Alternative Funds 2019 Comparisons

Last Updated October 14, 2019

Law and Practice

Authors



Syed Ishtiaq Ahmed & Associates (SIA&A) is a leading law firm in Bangladesh and was established by the Late Mr. Syed Ishtiaq Ahmed. SIA&A’s team consists of three senior partners, one junior partner, two senior associates and ten associates. SIA&A advises clients on regulatory matters and potential intervention by Government. Relevant regulators include Bangladesh Bank, Bangladesh Securities and Exchange Commission, Bangladesh Investment Development Authority (BIDA), National Board of Revenue, the Registrar of Joint Stock Companies and Firms, Bangladesh Export Processing Zones Authority and Bangladesh Energy Regulatory Commission. SIA&A also has extensive experience in fields including Arbitration, Aviation, Banking and Financing, Commercial Law, Company Law, Constitutional Issues and Judicial Review, Corporatisation, Employment Law, Insurance, Societies and Trusts, Property and Trusts Law, Public Private Partnership Law, Branch and/or Liaison Offices of Foreign Companies, Shipping and Tax, VAT & Customs.

The contribution of alternative investment funds in providing finances to micro, small and medium enterprises is low in Bangladesh due to regulatory barriers and a lack of financers. On the one hand, institutional investors lack the determination to invest in alternative investment funds. On the other hand, foreign investors term the fund repatriation system complex. High-net-worth individuals are generally reluctant to invest in private equity funds and venture capitals.

The Bangladesh Securities and Exchange Commission (Commission) was established on 8th June, 1993 as the regulator of the country’s capital market through enactment of the Securities and Exchange Commission Act 1993. The Bangladesh Securities and Exchange Commission is the regulator of the capital market of Bangladesh, comprising Dhaka Stock Exchange and Chittagong Stock Exchange.

Previously there was no regulation regarding private equity and venture capital financing in Bangladesh. The Bangladesh Securities and Exchange Commission formulated the Alternative Investment Rules in 2015 (“AIF Rules 2015”) for the registration and regulation of alternative investment funds, fund managers and Trustees of these funds and any matters connected to them.

The Bangladesh Securities and Exchange Commission (Alternative Investment) Rules, 2015, became effective from 22 June 2015. The rules cover private equity funds and venture capital funds which will be operated by a fund manager through a registered trust. The fund manager and the trustee must be registered with the Bangladesh Securities and Exchange Commission.

In Bangladesh, venture capital financing institutions are primarily registered with the Registrar of Joint Stock Companies (RJSC) as limited companies under the Companies Act 1994. Subsequently, these companies are required to obtain separate registration from the Bangladesh Securities and Exchange Commission for establishing the fund as per the Bangladesh Securities and Exchange Commission (Alternative Investment) Rules, 2015.

The fund managers will raise capital from eligible investors that may consist of institutions, high-net-worth individuals and foreign fund managers. The funds cannot be raised through public issue or initial public offering; they can be raised only through private placement and may not be listed or traded on the stock exchanges in the same way as other mutual funds.

Venture capital funds may be invested primarily in non-listed equity, the equity-linked securities of start-ups or green field companies, emerging early-stage undertakings mainly involved in new products, services, technologies or intellectual property rights-based activities, or new business models.

The Bangladesh Securities and Exchange Commission (Alternative Investment) Rules, 2015, shall be applicable for the registration and regulation of alternative investment funds, fund managers and trustees of such funds, and for any connected matters.

The funds generally established in Bangladesh include private equity funds, venture capital funds, impact funds and any other type of fund declared by the Commission as an alternative investment fund. Section 2(2) of the Bangladesh Securities and Exchange Commission (Alternative Investment) Rules, 2015, defines an “alternative investment fund” or “fund” as any fund established or constituted in Bangladesh in the form of a trust which:

  • is a “private equity fund”, a “venture capital fund”, an “impact fund” or any other type of fund as declared by the Bangladesh Securities and Exchange Commission as an alternative investment fund;
  • is a privately pooled investment vehicle which collects funds from eligible investors for investing, in accordance with a defined investment policy for the benefit of its investors;
  • is a closed end fund with specific tenure;
  • collect subscription by way of private placement only and does not offer its units for public subscription; and/or
  • is not covered under the Securities and Exchange Commission (Mutual Funds) Rules, 2001, or any other Rules of the Commission to regulate fund formation and management activities.

The term “impact fund” is defined as an alternative investment fund which invests in equity and equity linked instruments of companies, organisations and funds which are engaged in activities with the intention to generate a measurable and beneficial social or environmental impact in addition to financial returns, as justified with internationally recognised criteria.

A private equity fund is described as an alternative investment fund which invests, primarily, in equity and equity linked instruments of potentially high-growth, non-listed portfolio companies with a minimum two year operational history or to conduct buyouts of companies according to the stated objectives of the fund.

A venture capital fund means an alternative investment fund which invests primarily in non-listed equity and equity linked securities of start-ups with less than two years’ operational history, green field companies or emerging early-stage undertakings mainly involved in new products, services, technologies or intellectual property rights based activities, or new business models.

Under the provisions of Alternative Investment Rules 2015, an alternative investment fund shall be constituted in the form of a trust under the Trust Act, 1882, and registered under the Registration Act, 1908. The alternative investment fund shall obtain registration from the Commission prior to commencing its operations.

An alternative investment fund shall have the following structure:

  • the minimum fund corpus shall be at least BDT100 million and any subscription by a sponsor shall not be less than 10% of the corpus, provided that the sponsors provide at least 20% of its total subscription to the fund prior to its registration;
  • the minimum investment from the fund manager shall be at least 2% of the fund corpus, provided that, if the fund manager also acts as a sponsor of a fund, this investment shall be made in addition to the 10% required as sponsor of the fund; and
  • along with its connected persons, the fund manager shall not hold more than 25% of the fund's units at any point of time.

A sponsor must maintain a continuous investment of at least 2.5% of the fund corpus and an alternative investment fund shall declare cash dividends only to the unit holders.

All investments in a fund shall be locked-in for a period of three years from the date of issuance of units. Additionally, a fund shall only be established for a specific period from five to 15 years, which may be extended for a period of up to two years. Further, no alternative investment fund shall have more than 200 investors subscribed.

Under the Alternative Investement Rules 2015, funds may only be raised from eligible investors, whether resident or non-resident Bangladeshi or foreign, by way of issuance of units upon realisation of the subscription. The minimum subscription to the units of a fund shall be BDT5 million from each investor and no alternative investment fund shall be subscribed by more than 200 investors.

All investments from the investible fund shall be created subject to the following conditions:

  • the fund manager shall make investments which conform with the investment and fund management guidelines; and
  • the investible fund shall not be invested with a person connected with either the fund manager or the Trustee.

Further, at least 75% of the fund corpus shall be invested in non-listed securities of portfolio companies provided that, in case of a delay in this kind of investment, the unused portion of the realised fund may be invested in money market instruments fora maximum period of one year. A maximum of 25% of the fund corpus may be invested in listed securities and units of alternative investment funds managed by other fund managers, of which a maximum 10% may be invested in money market instruments, provided that investment in a single listed securities shall not exceed 5% of the fund corpus. Additionally, no alternative investment fund shall invest more than 25% of the fund corpus in a single, non-listed portfolio company. The above investment restrictions shall not be applicable in the event of a buyout by a private equity fund.

The investment of an alternative investment fund in non-listed portfolio companies shall be made only in equity and equity-linked instruments but shall not invested in pure debt securities, nor provide any loan. Moreover, no alternative investment fund shall borrow funds, directly or indirectly, or engage in leverage activities. Further, the units of a fund cannot be listed on any stock exchange.

Under the Bangladesh Securities and Exchange Commission (Alternative Investment) Rules, 2015, investement of an alternative investment fund cannot be made in pure debt securities, nor can the fund provide any loan. In addition, the alternative investment fund may not borrow funds, directly or indirectly, or engage in leverage activities.

Section 18(4) of the Alternative Investment Rules, 2015, states as follows: “(4)” investment of an alternative investment fund in non-listed portfolio companies shall be made only in equity and equity linked instruments but shall not invest in pure debt securities nor provide any loan”.

Further, under the Alternative Investment Rules, 2015, the fund shall only be able to carry out the activities permitted under its registration certificate and the fund manager shall only be able to make investments which are in conformity with the investment and fund management guidelines.

There are no specific restrictions against investing in cryptocurrencies or investing in any other non-traditional asset. There are no special rules in this regard.

Nevertheless, it should be noted that investment in cryptocurrencies has been officially discouraged by the central bank.

The definition of currency is provided in the Foreign Exchange Regulation Act, 1947, which includes:

  • all coins, currency notes, bank notes, postal notes, money orders, cheques, drafts, traveller’s cheques, letters of credit, bills of exchange and promissory notes; and
  • such other similar physical or non-physical instruments, or both, as may be notified by the Bangladesh Bank from time to time.

In regards to the aforementioned, bitcoin or other virtual cryptocurrencies may not fall within the definition of “currency” under the Foreign Exchange Regulation Act, 1947. Accordingly, the Commission may not allow investing in cryptocurrencies.

The funds shall be regulated by the Commission in accordance with the Bangladesh Securities and Exchange Commission (Alternative Investment) Rules, 2015. In order to constitute a fund the requisite approval shall be obtained from the Commission.

Under the Alternative Investment Rules, 2015, an alternative investment fund shall be constituted in the form of a trust and shall be registered under the Registration Act, 1908. Prior to registration of the trust, the draft trust deed shall be approved by the Commission. No alternative investment fund shall operate unless it has obtained registration from the Commission.

The fund manager and Trustee shall jointly apply for registration of the fund to the Commission along with the requisite documents and the application fee. On receipt of the application the Commission shall examine it, and if it is satisfied that all the requirements of Alternative Investment Rules, 2015, are fulfilled, may accord registration to the fund and issue a registration certificate, as sought for, within 30 days of receipt of the application.

If the Commission finds that the applicant does not fulfil all the requirements of these Rules or any additional submission is required, it may, within 25 days of receipt of the application, direct the applicant to fulfil the requirements within such time as the Commission may determine, and the Commission may accord registration, as prayed for, within 30 days of this fulfilment.

An alternative investment fund is required to have a fund manager in order for it to be registered. The fund manager must be a company or statutory body and should be registered by the Commision in accordance with the Alternative Investment Rules, 2015.

If a foreign entity or foreign fund management company intends to act as a fund manager in Bangladesh, it shall form a fund management company incorporated in Bangladesh and this company shall thereafter acquire registration under the Alternative Investment Rules, 2015.

However, if a foreign entity or foreign fund management company applies for registration of a fund manager through a wholly-owned subsidiary company, the applicant shall have a paid-up capital of at least BDT150 million.

Further, provided that if a foreign entity or foreign fund management company applies for registration of a fund manager under these Rules through a partially-owned subsidiary company, the applicant shall have a paid-up capital of at least BDT100 million;

The Bangladesh Securities and Exchange Commission (Alternative Investment) Rules, 2015, does not specifically stipulate any specific requirements for local directors or local general partners with regards to alternative investment funds.

Further, we are not aware of any other specific regulations with regards to the requirement of local substance, local directors or local general partners for an alternative investment fund.

It is prudent to reiterate that if a foreign fund intends to operate as an alternative investment fund in Bangladesh, it shall obtain registration or invest through a fund registered in Bangladesh under the Alternative Investment Rules, 2015.

An alternative investment fund is required to have a trustee. The trustee of an alternative fund shall be registered by the Commission under the Alternative Investment Rules, 2015. In order to apply for registration, the trustee shall have to be a bank, a financial institution or an insurance company under the laws of Bangladesh.

The Alternative Investment Rules, 2015, do not provide any specific requirement as to the location of other service providers. Further, we are not aware of any specific rules regarding the choice and location of other service providers, such as administrators or compliance officers, with regards to alternative investment funds.

There are no specific rules with regards to non-local service providers such as administrators, directors, services providers, etc. However, the trustee of an alternative investment fund shall have to be registered by the Bangladesh Securities and exchange Commission.

Further, in order to be eligible for registration, the trustee shall be either a bank, a financial institution or an insurance company under the applicable laws of Bangladesh.

Any trust fund registered in Bangladesh is subject to a 2% stamp duty under the Stamp Act, 1899. Industry participants consider this to be an impediment for the launching of any new alternative investment fund.

The income earned from an alternative investment fund recognised by the Commission is exempted from taxation and this income shall be excluded from the computation of total income under the provisions of the Income Tax Ordinance, 1984, of Bangladesh.

During disbursement, the income of the alternative investment fund will be considered a dividend and any applicable tax will be imposed on that dividend.

If the Commission decides to award registration to the fund management company, the company shall have to pay a registration fee of BDT100,000,through a bank draft or payment order issued in favour of the Commission, within fifteen days of the decision. Further, if the Commission decides to award registration to the alternative investment fund, the fund manager shall pay a registration fee of 0.1% of the fund corpus,through a bank draft or payment order issued in favour of the Commission, also within 15 days of the decision.

Additionally, the fund manager registered under these Rules shall pay an annual fee of BDT50,000 to the Commission through a bank draft or payment order issued in favour of the Commission within one month of the end of each financial year.

There are agreements on the avoidance of double taxation established between Bangladesh and 33 other countries. However, any specific exemption with regards to alternative funds shall be contingent upon the double-tax treaty executed with each country and may vary between agreements.

Foreign investors wishing to setup their presence in Bangladesh may incorporate a subsidiary company in Bangladesh. For most foreign businesses, a subsidiary company may be the preferred choice of registration in Bangladesh as it is regarded as a separate legal entity and subsidiary of the parent company.

If a foreign entity or foreign fund management company applies for the registration of a fund manager under these through a wholly-owned subsidiary company, the applicant must have a paid-up capital of at least BDT150 million.

Further, if a foreign entity or foreign fund management company applies for the registration of a fund manager under the Alternative  Investment Rules, 2015, through a partially-owned subsidiary company, the applicant must have a paid-up capital of at least BDT100 million.

The promoters and sponsors of alternative funds are, generally, companies local to Bangladesh. With regards to alternative investment funds, promoters from other jurisdictions are generally limited.

Under the Alternative Investment Rules, 2015, a “sponsor” is defined as “one or more eligible investors subscribing initially, jointly or solely, to form a fund”.

The definition of “sponsor” means the eligible investors who are subscribing to form a fund. Under the Alternative Investment Rules, 2015 “eligible investors” or “investors” is defined as follows:

“participants eligible and competent to understand the risk & return potentials to invest and commit capital to any alternative investment fund and be either a registered local of foreign fund manager or a company incorporated in Bangladesh or abroad or a statutory body or a local government authority or a bank or a financial institution or an insurance company or a merchant banker or a stock dealer or an asset manager or an alternative investment fund managed by another fund manager or a registered pension fund or a registered provident fund or a registered trust fund or a registered super annuation fund or a foreign fund or a foreign individual or a high net worth resident or on-resident Bangladeshi individual”.

With regards to the foregoing, sponsors of alternative investment funds established in Bangladesh are generally local companies, high net-worth individuals who are resident of Bangladesh and locally incorporated companies, financial institutions and local banks. However, sponsors typically from jurisdictions such as India, China and Singapore invest in alternative investment funds established in Bangladesh. Financial institutions, companies, stock dealers and high-net worth individuals from India and China appear to be the primary sponsors in alternative investment fund established in Bangladesh.

The main investors in alternative funds established in Bangladesh are China, South Korea, India, the Kingdom of Saudi Arabia, Japan, Singapore, the United Kingdom, the United Arab Emirates and Malaysia. The advantage of being in a strategic geographical position between South and Southeast Asia means that Bangladesh attracts investors from Southeast Asian countries as well. In general, high net worth individuals and financial institutions from India and China invest in alternative investment funds in Bangladesh.

Investment in venture capital funds in Bangladesh is gaining momentum with the rise of start-up companies in the e-commerce, information communication technology and health technology sectors. China, India and the United States of America appear to be the main investors in these areas. However, private equity funds are generally slow in growth when compared to venture capital funds due to the regulatory framework.

Investments made by alternative investment funds established in Bangladesh are, generally, local. Investments in other jurisdictions by alternative funds established in Bangladesh appear to be limited, primarily due to the regulatory framework.

Alternative investments are a large, ever-growing and important part of the economy in Bangladesh. The sectors benefiting the most from this investing capital are high-growth sectors such as ICT, e-commerce, manufacturing and energy. Investor confidence in these sectors is high due to their strong historical performance and future growth prospects. Both ICT and energy have been identified as government thrust sectors, further driving interest in these areas.

In regards to requirements for disclosure under the Alternative Investment Rules, 2015, the fund managers are under the obligation to manage the fund in accordance with the constitutive documents (ie, registrations, articles of association, etc) and all applicable laws including notifications, circulars, guidelines and directives issued by the Commission, including obligations for reporting and disclosure under the applicable regulations. The fund manager is also required to maintain, at its registered office, proper books and records of all accounts and activities undertaken in connection with the fund in order to enable a true and fair view of the assets and liabilities of the fund, any profits and losses accruing out of the operation of the fund and any transactions undertaken.

The fund manager is under the obligation to prepare reports for each accounting year. Within 90 days of the end of the accounting year of the alternative investment fund, the fund manager shall prepare financial statements of each fund as per International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS), as applicable in Bangladesh, and ensure all financial statements are audited as per Bangladesh Standards of Auditing (BSA). Accordingly, the fund manager and sponsors shall disclose their investment in the alternative investment fund to the trustee when the investment is made, and to the investors through annual reports. 

After the completion of the audit, the fund manager shall transmit the annual report, balance sheet stating details of investments depicting cost and realisable value of such investments, income statement, cash flow statement, auditors’ report to the unit holders of the accounts including any comments on the investments made by the fund and a statement of movement in NAV (Net Asset Value) per unit of the fund. These documents shall be certified by the Trustee and provided to the unit holders and the Commission.

Additionally, to be provided with the annual report is a report to the investors including the financial information of the portfolio companies, investments made to each portfolio company/securities and return on such investments as well as material risks and how they are managed which shall include, among others, concentration risk at fund level, foreign exchange risk at fund level, leverage risk at portfolio company levels, realisation risk (ie, change in exit environment) at fund and portfolio company levels, strategy risk (ie, change in or divergence from business strategy) at portfolio company level, reputation risk at portfolio company level and extra-financial risks, including environmental, social and corporate governance risks, at fund and portfolio company level.

The fund manager shall provide, at intervals of six months, unaudited financial statements and a fund report to the unit holders, the trustee and the commission in electronic form. In addition, the Commission shall be informed of any special resolution passed by the unit holders and if there is any change of note.

The fund manager shall ensure that the fund manager, its directors and employees and members of the investment committee do not have any material interest in any portfolio company. If there is an interest of this kind, the fund manager shall disclose the material interest. The fund manager and sponsors shall disclose their investment in the alternative investment fund to the trustee when the investment is made, and to the investors through annual reports.

The fund manager is required to act responsibly in a fiduciary capacity towards the investors and is under the obligation to disclose and report to the investors, all conflicts of interests as and when they arise or seem likely to arise.

Additionally, non-resident investors, foreign companies anfd companies incorporated outside Bangladesh investing in the alternative investment fund established in Bangladesh shall be subject to disclosure and reporting requirements under the foreign exchange laws and regulations of Bangladesh.

The Bangladesh Securities and Exchange Commission regulates the alternative investment funds established in Bangladesh and promulgates rules and regulations pertaining to alternative investment funds.

At this time, we are not aware of any forthcoming changes with regards to alternative investments funds.

A fund management company must be registered by the Commission under these AIF Rules 2015 and no person is able to act as the fund manager to any alternative investment fund without this registration.

The fund manager shall be a company or statutory body. The fund manager has to have a paid up capital of at least BDT50 million provided that, if an asset manager intends to get registration as a fund manager under the AIF Rules 2015, it shall have a paid up capital of BDT50 million in addition to its paid-up capital requirements to operate as an asset manager and maintains a distinctively separate team with the required expertise and capacity to carry out fund management activities.

The fund manager shall prepare investment and fund management guidelines, with the approval of the Trustee, and ensure strict compliance of the guidelines as well as preparing code of conduct for its directors and employees in order to mitigate any possible conflict of interests.

The fund manager shall invest and manage the investible funds in accordance with the investment and fund management guidelines and objectives depicted in the constitutive documents. Further, they must ensure that the investments are properly made, identified and held for the benefit of the unit holders in accordance with the provisions of the constitutive documents, the AIF Rules 2015 and any other applicable laws.

The fund manager is required to maintain financial statements as per the International Accounting Standards (IAS) and International Financial Reporting System (IFRS), as applicable in Bangladesh, and audited as per Bangladesh Standards of Auditing (BSA).

Additionally, the fund manager shall maintain satisfactory internal controls, written compliance and risk management procedures addressing all applicable regulatory requirements.

The Commission may, by its own volition or upon receipt of information or complaint, undertake an enquiry on any matter or an inspection of the books of account, records and documents relating to an alternative investment fund, the fund manager, the Trustee, unit holders or any other person for the assessment of risk or prevention of fraud.

The income earned from any alternative investment fund recognised by the Commission is exempted from taxation and this income shall be excluded from the computation of total income under the provision of the Income Tax Ordinance, 1984 of Bangladesh.

However, fund management companies shall pay a corporate tax at the rate of 35% for income earned from the income derived from management of the funds. This reasoning behind this decision is that the income is not directly derived from the profits of the investment itself.

The Alternative Investment Rules, 2015, promulgated by the Bangladesh Securities and Exchange Commission which regulates alternative investment funds established in Bangladesh does not specifically state anything with regards to alternative investment funds not having permanent establishment in Bangladesh. Under the Alternative Investment Rules, 2015, the alternative investment funds are required to be registered by the Commission.

Further, we are not aware of any such exemption or any other rules which prevent alternative funds from having a permanent establishment or a taxable presence in Bangladesh.

Under the Income Tax Ordinance 1984, the term “permanent establishment”  in relation to income from business or profession, means a place or activity through which the business or profession of a person is wholly or partly carried on, and includes, amongst others:

  • a place of management;
  • a branch;
  • an agency;
  • an office;
  • the furnishing of services, including consultancy services, by a person through employees or other personnel engaged by the person for such purpose, if activities of that nature continue (for the same or a connected project) in Bangladesh; and
  • any associated entity or person (hereinafter referred to as “Person A”) that is commercially dependent on a non-resident person where the associated entity or Person A carries out any activity in Bangladesh in connection with any sale made in Bangladesh by the non-resident person.

The term “person” includes an individual, a firm, an association of persons, a trust, a fund, a local authority, a company, an entity and every other artificial juridical person.

Further, under the income Tax Ordinance, 1984 of Bangladesh, the term “resident” is defined as “a trust, a fund or an entity, the control and management of whose affairs is situated wholly in Bangladesh in that year”.

In regards to the above, an alternative investment fund established in Bangladesh shall be regarded as permanent establishment.

Any income earned from an alternative investment fund recognised by the Commission shall be excluded from the computation of total income under the provision of the Income Tax Ordinance, 1984, of Bangladesh. As a result, the fund manager shall be entitled to exemption from tax on any income earned from carried interest.

Under the Alternative Investment Rules, 2015, the fund manager cannot delegate its fund management functions to any other person, therefore, it is our understanding that the fund manager shall not be able to outsource any fund management functions.

A fund manager must be registered by the Commission under the Alternative Investment Rules, 2015.

In regard to financial resources, if a foreign entity or foreign fund management company applies for the registration of a fund manager under these Rules through a wholly-owned subsidiary company, the applicant shall have a paid-up capital of at least BDT150 million.

Further, if a foreign entity or foreign fund management company applies for registration of a fund manager under these Rules through a partially-owned subsidiary company, the applicant shall have a paid-up capital of at least BDT100 million.

We are not aware of any other local substance requirements with regards to local employee requirements applicable to fund managers.

If a foreign entity or foreign fund management company intends to act as fund manager in Bangladesh, it shall form a fund management company incorporated in Bangladesh and the company shall, thereafter,  acquire registration under the Alternative Investment Rules, 2015. The fund management company shall make an application for registration to the Bangladesh Securities and Exchange Commission.

In order to apply for the registration, the applicant must be a company or statutory body and its memorandum of association should state that its object is to provide alternative investment fund management services.

Additionally, the applicant shall have a paid-up capital of at least BDT50 million, provided that, if an asset manager intends to get registration as a fund manager under the Alternative Investment Rules, 2015, it shall have a paid-up capital of BDT50 million in addition to its paid-up capital requirements to operate as an asset manager, and shall maintain a distinctively separate team who hold the required expertise and capacity to carry out fund management activities. Further, the applicant is also required to have a minimum net worth of 75% of its total paid up capital.

The applicant shall also be required to prepare its financial statements as per International Accounting Standards (IAS) and International Financial Reporting System (IFRS), as applicable in Bangladesh, and audited as per Bangladesh Standards of Auditing (BSA).

Regulatory requirements with regards to taxation, applicable foreign exchange regulations and internal controls shall also have to be complied with, in accordance with the laws of Bangladesh.

The primary investors in Bangladesh comprise of investment banks, financial institutions, insurance companies, information technology companies, investors in the ready-made garment industry and investors in the power/energy sector.

The primary investors in Bangladesh comprise of registered local or foreign fund manager or a company incorporated in Bangladesh or abroad banks, financial institutions, insurance company's, merchant banks, stock dealers, asset managers investment banks, information technology companies, investors in the ready-made garment industry and investors in the power/energy sector.

In addition, foreign individuals, a high-net worth residents or non-resident Bangladeshi individuals also invest in alternative investment funds.

Alternative investment funds established in Bangladesh can be marketed to any potential local and foreign investors. Generally, the fund managers network with potential foreign and local investors, as well high-net worth individuals. Subsequently, they assess the proposals, financial statements and projections and collect and analyse various related market information to assess if the business is scalable or worth investing in.

The Alternative Investment Rules, 2015, do not provide any specific rules in relation to the marketing of alternative investment funds. 

Further, we are not aware of any specific regulations regarding the marketing of alternative investment funds in Bangladesh. In this regard, general marketing and advertising regulations in Bangladesh may apply.

Local investors who may be classified as eligible shall be able to invest in alternative funds established in Bangladesh.

Under the Alternative Investment Rules, 2015, the term “eligible investors” or “investors” means participants eligible and competent to understand the risk and return potentials to invest and commit capital to any alternative investment fund and includes companies incorporated in Bangladesh, local government authority, local financial institutions or banks, insurance companies, merchant bankers and high net worth resident or non-resident Bangladeshi individuals.

The fund manager shall have to prepare financial statements of each fund within 90 days of closing of the accounting year of the alternative investment fund as per International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS), as applicable in Bangladesh, and these must be audited as per Bangladesh Standards of Auditing (BSA). The annual report, balance sheet stating details of investments depicting cost and realisable value of such investments, income statement, cash flow statement and auditors’ report shall be provided to the unit holders.

No separate filings are required to be made in respect of the marketing of alternative investment funds established in Bangladesh.

The fund manager and sponsors are required to disclose their investment in an alternative investment fund to the trustee when the investment is made. Additionally, the Bangladesh Securities and Exchange commission may, at any time, call for any information and documents from an alternative investment fund and unit holders with respect to any matter relating to the fund or for the assessment of risk or prevention of fraud.

In regards to investors, the fund manager shall ensure the transparency and disclosure of financial, risk management, operational, portfolio and transactional information regarding fund investments, any fees ascribed to the fund manager or Trustee and any expenses charged to the fund or any inquiries or legal actions by legal or regulatory bodies of any jurisdiction, as and when they occur.

Any material liability arising during the fund’s tenure, including a breach of provision of the placement memorandum or agreements or any other constitutive documents or any change in control, must be disclosed to the Trustee, sponsors, fund manager and portfolio companies.

Income earned from any alternative investment fund recognised and registered by the Bangladesh Securities and Exchange Commission shall be excluded from the computation of total income under the provision of the Income Tax Ordinance, 1984, of Bangladesh.

The Foreign Account Tax Compliance Act (FATCA), enacted in 2010 in the United States (USA), requires a "Foreign Financial Institution (FFI)" to report to the US Internal Revenue Service (IRS) information about certain accounts held by US taxpayers or by foreign entities in which US taxpayers hold a substantial ownership interest.

Banks, as defined in the Bank Company Act, 1991, come within the provisions of the FATCA. As the Government of Bangladesh has not yet decided to execute an intergovernmental agreement with the USA, these obligations can, alternatively, be discharged at individual bank level by registering and signing "Participation Agreements" with the IRS. Therefore, banks concluding that the FATCA may have implications for their customers and operations should register themselves with the IRS and put in place appropriate processes and controls to ensure compliance with FATCA. The National Board of Revenue (NBR) also consented to registering with the IRS if a bank has US taxpayer accounts in its books.

Since the agreement requires disclosures which would normally be breaches of the banker’s general duty of confidentiality under prevalent Bangladeshi laws, including the Bankers’ Books Evidence Act 1891, banks are to obtain written consents from their customers before reporting the requested information to the IRS. Banks should communicate with the existing customers well in advance of executing a "Participation Agreement" with the IRS, enabling the account holders to comply with reasonable requests for information or to provide acceptable documentation to meet the FATCA obligations.

Bangladesh does not participate in the Common Reporting Standard (CRS). The Institute of Chartered Accountants in Bangladesh (ICAB) is the national professional accounting body and sets accounting standards in Bangladesh. The Financial Reporting Standards prescribed ICAB are known as the Bangladesh Financial Reporting Standards (BFRS, including Bangladesh Accounting Standards, BAS). The BFRS is closely modelled on the International Accounting Standards and International Financial Reporting Standards issued by the International Accounting Standards Board.

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Law and Practice in Bangladesh

Authors



Syed Ishtiaq Ahmed & Associates (SIA&A) is a leading law firm in Bangladesh and was established by the Late Mr. Syed Ishtiaq Ahmed. SIA&A’s team consists of three senior partners, one junior partner, two senior associates and ten associates. SIA&A advises clients on regulatory matters and potential intervention by Government. Relevant regulators include Bangladesh Bank, Bangladesh Securities and Exchange Commission, Bangladesh Investment Development Authority (BIDA), National Board of Revenue, the Registrar of Joint Stock Companies and Firms, Bangladesh Export Processing Zones Authority and Bangladesh Energy Regulatory Commission. SIA&A also has extensive experience in fields including Arbitration, Aviation, Banking and Financing, Commercial Law, Company Law, Constitutional Issues and Judicial Review, Corporatisation, Employment Law, Insurance, Societies and Trusts, Property and Trusts Law, Public Private Partnership Law, Branch and/or Liaison Offices of Foreign Companies, Shipping and Tax, VAT & Customs.