BB lifts restrictions on foreign subsidiary service payments

Foreign subsidiaries currently operating in Bangladesh to remit various service payments to their parent companies abroad without prior approval from the Bangladesh Bank (BB).

Previously, banks were not allowed to process such payments without BB's approval.

The central bank on Wednesday (February 19) issued a circular instructing all scheduled banks and authorised dealers to implement the directive.

According to the circular, resident companies operating as subsidiaries of foreign companies in Bangladesh avail various services of their parent companies abroad. Considering this, and to facilitate transactions between subsidiaries and their parent or group companies, the new directive has been introduced.

The circular said the gross remittal amount (before source tax deduction) must not exceed 10% of the net profit in an accounting year. Moreover, the services obtained from the parent company must not be locally available and the subsidiary must be controlled by the parent company, holding more than 50 per cent of shares.

The circular also instructed authorised banks to ensure that service payments made by subsidiaries are backed by valid contracts and invoices and are competitively priced. Additionally, the transactions must comply with tax regulations, including source tax, VAT, and transfer pricing laws.

For periodic payments, the amount should be based on reasonable, auditor-certified profit estimations. If profits fall short of projections, any overpayment must be adjusted in the following year, the circular said.

The circular further said banks are required to report all such transactions to Bangladesh Bank via the online reporting module and include them in their usual monthly statements.