LIAISON OFFICE AND BRANCH OFFICE: DIFFERENCES

This week Your Advocate is Barrister Omar Khan Joy, Advocate, Supreme Court of Bangladesh. He is the head of the chambers of a renowned law firm, namely, ‘Legal Counsel’, which has expertise mainly in commercial law, corporate law, family law, employment and labor law, land law, banking law, constitutional law, criminal law, IPR and in conducting litigations before courts of different hierarchies. Our civil and criminal law experts from reputed law chambers will provide the legal summary advice.

Query
I have found your details from an article published in the Bangladeshi daily, the Daily Star. Your article helped us in deciding on a legal matter, which we would have otherwise taken to a lawyer. We have yet another query and we will be obliged if you may also publish your reply in the said newspaper. I represent a large multinational company having our head office in a European country. We are having some business relationship with some Bangladeshi companies for few years now and the same are only increasing. We are planning to have an official establishment in Bangladesh, preferably in Dhaka city. But, we do not want to do any direct business through the said office. Can you please advise us on the difference between a branch office and a liaison office under the Bangladeshi law?

Response
Thank you very much for your query. I am delighted to know that your company is willing to establish its office in Bangladesh. There are a good number of foreign offices that are maintaining either a liaison or a branch office in Bangladesh for many years and have not gone for incorporation of either a joint venture or a fully foreign owned company. This is largely your business decision. The basic distinction between a branch and a liaison/rep office is more or less the same in Bangladesh as in the other parts of the world. In short, a liaison office cannot do any money generating activity while the branch office can actually do business and earn profit like a company. For your better understanding, I take this opportunity to give you further brief explanation of the two.
Liaison Office: A Liaison Office is an establishment that is established under the Bangladesh Board of Investment (BOI) authority. The activities of a liaison office or representative office are ‘very restricted’. Such restrictions are imposed by the terms of the registration documents. Most commonly, liaison offices are not allowed to generate any income of its own and foreign remittance of USD 50,000/- for a year from parent company is imposed (as expenses for maintenance of the office). BOI may also impose a condition for inward remittance of USD 50,000/- within two months of its registration to meet the establishment cost and expenses for the first six months. BOI generally allows liaison offices to undertake market research, networking on behalf of parent company to expand business, assisting and coordinating between parent company and local agents etc. After getting the permission from the BOI to set up the liaison office, you need to take permission from the central bank, i.e. Bangladesh Bank and a security clearance from the Ministry of Home shall have to be obtained. Permission for the liaison office is generally granted for 3 years and needs to be extended thereafter in every 2 years.
Branch Office: A Branch Office of a foreign entity is also registered under BOI authority. In addition, it has to be also registered (certain documents to be filed) under the Companies Act with the Registrar of Joint Stock Companies and Firms (‘RJSCF’). Branch Office is allowed to undertake activities generating income or profit. However, such activities are generally restricted to some extent by BOI at the registration. Permission to open and continue a Branch Office is given for a specified time and needs to be renewed from time to time. In order to establish a branch office, the parent company will have to make an application to BOI with certain documents and thereafter file some documents with the RJSC. The Branch Office will be incorporated under the Memorandum and Articles of Association of the Parent Company. The Branch Office’s activities, therefore, shall have to be within the purview of the said Memorandum of Association (“MOA”) and Articles of Association (“AOA”). The Name of the Branch office will have to be the same as the Parent Office. You may, however, indicate on the letterheads of the Branch Office that the entity has a Rep/Country office in Bangladesh and include its local address thereafter. Once the permission is obtained, you may proceed to open up a bank account and your nominated banker/legal adviser shall assist you to obtain Bangladesh Bank (central bank of Bangladesh) permission to operate a bank account with any scheduled bank in Bangladesh. The Branch office will thereafter obtain Trade License from the City Council, Tax Identification number from National Board of Revenue and security clearance from Ministry of Home Affairs. It shall also have to comply with any other requirement stipulated in the Registration letter. Prior to these, the Branch Office will have to enter into a contract to obtain a registered office address.
I hope that the above shall help you in having a primary understanding and help you to take your decision. Though I understand that one the previously published article has helped you to solve a legal query, I would still strongly advise you to take professional legal help while setting a branch/liaison office in Bangladesh. I welcome you and your organization to Bangladesh and hope that your office will be able to work smoothly once the same is set.

 

 

Branch & Liaison Office Registration in Bangladesh

 

1. Formation of a Branch Office

A Branch Office of a foreign company can engage in commercial activities with prior approval of the Board of Investment (“BIDA”). A Branch Office may have local source of income from the approved field of business activities in Bangladesh with the prior approval of the Inter-Ministerial Committee and with proper justification and sufficient supporting documents. The documents required to form a Branch Office in Bangladesh are same as the Liason/Representative office below.

In our opinion, this is not  viable option for the project company renewal of branch office permission is required and further it cannot be an special purpose vehicle suitable for the project to carry out of balance sheet functions, separated from the parent company.

2. Formation of a Liaison / Representative Office

Under the laws of Bangladesh, a Liaison office and a Representative office have the same meaning.

A Liaison / Representative Office of a foreign Company can perform very limited activities, which includes:

- maintaining liaison / coordination between principal and local agents, distributors / exporters’ institutions through correspondences, personal contracts and other electronic media.

- collection, compilation, analysis and dissemination of business information related to its field of activities as mentioned in the approval letter of BIDA.

- A Liaison / Representative Office will have no local source of income in Bangladesh. All setup and operational costs including salaries of the expatriates and local employees of the Liaison or Representative Office will have to be borne by the parent company aboard.

- No outward remittances of any kind from Bangladesh sources will be allowed except the amount brought in from abroad, i.e. the unspent part.

2.1 Branch / Liaison Office as a Type of Business Entity

A Branch or Liaison Office is a proper legal entity after it is registered with the BIDA in Bangladesh. It is considered an extension of the foreign company and not as a separate legal entity. Unlike a Bangladeshi private limited company, the parent company of a Branch or Liaison Office is implicitly liable for all the debts and liabilities of the Branch or Liaison Office and hence its activities are also limited and therefore not a viable option.

3. Key facts about both Branch and Liaison Office in Bangladesh

- The name of the Bangladeshi Branch or Liaison Office must correspond to the name of the foreign company.

- The structure of the Branch of Liaison Office and its activities are directed by the foreign company’s Memorandum and Articles of Association. There is no separate Memorandum and Articles of Association for the Branch or Liaison Office.

- A Branch or Liaison Office must have an office address located in Bangladesh.

- The activities of a Branch or Liaison Office shall remain confined to the areas and for the period of time mentioned and approved in the approval letter issued by the BIDA. If the foreign company intends to continue the Branch or Liaison Office beyond the period approval, it will have to apply for necessary renewal / extension in the prescribed form with proper documents at least 2 (two) months before the expiry of the current term.

- If the approved Branch or Liaison Office of the foreign company intends to employ any foreign nationals(s) in its Office, work permits should be obtained from the BIDA, and permission from Bangladesh Bank, under section 18A of the Foreign Exchange Regulation Act, 1947 will be required.

- An amount of foreign exchange equivalent to the sum of not less than US$ 50,000 or equivalent as estimated initial establishment cost and 6 (six) months operational expenses of the Branch or Liaison Office must be brought in as an inward remittance in Bangladesh within 02 (two) months from the date of issuance of the BIDA permission letter. For this purpose, the Branch or Liaison Office shall have to open an account with any scheduled bank of Bangladesh as per the instructions contained in the Guidelines for Foreign Exchange transactions for receipt of remittances.

- Quarterly return of incomes and expenditures out of remittances received from abroad have to be submitted to the BIDA, concerned Bank, National Board of Revenue and Bangladesh Bank with documentary evidence.

- Any change(s) of present address has to be intimated to the BIDA for necessary action and approval before the proposed change is carried out.

- The permitted Office shall have to obtain clearances / licenses from the concerned government agencies, as and where required, under the existing rules of the country.

- The permitted Office shall have to pay duty / income tax / VAT / revenues and other taxes payable to the government under the existing laws of Bangladesh. The rate of VAT is 15% and income tax is 32.5%. Duty is variable depending on the import assessable value.

- Deduction of taxes at source while paying office / house rent, salaries, and bills for purchased goods, services and contract work has to be made, and subsequently deposited to the designated government accounts as per provisions of Bangladesh Income Tax Ordinance, 1984. For the purpose of deduction of taxes at source and VAT, enterprises shall have to obtain Taxpayer Identification Number (TIN) from the National Board of Revenue.

- Approval of Branch and Liaison Offices and work permit for foreign nationals will be made on the condition of security clearance from the Ministry of Home Affairs. The Ministry of Home Affairs will provide security clearance within 45 days of issuance of permission letter under the existing Visa policy.

- For establishing more than one Office of the permitted Branch or Liaison Offices in Bangladesh, the foreign company shall have to take separate prior permission from the BIDA.

4. Documents Required for BIDA Approval

In general, the following documents and information are required for approval of a Branch or Liaison Office in Bangladesh:

1. Application in prescribed form signed by the authorized person for establishment of Branch / Liaison / Representative Office - 4 copies.
2. Memorandum and Articles of Association and Certificate of Incorporation of the parent company.
3. Name and nationality of the directors / promoters of the parent company.
4. Audited Accounts of the last financial year of the parent company.
5. Parent company’s board of directors’ resolution regarding opening of Branch / Liaison / Representative Office in Bangladesh.
6. Proposed organogram of the Branch / Liaison / Representative Office showing the posts to be occupied by both expatriates and local personnel.
7. Details of activities to be performed through the proposed Branch / Liaison / Representative Office in Bangladesh.
8. Forwarding Letter to the BIDA.

The Documents (item 2-5) must be attested by the concerned Bangladesh mission  or mission of the respective country in Bangladesh / respective country’s apex business chamber / local business chambers. Any documents not in English must be translated in English before submission. It should also be noted that 4 (four) copies of all the documents must be submitted to the BIDA. The BIDA may ask for further documents after reviewing the above mentioned documents.

A fee of Tk. 25,000 is required to be paid through treasury chalan (code no. 1-3901-0001-1876) of Bangladesh bank or any branch of Sonali Bank and the original copy of the chalan has to be submitted to the BIDA.

5. Registration Procedure and Timeline

All documents should be submitted to the BIDA physically. After proper scrutiny of all documents, the BIDA officials will place the application and documents before the Inter-Ministerial Committee. The Committee will review the documents and upon scrutiny, it may ask for further documents or a physical presentation. If the Committee is satisfied, it will provide the approval. The Inter-Ministerial Committee usually sits twice every month. Usual timeline for obtaining the approval from BIDA is around one month. Approval is usually provided to open a Branch or Liaison Office initially for a period of 3 (three) years which can be extended later.