On 30 June 2019, Parliament passed the Tk 5,23,190 crore national budget for 2019-20 fiscal year. The proposals were enacted by the Finance Act, 2019 (the Act) and became effective as of 1 July 2019. The summary of key amendments introduced by the Act is following:

Residency

  • A trust, a fund or any other entity may be treated as a resident of Bangladesh if its control and management of affairs are situated wholly in Bangladesh in that year.

Tax rates

  • The minimum turnover tax rate imposed on annual sales is increased to 2% from 0.75% for mobile phone operator companies.
  • The reduced tax rate of 12% (10% for green building certification) for readymade garments is extended until 30 June 2020.
  • The reduced tax rate of 15% for the textile sector is extended until 30 June 2022.

New taxes

  • For listed companies, a 10% dividend distribution tax (DDT) is introduced on a stock dividend to promote a cash dividend distribution)
  • Listed companies will be subject to a 10% accumulated earnings tax on the total amount transferred to retained earnings or any fund, reserve or surplus, if that amount exceeds 70% of net income after tax of the listed company.

Withholding tax

  • The 7% withholding tax rate on invoices of contractors and suppliers is decreased to 5%.
  • The Act eliminates the current exemption from withholding tax by a supplier on the purchase of direct materials that constitute the cost of sales or cost of goods sold of a trading company or a manufacturing company.
  • Under the Act, an allowance for a tax credit against withholding tax imposed on payments to contractors and suppliers is extended.
  • Separate and new withholding tax rates for various services are introduced.

Transfer pricing

  • Companies are required to declare in the income tax returns whether they have any international transactions with related parties.
  • Additional income arising from an arm’s-length transfer pricing adjustment made by a transfer pricing officer is subject to the regular corporate tax.
  • The methodology for computing the arm’s-length price is clarified.
  • The definition of a deemed international transaction is revised to cover situations in which a third party to the transaction is a Bangladesh resident.