reputation with vendors, customers, shareholders, and other stakeholders.
For example, one of the licenses one is required to get when starting a business is an Electronic Tax Identification Number (ETIN / TIN). You might think, obtaining TIN and paying tax from inception is nothing but a hassle, especially in circumstances that you don’t see the business generating a reasonable amount of revenue, let alone profit, in the next 12 (Twelve) months. Then why should you obtain a TIN and attract tax liabilities, you ask yourself.
Here is the reality! When you’re operating a business, you enter into contracts with not only individual customers but also with various government and corporate entities, who are legally obliged to deduct taxes at source at various rate e.g. at 10%, deduct BDT 10,000, and pay BDT 90,000 to you, if your invoice is for BDT 1,00,000. If you don’t have an E-Tin certificate, the applicable tax rate will not only increase twofold e.g. 20% instead of 10%, you will also fail to take credit of the taxes paid on your account, thus your business is deprived of lawful tax benefits.
You have to pay these taxes, regardless of your TIN certificate, but without the e-TIN certificate, you don’t get to enjoy the fruits of it. This is just one example to demonstrate the cost of non-compliance. Broadly speaking, when a business is non-compliant, its ability to take loans, outside equity investments, expanding businesses, all are severely constrained. It is important to bear in mind that obtaining e-TIN would not necessarily attract a huge tax burden. Depending on the revenue, income, expenses, filing, tax deduction, it will vary.
As such, it is important to start and operate businesses in a compliant manner. Below are given a list of basic licenses that one would need to operate a business in Bangladesh, regardless of the nature of the business:
Obtaining a trade license is among the first steps of beginning your business if you’re considering operating a sole proprietorship, and the second step, if you’re considering to establish a company or partnership (preceded by the company incorporation/execution of partnership deed).
Simply put, a trade license is a formal authorisation from the City Corporation or Union Parishad / Pourashava of the respective business area to carry out trade or business in the designated area. The Trade License is issued in the name of the proprietor (for sole proprietorship) or usually the Managing Director / Chairman (in case of a company).
In order to obtain a trade license, one has to apply to the relevant City Corporation or Paurashava, using the prescribed form. The application has to be accompanied by a copy of the rent agreement, national ID card, and 3 passport-sized photos of the applicant, and if the application relates to a company, copies of certificate of incorporation and Memorandum and Articles of Association.
In order to obtain a trade license, one also has to pay the fees at rates applicable to the specific business, which can be found at http://dncc.portal.gov.bd/sites/default/files/files/dncc.portal.gov.bd/n…. The time that is taken for this process is 3-4 working days; however, it may vary depending on the nature and type of the business as well as the dealing authority.
Electronic Tax Identification Number (ETIN)
The registration for income tax is done electronically, hence, the prefix of “E” before “TIN”. In order to obtain E-TIN, the application has to be made online. If for an individual (sole proprietorship), identification details of such persons along with photographs, email ID, mobile number have to be included in the application.
On the other hand, if the e-TIN is applied for on behalf of a company, the details of the company, its shareholders, and the Managing Director have to be included in the application form. The process is entirely online and takes a maximum of 1 business day.
Electronic Business Identification Number (e-BIN) / VAT Registration
Though as per the VAT and SD Act, 2012, only those with an annual turnover of BDT 3,00,00,000 or more are required to obtain VAT registration, due to a General Order bearing no. 17/Mushak/2019 dated 23/07/2019, manufacturers, traders, and services providers of goods and services specified therein are required to obtain VAT registration, regardless of their turnover. At the inception of a business, an entrepreneur is best advised to check the list to see if the proposed business falls in the category specified in the General Order so as to attract VAT or Turnover registration.
In order to obtain VAT/Turnover registration, the business has to apply online by filling in Mushak Form 2.1. It’s an elaborate form requiring many details like the nature of the business, details of the business entities, and its owners. As such, these details should be handy when applying the BIN. More importantly, it should be noted that prior to applying for BIN, one should not only have a trade license and e-TIN, but also a bank account.
Unfortunately, as of the time of writing, the process of obtaining VAT registration is not entirely online, meaning one has to submit all the papers physically with the relevant VAT circle after submitting the documents online. Sometimes, the VAT officers may even choose to conduct physical verification of the address under which BIN is applied for.
In addition to the above licenses, one business may also need an import registration certificate, export registration certificate, Environment Clearance, registration with Bangladesh Investment Development Authority, membership of a relevant trade organisation e.g. BASIS. Of these additional licenses, registration with BIDA for an industrial enterprise and membership with a relevant trade organisation is legally mandatory for businesses, though not always enforced in practice.
Specific regulatory licenses may also be required for particular sectors e.g. BSTI certification for the food industry. Overall, more regulatory licensing requirements apply for manufacturing operations, compared to the service industry, and when starting a business, one should always perform a preliminary regulatory diligence exercise to determine the licenses he/she would be needing.
Farhana Khan is an advocate at the Supreme Court of Bangladesh and a partner at AS and Associates