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Bangladesh

Executive Summary

Bangladesh is the most densely populated non-city-state country in the world, with the eighth largest population (over 165 million) within a territory the size of Iowa. Bangladesh is situated in the northeastern corner of the Indian subcontinent, sharing a 4,100 km border with India and a 247 km border with Burma. With sustained economic growth over the past decade, a large, young, and hard-working workforce, strategic location between the large South and Southeast Asian markets, and vibrant private sector, Bangladesh will likely continue to attract increasing investment, despite severe economic headwinds created by the global outbreak of COVID-19.

Buoyed by a young workforce and a growing consumer base, Bangladesh has enjoyed consistent annual GDP growth of more than six percent over the past decade, with the exception of the COVID-induced economic slowdown in 2020. Much of this growth continues to be driven by the ready-made garment (RMG) industry, which exported $28.0 billion of apparel products in fiscal year (FY) 2020, and continued remittance inflows, reaching a record $18.2 billion in FY 2020. (Note: The Bangladeshi fiscal year is from July 1 to June 30; fiscal year 2020 ended on June 30, 2020.) However, the country’s RMG exports dropped more than 18 percent year-over-year in FY 2020 as COVID-19 depressed the global demand for apparel products.

The Government of Bangladesh (GOB) actively seeks foreign investment. Sectors with active investments from overseas include agribusiness, garment/textiles, leather/leather goods, light manufacturing, power and energy, electronics, light engineering, information and communications technology (ICT), plastic, healthcare, medical equipment, pharmaceutical, ship building, and infrastructure. The GOB offers a range of investment incentives under its industrial policy and export-oriented growth strategy with few formal distinctions between foreign and domestic private investors.

Bangladesh’s Foreign Direct Investment (FDI) stock was $16.9 billion in 2019, with the United States being the top investing country with $3.5 billion in accumulated investments. Bangladesh received $1.6 billion FDI in 2019. The rate of FDI inflows was only 0.53 percent of GDP, one of the lowest of rates in Asia.

Bangladesh has made gradual progress in reducing some constraints on investment, including taking steps to better ensure reliable electricity, but inadequate infrastructure, limited financing instruments, bureaucratic delays, lax enforcement of labor laws, and corruption continue to hinder foreign investment. Government efforts to improve the business environment in recent years show promise but implementation has yet to materialize. Slow adoption of alternative dispute resolution mechanisms and sluggish judicial processes impede the enforcement of contracts and the resolution of business disputes.

As a traditionally moderate, secular, peaceful, and stable country, Bangladesh experienced a decrease in terrorist activity in 2020, accompanied by an increase in terrorism-related investigations and arrests. A December 2018 national election marred by irregularities, violence, and intimidation consolidated the power of Prime Minister Sheikh Hasina and her ruling party, the Awami League. This allowed the government to adopt legislation and policies diminishing space for the political opposition, undermining judicial independence, and threatening freedom of the media and NGOs. Bangladesh continues to host one of the world’s largest refugee populations, more than one million Rohingya from Burma, in what is expected to be a humanitarian crisis requiring notable financial and political support for years to come. International retail brands selling Bangladesh-made products and the international community continue to press the Government of Bangladesh to meaningfully address worker rights and factory safety problems in Bangladesh. With unprecedented support from the international community and the private sector, the Bangladesh garment sector has made significant progress on fire and structural safety. Critical work remains on safeguarding workers’ rights to freely associate and bargain collectively, including in Export Processing Zones (EPZs).

The Bangladeshi government has limited resources devoted to intellectual property rights (IPR) protection and counterfeit goods are readily available in Bangladesh. Government policies in the ICT sector are still under development. Current policies grant the government broad powers to intervene in that sector.

Capital markets in Bangladesh are still developing, and the financial sector is still highly dependent on banks.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 146 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report* 2019 168 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 116 of 129 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 USD 493 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 USD 1,940 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

The World Bank announced in 2020 it would pause the Doing Business publication while it conducts a review of data integrity.

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Bangladesh actively seeks foreign investment. Sectors with active investments from overseas include agribusiness, garment and textiles, leather and leather goods, light manufacturing, electronics, light engineering, energy and power, information and communications technology (ICT), plastic, healthcare, medical equipment, pharmaceutical, ship building, and infrastructure. It offers a range of investment incentives under its industrial policy and export-oriented growth strategy with few formal distinctions between foreign and domestic private investors.

Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Four sectors, however, are reserved for government investment:

  • Arms and ammunition and other defense equipment and machinery.
  • Forest plantation and mechanized extraction within the bounds of reserved forests.
  • Production of nuclear energy.
  • Security printing (items such as currency, visa foils, and tax stamps).

The Bangladesh Investment Development Authority (BIDA) is the principal authority tasked with supervising and promoting private investment. The BIDA Act of 2016 approved the merger of the now-disbanded Board of Investment and the Privatization Committee. BIDA is directly supervised by the Prime Minister’s Office and the Executive Chairman of BIDA holds a rank equivalent to Senior Secretary, the highest rank within the civil service. BIDA performs the following functions:

  • Provides pre-investment counseling services.
  • Registers and approves private industrial projects.
  • Issues approval of branch/liaison/representative offices.
  • Issues work permits for foreign nationals.
  • Issues approval of royalty remittances, technical know-how, and technical assistance fees.
  • Facilitates import of capital machinery and raw materials.
  • Issues approvals of foreign loans and supplier credits.

BIDA’s website has aggregated information regarding Bangladesh investment policies, incentives, and ease of doing business indicators:  http://bida.gov.bd/  

In addition to BIDA, there are three other Investment Promotion Agencies (IPAs) responsible for promoting investments in their respective jurisdictions.

  • Bangladesh Export Processing Zone Authority (BEPZA) promotes investments in Export Processing Zones (EPZs). The first EPZ was established in the 1980s and there are currently eight EPZs in the country. Website: https://www.bepza.gov.bd/
  • Bangladesh Economic Zones Authority (BEZA) plans to establish approximately 100 Economic Zones (EZs) throughout the country over the next several years. Site selections for 97 EZs have been completed as of February 2021, of which 11 private EZs are already licensed and operational while development of several other public and private sector EZs are underway. While EPZs accommodate exporting companies only, EZs are open for both export- and domestic-oriented companies. Website: https://www.beza.gov.bd/
  • Bangladesh Hi-Tech Park Authority (BHTPA) is responsible for attracting and facilitating investments in the high-tech parks Bangladesh is establishing across the country. Website: http://bhtpa.gov.bd/

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Bangladesh allows private investment in power generation and natural gas exploration, but efforts to allow full foreign participation in petroleum marketing and gas distribution have stalled. Regulations in the area of telecommunication infrastructure currently include provisions for 60 percent foreign ownership (70 percent for tower sharing). In addition to the four sectors reserved for government investment, there are 17 controlled sectors that require prior clearance/ permission from the respective line ministries/authorities. These are:

  • Fishing in the deep sea.
  • Bank/financial institutions in the private sector.
  • Insurance companies in the private sector.
  • Generation, supply, and distribution of power in the private sector.
  • Exploration, extraction, and supply of natural gas/oil.
  • Exploration, extraction, and supply of coal.
  • Exploration, extraction, and supply of other mineral resources.
  • Large-scale infrastructure projects (e.g., elevated expressway, monorail, economic zone, inland container depot/container freight station).
  • Crude oil refinery (recycling/refining of lube oil used as fuel).
  • Medium and large industries using natural gas/condensate and other minerals as raw material.
  • Telecommunications service (mobile/cellular and land phone).
  • Satellite channels.
  • Cargo/passenger aviation.
  • Sea-bound ship transport.
  • Seaports/deep seaports.
  • VOIP/IP telephone.
  • Industries using heavy minerals accumulated from sea beaches.

While discrimination against foreign investors is not widespread, the government frequently promotes local industries, and some discriminatory policies and regulations exist. For example, the government closely controls approvals for imported medicines that compete with domestically manufactured pharmaceutical products and it has required majority local ownership of new shipping and insurance companies, albeit with exemptions for existing foreign-owned firms. In practical terms, foreign investors frequently find it necessary to have a local partner even though this requirement may not be statutorily defined. In certain strategic sectors, the GOB has placed unofficial barriers on foreign companies’ ability to divest from the country.

BIDA is responsible for screening, reviewing, and approving investments in Bangladesh, except for investments in EPZs, EZs, and High-Tech Parks, which are supervised by BEPZA, BEZA, and BHTPA respectively. Both foreign and domestic companies are required to obtain approval from relevant ministries and agencies with regulatory oversight. In certain sectors (e.g., healthcare), foreign companies may be required to obtain a No Objection Certificate (NOC) from the relevant ministry or agency stating the specific investment will not hinder local manufacturers and is in line with the guidelines of the ministry concerned. Since Bangladesh actively seeks foreign investments, instances where one of the Investment Promotion Agencies (IPAs) declines investment proposals are rare.

Other Investment Policy Reviews

In 2013 Bangladesh completed an investment policy review (IPR) with the United Nations Conference on Trade and Development (UNCTAD):  https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=756  

A Trade Policy Review was done by the World Trade Organization in April 2019 and can be found at:  https://www.wto.org/english/tratop_e/tpr_e/tp485_e.htm  

Business Facilitation

In February 2018, the Bangladesh Parliament passed the “One Stop Service Bill 2018,” which aims to streamline business and investment registration processes. The four IPAs — BIDA, BEPZA, BEZA, and BHTPA — are mandated to provide one-stop services (OSS) to local and foreign investors under their respective jurisdictions. Expected streamlined services include company registration, taxpayer’s identification number (TIN) and value added tax (VAT) registration, work permit issuance, power and utilities connections, capital and profit repatriation, and environment clearance. In 2019 Bangladesh made reforms in three key areas: starting a business, getting electricity, and getting credit. These and other regulatory changes led to an improvement by eight ranks on the World Bank’s Doing Business score, moving up from 176 to 168 of the 190 countries rated. BIDA offers more than 40 services under its OSS as of March 2021 and has a plan to expand to 154 services covering 35 agencies. The GOB is also planning to integrate the services of all four investment promotion agencies under a single online platform. Progress on realizing a comprehensive OSS for businesses has been slowed by bureaucratic delays and a lack of interagency coordination.

Companies can register their businesses at the Office of the Registrar of Joint Stock Companies and Firms (RJSC):  www.roc.gov.bd  . However, the online business registration process, while improving, can at times be unclear and inconsistent. Additionally, BIDA facilitates company registration services as part of its OSS, which is available at:  https://bidaquickserv.org/ . BIDA also facilitates other services including office set-up approval, work permits for foreign employees, environmental clearance, outward remittance approval, and tax registration with National Board of Revenue. Other agencies with which a company must typically register are:

City Corporation – Trade License

National Board of Revenue – Tax & VAT Registration

Chief Inspector of Shops and Establishments – Employment of Workers Notification

It takes approximately 20 days to start a business in the country according to the World Bank. The company registration process at the RJSC generally takes one or two days to complete. The process for trade licensing, tax registration, and VAT registration requires seven days, one day, and one week respectively, as of February 2021.

Outward Investment

Outward foreign direct investment is generally restricted through the Foreign Exchange Regulation Act of 1947. As a result, the Bangladesh Bank plays a key role in limiting outbound investment. In September 2015, the government amended the Foreign Exchange Regulation Act of 1947 by adding a “conditional provision” that permits outbound investment for export-related enterprises. Private sector contacts note the few international investments approved by the Bangladesh Bank have been limited to large exporting companies with international experience.

2. Bilateral Investment Agreements and Taxation Treaties

Bangladesh has signed bilateral investment treaties with 29 countries, including Austria, the Belgium-Luxembourg Economic Union, Cambodia, China, Denmark, France, Germany, India, Indonesia, Iran, Italy, Japan, Democratic People’s Republic of Korea, Republic of Korea, Malaysia, the Netherlands, Pakistan, the Philippines, Poland, Romania, Singapore, Switzerland, Thailand, Turkey, the United Arab Emirates, the United Kingdom, the United States, Uzbekistan, and Vietnam.

The U.S.-Bangladesh Bilateral Investment Treaty was agreed to in 1986 and entered into force in 1989. The Foreign Investment Act includes a guarantee of national treatment, granting U.S. companies the equivalent of domestic status.

Bangladesh has successfully negotiated several regional trade and economic agreements, including the South Asian Free Trade Area (SAFTA), the Asia-Pacific Trade Agreement (APTA), and the Bay of Bengal Initiative for Multi-Sectoral, Technical and Economic Cooperation (BIMSTEC). Bangladesh signed its first bilateral Preferential Trade Agreement (PTA) with Bhutan in December 2020 while it is in discussions with several countries for PTAs and Free Trade Agreements (FTAs). A joint study on the prospects of a bilateral Comprehensive Economic Partnership Agreement (CEPA) between Bangladesh and India is underway. In addition, PTA negotiations with Nepal and Indonesia are in advanced stages.

Bangladesh has signed Avoidance of Double Taxation Treaties (DTT) with 36 countries: Bahrain, Belarus, Belgium, Burma, Canada, Czech Republic, China, Denmark, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Kuwait, Malaysia, Mauritius, Nepal, the Netherlands, Norway, Pakistan, the Philippines, Poland, Romania, Saudi Arabia, Singapore, Sri Lanka, Sweden, Switzerland, Thailand, Turkey, the United Arab Emirates, the United Kingdom, the United States, and Vietnam.

Bangladesh met all three criteria required to graduate from the United Nations’ (UN) list of Least Developed Countries (LDC) for the first time at the triennial review of the United Nations Committee for Development Policy (CDP) in March 2018. In February 2021, the CDP confirmed Bangladesh’s eligibility to graduate from LDC status. The country is scheduled to officially graduate from LDC status in 2026 instead of 2024 as earlier planned to allow it two additional years for smooth transition in view of the adverse impact of COVID-19 on the economy. Bangladesh will lose duty-free quota-free (DFQF) access to several major export markets after the graduation. However, the European Union’s Generalized System of Preferences Plus (GSP+) program may allow Bangladesh DFQF access for an additional three-year transition period following the country’s effective date of graduation. To be eligible for the EU’s GSP+ program, Bangladesh must ratify additional international conventions on human and labor rights, the environment, and governance, and show it has plans to amend and enforce its laws accordingly.

3. Legal Regime

Transparency of the Regulatory System

Since 1989, the government has gradually moved to decrease regulatory obstruction of private business. Various chambers of commerce have called for privatization and for a greater voice for the private sector in government decisions, but at the same time many support protectionism and subsidies for their own industries. The result is policy and regulations which are often unclear, inconsistent, or little publicized. Registration and regulatory processes are frequently alleged by businesses to be used as rent-seeking opportunities. The major rule-making and regulatory authority exists at the national level under each Ministry with many final decisions being made at the top-most levels, including the Prime Minister’s Office (PMO). The PMO is actively engaged in directing policies, as well as foreign investment in government-controlled projects.

Bangladesh has made incremental progress in using information technology both to improve the transparency and efficiency of some government services and develop independent agencies to regulate the energy and telecommunication sectors. Some investors cited government laws, regulations, and lack of implementation as impediments to investment. The government has historically limited opportunities for the private sector to comment on proposed regulations. In 2009, Bangladesh adopted the Right to Information Act providing for multilevel stakeholder consultations through workshops or media outreach. Although the consultation process exists, it is still weak and in need of further improvement.

Ministries and regulatory agencies do not generally publish or solicit comments on draft proposed legislation or regulations. However, several government organizations, including the Bangladesh Bank (the central bank), Bangladesh Securities and Exchange Commission, BIDA, the Ministry of Commerce, and the Bangladesh Telecommunications Regulatory Commission have occasionally posted draft legislation and regulations online and solicited feedback from the business community. In some instances, parliamentary committees have also reached out to relevant stakeholders for input on draft legislation. The media continues to be the main information source for the public on many draft proposals. There is also no legal obligation to publish proposed regulations, consider alternatives to proposed regulation, or solicit comments from the general public.

The government printing office, The Bangladesh Government Press ( http://www.dpp.gov.bd/bgpress/ ), publishes the “Bangladesh Gazette” every Thursday and Extraordinary Gazettes as and when needed. The Gazette provides official notice of government actions, including issuance of government rules and regulations and the transfer and promotion of government employees. Laws can also be accessed at  http://bdlaws.minlaw.gov.bd/ .

Bangladesh passed the Financial Reporting Act of 2015 which created the Financial Reporting Council in 2016 aimed at establishing transparency and accountability in the accounting and auditing system. The country follows Bangladesh Accounting Standards and Bangladesh Financial Reporting Standards, which are largely derived from International Accounting Standards and International Financial Reporting Standards. However, the quality of reporting varies widely. Internationally known firms have begun establishing local offices in Bangladesh and their presence is positively influencing the accounting norms in the country. Some firms are capable of providing financial reports audited to international standards while others maintain unreliable (or multiple) sets of accounting records. Regulatory agencies do not conduct impact assessments for proposed regulations; consequently, regulations are often not reviewed on the basis of data-driven assessments. Not all national budget documents are prepared according to internationally accepted standards.

International Regulatory Considerations

The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) aims to integrate regional regulatory systems among Bangladesh, India, Burma, Sri Lanka, Thailand, Nepal, and Bhutan. However, efforts to advance regional cooperation measures have stalled in recent years and regulatory systems remain uncoordinated.

Local laws are based on the English common law system but most fall short of international standards. The country’s regulatory system remains weak and many of the laws and regulations are not enforced and standards are not maintained.

Bangladesh has been a member of the World Trade Organization (WTO) since 1995. WTO requires all signatories to the Agreement on Technical Barriers to Trade (TBT) to establish a National Inquiry Point and Notification Authority to gather and efficiently distribute trade-related regulatory, standards, and conformity assessment information to the WTO Member community. The Bangladesh Standards and Testing Institute (BSTI) has been working as the National Enquiry Point for the WTO-TBT Agreement since 2002. There is an internal committee on WTO affairs in BSTI and it participates in notifying WTO activities through the Ministry of Commerce and the Ministry of Industries.

General Contact for WTO-TBT National Enquiry Point:
Email: bsti_std@bangla.net; bsti_ad@bangla.net
Website: http://www.bsti.gov.bd/ 

Focal Point for TBT:

Mr. Md. Golam Baki,
Deputy Director (Certification Marks), BSTI;
Email: baki_cm@bsti.gov.bd,
Tel: +88-02-8870288,
Cell: +8801799828826, +8801712240702

Focal Point for other WTO related matters:

Mr. Md. Hafizur Rahman,
Director General, WTO Cell, Ministry of Commerce
Email: dg.wto@mincom.gov.bd,
Tel: +880-2-9545383,
Cell: +88 0171 1861056

Mr. Mohammad Mahbubur Rahman Patwary,
Director-1, WTO Cell, Ministry of Commerce
Email: director1.wto@mincom.gov.bd,
Tel: +880-2-9540580,
Cell: +88 0171 2148758

Legal System and Judicial Independence

Bangladesh is a common law-based jurisdiction. Many of the basic laws, such as the penal code, civil and criminal procedural codes, contract law, and company law are influenced by English common law. However, family laws, such as laws relating to marriage, dissolution of marriage, and inheritance are based on religious scripts and therefore differ among religious communities. The Bangladeshi legal system is based on a written constitution and the laws often take statutory forms that are enacted by the legislature and interpreted by the higher courts. Ordinarily, executive authorities and statutory corporations cannot make any law, but can make by-laws to the extent authorized by the legislature. Such subordinate legislation is known as rules or regulations and is also enforceable by the courts. However, as a common law system, the statutes are short and set out basic rights and responsibilities but are elaborated by the courts in the application and interpretation of those laws. The Bangladeshi judiciary acts through: (1) The Superior Judiciary, having appellate, revision, and original jurisdiction; and (2) The Sub-Ordinate Judiciary, having original jurisdiction.

Since 1971, Bangladesh has updated its legal system concerning company, banking, bankruptcy, and money loan court laws, and other commercial laws. An important impediment to investment in Bangladesh is its weak and slow legal system in which the enforceability of contracts is uncertain. The judicial system does not provide for interest to be charged in tort judgments, which means procedural delays carry no penalties. Bangladesh does not have a separate court or court division dedicated solely to commercial cases. The Joint District Judge court (a civil court) is responsible for enforcing contracts.

Some notable commercial laws include:

  • The Contract Act, 1872 (Act No. IX of 1930).
  • The Sale of Goods Act, 1930 (Act No. III of 1930).
  • The Partnership Act, 1932 (Act No. IX of 1932).
  • The Negotiable Instruments Act, 1881 (Act No. XXVI of 1881).
  • The Bankruptcy Act, 1997 (Act No. X of 1997).
  • The Arbitration Act, 2001 (Act No. I of 2001).

The judicial system of Bangladesh has never been completely independent from interference by the executive branch of the government. In a significant milestone, the government in 2007 separated the country’s judiciary from the executive but the executive retains strong influence over the judiciary through control of judicial appointments. Other pillars of the justice system, including the police, courts, and legal profession, are also closely aligned with the executive branch. In lower courts, corruption is widely perceived as a serious problem. Regulations or enforcement actions are appealable under the Appellate Division of the Supreme Court.

Laws and Regulations on Foreign Direct Investment

Major laws affecting foreign investment include: the Foreign Private Investment (Promotion and Protection) Act of 1980, the Bangladesh Export Processing Zones Authority Act of 1980, the Companies Act of 1994, the Telecommunications Act of 2001, and the Bangladesh Economic Zones Act of 2010.

Bangladesh industrial policy offers incentives for “green” (environmental) high-tech or “transformative” industries. It allows foreigners who invest $1 million or transfer $2 million to a recognized financial institution to apply for Bangladeshi citizenship. The GOB will provide financial and policy support for high-priority industries (those creating large-scale employment and earning substantial export revenue) and creative industries – architecture, arts and antiques, fashion design, film and video, interactive laser software, software, and computer and media programming. Specific importance is given to agriculture and food processing, RMG, ICT and software, pharmaceuticals, leather and leather products, and jute and jute goods.

In addition, Petrobangla, the state-owned oil and gas company, has modified its production sharing agreement contract for offshore gas exploration to include an option to export gas. In 2019, Parliament approved the Bangladesh Flag Vessels (Protection) Act 2019 with a provision to ensure Bangladeshi flagged vessels carry at least 50 percent of foreign cargo, up from 40 percent. In 2020, the Ministry of Commerce amended the digital commerce policy to allow fully foreign-owned e-commerce companies in Bangladesh and remove a previous joint venture requirement.

The One Stop Service (OSS) Act of 2018 mandated the four IPAs to provide OSS to local and foreign investors in their respective jurisdictions. The move aims to facilitate business services on behalf of multiple government agencies to improve ease of doing business. In 2020, BIDA issued time-bound rules to implement the Act of 2018. Although the IPAs have started to offer a few services under the OSS, corruption and excessive bureaucracy have held back the complete and effective roll out of the OSS. BIDA has a “one-stop” website that provides information on relevant laws, rules, procedures, and reporting requirements for investors at:  http://www.bida.gov.bd/ .

Aside from information on relevant business laws and licenses, the website includes information on Bangladesh’s investment climate, opportunities for businesses, potential sectors, and how to do business in Bangladesh. The website also has an eService Portal for Investors which provides services such as visa recommendations for foreign investors, approval/extension of work permits for expatriates, approval of foreign borrowing, and approval/renewal of branch/liaison and representative offices.

Competition and Anti-Trust Laws

Bangladesh formed an independent agency in 2011 called the “Bangladesh Competition Commission (BCC)” under the Ministry of Commerce. Parliament then passed the Competition Act in 2012. However, the BCC has not received sufficient resources to operate effectively.

In 2018, the Bangladesh Telecommunication Regulatory Commission (BTRC) finalized Significant Market Power (SMP) regulations to promote competition in the industry. In 2019, BTRC declared the country’s largest telecom operator, Grameenphone (GP), the first SMP based on its revenue share of more than 50 percent and customer shares of about 47 percent. Since the declaration, the BTRC has attempted to impose restrictions on GP’s operations, which GP has challenged in the judicial system.

Expropriation and Compensation

Since the Foreign Investment Act of 1980 banned nationalization or expropriation without adequate compensation, Bangladesh has not nationalized or expropriated property from foreign investors. In the years immediately following independence in 1971, widespread nationalization resulted in government ownership of more than 90 percent of fixed assets in the modern manufacturing sector, including the textile, jute and sugar industries and all banking and insurance interests, except those in foreign (but non-Pakistani) hands. However, the government has taken steps to privatize many of these industries since the late 1970s and the private sector has developed into a main driver of the country’s sustained economic growth.

Dispute Settlement

ICSID Convention and New York Convention

Bangladesh is a signatory to the International Convention for the Settlement of Disputes (ICSID) and acceded in May 1992 to the United Nations Convention for the Recognition and Enforcement of Foreign Arbitral Awards. Alternative dispute resolutions are possible under the Bangladesh Arbitration Act of 2001. The current legislation allows for enforcement of arbitral awards.

Investor-State Dispute Settlement

Bangladeshi law allows contracts to refer investor-state dispute settlement to third country fora for resolution. The U.S.-Bangladesh Bilateral Investment Treaty also stipulates that parties may, upon the initiative of either and as a part of their consultations and negotiations, agree to rely upon non-binding, third-party procedures, such as the fact-finding facility available under the rules of the “Additional Facility” of the International Centre for the Settlement of Investment Disputes. If the dispute cannot be resolved through consultation and negotiation, the dispute shall be submitted for settlement in accordance with the applicable dispute-settlement procedures upon which the parties have previously agreed. Bangladesh is also a party to the South Asia Association for Regional Cooperation (SAARC) Agreement for the Establishment of an Arbitration Council, signed in 2005, which aims to establish a permanent center for alternative dispute resolution in one of the SAARC member countries.

International Commercial Arbitration and Foreign Courts

The Bangladesh Arbitration Act of 2001 and amendments in 2004 reformed alternative dispute resolution procedures. The Act consolidated the law relating to both domestic and international commercial arbitration. It thus creates a single and unified legal regime for arbitration. Although the new Act is principally based on the UNCITRAL Model Law, it is a patchwork as some unique provisions are derived from the Indian Arbitration and Conciliation Act 1996 and some from the English Arbitration Act 1996.

In practice, arbitration results are unevenly enforced and the GOB has challenged ICSID rulings, especially those that involve rulings against the government. The timeframe for dispute resolution is unpredictable and has no set limit. It can be done as quickly as a few months, but often takes years depending on the type of dispute. Anecdotal information indicates average resolution time can be as high as 16 years. Local courts may be biased against foreign investors in resolving disputes.

Bangladesh is a signatory of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and recognizes the enforcement of international arbitration awards. Domestic arbitration is under the authority of the district court bench and foreign arbitration is under the authority of the relevant high court bench.

The Bangladeshi judicial system has little ability to enforce its own awards. Senior members of the government have been effective in using their offices to resolve investment disputes on several occasions, but the government’s ability to resolve investment disputes at a lower level is mixed. Bangladesh does not publish the numbers of investment disputes involving U.S. or foreign investors. Anecdotal evidence indicates investment disputes occur with limited frequency, and the involved parties often resolve the disputes privately rather than seeking government intervention.

Implementing Alternative Dispute Resolution (ADR) procedures in Bangladesh is impeded by a lack of funding for courts to provide ADR services, limited cooperation by lawyers, and instances of ADR participants acting in bad faith. Slow adoption of ADR mechanisms and sluggish judicial processes impede the enforcement of contracts and the resolution of business disputes in Bangladesh.

As in many countries, Bangladesh has adopted a “conflict of law” approach to determining whether a judgment from a foreign legal jurisdiction is enforceable in Bangladesh. This single criterion allows Bangladeshi courts broad discretion in choosing whether to enforce foreign judgments with significant effects on corporate and property disputes. Most enterprises in Bangladesh, and especially state-owned enterprises (SOEs), whose leadership is nominated by the ruling government party, maintain strong ties with the government. Thus, domestic courts strongly tend to favor SOEs and local companies in investment disputes.

Investors are also increasingly turning to the Bangladesh International Arbitration Center (BIAC) for dispute resolution. BIAC is an independent arbitration center established by prominent local business leaders in 2011 to improve commercial dispute resolution in Bangladesh to stimulate economic growth. The BIAC Board is headed by the President of the International Chamber of Commerce – Bangladesh and includes the presidents of other prominent chambers such as the Dhaka Chamber of Commerce and Industry and the Metropolitan Chamber of Commerce and Industry, among others. The Center operates under the Bangladesh Arbitration Act of 2001. According to BIAC, fast track cases are resolved in approximately six months while typical cases are resolved in one year. Major Bangladeshi trade and business associations such as the American Chamber of Commerce in Bangladesh can sometimes help resolve transaction disputes.

Bankruptcy Regulations

Many laws affecting investment in Bangladesh are outdated. Bankruptcy laws, which apply mainly to individual insolvency, are sometimes disregarded in business cases because of the numerous falsified assets and uncollectible cross-indebtedness supporting insolvent banks and companies. A Bankruptcy Act was passed by Parliament in 1997 but has been ineffective in addressing these issues. Some bankruptcy cases fall under the Money Loan Court Act which has more stringent and timely procedures.

4. Industrial Policies

Investment Incentives

Current regulations permit a tax holiday for designated “thrust” (strategic) sectors and infrastructure projects established between July 1, 2019 and June 30, 2024. The thrust sectors enjoy tax exemptions graduated from 90 percent to 20 percent over a period of five to ten years depending on the zone where the business is established. Industries set up in Export Processing Zones (EPZs) and Special Economic Zones (SEZs) are also eligible for tax holidays. Details of fiscal and non-fiscal incentives are available on the following websites:

BIDA: http://bida.gov.bd/?page_id=146 

BEPZA: https://www.bepza.gov.bd/investor_details/incentives-facilities 

BEZA: https://www.beza.gov.bd/investing-in-zones/incentive-package/ 

Thrust sectors eligible for tax exemptions include: certain pharmaceuticals, automobile manufacturing, contraceptives, rubber latex, chemicals or dyes, certain electronics, bicycles, fertilizer, biotechnology, commercial boilers, certain brickmaking technologies, compressors, computer hardware, home appliances, insecticides, pesticides, petro-chemicals, fruit and vegetable processing, textile machinery, tissue grafting, tire manufacturing industries, agricultural machineries, furniture, leather and leather goods, cell phones, plastic recycling, and toy manufacturing.

Eligible physical infrastructure projects are allowed tax exemptions graduated from 90 percent to 20 percent over a period of 10 years. Physical infrastructure projects eligible for exemptions include deep seaports, elevated expressways, road overpasses, toll roads and bridges, EPZs, gas pipelines, information technology parks, industrial waste and water treatment facilities, liquefied natural gas (LNG) terminals, electricity transmission, rapid transit projects, renewable energy projects, and ports.

Independent non-coal fired power plants (IPPs) commencing production after January 1, 2015 are granted a 100 percent tax exemption for five years, a 50 percent exemption for years six to eight, and a 25 percent exemption for years nine to 10. For new coal-fired IPPs commencing production before June 30, 2023 (provided operators contracted with the government before June 30, 2020), the tax exemption rate is 100 percent for the first 15 years of operations. For power projects, import duties are waived for imports of capital machinery and spare parts.

The valued-added tax (VAT) rate on exports is zero. For companies exporting only, duties are waived on imports of capital machinery and spare parts. For companies primarily exporting (80 percent of production and above), an import duty rate of 1 percent is charged for imports of capital machinery and spare parts identified and listed in notifications to relevant regulators. Import duties are also waived for EPZ industries and other export-oriented industries for imports of raw materials consumed in production.

The GOB provides special incentives to encourage non-resident Bangladeshis to invest in the country. Incentives include the ability to buy newly-issued shares and debentures in Bangladeshi companies. Further, non-resident Bangladeshis can maintain foreign currency deposits in Non-resident Foreign Currency Deposit (NFCD) accounts.

In the past several years, U.S. companies have experienced difficulties securing the investment incentives initially offered by Bangladesh. Several companies have reported instances of where infrastructure guarantees (ranging from electricity to gas connections) are not fully delivered or tax exemptions are delayed, either temporarily or indefinitely. These challenges are not specific to U.S. or foreign companies and reflect broader challenges in the business environment.

Foreign Trade Zones/Free Ports/Trade Facilitation

Under the Bangladesh Export Processing Zones Authority Act of 1980, the government established the first EPZ in Chattogram in 1983. Additional EPZs now operate in Dhaka (Savar), Mongla, Ishwardi, Cumilla, Uttara, Karnaphuli (Chattogram), and Adamjee (Dhaka). Korean investors are also operating a separate and private EPZ in Chattogram.

Joint ventures, wholly foreign-owned investments, and wholly Bangladeshi-owned companies are all permitted to operate and enjoy equal treatment in the EPZs.

In 2010, Bangladesh enacted the Special Economic Zone Act allowing for the creation of privately owned SEZs to produce for export and domestic markets. The SEZs provide special fiscal and non-fiscal incentives to domestic and foreign investors in designated underdeveloped areas throughout Bangladesh.

Performance and Data Localization Requirements

Performance Requirements

BIDA has set the following restrictions on employing foreign nationals and obtaining work permits:

  • Nationals of countries recognized by Bangladesh are eligible for employment consideration.
  • Expatriate personnel will only be considered for employment in enterprises duly registered with the appropriate regulatory authority.
  • Employment of foreign nationals is generally limited to positions for which qualified local workers are unavailable.
  • Persons below 18 years of age are not eligible for employment.
  • The Board of Directors of the employing company must issue a resolution for each offer or extension of employment.
  • The percentage of foreign employees should not exceed 5 percent in industrial sectors and 20% in commercial sectors, including among senior management positions.
  • Initial employment of any foreign national is for a term of two years, which may be extended based on merit.
  • The Ministry of Home Affairs will issue necessary security clearance certificates.

In response to the high number of expatriate workers in the ready-made garment industry, BIDA has issued informal guidance encouraging industrial units to refrain from hiring additional foreign experts and workers. Overall, the government looks favorably on investments employing significant numbers of local workers and/or providing training and transfers of technical skills.

The GOB does not formally mandate that investors use domestic content in goods or technology. However, companies bidding on government procurement tenders are often informally encouraged to have a local partner and to produce or assemble a percentage of their products in country.

According to a legal overview by the Telenor Group, for reasons of national security or in times of emergency, several regulations and amendments, including the Bangladesh Telecommunication Regulatory Act, 2001 (the “BTRA”), Information and Communication Technology Act 2006 (the “ICT Act”), and the Telegraph Act 1885 (the “1885 Act”), grant law enforcement and intelligence agencies legal authority to lawfully seek disclosure of communications data and request censorship of communications. A Digital Security Act of 2016 (the “Digital Security Act”) was adopted by Parliament in 2018.

On the grounds of national security and maintaining public order, the government at times authorizes relevant authorities (intelligence agencies, national security agencies, investigation agencies, or any officer of any law enforcement agency) to suspend or prohibit the transmission of any data or any voice call and record or collect user information relating to any subscriber to a telecommunications service.

Under section 30 of the ICT Act, the government, through the ICT Controller who enforces the act, may access any computer system, any apparatus, data, or any other material connected with a computer system, for the purpose of searching for and obtaining information or data. The ICT Controller may, by order, direct any person in charge of, or otherwise concerned with the operation of a computer system, data apparatus, or material, to provide reasonable technical and other assistance as may be considered necessary. Under section 46 of the ICT Act, the ICT Controller can also direct any government agency to intercept any information transmitted through any computer resource and may also order any subscriber or any person in charge of computer resources to provide all necessary assistance to decrypt relevant information. The ICT Act also established a Cyber Tribunal to adjudicate cases. The BTRC enforces the BTRA, and the Ministry of Home Affairs grants approval for use of powers given under the Act. There is no direct reference in the BTRA to the storage of metadata. Under the broad powers granted to the BTRA, however, the government, on the grounds of national security and public order, may require telecommunications operators to keep records relating to the communications of a specific user. Telecommunications operators are also required to provide any metadata as evidence if ordered to do so by any civil court.

The Digital Security Act of 2018 created a Digital Security Agency empowered to monitor and supervise digital content. Also, under the Digital Security Act, for reasons of national security or maintenance of public order, the Director General (DG) of the DSA is authorized to block communications and to require that service providers facilitate the interception, monitoring, and decryption of a computer or other data source.

The Bangladesh Road Transport Authority’s (BRTA) Ride-sharing Service Guideline 2017 came into force on March 8, 2018. The regulations included requirements that ride-sharing companies keep data servers within Bangladesh.

5. Protection of Property Rights

Real Property

Although land, whether for purchase or lease, is often critical for investment and as security against loans, antiquated real property laws and poor record-keeping systems can complicate land and property transactions. Instruments take effect from the date of execution, not the date of registration, so a bona fide purchaser can often be uncertain of title. Land registration records have been historically prone to competing claims. Land disputes are common, and both U.S. companies and citizens have filed complaints about fraudulent land sales. For example, sellers fraudulently claiming ownership have transferred land to good faith purchasers while the actual owners were living outside of Bangladesh. In other instances, U.S.-Bangladeshi dual citizens have purchased land from legitimate owners only to have third parties make fraudulent claims of title to extort settlement compensation. A 2015 study by leading Bangladeshi think tank Policy Research Institute (PRI) revealed one in seven households in the country faced land disputes. Bangladesh ranks 184 among 190 countries for ease of registering property in the World Bank’s Doing Business 2020 Report.

While property owners can obtain mortgages, parties generally avoid registering mortgages, liens, and encumbrances due to the high cost of stamp duties (i.e., transaction taxes based on property value) and other charges. There are also concerns that non-registered mortgages are often unenforceable.

Article 42 of the Bangladesh Constitution guarantees a right to property for all citizens, but property rights are often not protected due to a weak judicial system. The Transfer of Property Act of 1882  and the Registration Act of 1908  are the two main laws regulating transfer of property in Bangladesh but these laws have no specific provisions covering foreign and/or non-resident investors. Currently, foreigners and non-residents can incorporate a company with the Registrar of Joint Stock Companies and Firms. The company would be considered a local entity and would be able to buy land in its name.

Intellectual Property Rights

The government has not invested heavily in intellectual property rights (IPR) protection. Counterfeit goods are readily available in Bangladesh and a significant portion of business software is pirated. A number of U.S. firms, including film studios, manufacturers of consumer goods, and software firms, have reported violations of their IPR. Investors note police are willing to investigate counterfeit goods producers when informed but are unlikely to initiate independent investigations.

In February 2021, the Cabinet gave its final approval to draft Bangladesh Patents Bill 2021 and in-principle approval to draft Bangladesh Industry-Designs Bill 2021 to replace the Patents and Designs Act 1911. The bills aim to make necessary updates to existing regulations and may improve iIPR in Bangladesh. However, the potential impact of the bills remains uncertain as they have yet to be made public for stakeholder scrutiny. The bills require approval by the Parliament before going into effect. Public awareness of IPR is growing, in part through the efforts of the Intellectual Property Rights Association of Bangladesh:  http://www.ipab.org.bd/ . Bangladesh is not currently listed in the U.S. Trade Representative’s Special 301 or Notorious Markets reports. Bangladesh is a member of the World Intellectual Property Organization (WIPO) and acceded to the Paris Convention on Intellectual Property in 1991.

Bangladesh has slowly made progress toward bringing its legislative framework into compliance with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The government enacted a Copyright Law in 2000 (amended in 2005), a Trademarks Act in 2009, and a Geographical Indication of Goods (Registration and Protection) Act in 2013, in addition to the recent action on bills replacing the Patents and Designs Act.

A number of government agencies are empowered to take action against counterfeiting, including the National Board of Revenue (NBR), Customs, Mobile Courts, the Rapid Action Battalion (RAB), and the Bangladesh Police. The Department of National Consumer Rights Protection (DNCRP) is charged with tracking and reporting on counterfeit goods and the NBR/Customs tracks counterfeit goods seizures at ports of entry. Reports are not publicly available.

Resources for Intellectual Property Rights Holders:

John Cabeca
Intellectual Property Counselor for South Asia
U.S. Patent and Trademark Office
Foreign Commercial Service email: john.cabeca@trade.gov
email: john.cabeca@trade.gov website: https://www.uspto.gov/ip-policy/ip-attache-program
website: https://www.uspto.gov/ip-policy/ip-attache-program tel: +91-11-2347-2000
tel: +91-11-2347-2000

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

6. Financial Sector

Capital Markets and Portfolio Investment

Capital markets in Bangladesh are still developing, and the financial sector remains highly dependent on bank lending. Current regulatory infrastructure inhibits the development of a tradeable bond market.

Bangladesh is home to the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE), both of which are regulated by the Bangladesh Securities and Exchange Commission (BSEC), a statutory body formed in 1993 and attached to the Ministry of Finance. As of February 2021, the DSE market capitalization stood at $54.8 billion, rising 35.8 percent year-over-year bolstered by increased liquidity and some sizeable initial public offerings.

Although the Bangladeshi government has a positive attitude toward foreign portfolio investors, participation in the exchanges remains low due to what is still limited liquidity for shares and the lack of publicly available and reliable company information. The DSE has attracted some foreign portfolio investors to the country’s capital market. However, the volume of foreign investment in Bangladesh remains a small fraction of total market capitalization. As a result, foreign portfolio investment has had limited influence on market trends and Bangladesh’s capital markets have been largely insulated from the volatility of international financial markets. Bangladeshi markets continue to rely primarily on domestic investors.

In 2019, BSEC undertook a number of initiatives to launch derivatives products, allow short selling, and invigorate the bond market. To this end, BSEC introduced three rules: Exchange Traded Derivatives Rules 2019, Short-Sale Rules 2019, and Investment Sukuk Rules 2019. Other recent, notable BSEC initiatives include forming a central clearing and settlement company – the Central Counterparty Bangladesh Limited (CCBL) – and promoting private equity and venture capital firms under the 2015 Alternative Investment Rules. In 2013, BSEC became a full signatory of the International Organization of Securities Commissions (IOSCO) Memorandum of Understanding.

BSEC has taken steps to improve regulatory oversight, including installing a modern surveillance system, the “Instant Market Watch,” providing real time connectivity with exchanges and depository institutions. As a result, the market abuse detection capabilities of BSEC have improved significantly. A mandatory Corporate Governance Code for listed companies was introduced in 2012 but the overall quality of corporate governance remains substandard. Demutualization of both the DSE and CSE was completed in 2013 to separate ownership of the exchanges from trading rights. A majority of the members of the Demutualization Board, including the Chairman, are independent directors. Apart from this, a separate tribunal has been established to resolve capital market-related criminal cases expeditiously. However, both domestic and foreign investor confidence remains low.

The Demutualization Act 2013 also directed DSE to pursue a strategic investor who would acquire a 25 percent stake in the bourse. Through a bidding process DSE selected a consortium of the Shenzhen and Shanghai stock exchanges in China as its strategic partner, with the consortium buying the 25 percent share of DSE for taka 9.47 billion ($112.7 million).

According to the International Monetary Fund (IMF), Bangladesh is an Article VIII member and maintains restrictions on the unapproved exchange, conversion, and/or transfer of proceeds of international transactions into non-resident taka-denominated accounts. Since 2015, authorities have relaxed restrictions by allowing some debits of balances in such accounts for outward remittances, but there is currently no established timetable for the complete removal of the restrictions.

Money and Banking System

The Bangladesh Bank (BB) acts as the central bank of Bangladesh. It was established on December 16, 1971 through the enactment of the Bangladesh Bank Order of1972. General supervision and strategic direction of the BB has been entrusted to a nine–member Board of Directors, which is headed by the BB Governor. A list of the bank’s departments and branches is on its website: https://www.bb.org.bd/aboutus/dept/depts.php .

According to the BB, four types of banks operate in the formal financial system: State Owned Commercial Banks (SOCBs), Specialized Banks, Private Commercial Banks (PCBs), and Foreign Commercial Banks (FCBs). Some 61 “scheduled” banks in Bangladesh operate under the control and supervision of the central bank as per the Bangladesh Bank Order of 1972. The scheduled banks, include six SOCBs, three specialized government banks established for specific objectives such as agricultural or industrial development or expatriates’ welfare, 43 PCBs, and nine FCBs as of February 2021. The scheduled banks are licensed to operate under the Bank Company Act of 1991 (Amended 2013). There are also five non-scheduled banks in Bangladesh, including Nobel Prize recipient Grameen Bank, established for special and definite objectives and operating under legislation enacted to meet those objectives.

Currently, 34 non-bank financial institutions (FIs) are operating in Bangladesh. They are regulated under the Financial Institution Act, 1993 and controlled by the BB. Of these, two are fully government-owned, one is a subsidiary of a state-owned commercial bank, and the rest are private financial institutions. Major sources of funds for these financial institutions are term deposits (at least three months’ tenure), credit facilities from banks and other financial institutions, and call money, as well as bonds and securitization.

Unlike banks, FIs are prohibited from:

  • Issuing checks, pay-orders, or demand drafts.
  • Receiving demand deposits.
  • Involvement in foreign exchange financing.

Microfinance institutions (MFIs) remain the dominant players in rural financial markets. According to the Bangladesh Microcredit Regulatory Authority, as of June 2019, there were 724 licensed micro-finance institutions operating a network of 18,977 branches with 32.3 million members. Additionally, Grameen Bank had nearly 9.3 million microfinance members at the end of 2019 of which 96.8 percent were women. A 2014 Institute of Microfinance survey study showed that approximately 40 percent of the adult population and 75 percent of households had access to financial services in Bangladesh.

The banking sector has had a mixed record of performance over the past several years. Industry experts have reported a rise in risky assets. Total domestic credit stood at 46.8 percent of gross domestic product at end of June 2020. The state-owned Sonali Bank is the largest bank in the country while Islami Bank Bangladesh and Standard Chartered Bangladesh are the largest local private and foreign banks respectively as of December 2020. The gross non-performing loan (NPL) ratio was 7.7 percent at the end of December 2020, down from 9.32 percent in December 2019. However, the decline in the NPLs was primarily caused by regulatory forbearance rather than actual reduction of stressed loans. Following the outbreak of COVID-19 in 2020, the central bank directed all banks not to classify any new loans as non-performing till December 2020. Industry contacts have predicted reported NPLs will demonstrate a sharp rise after the exemption expires unless the central bank grants additional forbearance in alternate forms. At 22.5 percent SCBs had the highest NPL ratio, followed by 15.9 percent of Specialized Banks, 5.9 percent of FCBs, and 5.6 percent of PCBs as of September 2020.

In 2017, the BB issued a circular warning citizens and financial institutions about the risks associated with cryptocurrencies. The circular noted that using cryptocurrencies may violate existing money laundering and terrorist financing regulations and cautioned users may incur financial losses. The BB issued similar warnings against cryptocurrencies in 2014.

Foreign investors may open temporary bank accounts called Non-Resident Taka Accounts (NRTA) in the proposed company name without prior approval from the BB in order to receive incoming capital remittances and encashment certificates. Once the proposed company is registered, it can open a new account to transfer capital from the NRTA account. Branch, representative, or liaison offices of foreign companies can open bank accounts to receive initial suspense payments from headquarters without opening NRTA accounts. In 2019, the BB relaxed regulations on the types of bank branches foreigners could use to open NRTAs, removing a previous requirement limiting use of NRTA’s solely to Authorized Dealers (ADs).

Foreign Exchange and Remittances

Foreign Exchange

Free repatriation of profits is allowed for registered companies and profits are generally fully convertible. However, companies report the procedures for repatriating foreign currency are lengthy and cumbersome. The Foreign Investment Act guarantees the right of repatriation for invested capital, profits, capital gains, post-tax dividends, and approved royalties and fees for businesses. The central bank’s exchange control regulations and the U.S.-Bangladesh Bilateral Investment Treaty (in force since 1989) provide similar investment transfer guarantees. BIDA may need to approve repatriation of royalties and other fees.

Bangladesh maintains a de facto managed floating foreign exchange regime. Since 2013, Bangladesh has tried to manage its exchange rate vis-à-vis the U.S. dollar within a fairly narrow range. Until 2017, the Bangladesh currency – the taka – traded between 76 and 79 taka to the dollar. The taka has depreciated relative to the dollar since October 2017 reaching 84.95 taka per dollar as of March 2020, despite interventions from the Bangladesh Bank from time to time. The taka is approaching full convertibility for current account transactions, such as imports and travel, but not for financial and capital account transactions, such as investing, currency speculation, or e-commerce.

Remittance Policies

There are no set time limitations or waiting periods for remitting all types of investment returns. Remitting dividends, returns on investments, interest, and payments on private foreign debts do not usually require approval from the central bank and transfers are typically made within one to two weeks. Some central bank approval is required for repatriating lease payments, royalties and management fees, and this process can take between two and three weeks. If a company fails to submit all the proper documents for remitting, it may take up to 60 days. Foreign investors have reported difficulties transferring funds to overseas affiliates and making payments for certain technical fees without the government’s prior approval to do so. Additionally, some regulatory agencies have reportedly blocked the repatriation of profits due to sector-specific regulations. The U.S. Embassy also has received complaints from American citizens who were not able to transfer the proceeds of sales of their properties.

The central bank has recently made several small-scale reforms to ease the remittance process. In 2019, the BB simplified the profit repatriation process for foreign firms. Foreign companies and their branches, liaison, or representative offices no longer require prior approval from the central bank to remit funds to their parent offices outside Bangladesh. Banks, however, are required to submit applications for ex post facto approval within 30 days of profit remittance. In 2020, the Bangladesh Bank relaxed regulations for repatriating disinvestment proceeds, authorizing banks to remit up to 100 million taka (approximately $1.2 million) in equivalent foreign currency without the central bank’s prior approval. The central bank also eased profit repatriation and reinvestment by allowing banks to transfer foreign investors’ dividend income into their foreign currency bank accounts.

The Financial Action Task Force (FATF) notes Bangladesh has established the legal and regulatory framework to meet its Anti-Money Laundering/Counterterrorism Finance (AML/CTF) commitments. The Asia/Pacific Group on Money Laundering (APG), an independent and collaborative international organization based in Bangkok, evaluated Bangladesh’s AML/CTF regime in 2018 and found Bangladesh had made significant progress since the last Mutual Evaluation Report (MER) in 2009, but still faces significant money laundering and terrorism financing risks. The APG reports are available online:  http://www.fatf-gafi.org/countries/#Bangladesh  

Sovereign Wealth Funds

In 2015, the Bangladesh Finance Ministry announced it was exploring establishing a sovereign wealth fund in which to invest a portion of Bangladesh’s foreign currency reserves. In 2017, the Cabinet initially approved a $10 billion “Bangladesh Sovereign Wealth Fund,” (BSWF) to be created with funds from excess foreign exchange reserves but the plan was subsequently scrapped by the Finance Ministry.

7. State-Owned Enterprises

Bangladesh’s 49 major non-financial SOEs, many of which are holding corporations owning or overseeing smaller state-owned entities, are spread among seven sectors – industrial; power, gas and water; transport and communication; trade; agriculture; construction; and services. The list of non-financial SOEs and relevant budget details are published in Bangla in the Ministry of Finance’s SOE Budget Summary 2020-21:  https://mof.gov.bd/site/view/budget_mof_sow/2020-21/SOE-Budget .

The SOE contribution to gross domestic product, value-added production, employment generation, and revenue earning is substantial. SOEs usually report to the relevant ministries, though the government has allowed some enhanced autonomy for certain SOEs, such as Biman Bangladesh Airlines. SOEs maintain control of rail transportation whereas private companies compete freely in air and road transportation. Bangladesh has restructured its corporate governance of SEOs as per the guidelines published by the Organization for Economic Cooperation and Development (OECD), but the country’s practices are not up to OECD standards. While SOEs are required to prepare annual reports and make financial disclosures, disclosure documents are often unavailable to the public. Each SOE has an independent Board of Directors composed of both government and private sector nominees who report to the relevant regulatory ministry. Most SOEs have strong ties with the government, and the ruling party nominates most SOE leaders. As the government controls most of the SOEs, domestic courts tend to favor the SOEs in investment disputes.

The government has taken recent steps to restructure several SOEs to improve competitiveness. This included conversion of Biman Bangladesh Airline, the national airline, into a public limited company to initiate a rebranding and a fleet renewal program involving purchase of 12 aircraft from Boeing. Five of six state-owned commercial banks – Sonali, Janata, Agrani, Rupali, and BASIC – were converted to public limited companies; only Rupali Bank is publicly listed. In July 2020, the government announced closure of 25 out of 26 state-owned jute mills under the Bangladesh Jute Mills Corporation amid mounting losses due to mismanagement and outdated technology.

The Bangladesh Petroleum Act of 1974 grants the government the authority to award natural resources contracts, and the Bangladesh Oil, Gas and Mineral Corporation Ordinance of 1984 gives Petrobangla, the state-owned oil and gas company, authority to assess and award natural resource contracts and licenses to both SOEs and private companies. Currently, oil and gas firms can pursue exploration and production ventures only through production-sharing agreements with Petrobangla.

Privatization Program

The Bangladeshi government has privatized 74 state-owned enterprises (SOEs) over the past 20 years, but SOEs still retain an important role in the economy, particularly in the financial and energy sectors. Of the 74 SOEs, 54 were privatized through outright sale and 20 through offloading of shares.

Since 2010, the government’s privatization drive has slowed. Previous privatization drives were plagued by allegations of corruption, undervaluation, political favoritism, and unfair competition. Nonetheless, the government has publicly stated its goal is to continue the privatization drive. SOEs can be privatized through a variety of methods, including:

  • Sales through international tenders.
  • Sales of government shares in the capital market.
  • Transfers of some portion of the shares to the employees of the enterprises when shares are sold through the stock exchange.
  • Sales of government shares to a private equity company (restructuring).
  • Mixed sales methods.
  • Management contracts.
  • Leasing.
  • Direct asset sales (liquidation).

In 2010, 22 SOEs were included in the Privatization Commission’s (now the BIDA) program for privatization. However, a 2010 study on privatized industries in Bangladesh conducted by the Privatization Commission found only 59 percent of the entities were in operation after being privatized and 20 percent were permanently closed – implying a lack of planning or business motivation of their private owners. In 2014, the government declared SOEs would not be handed over to private owners through direct sales. Offloading shares of SOEs in the stock market, however, can be a viable way to ensure greater accountability of the management of the SOEs and minimize the government’s exposure to commercial activities. The offloading of shares in an SOE, unless it involves more than 50 percent of its shares, does not divest the government of the control over the enterprise. Both domestic and foreign companies can participate in privatization programs. Additional information is available on the BIDA website at: http://bida.gov.bd/?page_id=4771

8. Responsible Business Conduct

The business community is increasingly aware of and engaged in responsible business conduct (RBC) activities with multinational firms leading the way. While many firms in Bangladesh fall short on RBC activities and instead often focus on philanthropic giving, some of the leading local conglomerates have begun to incorporate increasingly rigorous environmental and safety standards in their workplaces. U.S. companies present in Bangladesh maintain diverse RBC activities. Consumers in Bangladesh are generally less aware of RBC, and consumers and shareholders exert little pressure on companies to engage in RBC activities.

While many international firms are aware of OECD guidelines and international best practices concerning RBC, many local firms have limited familiarity with international standards. There are currently two RBC NGOs active in Bangladesh:

Along with the Bangladesh Enterprise Institute, the CSR Centre is the joint focal point for the United Nations Global Compact (UNGC) and its corporate social responsibility principles in Bangladesh. The UN Global Compact is the world’s largest corporate citizenship and sustainability initiative. The Centre is a member of a regional RBC platform called the South Asian Network on Sustainability and Responsibility, with members including Bangladesh, Afghanistan, India, Nepal, and Pakistan.

While several NGOs have proposed National Corporate Social Responsibility Guidelines, the government has yet to adopt any such standards for RBC. As a result, the government encourages enterprises to follow generally accepted RBC principles but does not mandate any specific guidelines.

Bangladesh has natural resources, but it has not joined the Extractive Industries Transparency Initiative (EITI). The country does not adhere to the Voluntary Principles on Security and Human Rights.

Additional Resources

Department of State

Country Reports on Human Rights Practices ( https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/);

Trafficking in Persons Report ( https://www.state.gov/trafficking-in-persons-report/);

Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities ( https://www.state.gov/key-topics-bureau-of-democracy-human-rights-and-labor/due-diligence-guidance/) and;

North Korea Sanctions & Enforcement Actions Advisory ( https://home.treasury.gov/system/files/126/dprk_supplychain_advisory_07232018.pdf ).

Department of Labor

Findings on the Worst forms of Child Labor Report ( https://www.dol.gov/agencies/ilab/resources/reports/child-labor/findings  );

List of Goods Produced by Child Labor or Forced Labor ( https://www.dol.gov/agencies/ilab/reports/child-labor/list-of-goods );

Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World ( https://www.dol.gov/general/apps/ilab ) and;

Comply Chain ( https://www.dol.gov/ilab/complychain/ ).

9. Corruption

Corruption remains a serious impediment to investment and economic growth in Bangladesh. While the government has established legislation to combat bribery, embezzlement, and other forms of corruption, enforcement is inconsistent. The Anti-Corruption Commission (ACC) is the main institutional anti-corruption watchdog. With amendments to the Money Prevention Act, the ACC is no longer the sole authority to probe money-laundering offenses. Although it still has primary authority for bribery and corruption, other agencies will now investigate related offenses, including:

  • The Bangladesh Police (Criminal Investigation Department) – Most predicate offenses.
  • The National Board of Revenue – VAT, taxation, and customs offenses.
  • The Department of Narcotics Control – drug related offenses.

The current Awami League-led government has publicly underscored its commitment to fighting corruption and reaffirmed the need for a strong ACC, but opposition parties claim the ACC is used by the government to harass political opponents. Efforts to ease public procurement rules and a recent constitutional amendment diminishing the independence of the ACC may undermine institutional safeguards against corruption. Bangladesh is a party to the UN Anticorruption Convention but has not joined the OECD Convention on Combating Bribery of Public Officials. Corruption is common in public procurement, tax and customs collection, and among regulatory authorities. Corruption, including bribery, raises the costs and risks of doing business. By some estimates, off-the-record payments by firms may result in an annual reduction of two to three percent of GDP. Corruption has a corrosive impact on the broader business climate market and opportunities for U.S. companies in Bangladesh. It also deters investment, stifles economic growth and development, distorts prices, and undermines the rule of law.

Resources to Report Corruption

Mr. Iqbal Mahmood
Chairman
Anti-Corruption Commission, Bangladesh
1, Segun Bagicha, Dhaka 1000
+88-02-8333350
chairman@acc.org.bd

Contact at “watchdog” organization:

Mr. Iftekharuzzaman
Executive Director
Transparency International Bangladesh (TIB)
MIDAS Centre (Level 4 & 5), House-5, Road-16 (New) 27 (Old),

Dhanmondi, Dhaka -1209
+880 2 912 4788 / 4789 / 4792
edtib@ti-bangladesh.orginfo@ti-bangladesh.orgadvocacy@ti-bangladesh.org

10. Political and Security Environment

Prime Minister Hasina’s ruling Awami League party won 289 parliamentary seats out of 300 in a December 30, 2018 election marred by wide-spread vote-rigging, ballot-box stuffing and intimidation. Intimidation, harassment, and violence during the pre-election period made it difficult for many opposition candidates and their supporters to meet, hold rallies, and/or campaign freely. The clashes between rival political parties and general strikes that previously characterized the political environment in Bangladesh have become far less frequent in the wake of the Awami League’s increasing dominance and crackdown on dissent. Many civil society groups have expressed concern about the trend toward a one-party state and the marginalization of all political opposition groups.

Americans are advised to exercise increased caution due to crime and terrorism when traveling to Bangladesh. Travel in some areas have higher risks. For further information, see the  State Department’s travel website for the  Worldwide Caution Travel Advisories, and  Bangladesh Country Specific Information.

11. Labor Policies and Practices

Bangladesh’s comparative advantage in cheap labor for manufacturing is partially offset by lower productivity due to poor skills development, inefficient management, pervasive corruption, and inadequate infrastructure. According to the 2016-2017 Labor Force Survey, 85 percent of the Bangladeshi labor force is employed in the informal economy. Bangladeshi workers have a strong reputation for hard work, entrepreneurial spirit, and a positive and optimistic attitude. With an average age of 26 years, the country boasts one of the largest and youngest labor forces in the world. However, training is not well aligned with labor demand. Bangladesh’s labor laws specify acceptable employment conditions, working hours, minimum wage levels, leave policies, health and sanitary conditions, and compensation for injured workers. Freedom of association and the right to join unions are guaranteed in the constitution. In practice, however, compliance and enforcement of labor laws are weak, and companies frequently discourage or prevent formation of worker-led labor unions, preferring pro- factory management unions. Export Processing Zones (EPZs) are a notable exception to the national labor law in that trade unions are not allowed there. The EPZ labor law instead allows worker welfare associations, to which 74 percent of workers belong, according to the government.

Since two back-to-back tragedies killed over 1,250 workers – the Tazreen Fashions fire in 2012 and the Rana Plaza collapse in 2013 – Bangladesh made significant progress in garment factory fire and structural safety remediation, thanks mostly to two Western brand-led initiatives, the Alliance for Bangladesh Worker Safety (Alliance), comprised of North American brands, and the Accord on Fire and Building Safety in Bangladesh (Accord), which was formed by European brands. Major accidents and workplace deaths in the garment sector dropped precipitously as a result—to zero in 2020. Monitoring and remediation of RMG factories exporting to non-Western countries was overseen by the government, with assistance from the International Labor Organization (ILO) under the National Initiative. By 2020, fewer than half the factories under the National Initiative had completed initial remediation of safety issues, and both the Alliance and Accord had closed their Bangladesh operations. North American brands continued to monitor manufacturers’ safety maintenance and training through a new organization, Nirapon. The Accord, under High Court order, handed over its staff and operations to the newly formed RMG Sustainability Council (RSC), overseen by a board consisting of manufacturers, brands, and worker representatives. The government is working to form an Industrial Safety Unit to oversee factory safety in National Initiative garment factories as well as all manufacturing

The U.S. government suspended Bangladesh’s access to the U.S. Generalized System of Preferences (GSP) over labor rights violations following a six-year formal review conducted by the U.S. Trade Representative. The decision, announced in 2013 in the months following the Rana Plaza collapse, was accompanied by a 16-point GSP Action Plan to help start Bangladesh’s path to reinstatement of the trade benefits. While some progress was made in the intervening years, several key issues have not been adequately addressed. Despite revisions intended to make Bangladesh more compliant with international labor standards, the Bangladesh Labor Act (BLA) and EPZ Labor Act (ELA) still restrict the freedom of association and formation of unions and maintain separate administrative systems for workers inside and outside of export processing zones.

Under the current BLA, legally registered unions are entitled to submit charters of demands and bargain collectively with employers, but this has rarely occurred in practice. The government counts nearly 1,000 registered trade unions, but labor leaders estimate there are fewer than 100 active trade unions in the country’s dominant sector, RMG, and only 30 to 40 are capable enough to negotiate with owners. The law provides criminal penalties for conducting unfair labor practices such as retaliation against union members for exercising their legal rights, but charges are rarely brought against employers and the labor courts have a large backlog of cases. Labor organizations reported most workers did not exercise their rights to form unions, attend meetings, or bargain collectively due to fear of reprisal. A crackdown on mostly peaceful wage protests between December 2018 and February 2019 reportedly led to termination or forced resignation of an estimated 7,000 to 11,000 garment workers – many of whom were blacklisted and remained unable to find new employment in the garment sector over a year later.

The labor law differentiates between layoffs and terminations; no severance is paid if a worker is fired for misconduct. In the case of downsizing or “retrenchment,” workers must be notified and paid 30 days’ wages for each year of service. The law requires factories and establishments to notify Bangladesh’s Department of Inspection for Factories and Establishments a week prior to temporarily laying off workers due to a shortage of work or material. Laid off workers are entitled to their full housing allowance. For the first 45 days, they are also entitled to half their basic wages, then 25 percent thereafter. Workers who were employed for less than one year are not eligible for compensation during a layoff. However, the press and trade unions report employers not only fail to pay workers their severance or benefits, but also their regular wages. In 2020 alone, workers and organizers staged 264 labor protests in the garment sector over back wages, factory layoffs, and demands to reopen closed factories. No unemployment insurance or other social safety net programs exist, although the government had begun discussing how to establish them with the help of development partners and brands. The government does not consistently and effectively enforce applicable labor laws. For example, the law establishes mechanisms for conciliation, arbitration, and dispute resolution by a labor court and workers in a collective bargaining union have the right to strike in the event of a failure to reach a settlement. In practice, few strikers followed the cumbersome and time-consuming legal requirements for settlements and strikes or walkouts often occur spontaneously. The government was partnering with the ILO to introduce a dispute settlement system within its Department of Labor.

The government does not consistently and effectively enforce applicable labor laws. For example, the law establishes mechanisms for conciliation, arbitration, and dispute resolution by a labor court and workers in a collective bargaining union have the right to strike in the event of a failure to reach a settlement. In practice, few strikers followed the cumbersome and time-consuming legal requirements for settlements and strikes or walkouts often occur spontaneously. The government was partnering with the ILO to introduce a dispute settlement system within its Department of Labor.

The BLA guarantees workers the right to conduct lawful strikes, but with many limitations. For example, the government may prohibit a strike deemed to pose a “serious hardship to the community” and may terminate any strike lasting more than 30 days. The BLA also prohibits strikes at factories in the first three years of commercial production, and at factories controlled by foreign investors.

The U.S. government funds efforts to improve occupational safety and health alongside labor rights in the readymade garment sector in partnership with other international partners, civil society, businesses, and the Bangladeshi government. The United States works with other governments and the International Labor Organization (ILO) to discuss and assist with additional labor reforms needed to fully comply with international labor conventions. In early 2021, the government submitted a draft action plan to the EU and ILO describing how it planned to bring its laws and practices into compliance with international labor standards over time. The U.S. government will closely monitor development and implementation of the plan to ensure it sufficiently addresses long-standing recommendations.

12. U.S International Development Finance Corporation (DFC) and Other Investment Insurance and Development Finance Programs

The U.S. International Development Finance Corporation (DFC) is not currently authorized to operate in Bangladesh. Investors should check DFC’s website for updates:  https://www.dfc.gov/what-we-offer/eligibility/where-we-work  

DFC’s predecessor, the Overseas Private Investment Corporation (OPIC), and the Government of Bangladesh signed an updated bilateral agreement in 1998. More information on DFC services can be found at:  https://www.dfc.gov/  

Bangladesh is also a member of the Multilateral Investment Guarantee Agency (MIGA):  http://www.miga.org.  

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source: Bangladesh Bank, Bangladesh Bureau of Statistics, Other USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($M USD) 2019-20 $330,541 2019 $302,571 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source: Bangladesh Bank, Bangladesh Bureau of Statistics, Other USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019-20 $3,906 2019 $493 BEA data available at
https://apps.bea.gov/
international/factsheet/
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2019 $12 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2019-20 5.7% 2019 5.4% UNCTAD data available at
https://stats.unctad.org/handbook/
EconomicTrends/Fdi.html
 
Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data (December 2019)
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $16,872 100% Total Outward $321 100%
The United States $3,488 20.7% United Kingdom $84 26.2%
The United Kingdom $1,960 11.6% Hong Kong $72 22.4%
The Netherlands $1,372 8.1% India $49 15.3%
Singapore $1,254 7.4% Nepal $45 14.0%
Hong Kong $869 5.2% United Arab Emirates $35 10.9%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets (December 2018)
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries $3,319 100% All Countries $8 100% All Countries $3,311 100%
Germany $534 16% Pakistan $8 100% Germany $534 16%
United States $503 15% N/A N/A N/A United States $503 15%
United Kingdom $336 10% N/A N/A N/A United Kingdom $336 10%
Spain $231 7% N/A N/A N/A Spain $231 7%
France $202 6% N/A N/A N/A France $202 6%

The source of information described in Table 4 is the Coordinated Portfolio Investment Survey (CPIS) of the International Monetary Fund (IMF).  Website: https://data.imf.org/?sk=B981B4E3-4E58-467E-9B90-9DE0C3367363&sId=1481577785817.

14. Contact for More Information

Economic/Commercial Section
Embassy of the United States of America
Madani Avenue, Baridhara,
Dhaka — 1212
Tel: +880 2 5566-2000
Email: USTC-Dhaka@state.gov 

India

Executive Summary

The Government of India continued to actively court foreign investment. In the wake of COVID-19, India enacted ambitious structural economic reforms, including new labor codes and landmark agricultural sector reforms, that should help attract private and foreign direct investment. In February 2021, the Finance Minister announced plans to raise $2.4 billion though an ambitious privatization program that would dramatically reduce the government’s role in the economy. In March 2021, parliament further liberalized India’s insurance sector, increasing the foreign direct investment (FDI) limits to 74 percent from 49 percent, though still requiring a majority of the Board of Directors and management personnel to be Indian nationals.

In response to the economic challenges created by COVID-19 and the resulting national lockdown, the Government of India enacted extensive social welfare and economic stimulus programs and increased spending on infrastructure and public health. The government also adopted production linked incentives to promote manufacturing in pharmaceuticals, automobiles, textiles, electronics, and other sectors. These measures helped India recover from an approximately eight percent fall in GDP between April 2020 and March 2021, with positive growth returning by January 2021.

India, however, remains a challenging place to do business. New protectionist measures, including increased tariffs, procurement rules that limit competitive choices, sanitary and phytosanitary measures not based on science, and Indian-specific standards not aligned with international standards, effectively closed off producers from global supply chains and restricted the expansion in bilateral trade.

The U.S. government continued to urge the Government of India to foster an attractive and reliable investment climate by reducing barriers to investment and minimizing bureaucratic hurdles for businesses.

 
Measure Year Index/ Rank Website Address
TI Corruption Perception Index 2020 86 of 180 https://www.transparency.org/en/countries/india
World Bank’s Doing Business Report: “Ease of Doing Business” 2019 63 of 190   https://www.doingbusiness.org/en/rankings?region=south-asia
Innovation Index 2020 48 of 131 https://www.wipo.int/global_innovation_index/en/2020
U.S. FDI in partner country (Million. USD stock positions) 2019 45,883 https://apps.bea.gov/international/factsheet/factsheet.cfm?Area=612&UUID=67171087-ee34-4983-ac05-984cc597f1f4
World Bank GNI per capita (USD) 2019 2120 https://data.worldbank.org/indicator/ny.gnp.pcap.cd

1. Openness To, and Restrictions Upon, Foreign Investment

Policies toward Foreign Direct Investment

Changes in India’s foreign investment rules are notified in two different ways: (1) Press Notes issued by the Department for Promotion of Industry and Internal Trade (DPIIT) for most sectors, and (2) legislative action for insurance, pension funds, and state-owned enterprises in the coal sector. FDI proposals in sensitive sectors, however, require the additional approval of the Home Ministry.

DPIIT, under the Ministry of Commerce and Industry, is India’s chief investment regulator and policy maker. It compiles all policies related to India’s FDI regime into a single document to make it easier for investors to understand, and this consolidated policy is updated every year. The updated policy can be accessed at: http://dipp.nic.in/foreign-directinvestment/foreigndirectinvestment-policy.  DPIIT, through the Foreign Investment Implementation Authority (FIIA), plays an active role in resolving foreign investors’ project implementation problems and disseminates information about the Indian investment climate to promote investments. The Department establishes bilateral economic cooperation agreements in the region and encourages and facilitates foreign technology collaborations with Indian companies and DPIIT oftentimes consults with lead ministries and stakeholders. There however have been multiple incidents where relevant stakeholders reported being left out of consultations.

Limits on Foreign Control and Right to Private Ownership and Establishment

In most sectors, foreign and domestic private entities can establish and own businesses and engage in remunerative activities. Several sectors of the economy continue to retain equity limits for foreign capital as well as management and control restrictions, which deter investment. For example, the 2015 Insurance Act raised FDI caps from 26 percent to 49 percent, but also mandated that insurance companies retain “Indian management and control.” In the parliament’s 2021 budget session, the Indian government approved increasing the FDI caps in the insurance sector to 74 percent from 49 percent. However, the legislation retained the “Indian management and control” rider. In the August 2020 session of parliament, the government approved reforms that opened the agriculture sector to FDI, as well as allowed direct sales of products and contract farming, though implementation of these changes was temporarily suspended in the wake of widespread protests. In 2016, India allowed up to 100 percent FDI in domestic airlines; however, the issue of substantial ownership and effective control (SOEC) rules that mandate majority control by Indian nationals have not yet been clarified. A list of investment caps is accessible at: http://dipp.nic.in/foreign-directinvestment/foreign-directinvestment-policy .

Screening of FDI

All FDI must be reviewed under either an “Automatic Route” or “Government Route” process. The Automatic Route simply requires a foreign investor to notify the Reserve Bank of India of the investment and applies in most sectors. In contrast, investments requiring review under the Government Route must obtain the approval of the ministry with jurisdiction over the appropriate sector along with the concurrence of DPIIT. The government route includes sectors deemed as strategic including defense, telecommunications, media, pharmaceuticals, and insurance. In August 2019, the government announced a new package of liberalization measures and brought a number of sectors including coal mining and contract manufacturing under the automatic route.

FDI inflows were mostly directed towards the largest metropolitan areas – Delhi, Mumbai, Bangalore, Hyderabad, Chennai – and the state of Gujarat. The services sector garnered the largest percentage of FDI. Further FDI statistics are available at: http://dipp.nic.in/publications/fdistatistics. 

Other Investment Policy Reviews

OECD’s Indian Economic Snapshot: http://www.oecd.org/economy/india-economic-snapshot/ 

WTO Trade Policy Review: https://www.wto.org/english/tratop_e/tpr_e/tp503_e.htm 

2015-2020 Government of India Foreign Trade Policy: http://dgft.gov.in/ForeignTradePolicy 

Business Facilitation

DPIIT is responsible for formulation and implementation of promotional and developmental measures for growth of the industrial sector, keeping in view national priorities and socio- economic objectives. While individual lead ministries look after the production, distribution, development and planning aspects of specific industries allocated to them, DPIIT is responsible for overall industrial policy. It is also responsible for facilitating and increasing the FDI flows to the country.

Invest India  is the official investment promotion and facilitation agency of the Government of India, which is managed in partnership with DPIIT, state governments, and business chambers. Invest India specialists work with investors through their investment lifecycle to provide support with market entry strategies, industry analysis, partner search, and policy advocacy as required. Businesses can register online through the Ministry of Corporate Affairs website: http://www.mca.gov.in/ . After the registration, all new investments require industrial approvals and clearances from relevant authorities, including regulatory bodies and local governments. To fast-track the approval process, especially in the case of major projects, Prime Minister Modi started the Pro-Active Governance and Timely Implementation (PRAGATI initiative) – a digital, multi-modal platform to speed the government’s approval process. As of January 2020, a total of 275 project proposals worth around $173 billion across ten states were cleared through PRAGATI. Prime Minister Modi personally monitors the process to ensure compliance in meeting PRAGATI project deadlines. The government also launched an Inter-Ministerial Committee in late 2014, led by the DPIIT, to help track investment proposals that require inter-ministerial approvals. Business and government sources report this committee meets informally and on an ad hoc basis as they receive reports of stalled projects from business chambers and affected companies.

Outward Investment

The Ministry of Commerce’s India Brand Equity Foundation (IBEF) claimed in March 2020 that outbound investment from India had undergone a considerable change in recent years in terms of magnitude, geographical spread, and sectorial composition. Indian firms invest in foreign markets primarily through mergers and acquisition (M&A). According to a Care Ratings study, corporate India invested around $12.25 billion in overseas markets between April and December 2020. The investment was mostly into wholly owned subsidiaries of companies. In terms of country distribution, the dominant destinations were the Unites States ($2.36 billion), Singapore ($2.07 billion), Netherlands ($1.50 billion), British Virgin Islands ($1.37 billion), and Mauritius ($1.30 million).

2. Bilateral Investment Agreements and Taxation Treaties

India adopted a new model Bilateral Investment Treaty (BIT) in December 2015, following several adverse rulings in international arbitration proceedings. The new model BIT does not allow foreign investors to use investor-state dispute settlement methods, and instead requires foreign investors first to exhaust all local judicial and administrative remedies before entering international arbitration. The Indian government also served termination notices for existing BITs with 73 countries.

In September 2018, Belarus became the first country to execute a new BIT with India, based on the new model BIT, followed by the Taipei Cultural & Economic Centre (TECC) in December 2019, and Brazil in January 2020. India has also entered into a BIT negotiation with the Philippines and joint interpretative statements are under discussion with Iran, Switzerland, Morocco, Kuwait, Ukraine, UAE, San Marino, Hong Kong, Israel, Mauritius, and Oman.

Currently 14 BITs are in force. The Ministry of Finance said the revised model BIT will be used for the renegotiation of existing and any future BITs and will form the investment chapter in any Comprehensive Economic Cooperation Agreements (CECAs)/Comprehensive Economic Partnership Agreements (CEPAs)/Free Trade Agreements (FTAs).

The complete list of agreements can be found at: https://investmentpolicy.unctad.org/international-investment-agreements/countries/96/india 

Bilateral Taxation Treaties

India has a bilateral taxation treaty with the United States, available at: https://www.irs.gov/pub/irstrty/india.pdf

https://www.irs.gov/pub/irstrty/india.pdf

3. Legal Regime

Transparency of the Regulatory System

Some government policies are written in a way that can be discriminatory to foreign investors or favor domestic industry. For example, approval in 2021 for higher FDI thresholds in the insurance sector came with a requirement of “Indian management and control.” On most occasions the rules are framed after thorough discussions by government authorities and require the approval of the cabinet and, in some cases, the Parliament as well. Policies pertaining to foreign investments are framed by DPIIT, and implementation is undertaken by lead federal ministries and sub-national counterparts. However, in some instances the rules have been framed without following any consultative process.

In 2017, India began assessing a six percent “equalization levy,” or withholding tax, on foreign online advertising platforms with the ostensible goal of “equalizing the playing field” between resident service suppliers and non-resident service suppliers. However, its provisions did not provide credit for taxes paid in other countries for services supplied in India. In February 2020, the FY 2020-21 budget included an expansion of the “equalization levy,” adding a two percent tax to the equalization levy on foreign e-commerce and digital services provider companies. Neither the original 2017 levy, nor the additional 2020 two percent tax applied to Indian firms. In February 2021, the FY 2021-22 budget included three amendments “clarifying” the 2020 equalization levy expansion that will significantly extend the scope and potential liability for U.S. digital and e-commerce firms. The changes to the levy announced in 2021 will be implemented retroactively from April 2020. The 2020 and 2021 changes were enacted without prior notification or an opportunity for public comment.

The Indian Accounting Standards were issued under the supervision and control of the Accounting Standards Board, a committee under the Institute of Chartered Accountants of India (ICAI), and has government, academic, and professional representatives. The Indian Accounting Standards are named and numbered in the same way as the corresponding International Financial Reporting Standards. The National Advisory Committee on Accounting Standards recommends these standards to the Ministry of Corporate Affairs, which all listed companies must then adopt. These can be accessed at: http://www.mca.gov.in/MinistryV2/Stand.html 

International Regulatory Considerations

India is a member of the South Asia Association for Regional Cooperation (SAARC), an eight- member regional block in South Asia. India’s regulatory systems are aligned with SAARC’s economic agreements, visa regimes, and investment rules. Dispute resolution in India has been through tribunals, which are quasi-judicial bodies. India has been a member of the WTO since 1995, and generally notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade; however, at times there are delays in publishing the notifications. The Governments of India and the United States cooperate in areas such as standards, trade facilitation, competition, and antidumping practices.

Legal System and Judicial Independence

India adopted its legal system from English law and the basic principles of the Common Law as applied in the UK are largely prevalent in India. However, foreign companies need to make adaptations for Indian Law and the Indian business culture when negotiating and drafting contracts in India to ensure adequate protection in case of breach of contract. The Indian judiciary provides for an integrated system of courts to administer both central and state laws. The judicial system includes the Supreme Court as the highest national court, as well as a High Court in each state or a group of states which covers a hierarchy of subordinate courts. Article 141 of the Constitution of India provides that a decision declared by the Supreme Court shall be binding on all courts within the territory of India. Apart from courts, tribunals are also vested with judicial or quasi-judicial powers by special statutes to decide controversies or disputes relating to specified areas.

Courts have maintained that the independence of the judiciary is a basic feature of the Constitution, which provides the judiciary institutional independence from the executive and legislative branches.

4. Industrial Policies

The regulatory environment in terms of foreign investment has been eased to make it investor friendly. The measures taken by the Government are directed to open new sectors for foreign direct investment, increase the sectoral limit of existing sectors, and simplifying other conditions of the FDI policy. The Indian government has issued guarantees to investments but only in cases of strategic industries.

Foreign Trade Zones/Free Ports/Trade Facilitation

The government established several foreign trade zone initiatives to encourage export-oriented production. These include Special Economic Zones (SEZs), Export Processing Zones (EPZs), Software Technology Parks (STPs), and Export Oriented Units (EOUs). EPZs are industrial parks with incentives for foreign investors in export-oriented businesses. STPs are special zones with similar incentives for software exports. EOUs are industrial companies, established anywhere in India, that export their entire production and are granted the following: duty-free import of intermediate goods, income tax holidays, exemption from excise tax on capital goods, components, and raw materials, and a waiver on sales taxes. According to the Ministry of Commerce and Industry, as of October 2020, 426 SEZ’s have been approved and 262 SEZs were operational. SEZs are treated as foreign territory — businesses operating within SEZs are not subject to customs regulations nor have FDI equity caps. They also receive exemptions from industrial licensing requirements and enjoy tax holidays and other tax breaks. In 2018, the Indian government announced guidelines for the establishment of the National Industrial and Manufacturing Zones (NIMZs), envisaged as integrated industrial townships to be managed by a special purpose vehicle and headed by a government official. So far, three NIMZs have been accorded final approval and 13 have been accorded in-principal approval. In addition, eight investment regions along the Delhi-Mumbai Industrial Corridor (DIMC) have also been established as NIMZs. These initiatives are governed by separate rules and granted different benefits, details of which can be found at: http://www.sezindia.nic.in,   https://www.stpi.in/   http://www.fisme.org.in/export_schemes/DOCS/B

1/EXPORT%20ORIENTED%20UNIT%20SCHEME.pdf and http://www.makeinindia.com/home. 

The GOI’s revised Foreign Trade Policy, which will be effective for five years starting April 1, 2021, is expected to include a new regionally focused District Export Hubs initiative in addition to existing SEZs and NIMZs

Performance and Data Localization Requirements

Preferential Market Access (PMA) for government procurement has created substantial challenges for foreign firms operating in India. State-owned “Public Sector Undertakings” and the government accord a 20 percent price preference to vendors utilizing more than 50 percent local content. However, PMA for government procurement limits access to the most cost effective and advanced ICT products available. In December 2014, PMA guidelines were revised and reflect the following updates:

1. Current guidelines emphasize that the promotion of domestic manufacturing is the objective of PMA, while the original premise focused on the linkages between equipment procurement and national security.

2. Current guidelines on PMA implementation are limited to hardware procurement only. Former guidelines were applicable to both products and services.

3. Current guidelines widen the pool of eligible PMA bidders, to include authorized distributors, sole selling agents, authorized dealers or authorized supply houses of the domestic manufacturers of electronic products, in addition to OEMs, provided they comply with the following terms:

a. The bidder shall furnish the authorization certificate by the domestic manufacturer for selling domestically manufactured electronic products.

b. The bidder shall furnish the affidavit of self-certification issued by the domestic manufacturer to the procuring agency declaring that the electronic product is domestically manufactured in terms of the domestic value addition prescribed.

c. It shall be the responsibility of the bidder to furnish other requisite documents required to be issued by the domestic manufacturer to the procuring agency as per the policy.

4. The current guidelines establish a ceiling on fees linked with the complaint procedure. There would be a complaint fee of INR 200,000 ($3,000) or one percent of the value of the Domestically Manufactured Electronic Product being procured, subject to a maximum of INR 500,000 ($7,500), whichever is higher.

In January 2017, the Ministry of Electronics & Information Technology (MeitY) issued a draft notification under the PMA policy, stating a preference for domestically manufactured servers in government procurement. A current list of PMA guidelines, notified products, and tendering templates can be found on MeitY’s website: http://meity.gov.in/esdm/pma. 

Research and Development

The Government of India allows for 100 percent FDI in research and development through the automatic route.

Data Storage & Localization

In April 2018, the RBI, announced, without prior stakeholder consultation, that all payment system providers must store their Indian transaction data only in India. The RBI mandate went into effect on October 15, 2018, despite repeated requests by industry and U.S. officials for a delay to allow for more consultations. In July 2019, the RBI, again without prior stakeholder consultation, retroactively expanded the scope of its 2018 data localization requirement to include banks, creating potential liabilities going back to late 2018. RBI policy overwhelmingly and disproportionately has affected U.S. banks and investors, who depend on the free flow of data to both achieve economies of scale and to protect customers by providing global real-time monitoring and analysis of fraud trends and cybersecurity. U.S. payments companies have been able to implement the mandate for the most part, though at great cost and potential damage to the long-term security of their Indian customer base, which will receive fewer services and no longer benefit from global fraud detection and anti-money-laundering/combatting the financing of terrorism (AML/CFT) protocols. Similarly, U.S. banks have been able to comply with RBI’s expanded mandate, though incurring significant compliance costs and increased risk of cybersecurity vulnerabilities.

In addition to the RBI data localization directive for payments companies and banks, the government formally introduced its draft Personal Data Protection Bill (PDPB) in December 2019 which has remained pending in Parliament. The PDPB would require “explicit consent” as a condition for the cross-border transfer of sensitive personal data, requiring users to fill out separate forms for each company that held their data. Additionally, Section 33 of the bill would require a copy of all “sensitive personal data” and “critical personal data” to be stored in India, potentially creating redundant local data storage. The localization of all “sensitive personal data” being processed in India could directly impact IT exports. In the current draft no clear criteria for the classification of “critical personal data” has been included. The PDPB also would grant wide authority for a newly created Data Protection Authority to define terms, develop regulations, or otherwise provide specifics on key aspects of the bill after it becomes a law. Reports on Non-Personal Data and the implementation of a New Information Technology Rule 2021 with Intermediary Guidelines and Digital Media Ethics Code added further uncertainty to how existing rules will interact with the PDPB and how non-personal data will be handled. 5.Protection of Property Rights

Vietnam

Executive Summary

Vietnam continues to welcome foreign direct investment (FDI), and the government has policies in place that are broadly conducive to U.S. investment. Factors that attract foreign investment include recently-signed free trade agreements, political stability, ongoing economic reforms, a young and increasingly urbanized population, and competitive labor costs. Vietnam has received USD 231 billion in FDI from 1988 through 2020, per the Ministry of Public Affairs (MPI), which oversees foreign investments.

Vietnam’s exceptional handling of the COVID-19 pandemic, which has included proactive management of health policy, fiscal stimulus, and monetary policy, combined with supply chain shifts, contributed to Vietnam receiving USD 19.9 billion in FDI in 2020 – almost as much as the USD 20.3 billion received in 2019. Of the 2020 investments, 48 percent went into manufacturing – especially in the electronics, textiles, footwear, and automobile parts industries; 18 percent in utilities and energy; 15 percent in real estate; and smaller percentages in assorted industries. The government approved the following significant FDI projects in 2020: Delta Offshore’s USD 4 billion investment in the Bac Lieu liquified natural gas (LNG) power plant; Siam Cement Group’s (SCG) USD 1.8 billion investment in the Long Son Integrated Petrochemicals Complex; a Daewoo-led, South Korean consortium’s USD 774 million investment in the West Lake Capital Township real estate development in Hanoi; and Taiwan-based Pegatron’s USD 481 million investment in electronics production.

Vietnam recently moved forward on free trade agreements that will likely make it easier to attract future FDI by providing better market access for Vietnamese exports and encouraging investor-friendly reforms. The EU-Vietnam Free Trade Agreement (EVFTA) came into force August 1, 2020. Vietnam signed the UK-Vietnam Free Trade Agreement on December 31, 2020, which will come into effect May 1, 2021. On November 15, 2020, Vietnam signed the Regional Comprehensive Economic Partnership (RCEP). While these agreements lower certain trade and investment barriers for companies from participating countries, U.S. companies may find it more difficult to compete without similar advantages.

In February 2021, the 13th Party Congress of the Communist Party approved a ten-year economic strategy that calls for shifting foreign investments to high-tech industries and ensuring those investments include provisions relating to environmental protection. On January 1, 2021, Vietnam’s Securities Law and new Labor Code Law, which the National Assembly originally approved in 2019, came into force. The Securities Law formally states the government’s intention to remove foreign ownership limits for investments in most industries, and the new Labor Code provides more contract flexibility – including provisions that make it easier for an employer to dismiss an employee and allow workers to join independent trade unions – although no such independent trade unions yet exist in Vietnam. On June 17, 2020, Vietnam passed a revised Investment Law and a new Public Private Partnership Law, both designed to encourage foreign investment into large infrastructure projects, reduce the burden on the government to finance such projects, and increase linkages between foreign investors and the Vietnamese private sector.

Despite a comparatively high level of FDI inflow as a percentage of GDP – 7.3 percent in 2020 – significant challenges remain in Vietnam’s investment climate. These include corruption, weak legal infrastructure, poor enforcement of intellectual property rights (IPR), a shortage of skilled labor, restrictive labor practices, and the government’s slow decision-making process.

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 104 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2020 70 of 190 http://www.doingbusiness.org/en/rankings 
Global Innovation Index 2020 42 of 131 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2019 USD 2,615 https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2019 USD 2,590 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 
Table 1: Key Metrics and Rankings

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Toward Foreign Direct Investment

Since Vietnam embarked on economic reforms in 1986 to transition to a market-based economy, the government has welcomed FDI, recognizing it as a key component of Vietnam’s high rate of economic growth over the last two decades. Foreign investments continue to play a crucial role in the economy: according to Vietnam’s General Statistics Office (GSO), Vietnam exported USD 281 billion in goods in 2020, of which 72 percent came from projects utilizing FDI.

The Politburo issued Resolution 55 in 2019 to increase Vietnam’s attractiveness to foreign investment. This Resolution aims to attract USD 50 billion in new foreign investment by 2030. In 2020, the government revised laws on investment and enterprise, in addition to passing the Public Private Partnership Law, to further the goals of this Resolution. The revisions encourage high-quality investments, use and development of advanced technologies, and environmental protection mechanisms.

While Vietnam’s revised Investment Law says the government must treat foreign and domestic investors equally, foreign investors have complained about having to cross extra hurdles to get ordinary government approvals. The government continues to have foreign ownership limits (FOLs) in industries Vietnam considers important to national security. In January 2020, the government removed FOLs on companies in the eWallet sector and reformed electronic payments procedures for foreign firms. Some U.S. investors report that these changes have provided more regulatory certainty, which has, in turn, instilled greater confidence as they consider long-term investments in Vietnam.U.S. investors continue to cite concerns about confusing tax regulations and retroactive changes to laws – including tax rates, tax policies, and preferential treatment of state-owned enterprises (SOEs). In 2020, members of the American Chamber of Commerce (AmCham) in Hanoi noted that fair, transparent, stable, and effective legal frameworks would help Vietnam better attract U.S. investment.

The Ministry of Planning and Investment (MPI) is the country’s national agency charged with promoting and facilitating foreign investment; most provinces and cities also have local equivalents. MPI and local investment promotion offices provide information and explain regulations and policies to foreign investors. They also inform the Prime Minister and National Assembly on trends in foreign investment. However, U.S. investors should still consult lawyers and/or other experts regarding issues on regulations that are unclear.

The Prime Minister, along with other senior leaders, has stated that Vietnam prioritizes both investment retention and ongoing dialogue with foreign investors. Vietnam’s senior leaders often meet with foreign governments and private-sector representatives to emphasize Vietnam’s attractiveness as an FDI destination. The semiannual Vietnam Business Forum includes meetings between foreign investors and Vietnamese government officials; the U.S.-ASEAN Business Council (USABC), AmCham, and other U.S. associations also host multiple yearly missions for their U.S. company members, which allow direct engagement with senior government officials. Foreign investors in Vietnam have reported that these meetings and dialogues have helped address obstacles.

Limits on Foreign Control and Right to Private Ownership and Establishment

Both foreign and domestic private entities have the right to establish and own business enterprises in Vietnam and engage in most forms of legal remunerative activity in non-regulated sectors.

Vietnam has some statutory restrictions on foreign investment, including FOLs or requirements for joint partnerships, projects in banking, network infrastructure services, non-infrastructure telecommunication services, transportation, energy, and defense. By law, the Prime Minister can waive these FOLs on a case-by-case basis. In practice, however, when the government has removed or eased FOLs, it has done so for the whole industry sector rather than for a specific investment.

MPI plays a key role with respect to investment screening. All FDI projects require approval by the provincial People’s Committee in which the project would be located. By law, large-scale FDI projects must also obtain the approval of the National Assembly before investment can proceed. MPI’s approval process includes an assessment of the investor’s legal status and financial strength; the project’s compatibility with the government’s long- and short-term goals for economic development and government revenue; the investor’s technological expertise; environmental protection; and plans for land use and land clearance compensation, if applicable. The government can, and sometimes does, stop certain foreign investments if it deems the investment harmful to Vietnam’s national security.

The following FDI projects also require the Prime Minister’s approval: airports; grade 1 seaports (seaports the government classifies as strategic); casinos; oil and gas exploration, production, and refining; telecommunications/network infrastructure; forestry projects; publishing; and projects that need approval from more than one province. In the period between this year’s Investment Climate Statement and last year’s, the government removed the requirement that the Prime Minister needs to approve investments over USD 271 million or investments in the tobacco industry.

Other Investment Policy Reviews

Recent third-party investment policy reviews include the World Bank’s Review from 2020: https://openknowledge.worldbank.org/handle/10986/33598 

https://openknowledge.worldbank.org/handle/10986/33598 

And OECD’s 2018 Review: https://www.oecd.org/countries/vietnam/oecd-investment-policy-reviews-viet-nam-2017-9789264282957-en.htm 

https://www.oecd.org/countries/vietnam/oecd-investment-policy-reviews-viet-nam-2017-9789264282957-en.htm 

UNCTAD released a report in 2009: https://unctad.org/webflyer/investment-policy-review-viet-nam 

https://unctad.org/webflyer/investment-policy-review-viet-nam 

Business Facilitation

The World Bank’s 2020 Ease of Doing Business Index ranked Vietnam 70 of 190 economies. The World Bank reported that in some factors Vietnam lags behind other Southeast Asian countries. For example, it takes businesses 384 hours to pay taxes in Vietnam compared with 64 in Singapore, 174 in Malaysia, and 191 in Indonesia.

In May 2021, USAID and the Vietnam Chamber of Commerce and Industry (VCCI) released the Provincial Competitiveness Index (PCI) 2020 Report, which examined trends in economic governance: http://eng.pcivietnam.org/ . This annual report provides an independent, unbiased view on the provincial business environment by surveying over 8,500 domestic private firms on a variety of business issues. Overall, Vietnam’s median PCI score improved, reflecting the government’s efforts to improve economic governance and the quality of infrastructure, as well as a decline in the prevalence of corruption (bribes).

Outward Investment

The government does not have a clear mechanism to promote or incentivize outward investment, nor does it have regulations restricting domestic investors from investing abroad. Vietnam does not release periodical statistics on outward investment, but reported that by the end of 2019 total outward FDI investment from Vietnam was USD 21 billion in more than 1,300 projects in 78 countries. Laos received the most outward FDI, with USD 5 billion, followed by Russia and Cambodia with USD 2.8 billion and USD 2.7 billion, respectively. SOEs like PetroVietnam, Viettel, and SOCB are Vietnam’s largest sources of outward FDI, and have invested more than USD 13 billion in outward FDI, per media reports.

3. Legal Regime

Transparency of the Regulatory System

U.S. companies continue to report that they face frequent and significant challenges with inconsistent regulatory interpretation, irregular enforcement, and an unclear legal framework. AmCham members have consistently voiced concerns that Vietnam lacks a fair legal system for investments, which affects U.S. companies’ ability to do business in Vietnam. The 2020 PCI report documented companies’ difficulties dealing with land, taxes, and social insurance issues, but also found improvements in procedures related to business administration and anti-corruption.

Accounting systems are inconsistent with international norms, and this increases transaction costs for investors. The government had previously said it intended to have most companies transition to International Financial Reporting Standards (IFRS) by 2020. Unable to meet this target, the Ministry of Finance in March 2020 extended the deadline to 2025.

In Vietnam, the National Assembly passes laws, which serve as the highest form of legal direction, but often lack specifics. Ministries provide draft laws to the National Assembly. The Prime Minister issues decrees, which provide guidance on implementation. Individual ministries issue circulars, which provide guidance on how a ministry will administer a law or decree.

After implementing ministries have cleared a particular law to send the law to the National Assembly, the government posts the law for a 60-day comment period. However, in practice, the public comment period is sometimes truncated. Foreign governments, NGOs, and private-sector companies can, and do, comment during this period, after which the ministry may redraft the law. Upon completion of the revisions, the ministry submits the legislation to the Office of the Government (OOG) for approval, including the Prime Minister’s signature, and the legislation moves to the National Assembly for committee review. During this process, the National Assembly can send the legislation back to the originating ministry for further changes. The Communist Party of Vietnam’s Politburo reserves the right to review special or controversial laws.

In practice, drafting ministries often lack the resources needed to conduct adequate data-driven assessments. Ministries are supposed to conduct policy impact assessments that holistically consider all factors before drafting a law, but the quality of these assessments varies.

The Ministry of Justice (MOJ) is in charge of ensuring that government ministries and agencies follow administrative procedures. The MOJ has a Regulatory Management Department, which oversees and reviews legal documents after they are issued to ensure compliance with the legal system. The Law on the Promulgation of Legal Normative Documents requires all legal documents and agreements to be published online and open for comments for 60 days, and to be published in the Official Gazette before implementation.

Business associations and various chambers of commerce regularly comment on draft laws and regulations. However, when issuing more detailed implementing guidelines, government entities sometimes issue circulars with little advance warning and without public notification, resulting in little opportunity for comment by affected parties. In several cases, authorities allowed comments for the first draft only and did not provide subsequent draft versions to the public. The centralized location where key regulatory actions are published can be found here:   http://vbpl.vn/  .

While general information is publicly available, Vietnam’s public finances and debt obligations (including explicit and contingent liabilities) are not transparent. The National Assembly set a statutory limit for public debt at 65 percent of nominal GDP, and, according to official figures, Vietnam’s public debt to GDP ratio in late 2020 was 55.3 percent – down from 56 percent the previous year. However, the official public-debt figures exclude the debt of certain large SOEs. This poses a risk to Vietnam’s public finances, as the government is liable for the debts of these companies. Vietnam could improve its fiscal transparency by making its executive budget proposal, including budgetary and debt expenses, widely and easily accessible to the general public long before the National Assembly enacts the budget, ensuring greater transparency of off-budget accounts, and by publicizing the criteria by which the government awards contracts and licenses for natural resource extraction.

International Regulatory Considerations

Vietnam is a member of ASEAN, a 10-member regional organization working to advance economic integration through cooperation in economic, social, cultural, technical, scientific and administrative fields. Within ASEAN, the ASEAN Economic Community (AEC) has the goal of establishing a single market across ASEAN nations (similar to the EU’s common market), but member states have not made significant progress. To date, AEC’s greatest success has been in reducing tariffs on most products traded within the bloc.

Vietnam is also a member of the Asia-Pacific Economic Cooperation (APEC), an inter-governmental forum for 21 member economies in the Pacific Rim that promotes free trade throughout the Asia-Pacific region. APEC aims to facilitate business among member states through trade facilitation programming, senior-level leaders’ meetings, and regular dialogue. However, APEC is a non-binding forum. ASEAN and APEC membership has not resulted in Vietnam incorporating international standards, especially when compared with the EU or North America.

Vietnam is a party to the WTO’s Trade Facilitation Agreement (TFA) and has been implementing the TFA’s Category A provisions. Vietnam submitted its Category B and Category C implementation timelines on August 2, 2018. According to these timelines, Vietnam will fully implement the Category B and C provisions by the end of 2023 and 2024, respectively.

Legal System and Judicial Independence

Vietnam’s legal system mixes indigenous, French, and Soviet-inspired civil legal traditions. Vietnam generally follows an operational understanding of the rule of law that is consistent with its top-down, one-party political structure and traditionally inquisitorial judicial system.

The hierarchy of the country’s courts is: 1) the Supreme People’s Court; 2) the High People’s Court; 3) Provincial People’s Courts; 4) District People’s Courts, and 5) Military Courts. The People’s Courts operate in five divisions: criminal, civil, administrative, economic, and labor. The Supreme People’s Procuracy is responsible for prosecuting criminal activities as well as supervising judicial activities.

Vietnam lacks an independent judiciary and separation of powers among Vietnam’s branches of government. For example, Vietnam’s Chief Justice is also a member of the Communist Party’s Central Committee. According to Transparency International, there is significant risk of corruption in judicial rulings. Low judicial salaries engender corruption; nearly one-fifth of surveyed Vietnamese households that have been to court declared that they had paid bribes at least once. Many businesses therefore avoid Vietnamese courts as much as possible.

The judicial system continues to face additional problems: for example, many judges and arbitrators lack adequate legal training and are appointed through personal or political contacts with party leaders or based on their political views. Regulations or enforcement actions are appealable, and appeals are adjudicated in the national court system. Through a separate legal mechanism, individuals and companies can file complaints against enforcement actions under the Law on Complaints.

The 2005 Commercial Law regulates commercial contracts between businesses. Specific regulations prescribe specific forms of contracts, depending on the nature of the deals. If a contract does not contain a dispute-resolution clause, courts will have jurisdiction over a dispute. Vietnamese law allows dispute-resolution clauses in commercial contracts explicitly through the Law on Commercial Arbitration. The law follows the United Nations Commission on International Trade Law (UNCITRAL) model law as an international standard for procedural rules.

Vietnamese courts will only consider recognition of civil judgments issued by courts in countries that have entered into agreements on recognition of judgments with Vietnam or on a reciprocal basis. However, with the exception of France, these treaties only cover non-commercial judgments.

Laws and Regulations on Foreign Direct Investment

The legal system includes provisions to promote foreign investment. Vietnam uses a “negative list” approach to approve foreign investment, meaning foreign businesses are allowed to operate in all areas except for six prohibited sectors – from which domestic businesses are also prohibited. These include illicit drugs, wildlife trade, prostitution, human trafficking, human cloning, and debt collection services.

The law also requires that foreign and domestic investors be treated equally in cases of nationalization and confiscation. However, foreign investors are subject to different business-licensing processes and restrictions, and companies registered in Vietnam that have majority foreign ownership are subject to foreign-investor business-license procedures.

The new Labor Code, which came into effect January 1, 2021, provides greater flexibility in contract termination, allows employees to work more overtime hours, increases the retirement age, and adds flexibility in labor contracts.

The Investment Law, revised in June 2020, stipulated Vietnam would encourage FDI, through incentives, in university education, pollution mitigation, and certain medical research. Public Private Partnership Law, passed in June 2020 lists transportation, electricity grid and power plants, irrigation, water supply and treatment, waste treatment, health care, education and IT infrastructure as prioritized sectors for FDI and private public partnerships.

Vietnam has a “one-stop-shop” website for investment that provides relevant laws, rules, procedures, and reporting requirements for investors:  https://vietnam.eregulations.org/  

Competition and Antitrust Laws

In 2018, Vietnam passed a new Law on Competition, which came into effect on July 1, 2019, replacing Vietnam’s Law on Competition of 2004. The Law includes punishments – such as fines – for those who violate the law. The government has not prosecuted any person or entity under this law since it came into effect, though there were prosecutions under the old law in the early 2000s. The law does not appear to have affected foreign investment. On March 24, 2020, Decree 35, the second decree to implement the Law on Competition, came into effect. Decree 35 addresses issues on anti-competitive agreements, abuse of dominance, and merger control. For merger control, the decree replaces the single market share threshold for when parties must notify a merger with an approach that puts forward four alternative benchmarks based on the value of assets, transaction value, revenue, and market share. The decree also provides details on merger filing assessment.

Expropriation and Compensation

Under the law, the government of Vietnam can only expropriate investors’ property in cases of emergency, disaster, defense, or national interest, and the government is required to compensate investors if it expropriates property. Under the U.S.-Vietnam Bilateral Trade Agreement, Vietnam must apply international standards of treatment in any case of expropriation or nationalization of U.S. investor assets, which includes acting in a non-discriminatory manner with due process of law and with prompt, adequate, and effective compensation. The U.S. Mission in Vietnam is unaware of any current expropriation cases involving U.S. firms.

Dispute Settlement

ICSID Convention and New York Convention

Vietnam has not acceded to the International Center for Settlement of Investment Disputes (ICSID) Convention but is a member of UN Commission on International Trade Laws for the period 2019-2025. MPI has submitted a proposal to the government to join the ICSID, but the government has not moved forward on it. Vietnam is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), meaning that Vietnam courts should recognize foreign arbitral awards rendered by a recognized international arbitration institution without a review of cases’ merits.

Investor-State Dispute Settlement

Vietnam has signed 67 bilateral investment treaties, is party to 26 treaties with investment provisions, and is a member of 15 free trade agreements in force. Some of these include provisions for Investor-State Dispute Settlement. As a signatory to the New York Convention, Vietnam is required to recognize and enforce foreign arbitral awards within its jurisdiction, with few exceptions. Technically, foreign and domestic arbitral awards are legally enforceable in Vietnam; however, foreign investors in Vietnam generally prefer international arbitration for predictability. Vietnam courts may reject foreign arbitral awards if the award is contrary to the basic principles of domestic laws. The new Investment law provides that only Vietnam arbitration and courts can solve disputes between investors and government authorities, while investors can select foreign or mutually agreed arbitrations to solve their disputes.

According to UNCTAD, over the last 10 years, there were two dispute cases against the Vietnamese government involving U.S. companies.  The courts decided in favor of the government in one case, and the parties decided to discontinue the other.  The government is currently in two pending, active disputes (with the UK and South Korea). More details are available at  https://investmentpolicy.unctad.org/investment-dispute-settlement/country/229/viet-nam.

International Commercial Arbitration and Foreign Courts

With an underdeveloped legal system, Vietnam’s courts are often ineffective in settling commercial disputes. Negotiation between concerned parties or arbitration are the most common means of dispute resolution. Since the Law on Arbitration does not allow a foreign investor to refer an investment dispute to a court in a foreign jurisdiction, Vietnamese judges cannot apply foreign laws to a case before them, and foreign lawyers cannot represent plaintiffs in a court of law. The Law on Commercial Arbitration of 2010 permits foreign arbitration centers to establish branches or representative offices (although none have done so).

There are no readily available statistics on how often domestic courts rule in favor of SOEs. In general, the court system in Vietnam works slowly. International arbitration awards, when enforced, may take years from original judgment to payment. Many foreign companies, due to concerns related to time, costs, and potential for bribery, have reported that they have turned to international arbitration or have asked influential individuals to weigh in.

Bankruptcy Regulations

Under the 2014 Bankruptcy Law, bankruptcy is not criminalized unless it relates to another crime. The law defines insolvency as a condition in which an enterprise is more than three months overdue in meeting its payment obligations. The law also provides provisions allowing creditors to commence bankruptcy proceedings against an enterprise and procedures for credit institutions to file for bankruptcy. According to the World Bank’s 2020 Ease of Doing Business Report, Vietnam ranked 122 out of 190 for resolving insolvency. The report noted that it still takes, on average, five years to conclude a bankruptcy case in Vietnam. The Credit Information Center of the State Bank of Vietnam provides credit information services for foreign investors concerned about the potential for bankruptcy with a Vietnamese partner.

4. Industrial Policies

Investment Incentives

Foreign investors are exempt from import duties on goods imported for their own use that cannot be procured locally, including machinery; vehicles; components and spare parts for machinery and equipment; raw materials; inputs for manufacturing; and construction materials. Remote and mountainous provinces and special industrial zones are allowed to provide additional tax breaks and other incentives to prospective investors.

Investment incentives, including lower corporate income tax rates, exemption of some import tariffs, or favorable land rental rates, are available in the following sectors: advanced technology; research and development; new materials; energy; clean energy; renewable energy; energy saving products; automobiles; software; waste treatment and management; and primary or vocational education.

The government rarely issues guarantees for financing FDI projects; when it does so, it is usually because the project links to a national security priority. Joint financing with the government occurs when a foreign entity partners with an SOE. The government’s reluctance to guarantee projects reflects its desire to stay below a statutory 65 percent public debt-to-GDP ratio cap, and a desire to avoid incurring liabilities from projects that would not be economically viable without the guarantee. This has delayed approval of many large-scale FDI projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

Vietnam has prioritized efforts to establish and develop foreign trade zones (FTZs) over the last decade. Vietnam currently has more than 350 industrial zones (IZs) and export processing zones (EPZs). Many foreign investors report that it is easier to implement projects in IZs because they do not have to be involved in site clearance and infrastructure construction. Enterprises in FTZs pay no duties when importing raw materials if they export the finished products. Customs warehouse companies in FTZs can provide transportation services and act as distributors for the goods deposited.

Additional services relating to customs declaration, appraisal, insurance, reprocessing, or packaging require the approval of the provincial customs office. In practice, the time involved for clearance and delivery of goods by provincial custom officials can be lengthy and unpredictable. Companies operating in economic zones are entitled to more tax reductions as measures to incentivize investments.

Performance and Data Localization Requirements

Vietnamese law states that employers can only recruit foreign nationals for high-skilled positions such as manager, managing director, expert, or technical worker. Local companies must also justify that their efforts to hire suitable local employees were unsuccessful before recruiting foreigners, and local authorities and/or the national government must approve these justifications in writing. This does not apply to board members elected by shareholders or capital contributors.

The government has implemented entry suspension and quarantine regulations for foreigners since March 2020, as a measure to contain COVID-19. Vietnam’s borders are closed for all foreign nationals with only few exceptions for diplomatic, experts, and special cases determined by the government. Foreign nationals travelling to Vietnam are subject to testing, quarantine, and lockdowns with little or no advance notice.

On June 17, 2020, the National Assembly passed the Law on Investment (LOI) 2020, which prescribes market entry conditions for foreign investors, particularly in “conditional” sectors. All investors, foreign or domestics, must obtain formal approval, in the form of business licenses or other certifications, to satisfy “necessary conditions for reasons of national defense, security or order, social safety, social morality, and health of the community.” These sectors are listed in Appendix IV (“List of Conditional Investments and Businesses”) of the Law.

LOI 2020 includes two conditions for foreign investors investing in or acquiring capital/share in a Vietnamese company:

  • The investment must not compromise national defense and security of Vietnam; and
  • The investment must comply with the conditions relating to the use of islands, border areas, and coastal areas in accordance with the applicable laws.

The LOI does not define “national defense and security.”

On January 1, 2019, the Law on Cybersecurity (LOCS) came into effect, requiring cross-border services providers to store data of Vietnamese users in Vietnam – despite sustained international and domestic opposition to the regulation. The July 2019 draft of the LOCS implementing decree by the Ministry of Public Security (MPS) sparked concerns among foreign digital services firms regarding the draft decree’s provisions on data localization and local presence for a broad range of services in the Internet economy – from cloud computing to email. Provisions of the LOCS require firms to provide unencrypted user information upon request by law enforcement. However, application of this requirement hinges on issuance of the implementing Decree, which is still pending as of April 2021.

In September 2020, MPS released a revised LOCS decree draft, which requires all local companies to comply with data localization requirements and forces foreign services providers to localize their data and establish local presence when they violate Vietnamese laws and fail to cooperate with MPS to address violations. U.S. companies complain that the data localization regulations are impractical, and if implemented, would be unnecessarily burdensome.

The 2019 Law on Tax Administration, which came into force July 1, 2020, requires foreign entities that employ digital platforms without a permanent physical presence in Vietnam to register as tax-paying entities in Vietnam. The Ministry of Finance released a draft circular with guidance on implementation of the Law in March 2021, and is working to revise the law based on stakeholder comments, as of April 2021. American companies have expressed concerns that the original draft circular included unnecessarily complex and unclear regulations of Corporate Income Tax (CIT) and Value Added Tax (VAT) collections, and does not address areas that overlap with Vietnam’s international tax treaties already in force.

In early 2020, the Ministry of Public Security (MPS) released a draft outline of the Personal Data Protection Decree (PDPD) and published the first full draft in February 2021 for public comment with an expected effective date of December 1, 2021. Industry and human rights activists have major concerns about data localization provision for personal data, including requirements for local presence, licensing, and registration procedures. If implemented as written, the regulations of cross-border transfer of personal data would affect a wide range of companies.

The Ministry of Information and Communication (MIC) released a draft of Decree 72 on Internet Services and Information Content Online for public comment on April 19, 2020. Foreign companies reported concerns regarding the draft Decree provisions on mandatory licensing requirements; tightened regulations on social media companies; compulsory content review; and policies requiring responses to government takedown requests within 24 to 48 hours. The draft Decree requires local Internet service providers to terminate services for companies that fail to cooperate with the new regulations. The revised decree is scheduled to go into effect in late 2021. The Ministry of Public Security has applied the broadest possible definition of “data,” in the decree, which could threaten some activities of U.S. payment and financial services companies.

MIC is also revising Decree 06 on Management, Provision and Utilization of Radio and Television Services, which applies specifically to streaming services. The first draft, released August 2019, required onerous licensing procedures, local-presence requirements, local-content quotas, content preapproval, compulsory translation, and local advertising agents that are inconsistent with Vietnam’s commitments under the World Trade Organization (WTO). The latest, December 2020, draft continues to include licensing requirements for cross-border over-the-top (OTT) services providers and pre-check content censorship.

5. Protection of Property Rights

Real Property

The State collectively owns and manages all land in Vietnam, and therefore neither foreigners nor Vietnamese nationals can own land. However, the government grants land-use and building rights, often to individuals. According to the Ministry of National Resources and Environment (MONRE), as of September 2018 – the most recent time period in which the government has made figures available – the government has issued land-use rights certificates for 96.9 percent of land in Vietnam. If land is not used according to the land-use rights certificate or if it is unoccupied, it reverts to the government. If investors do not use land leased within 12 consecutive months or delay land use by 24 months from the original investment schedule, the government is entitled to reclaim the land. Investors can seek an extension of delay but not for more than 24 months. Vietnam is building a national land-registration database, and some localities have already digitized their land records.

State protection of property rights are still evolving, and the law does not clearly demarcate circumstances in which the government would use eminent domain. Under the Housing Law and Real Estate Business Law of November 2014, the government can take land if it deems it necessary for socio-economic development in the public or national interest if the Prime Minister, the National Assembly, or the Provincial People’s Council approves such action. However, the law loosely defines “socio-economic development.”

Disputes over land rights continue to be a significant driver of social protests in Vietnam. Foreign investors also may be exposed to land disputes through merger and acquisition activities when they buy into a local company or implement large-scale infrastructure projects.

Foreign investors can lease land for renewable periods of 50 years, and up to 70 years in some underdeveloped areas. This allows titleholders to conduct property transactions, including mortgages on property. Some investors have encountered difficulties amending investment licenses to expand operations onto land adjoining existing facilities. Investors also note that local authorities may seek to increase requirements for land-use rights when current rights must be renewed, particularly when the investment in question competes with Vietnamese companies.

Intellectual Property Rights

Vietnam does not have a strong record on protecting and enforcing intellectual property (IP). Lack of coordination among ministries and agencies responsible for enforcement is a primary obstacle, and capacity constraints related to enforcement persist, in part, due to a lack of resources and IP expertise. Vietnam continues to rely heavily on administrative enforcement actions, which have consistently failed to deter widespread counterfeiting and piracy.

There were some positive developments in 2020-2021, such as the issuance of a national IP strategy, public awareness campaigns and training activities, and reported improvements on border enforcement in some parts of the country. Overall, however,IP enforcement continues to be a challenge.

The United States is closely monitoring and engaging with the Vietnamese government in the ongoing implementation of amendments to the 2015 Penal Code, particularly with respect to criminal enforcement of IP violations. Counterfeit goods are widely available online and in physical markets. In addition, issues continue to persist with online piracy (including the use of piracy devices and applications to access unauthorized audiovisual content), book piracy, lack of effective criminal measures for cable and satellite signal theft, and both private and public-sector software piracy..

Vietnam’s system for protecting against the unfair commercial use and unauthorized disclosure of undisclosed tests or other data generated to obtain marketing approval for pharmaceutical products needs further clarification.  The United States is monitoring the implementation of IP provisions of the CPTPP, which the National Assembly ratified in November 2018, and the EVFTA, which Vietnam’s National Assembly ratified in June 2020. The EVFTA grandfathered prior users of certain cheese terms from the restrictions in the geographical indications provisions of the EVFTA, and it is important that Vietnam ensure market access for prior users of those terms who were in the Vietnamese market before the grandfathering date of January 1, 2017.

In its international agreements, Vietnam committed to strengthen its IP regime and is in the process of drafting implementing legislation and other measures in a number of IP-related areas, including in preparation for acceding to the World Intellectual Property Organization (WIPO) Copyright Treaty and the WIPO Performances and Phonograms Treaty.  In September 2019, Vietnam acceded to the Hague Agreement Concerning the International Registration of Industrial Designs, and the United States will monitor implementation of that agreement.

The United States, through the U.S.-Vietnam Trade and Investment Framework Agreement (TIFA) and other bilateral fora, continues to urge Vietnam to address IP issues and to provide interested stakeholders with meaningful opportunities for input as it proceeds with these reforms. The United States and Vietnam signed a Customs Mutual Assistance Agreement in December 2019, which will facilitate bilateral cooperation in IP enforcement.

In 2020, the Intellectual Property Office of Vietnam (IP Vietnam) reported receiving 119,986 IP applications of all types (down 0.7 percent from 2019), of which 76,072 were registered for industrial property rights (up 1.7 percent from 2019). IP Vietnam reported granting 4,591 patents in 2020 (up 63 percent from 2019). Industrial designs registrations reached 2,054 in 2020 (down 5.4 percent from 2019). In total, IP Vietnam granted more than 47,168 protection titles for industrial property, out of 76,072 applications in 2020 (up 15.6 percent from 2019). The General Department of Market Management in 2020 detected 7,442 cases relating to counterfeit goods on physical and online markets, copyright and IP violations, imposing fines of USD 5 million. The Copyright Office of Vietnam received and settled 12 copyright petitions and five requests for copyright assessment in 2020. In 2020, the Ministry of Culture, Sports, and Tourism’s Inspector General carried out inspections for software licensing compliance, resulting in total fines of USD 23,000. For more information, please see the following reports from the U.S. Trade Representative:

  • Special 301 Report:  https://ustr.gov/sites/default/files/2020_Special_301_Report.pdf
  • Notorious Markets Report: https://ustr.gov/sites/default/files/2020_Special_301_Report.pdf
  • For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at .

6. Financial Sector

Capital Markets and Portfolio Investment

The government generally encourages foreign portfolio investment. The country has two stock markets: the Ho Chi Minh City Stock Exchange (HOSE), which lists publicly traded companies, and the Hanoi Stock Exchange, which lists bonds and derivatives. The Law on Securities, which came into effect January 1, 2021, states that Vietnam Exchange, a parent company to both exchanges, with board members appointed by the government, will manage trading operations. Vietnam also has a market for unlisted public companies (UPCOM) at the Hanoi Securities Center.

Although Vietnam welcomes portfolio investment, the country sometimes has difficulty in attracting such investment. Morgan Stanley Capital International (MSCI) classifies Vietnam as a Frontier Market, which precludes some of the world’s biggest asset managers from investing in its stock markets.

Vietnam did not meet its goal to be considered an “emerging market” in 2020, and pushed back the timeline to 2025. Foreign investors often face difficulties in making portfolio investments because of cumbersome bureaucratic procedures. Furthermore, in the first three months of 2021, surges in trading frequently crashed the HOSE’s decades-old technology platform, resulting in investor frustration.

There is enough liquidity in the markets to enter and maintain sizable positions. Combined market capitalization at the end of 2020 was approximately USD 230 billion, equal to 84 percent of Vietnam’s GDP, with the HOSE accounting for USD 177 billion, the Hanoi Exchange USD 9 billion, and the UPCOM USD 43 billion. Bond market capitalization reached over USD 50 billion in 2019, the majority of which were government bonds held by domestic commercial banks.

Vietnam complies with International Monetary Fund (IMF) Article VIII. The government notified the IMF that it accepted the obligations of Article VIII, Sections 2, 3, and 4, effective November 8, 2005.

Local banks generally allocate credit on market terms, but the banking sector is not as sophisticated or capitalized as those in advanced economies. Foreign investors can acquire credit in the local market, but both foreign and domestic firms often seek foreign financing since domestic banks do not have sufficient capital at appropriate interest rate levels for a significant number of FDI projects.

Money and Banking System

Vietnam’s banking sector has been stable since recovering from the 2008 global recession. Nevertheless, the State Bank of Vietnam (SBV), Vietnam’s central bank, estimated in 2019 that 55 percent of Vietnam’s population is underbanked or lacks bank accounts due to a preference for cash, distrust in commercial banking, limited geographical distribution of banks, and a lack of financial acumen. The World Bank’s Global Findex Database 2017 (the most recent available) estimated that only 31 percent of Vietnamese over the age of 15 had an account at a financial institution or through a mobile money provider.

The COVID-19 pandemic increased strains on the financial system as an increasing number of debtors were unable to make loan payments. Slow credit growth, together with increases in debtors’ inability to pay back loans, squeezed bank profits in 2020. At the end of 2020, the SBV reported that the percentage of non-performing loans (NPLs) in the banking sector was 2.14 percent, up from 1.9 percent at the end of 2019.

By the end of 2020, per SBV, the banking sector’s estimated total assets stood at USD 572 billion, of which USD 236 billion belonged to seven state-owned and majority state-owned commercial banks – accounting for 41 percent of total assets in the sector. Though classified as joint-stock (private) commercial banks, the Bank of Investment and Development Bank (BIDV), Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank), and Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) all are majority-owned by SBV. In addition, the SBV holds 100 percent of Agribank, Global Petro Commercial Bank (GPBank), Construction Bank (CBBank), and Oceanbank.

Currently, the total foreign ownership limit (FOL) in a Vietnamese bank is 30 percent, with a 5 percent limit for non-strategic individual investors, a 15 percent limit for non-strategic institutional investors, and a 20 percent limit for strategic institutional partners.

The U.S. Mission in Vietnam did not find any evidence that a Vietnamese bank had lost a correspondent banking relationship in the past three years; there is also no evidence that a correspondent banking relationship is currently in jeopardy.

Foreign Exchange and Remittances

Foreign Exchange

There are no legal restrictions on foreign investors converting and repatriating earnings or investment capital from Vietnam. A foreign investor can convert and repatriate earnings provided the investor has the supporting documents required by law proving they have completed financial obligations. The SBV sets the interbank lending rate and announces a daily interbank reference exchange rate. SBV determines the latter based on the previous day’s average interbank exchange rates, while considering movements in the currencies of Vietnam’s major trading and investment partners. The government generally keeps the exchange rate at a stable level compared to major world currencies.

Remittance Policies

Vietnam mandates that in-country transactions must be made in the local currency – Vietnamese dong (VND). The government allows foreign businesses to remit lawful profits, capital contributions, and other legal investment earnings via authorized institutions that handle foreign currency transactions. Although foreign companies can remit profits legally, sometimes these companies find bureaucratic difficulties, as they are required to provide supporting documentation (audited financial statements, import/foreign-service procurement contracts, proof of tax obligation fulfillment, etc.). SBV also requires foreign investors to submit notification of profit remittance abroad to tax authorities at least seven working days prior to the remittance; otherwise there is no waiting period to remit an investment return.

The inflow of foreign currency into Vietnam is less constrained. There are no recent changes or plans to change investment remittance policies that either tighten or relax access to foreign exchange for investment remittances.

Sovereign Wealth Funds

Vietnam does not have a sovereign wealth fund.

7. State-Owned Enterprises

The 2020 Enterprises Law, which came into effect January 1, 2021, defines an SOE as an enterprise that is more than 50 percent owned by the government. Vietnam does not officially publish a list of SOEs.

In 2018, the government created the Commission for State Capital Management at Enterprises (CMSC) to manage SOEs with increased transparency and accountability. The CMSC’s goals include accelerating privatization in a transparent manner, promoting public listings of SOEs, and transparency in overall financial management of SOEs.

SOEs do not operate on a level playing field with domestic or foreign enterprises and continue to benefit from preferential access to resources such as land, capital, and political largesse. Third-party market analysts note that a significant number of SOEs have extensive liabilities, including pensions owed, real estate holdings in areas not related to the SOE’s ostensible remit, and a lack of transparency with respect to operations and financing.

Privatization Program

Vietnam officially started privatizing SOEs in 1998. The process has been slow because privatization typically transfers only a small share of an SOE (two to three percent) to the private sector, and investors have had concerns about the financial health of many companies. Additionally, the government has inadequate regulations with respect to privatization procedures.

8. Responsible Business Conduct

Companies are required to publish their corporate social responsibility activities, corporate governance work, information of related parties and transactions, and compensation of management. Companies must also announce extraordinary circumstances, such as changes to management, dissolution, or establishment of subsidiaries, within 36 hours of the event.

Most multinational companies implement Corporate Social Responsibility (CSR) programs that contribute to improving the business environment in Vietnam, and awareness of CSR programs is increasing among large domestic companies. The VCCI conducts CSR training and highlights corporate engagement on a dedicated website ( http://www.csr-vietnam.eu/  ) in partnership with the UN.

AmCham also has a CSR group that organizes events and activities to raise awareness of social issues. Non-governmental organizations collaborate with government bodies, such as VCCI and the Ministry of Labor, Invalids, and Social Affairs (MOLISA), to promote business practices in Vietnam in line with international norms and standards.

Vietnam is not a part of the Extractive Industries Transparency Initiative.

Overall, the government has not defined responsible business conduct (RBC), nor has it established a national plan or agenda for RBC. The government has yet to establish a national point of contact or ombudsman for stakeholders to get information or raise concerns regarding RBC. The new Labor Code, which came into effect January 1, 2021, recognizes the right of employees to establish their own representative organizations, allows employees to unilaterally terminate labor contract without reason, and extends legal protection to non-written contract employees. For a detailed description of regulations on worker/labor rights in Vietnam, see the Department of State’s Human Rights Report ( https://www.state.gov/reports/2018-country-reports-on-human-rights-practices/vietnam/).

Vietnam’s Law on Consumer Protection is designed to protect consumers, but in practice the law is ineffective. A consumer who has a complaint on a product or service can petition the Association for Consumer Protection (ACP) or district governments. ACP is a non-governmental, volunteer organization that lacks law enforcement or legal power, and local governments are typically unresponsive to consumer complaints. The Vietnamese government has not focused on consumer protection over the last several years.

Vietnam allows foreign companies to work in private security. Vietnam has not ratified the Montreux Documents, is not a supporter of the International Code of Conduct or Private Security Service Providers, and is not a participant in the International Code of Conduct for Private Security Service Providers’ Association (ICoCA).

Vietnamese legislation clearly specifies businesses’ responsibilities regarding environmental protection. The revised 2020 Environmental Protection Law, which will come into effect on January 1, 2022, states that environmental protection is the responsibility and obligation of all organizations, institutions, communities, households, and individuals.

The Penal Code, revised in 2017, includes a chapter with 12 articles regulating different types of environmental crimes. In accordance with the Penal Code, penalties for infractions carry a maximum of 15 years in prison and a fine equivalent to USD 650,000. However, enforcement remains a problem. To date, no complaint or request for compensation due to damages caused by pollution or other environmental violations has ever been successfully resolved in court due to difficulties in identifying the level of damages and proving the relationship between violators and damages.

In the past several years, there have been high-profile, controversial instances of private sector impact on human rights – particularly over the revocation of land for real estate development projects. Government suppression of these protests ranged from intimidation and harassment via the media (including social media) to imprisonment. There are numerous examples of government-supported forces beating protestors, journalists, and activists covering land issues. Victims have reported they are unable to press claims against their attackers.

Additional Resources

Department of State

  • Country Reports on Human Rights Practices ();
  • Trafficking in Persons Report ();
  • Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities () and;
  • North Korea Sanctions & Enforcement Actions Advisory ().

Department of Labor

  • Findings on the Worst forms of Child Labor Report ( );
  • List of Goods Produced by Child Labor or Forced Labor ();
  • Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World () and;
  • Comply Chain ().

9. Corruption

Vietnam has laws to combat corruption by public officials, and they extend to all citizens. Corruption is due, in large part, to low levels of transparency, accountability, and media freedom, as well as poor remuneration for government officials and inadequate systems for holding officials accountable. Competition among agencies for control over businesses and investments has created overlapping jurisdictions and bureaucratic procedures that, in turn, create opportunities for corruption.

The government has tasked various agencies to deal with corruption, including the Central Steering Committee for Anti-Corruption (chaired by the Communist Party of Vietnam General Secretary), the Government Inspectorate, and line ministries and agencies. Formed in 2007, the Central Steering Committee for Anti-Corruption has been under the purview of the CPV Central Commission of Internal Affairs since February 2013. The National Assembly provides oversight on the operations of government ministries. Civil society organizations have encouraged the government to establish a single independent agency with oversight and enforcement authority to ensure enforcement of anti-corruption laws.

Resource to Report Corruption

Contact at government agency responsible for combating corruption:

Mr. Phan Dinh TracChairman, Communist Party Central Committee Internal Affairs4 Nguyen Canh Chan; +84 0804-3557Contact at NGO:Ms. Nguyen Thi Kieu VienExecutive Director, Towards TransparencyTransparency International National Contact in VietnamFloor 4, No 37 Lane 35, Cat Linh street, Dong Da, Hanoi, Vietnam; +84-24-37153532Fax: +84-24-37153443; kieuvien@towardstransparency.vn 

10. Political and Security Environment

Vietnam is a unitary single-party state, and its political and security environment is largely stable. Protests and civil unrest are rare, though there are occasional demonstrations against perceived or real social, environmental, labor, and political injustices.

In August 2019, online commentators expressed outrage over the slow government response to an industrial fire in Hanoi that released unknown amounts of mercury. Other localized protests in 2019 and early 2020 broke out over alleged illegal dumping in waterways and on public land, and the perceived government attempts to cover up potential risks to local communities.

Citizens sometimes protest actions of the People’s Republic of China (PRC), usually online. For example, in June 2019, when PRC Coast Guard vessels harassed the operations of Russian oil company Rosneft in Block 06-01, Vietnam’s highest-producing natural gas field, Vietnamese citizens protested via Facebook and, in a few instances, in public.

In April 2016, after the Formosa Steel plant discharged toxic pollutants into the ocean and caused a large number of fish deaths, affected fishermen and residents in central Vietnam began a series of regular protests against the company and the government’s lack of response to the disaster. Protests continued into 2017 in multiple cities until security forces largely suppressed the unrest. Many activists who helped organize or document these protests were subsequently arrested and imprisoned.

11. Labor Policies and Practices

Vietnam’s new Labor Code came into effect on January 1, 2021. The CPTPP and the EVFTA have helped advance labor reform in Vietnam. In June 2020, EVFTA helped push Vietnam to ratify International Labor Organization (ILO) Convention 105 – on the abolition of forced labor – which will come into force July 14, 2021. EVFTA also requires Vietnam to ratify Convention 87, on freedom of association and protection of the right to organize, by 2023. Although Vietnam has made some progress on labor issues in recent years, including, in theory, allowing the formation of independent unions, the sole union that has any real authority is the state-controlled Vietnam General Confederation of Labor. Workers will not be able to form independent unions, legally, until the Ministry of Labor, Invalids, and Social Affairs (MOLISA) issues guidance on implementation of the Labor Code.

According to Vietnam’s General Statistics Office (GSO), in 2020 there were 54.6 million people participating in the formal labor force in Vietnam out of over 74 million people aged 15 and above. The labor force is relatively young, with workers 15-39 years of age accounting for half of the total labor force.

Estimates on the size of the informal economy differ widely. The IMF states 40 percent of Vietnam’s laborers work on the informal economy; the World Bank puts the figure at 55 percent; the ILO puts the figure as high as 79 percent if agricultural households are included. Vietnam’s GSO stated that among 53.4 million employed people, 20.3 million people worked in the informal economy.

An employer is permitted to lay off employees due to technological changes, organizational changes (in cases of a merger, consolidation, or cessation of operation of one or more departments), when the employer faces economic difficulties, or when the employees are harassing others at work. There are no waivers on labor requirements to attract foreign investment. COVID-19 increased the number of layoffs in the Vietnamese economy. In March and April 2020, and again in September 2020, the government provided cash payments and supplemental cash for companies, to help pay salaries for workers and offer unemployment insurance.

The constitution affords the right of association and the right to demonstrate. The 2019 Labor Code, which came into effect on January 1, 2021, allows workers to establish and join independent unions of their choice. However, the relevant governmental agencies are still drafting the implementing decrees on procedures to establish and join independent unions, and to determine the level of autonomy independent unions will have in administering their affairs.

Labor dispute resolution mechanisms vary depending on the situation. Individual labor disputes and rights-based collective labor disputes must go through a defined process that includes labor conciliation, labor arbitration, and a court hearing.

Vietnam has been a member of the ILO since 1992, and has ratified six of the core ILO labor conventions (Conventions 100 and 111 on discrimination, Conventions 138 and 182 on child labor, Convention 29 on forced labor, and Convention 98 on rights to organize and collective bargaining). While the constitution and law prohibit forced or compulsory labor, Vietnam has not ratified Convention 105 on forced labor as a means of political coercion and discrimination and Convention 87 on freedom of association and protection of the rights to organize.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

 

Host Country Statistical source* USG or international statistical source USG or International Source of Data:BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) (millions USD) 2020 2370 2020 3400 General Statistics Office (GSO) for Host Country and IMF for International Source https://www.imf.org/en/Countries/VNM#countrydata 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2020 10,418 2019 2,615 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Host country’s FDI in the United States ($M USD, stock positions) 2020 N/A 2019 57 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Total inbound stock of FDI as % host GDP 2020 N/A 2019 49.3 UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/ountry-Fact-Sheets.aspx  
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

* General Statistics Office (GSO)

Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward Amount 100% Total Outward Amount 100%
Singapore 6,828 32%
South Korea 2,946 14%
China 2,070 10%
Hong Kong 1,737 8%
Taiwan 1,707 8%
“0” reflects amounts rounded to +/- USD 500,000.

Data not available.

Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars) (From MPI)
Total Equity Securities Total Debt Securities
All Countries Amount 100% N/A N/A
Singapore 2,166 29%
Japan 1,149 15%
South Korea 1,003 13%
Netherlands 445 6%
China 390 5%
Table 4: Sources of Portfolio Investment

14. Contact for More Information

Economic SectionU.S. Embassy7 Lang Ha, Ba Dinh, Hanoi, Vietnam +84-24-3850-5000+84-24-3850-5000 InvestmentClimateVN@state.gov 

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