Guidelines for the Transparency and Accountability of Operations of JVCAs with Foreign Partners in Bangladesh

The key points of these guidelines issued by the Bangladesh Bank (“BB”) are as follows:

A. Establishment and reporting

Before commencing operations, joint venture companies (“JVCAs”) with non-resident partners must obtain approval from the Bangladesh Investment Development Authority (“BIDA”). Additionally, they must inform the BB’s Foreign Exchange Investment Department (“FEID”) within 30 days of obtaining approval from the BIDA (or other authority),

B. Banking transactions:

• JVCAs must maintain a bank account in its name with the branch of an authorized dealer bank (“AD”), located where the work order is awarded. This branch will be the nominated AD.
• All inward and outward remittances must be processed through the nominated AD and reported to the BB.
• JVCAs may open local currency accounts at other branches of the same or a different bank with a no objection certificate from the nominated AD, subject to know your customer and anti-money laundering/countering the financing of terrorism compliance. Account activities, including opening, closure, or dormancy, must be reported to the FEID via the nominated AD.
• Payments related to the work order must be credited to the JVCA’s account.
• Changes in the nominated AD or local currency accounts must be reported to the FEID with a proper no objection certificate from the previous AD.
• For projects funded by foreign or international agencies, JVCAs may open foreign currency accounts per the approved government contract terms, without the prior approval of the BB. Only foreign funds received from the agencies may be deposited, and payments of project-related foreign expenses can be made from these accounts. These accounts must be closed upon project completion, and transaction reports must be submitted as per Guidelines For Foreign Exchange Transactions(“GFET”) guidelines.
• JVCAs may open bank accounts abroad with prior approval from the FEID in compliance with the terms of the approval.
• Encashment certificates and related documents must be retained by the JVCA and the nominated AD for future reference.
• Inward remittances via an existing branch office of any JVCA partner are not permitted.
• Deposit accounts maintained by JVCAs must not bear interest or profit.
• Upon project completion, the nominated AD must notify the FEID and submit the relevant documents for account closure. Repatriation of residual amounts must follow the procedures outlined in the Outward Remittances Section below.

C. Financial statements and compliance

• JVCAs must prepare separate audited financial statements comprising a balance sheet, income statement, cash flow statement, and owner’s equity statement, with the proper disclosures and notes. These must comply with Bangladesh Financial Reporting Standards and international best practices. Both the JVCA entity and auditors must adhere to Financial Reporting Council regulations, and the document verification code number must be included in the financial statements.
• All income earned from local sources, whether credited to a bank account in Bangladesh or abroad must be recorded in the JVCA’s accounts.
• Assets and liabilities presented in the JVCA’s balance sheet must not be offset against each other.
• No transfers or adjusting entries are allowed under the “Capital and Partners’ Contributions” account heading. All transactions in this category must be conducted in cash.
• Retained earnings must be shown in the balance sheet under a distinct account heading.

D. Loans

• The JVCA must comply with GFET regulations for borrowing from resident entities. With FEID approval, partner branch offices in Bangladesh may lend to the JVCA if surplus funds are available. Trade and commercial credit must follow business norms, with proper disclosure as related party transactions.
•  JVCA partners can secure interest-free working capital loans from their head offices, subject to post-facto reporting to the FEID through the ADs.

E. Outward remittances

• Outward remittances of profits to foreign partners or collaborators require prior approval from the BB. Applications with the required documents attached must be submitted to the FEID by the nominated AD.
• Profit repatriation or cash lending to the Bangladesh branch of a non-resident partner is not permitted without prior approval from the BB.
• Payments for royalty, technical know-how or assistance, and franchise fees must comply with the instructions in BIDA Circular No. 03.08.2680.224.165.1479.2017/59 dated 3 March 2021, as per the notification to banks via FE Circular Letter No. 07 dated 11 April 2021.
• Outward remittances for purposes not covered under GFET regulations, circulars, the Import Policy Order, or BIDA guidelines may only be made with prior approval from the FEID.
• Repatriation of residual amounts or loans borrowed from the head office of a JVCA partner requires prior approval from the BB. The nominated AD must apply with the required documents to the FEID.

F. Other provisions

• For the import of machinery to be contributed as capital in kind, ADs must properly retain relevant documents, including the bill of entry. Such imports must comply with the prevailing Import Policy Order.
• Before making payments to foreign nationals, ADs must verify their work permits issued by the BIDA or other competent authority. Salaries and benefits paid to foreign employees must be disclosed in the notes to the audited financial statements.
• The JVCA entity is required to ensure compliance with the Workers’ Profit Participation Fund provisions under the Labor Act, 2006 and its associated rules, where applicable.
• The nominated AD and the JVCA entity must comply with any additional instructions issued by the BB as required.