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RESOURCES - Laws & Procedures
The following information is for educational purposes only and shall not be relied upon without proper legal advice.
LCs in International Trade
The following content was originally published by Bangladesh Bank:
Letters of Credit
LC may be established providing for payment to the country of origin of goods or any other country except those countries imports from which are prohibited. The LC may provide for payment or reimbursement in any freely convertible foreign currency, in the currency of the country of the beneficiary or of the country of origin/shipment of goods, or by way of credit to the non resident Taka account of the concerned bank abroad. Payments for imports under barter agreements or under foreign Loans/Grants can be made only in the manner specified for the concerned barter/loan/grant.
Authorised Dealers (Banks)
The ADs may not issue, advise, notify or confirm any LC, authority to purchase, guarantee or similar undertaking covering imports into Bangladesh the implementation of which would involve a payment in Taka to a non resident account or a payment in foreign currency except in accordance with the instructions prescribed hereunder.
An AD may approve on behalf of Bangladesh Bank remittance against imports into Bangladesh provided the conditions set out in section-I and elsewhere in this chapter are complied with and provided also that the documents covering the import, whether under LC or otherwise, are received through the AD concerned. In case of import by post/courier, the ADs may make remittance without prior approval of the Bangladesh Bank only if the parcel is addressed directly to the AD. Where the parcel is addressed to an individual care of the AD/ to the individual direct, prior approval of Bangladesh Bank should be applied for in prescribed manner.
ADs may allow remittance against discrepant documents /documents received directly by the importers after the goods have been cleared from the customs, on the basis of the relative LCAF, the authenticated copy of the customs bill of entry for consumption or customs certified invoice in the case of import by post/courier and the relative invoices.
LC Covering imports
The AD should establish LCs against specific authorisation only on behalf of their own customers who maintain accounts with them and are known to be participating in the trade. Payments in retirement of the bills drawn under LCs must be received by the ADs by debit to the account of the concerned customer or by means of a crossed cheque drawn on the drawee's other bank. These restrictions shall not apply to import of articles for the private use of the importer as permitted in the Import Policy Order.
Terms on which LCs may be opened
(i) All LCs and similar undertakings covering imports into Bangladesh must be documentary LCs and should provide for payment to be made against full sets of onboard (shipped) bills of lading, air way bill, railway receipts, truck receipts, post/courier parcel receipts showing despatch of goods covered by the credit to a destination in Bangladesh. All LCs must specify submission of signed invoices and certificates of origin. If any particular LCAF requires submission of any other document or the remittance of exchange at certain periodical intervals or in any other manner, the LC should incorporate those instructions of the LCAF. Besides, following instructions are to be followed by ADs while importing through land ports:
(a) only one port of entry ( land port) is to be mentioned specifically in the letter of credit/purchase contract ( as the case may be);
(b) ADs shall have to send copies of letter of credit and subsequent amendment(s) if any, including other relevant information to the land port authority;
(c) specimen signatures of the officials working in the import-export desks of the concerned Authorised Dealer bank, contact phone and fax nos. of the ADs are to be sent to all the land ports;
(d) ADs, through their agents or representatives shall collect certified invoice & bill of entry evidencing entry of goods into Bangladesh from the concerned land ports;
(e) letters of credit/purchase contracts shall contain inter alia the following payment terms instead of reimbursement authority/debit authority: "Upon receipt of documents complying with credit terms, we shall effect payment as per instructions of Negotiating Bank/Collecting Bank".
(f) LC covering value more than USD 5000 or equivalent should be sent through SWIFT or other similar arrangements to the advising bank;
(g) NOC(if any) shall contain name of the officials along with P.A. nos. and official seal.
(ii) It is not permissible to open clean or revolving letter of credits or LC with realisation clause (except EPZ companies). Applications for opening such LCs should be referred to the Bangladesh Bank with full particulars.
(iii) The ADs may open transferable LCs for imports into Bangladesh under cash LCAF without reference to the Bangladesh Bank. They may also allow without reference to the Bangladesh Bank amendments that do not violate foreign exchange regulations and IPO in force.
(iv) It is not permissible to open import LCs in favour of beneficiaries in countries from which import into Bangladesh are banned by the competent authority.
LC covering import of goods into Bangladesh against valid LCAF should be opened within the period, if any, prescribed in the current IPO.
Periods for which LCs may be opened
(a) The AD should, before opening an LC, see documentary evidence that a firm order for the goods to be imported has been placed and accepted. The AD should ensure while opening an LC that full description of the goods to be imported are given in each Credit alongwith the unit price of the merchandise.
(b) The ADs should also obtain confidential report on the exporters from their branches or correspondents abroad or in their discretion, satisfy themselves as to the standing of the exporter by consulting standard books of reference issued by international credit agencies of international standing such as Seyds, Dunn and Bradstreet in all cases where the amount of the LC/Contract exceeds BDT 5 lac against proforma invoices issued direct by foreign suppliers and BDT 10 lac against indents issued by local agents of the suppliers. Such reports should be obtained by the ADs themselves and the reports if submitted by the importers should not be accepted. The ADs may also, at their discretion and in their own interest, verify the standing of the beneficiaries even in cases where the value of the credit is lower than the limits mentioned above. Credit report my remain valid for a preiod of maximum twelve months from the date of issuance if no adverse report comes to the notice of the AD. Moreover, credit report of the same supplier collected for one importer may be used for other importers within the same validity.
Loss of Goods
In the event goods are completely lost, duplicate copy of the IMP form should be forwarded to the Bangladesh Bank giving full particulars of the loss and the manner in which the insurance claim has been collected. In the event of partial loss, the authenticated copy of the customs bill of entry for the goods actually cleared should be submitted giving full particulars of the loss and the manner in which the insurance claim has been collected.
FOREIGN INVESTMENT IN BANGLADESH
Foreign investors are free to make investment in Bangladesh in the industrial enterprises excepting a few reserved sectors. An industrial venture may be set up in collaboration with local investors or may even be wholly owned by the foreign investors. No permission of the Bangladesh Bank is needed to set up such ventures if the entrepreneurs use their own funds. However, to avail of the facilities and institutional support provided by the Government, entrepreneurs/sponsors may secure registration with the Board of Investment (BOI).
ISSUE OF SHARES FOR NON-RESIDENTS
(A) Prior permission of the Bangladesh Bank is not required for issue of shares in favour of non-residents against foreign investment in Bangladesh; general permission is accorded in this behalf subject to the following conditions:
(a) The industrial venture will have permission from the Registrar of the Joint Stock Companies and Firms(RJSCF)/The Securities and Exchange Commission (SEC) about its capital issue.
(b) Shares may be issued either against freely convertible foreign exchange brought in from abroad through the banking channel or against import of capital machinery. Payment against such import must be made from abroad. However, foreign exchange thus brought in must be encashed in taka before issuance of shares. In the case of issuance of shares against capital machinery, the machinery have to be cleared from the Bangladesh Customs first.
(c) Foreign Exchange Investment Department, Bangladesh Bank, Head Office must be informed through the concerned AD about the issue of shares to non-residents pursuant to (a) & (b) above, within 14 days of such issue, alongwith the following documents/papers:
(i) attested copy of the permission for the capital issue accorded by
(ii) attested copy of the registration, if any, of the foreign investment in the industrial ventures accorded by the BOI;
(iii) copy of encashment certificate of foreign exchange in Taka authenticated by the AD in case of issue of shares against foreign exchange received from abroad through the banking channel; and
(iv) for issue of shares against foreign investment in the form of capital machinery, the authenticated copy of bill of entry evidencing clearance of the capital machinery from the Custom Authorities, copies of the related import permit, invoice, bill of lading/air way bill, etc.
(B) Transfer of Bangladeshi shares and securities from one shareholder to another irrespective of their nationality/residency would not require Bangladesh Bank approval. No intimation to Bangladesh Bank is required in case the transfer is effected between residents. However, for the transfer of shares of private/public limited companies not listed in the stock exchanges, from resident to non-resident, non-resident to resident and nonresident to non-resident, Foreign Exchange Investment Department, Bangladesh Bank, Head Office should be informed, through the concerned AD within 14 days, of such transfer along with the following documents:
a) copy of encashment certificate, authenticated by the concerned AD, of foreign exchange in Taka credited to the account of transferor in case of transfer of shares from resident to nonresident;
b) attested copy of the permission for the transfer accorded by the RJSCF/SEC;
c) attested copy of up-to-date Schedule-X.
(C) ADs may open Non-Resident Taka Account (NRTA) in the name of the proposed company/enterprise of foreign investors contemplating to invest in Bangladesh without prior approval of Bangladesh Bank. Such accounts may be credited with inward remittances received from abroad only. Upon registration/commencement of the business, a new account in the
name of the company may be opened following usual procedure. However account opened previously should be closed immediately and balances lying therein shall be transferred to the new account. If, for any reason, the proposed investment/incorporation does not take place, the balance of the account, after meeting the required expenses, may be allowed to be repatriated without prior approval from Bangladesh Bank. However, ADs shall report opening and
closure of such accounts to Foreign Exchange Investment Department and Foreighn Exchange Operation Deparment of Bangladesh bank immediately along with attested copy of form 'C'/TM form (as the cases may be) with particulars of transactions.
Remittance of sales proceeds of nonresidents' investment (direct/portfolio) in Bangladesh
(A). Prior approval of Bangladesh Bank is not necessary for remitting the sales proceeds of securities held by non-residents. In such cases, repatriable amount must not exceed the market price of securities prevailing in the stock exchange on the date of sales.
(B). Prior approval of Bangladesh bank is required for repatriation of sales proceeds of non-residents equity investment in the: (1) public limited companies that are not listed with the stock exchange companies; and (2) private limited companies. There being no established market price for such investment, Bangladesh Bank, while determining the remittable amount, works out the net asset value of the shares on the basis of audited financial statements as on the date of sales and net asset value thus calculated above is considered repatriable. If net asset value so calculated exceeds the face value of the share of the company concerned, capital gain derived therefrom may also be repatriated. However, only the net asset value shall be considered as repatriable/or for re-investment in Bangladesh even if the declared sale value exceeds the net asset
value. Prior permission of Bangladesh Bank is not required for sales/transfer of shares of public limited companies not lisated with the stock exchange companies by one non-resident to another nonresident.
Portfolio investment by non-residents
Non-resident persons/institutions including non-resident Bangladesh nationals may buy Bangladeshi shares and securities in Bangladesh against freely convertible foreign currency remitted from abroad through the banking channel. Transactions relating to such investments including repatriation of dividend/interest earnings and sale proceeds shall be made through a Non-resident Investor's Taka Account (NITA).
For the purpose of investment through Stock Exchange or in new public issue by non-residents, securities will have the same meaning as defined in section 2(k) of the FER Act, 1947.
After the shares/securities have been purchased by the nonresident investor, the related certificates/scripts can be deposited/kept with any person/organisation nominated by the investor. The investor can as well take them outside the country, if he so desires.
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