Tax Incentives for Foreign Investors in Bangladesh (2026): Holidays, Zones and Treaties

Tax incentives for foreign investors Bangladesh offers in 2026: the framework

The tax incentives for foreign investors Bangladesh offers in 2026 are real but narrower, more conditional and more closely policed than the brochures suggest. The Income Tax Act 2023 sets the rules for any tax holiday, the Finance Act 2026 added and trimmed sector reliefs from 1 July 2026, and the Invest Bangladesh Act 2026 now gives the Government power to grant zone and project incentives by gazette notification. The NBR lists 43 double tax agreements that cap the tax on dividends, interest and royalties paid abroad.

This guide sets out what exists, who grants it, the conditions that decide whether a foreign-owned company keeps it, and how double tax treaties reduce tax on money going home. Market entry, corporate rates and withholding mechanics have their own TRW guides, which we link to rather than repeat.

Summary: Bangladesh grants income tax holidays to approved entities under sections 76 and 81 to 85 of the Income Tax Act 2023, alongside sector exemptions and location-based packages for export processing zones, economic zones and hi-tech parks. The Finance Act 2026 added solar, edible oil and startup reliefs, accelerated depreciation outside Dhaka and Chattogram, and Free Trade Zones. Treaty rates on outbound payments require an NBR certificate before payment. Fixed-term incentives have proved more durable than open-ended ones.

Key point: An exemption is lost, not just reduced, if the conditions in section 76(5) are missed. A company that files its return late, fails to file withholding returns or receives exempt income outside the banking system is not exempt for that year, whatever its approval says. For most foreign-owned companies, compliance failure is a bigger threat to the incentive than any change of policy.

At a glance

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Table of Contents

Who grants tax incentives in Bangladesh

Three bodies matter. The National Board of Revenue administers income tax, VAT and customs and, under section 76(1) of the Income Tax Act 2023, the Board may grant exemption from tax to any person or class of persons by notification in the official Gazette.[1] Section 76(2) adds a rule that surprises many investors: an exemption granted under any other law does not operate unless it is also notified under section 76(1).[1] A promise in an investment law, a zone agreement or a project contract is therefore not, on its own, a tax exemption.

Since July 2025, a Tax Expenditure Policy and Management Framework has limited the executive's discretion further. As reported in October 2025, that policy removed the NBR's power to grant exemptions from VAT, supplementary duty and advance tax, and Article 4 provides that only Parliament can approve tax exemptions, except in specific cases. An October 2025 ordinance then amended the VAT law to restore the Government's power to grant VAT exemptions by special order.[12] New reliefs therefore increasingly arrive through the annual Finance Act.

Invest Bangladesh and the 2026 Act

The third body is Invest Bangladesh. The Invest Bangladesh Act 2026, Act No. 104 of 2026, came into force on 20 August 2026 under S.R.O. No. 307-Law/2026.[4] It repealed the BIDA Act 2016, the Economic Zones Act 2010, the PPP Act 2015 and the One Stop Service Act 2018, and the new authority took over the functions of BIDA, BEZA and the PPP Authority; it began work on 23 August 2026.[4] [5] The Bangladesh Export Processing Zones Authority was not merged and continues to run the EPZs.[4]

Chapter 6 of the Act deals with special facilities and incentives. Section 21 lets the Government, by gazette notification and for a fixed period, grant special customs facilities to projects inside an industrial zone and to registered projects outside one. Section 22 allows financial and non-financial incentives for sector-based projects, investors, developers, operators and PPP projects, with special incentives for enterprises inside an industrial zone, and section 34 addresses incentives in PPP projects.[4] "Industrial zone" is defined to include economic zones, free trade zones and private export processing zones existing when the Act took effect.[4] Our analysis of the Invest Bangladesh Act 2026 industrial-area framework covers the statute as a whole.

The tax holiday under the Income Tax Act 2023

Part 6 of the Income Tax Act 2023 is headed "Exemption, deduction and tax holiday".[1] For the purposes of the Act, "tax exemption" means a partial or total exemption from tax and includes a rebate, tax holiday or exemption.[1] Chapter III, sections 81 to 85, is the statutory engine for the tax incentives for foreign investors Bangladesh law makes available to new industrial entities, and every zone or sector holiday sits alongside it.

Eligibility under section 81

Section 81 grants full or partial exemption on business income of an approved tax holiday entity under Part 4 of the Sixth Schedule, for the specified period and subject to prescribed conditions.[1] The entity must be owned and operated by a statutory body with its head office in Bangladesh, or by a company under the Companies Act 1994 with its registered office in Bangladesh and paid-up capital of at least Tk 20 lakh at commencement of commercial production.[1] A foreign investor therefore claims the holiday through a Bangladeshi subsidiary, not through a branch.

Three further conditions catch restructurings. The entity must not have been formed by splitting, reorganising or re-incorporating an existing business; its plant, machinery and other important assets must not have been used previously by another entity in Bangladesh; and it must have a TIN and keep separate, independent accounts.[1] Section 76(8) also denies a further exemption for the same source after a fixed-term exemption, and on reconstitution by amalgamation, demerger or acquisition.[1]

Applying under section 82

The application must be made to the Board within six months of commencing commercial operation. The Board must decide within 60 days; if it does not, the application is deemed provisionally approved and the entity is treated as a holiday entity until a decision is made.[1] The Board cannot reject an application without a hearing, and an aggrieved applicant may ask the Board to reconsider within four months of receiving the decision.[1] Foreign-owned projects miss this window more than any other, because commissioning is treated as an engineering milestone rather than a tax event.

Computation and related-party rules

Section 84 requires the holiday entity's income to be computed separately from any other business, allows only normal depreciation under Part 1 of the Third Schedule, and bars set-off of its losses against profits of non-holiday sources.[1] Section 83 targets profit shifting: where a transaction with an associated entity is not at open market price and depresses the associate's income, the shortfall is taxed in the holiday entity as income from other sources. Association includes direct or indirect control of more than 25 per cent of voting power and membership of the same group.[1] For a multinational group, intra-group supply, service and royalty pricing must be defensible from the first year.

Cancellation under section 85

If a condition is breached, the Deputy Commissioner of Taxes assesses the year at the regular rate. The entity may apply to the Board within one year against cancellation, and the Board may, in the public interest, cancel or suspend an exemption by gazette notification.[1] Section 76(4) prohibits retrospective exemption.[1]

Part 4 of the Sixth Schedule

Part 4 lists the qualifying activities. They include active pharmaceutical ingredients, agricultural machinery, automobiles and parts, basic electronic components, computer hardware, home appliances, LED televisions, mobile phones, petrochemicals, pharmaceuticals, textile machinery, tyres, electrical transformers, robotics, artificial intelligence systems, nanotechnology products and aircraft heavy maintenance, together with any other sector the Government notifies.[1]

The exemption runs on a sliding scale by location: either five years (90, 80, 60, 40 and 20 per cent) or ten years (from 90 per cent in the first two years down to 25 per cent in the last three). Income from activity in city corporation areas, district headquarter municipalities and the three hill districts is excluded.[1] The authentic English text, published in October 2025, requires commercial production to begin between July 2020 and June 2025.[1] A new project should not assume the Part 4 holiday is open to it unless a later Finance Act or notification has extended that window.

Foreign investment tax exemptions by sector

Outside Part 4, the main foreign investment tax exemptions are sector-based and time-limited. Rahman Rahman Huq's 2026 summary, prepared after the Finance Act 2026, lists ten-year business income exemptions for specified technology goods, hospitals, home appliances, agro-processing, automobiles and light engineering, with commercial operation dates running to 30 June 2030. Automobile manufacturers receive a further ten years at a reduced 10 per cent rate.[3] All are subject to prescribed conditions, and the NBR issues further orders granting exemptions to specific persons, industries or projects.[3]

Reduced rates and export income

Manufacturers of freezers, refrigerators, motorcycles, air conditioners and compressors may use a 20 per cent rate until 30 June 2032, from assessment year 2025-26.[3] That rate was itself a downgrade: a 10 per cent corporate rate introduced in 2021 and meant to run until 2032 was scrapped on 7 January 2025.[13] Export income of companies is taxed at 12 per cent, and at 10 per cent for exporters holding a LEED certificate and for jute products.[3]

IT, ITES and digital services

Clause 21 of Part 1 of the Sixth Schedule excludes from total income business income from 19 listed digital activities, including AI and blockchain solutions, software as a service, cyber security, software development, call centres and digital archiving, for 1 July 2024 to 30 June 2027. The relief applies to a resident or a non-resident Bangladeshi individual, and all income, expenditure and investment must pass through bank transfer.[1] [3]

Energy, food and startups

The Finance Act 2026 cycle added three reliefs. Solar power producers operating their own plants receive a full exemption on income up to 30 June 2035.[2] Edible oil manufacturers using locally grown oilseeds receive a phased exemption over ten years: 100 per cent for five years, 50 per cent for three and 25 per cent for two.[2] [3] Startups registered with the NBR sandbox now have a nine-year growth period with nil turnover tax and loss carry-forward regardless of changes in shareholding.[2]

The startup sandbox is open only to a Bangladeshi company with annual turnover not exceeding Tk 1 billion that is not the product of an amalgamation or demerger.[3] Foreign-backed startups qualify if the operating company is incorporated in Bangladesh, and venture investors can take new rounds without forfeiting accumulated losses. From 1 July 2026, supplies by a registered startup are also exempt from VAT, including VAT on imported services and rent.[2]

The table below summarises the principal reliefs. On a phone, scroll it sideways.

Zone-based tax incentives for foreign investors Bangladesh offers

Location still drives the largest packages. Zone incentives are delivered by NBR orders tied to the zone regime, and they come with duty-free imports that often matter more than the income tax holiday. Our guide to investment approvals through BIDA, BEPZA and the 2026 framework explains how to secure zone status.

Export processing zones

BEPZA lists a holiday of five to ten years, duty-free import of machinery, equipment, construction materials and raw materials, duty-free export of finished goods, relief from double taxation, exemption from dividend tax during the holiday and full repatriation of profit and capital.[6] Non-fiscal terms include permission for 100 per cent foreign ownership and no ceiling on foreign investment.[6] From 2026-27, water supplied to industries located in EPZs is exempt from VAT.[2]

Economic zones

The NBR orders compiled by KPMG in August 2024 give investors in economic zones a ten-year sliding holiday: 100 per cent for the first three years, then 80, 70, 60, 50, 40, 30 and 20 per cent, provided commercial operation starts by 30 June 2035. Developers receive 100 per cent for ten years, then 70 and 30 per cent.[7] Industrial units are exempt from customs duty, regulatory duty, supplementary duty and VAT on imported capital machinery and parts, and from VAT on gas, water and electricity supplies.[7]

These terms are under pressure. In June 2026 the Bangladesh Economic Zones Investors' Association asked the Government to "reinstate" a ten-year holiday and sought exemption from turnover-based minimum tax for the first five to seven years of operation.[14] A tenant should obtain the order that applies to its unit and confirm it is in force. Factory relocation into a zone raises separate issues covered in our note on relocating a factory into a Bangladesh economic zone.

Hi-tech parks

Investors in hi-tech parks receive 100 per cent exemption for seven years from commercial operation and 70 per cent for the next three, again subject to commercial operation by 30 June 2035. Developers receive 100 per cent for ten years, then 70 and 30 per cent, with similar customs and VAT reliefs on imported capital machinery and development goods.[8] For software and electronics investors, the park route is among the tax incentives for foreign investors Bangladesh still offers on a long fixed term.

Free Trade Zones

The Finance Act 2026 amended the Customs Act 2023 to create Free Trade Zones. No bonded warehouse licence is needed; manufacturing, trading and re-packing are permitted; and raw materials are imported duty-free, with duty deferred on sales to the domestic tariff area.[2] The first zone is planned at Anwara in Chattogram.[11]

What the Finance Act 2026 changed for foreign-owned companies

The FY2026-27 budget was presented by Finance Minister Amir Khosru Mahmud Chowdhury, and corporate rates were left unchanged at 22.5 per cent for listed and 27.5 per cent for non-listed companies, falling to 20 and 25 per cent where all income runs through banking channels.[11] Rate tables and computation are in our guide to corporate income tax in Bangladesh. Seven other changes reshape the tax incentives for foreign investors Bangladesh now offers.

• Accelerated depreciation: plant and machinery used in manufacturing, tourism or sports outside Dhaka and Chittagong City Corporations qualifies for 60 and 40 per cent over two years, and the application period to the NBR is extended from six to twelve months.[2]
• Raw material imports: advance tax on imported industrial raw materials falls from 5 to 4 per cent.[11]
• Foreign loan interest: source tax on interest paid on foreign loans is halved from 20 to 10 per cent.[11] [9]
• Related-party lending: interest on loans from associated entities above Tk 1.5 million no longer needs approval, but where a company charges interest below 12 per cent a year on loans to associated enterprises, the shortfall is taxed as business income.[2]
• Royalties and technical fees: such income earned in the regular course of business is treated as business income rather than income from other sources.[2]
• Treaty residence: residence and permanent establishment of a person from a foreign country are determined under the applicable treaty, and under domestic law only where there is none.[2]
• Growth sectors: duty and tax concessions for electronics, semiconductors, electric vehicles, batteries, solar energy, shipbuilding and pharmaceuticals.[11]

Two changes cut the other way. The Act extends the permanent establishment definition to digital platforms with 100,000 Bangladeshi subscribers, and treats tax withheld from a non-resident without a permanent establishment as its final liability.[3] A foreign group selling online into Bangladesh should check whether it now has a taxable presence.

Customs and VAT reliefs that support investment

For capital-heavy projects, duty and VAT reliefs often outweigh the income tax holiday in the first years, and they are the least understood tax incentives for foreign investors Bangladesh grants. The Finance Act 2026 cycle granted renewable energy imports exemption from customs duty, regulatory duty, supplementary duty and advance tax, and from advance income tax above 2 per cent, from 1 July 2026 to 30 June 2031.[2] Local manufacture of mobile phones and computer goods keeps VAT exemptions to 30 June 2030, and electric vehicle manufacture receives full VAT exemption or exemption above a reduced rate for the same period.[2]

Some reliefs were withdrawn. Import duty exemptions ended for generator parts, CNG and LPG station equipment, air purifiers and vehicles for public-private partnership projects, and a June 2026 SRO moved items such as iron ore, LPG and unworked diamonds from exempt to taxable.[2] PPP sponsors should re-price vehicle fleets and spares accordingly; our analysis of PPP projects in Bangladesh covers the wider project regime. Import procedure is covered in our guide to customs law in Bangladesh, and VAT generally in VAT in Bangladesh.

Double tax treaties and money going home

Of all the tax incentives for foreign investors Bangladesh provides, double tax treaties are the one that applies to every investor, whether or not the project qualifies for a holiday. The NBR's information library lists 43 double taxation avoidance agreements, including those with China, India, Japan, Singapore, the United Kingdom, the United States, the United Arab Emirates, Hong Kong, Qatar and Iran.[10] Confirm that the relevant treaty is in force before relying on it, because the list itself does not show status.[10]

Treaty rates on dividends, interest and royalties

PwC's July 2026 table shows non-treaty rates of 20 or 30 per cent on dividends and 20 per cent on royalties and technical fees. Treaty rates are typically 10 or 15 per cent on dividends and 10 per cent on interest and royalties.[9] The lowest dividend rates are 5 per cent under the Kuwait and UAE treaties for qualifying holdings, and Mauritius does not tax interest or royalties at source.[9] Lower dividend rates usually require a minimum shareholding.

The NBR certificate

Treaty rates are not self-executing. The payer must obtain an exemption or reduced-rate certificate from the NBR before applying the treaty, and the NBR is expected to respond within 30 days.[3] Our guide to withholding tax in Bangladesh explains the section 119 procedure and the payer's liability if it gets the rate wrong. The bank and foreign exchange steps for dividends and sale proceeds are in our analysis of capital repatriation from Bangladesh.

Foreign tax credit and parent-level relief

A Bangladeshi resident that pays foreign tax may credit it up to the Bangladesh average rate where the tax is paid in a treaty country, and up to the lower of the two average rates where it is not.[3] For the foreign parent, the question is whether its home country credits Bangladesh tax, which belongs in the investment model, not after the first dividend.

A dividend from an EPZ enterprise may be free of dividend tax during the holiday, while one from a non-zone subsidiary bears withholding at the treaty or domestic rate.[6] [9] The choice between equity and parent debt changes the outcome again, as our note on equity or parent loans for a Bangladesh subsidiary explains.

Foreign investment tax policies: how stable are incentives?

Bangladesh's foreign investment tax policies have moved from generosity towards control, and the IMF has pressed for exemptions to be streamlined. In November 2025 a senior tax official said IMF pressure to withdraw EPZ and economic zone incentives was mounting, although no withdrawal had been reported.[13]

What has already been withdrawn

The NBR revoked freight income exemptions for Bangladesh-flagged ocean-going ships on 18 December 2024, although they were originally valid until June 2030, and scrapped the 10 per cent rate for air conditioner and refrigerator manufacturers on 7 January 2025.[13] Writ petitions followed, and the High Court Division stayed implementation of the SRO that withdrew incentives for local investors.[13]

The fixed-term principle

NBR officials have since said that incentives with a fixed rate and period cannot be cancelled, and that only open-ended facilities without time limits may be withdrawn under the tax expenditure policy.[13] That is policy, not law. Investors should prefer reliefs with a stated term and keep the statutory guarantees of the Foreign Private Investment (Promotion and Protection) Act 1980 and any applicable investment treaty in view. Those protections, and the treaty network, are covered in our guide on how to invest in Bangladesh.

How to claim tax incentives for foreign investors Bangladesh grants

Claiming an incentive is a process that starts before incorporation and continues every year of the holiday. The sequence we use with clients is set out below.

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The annual compliance gate

Section 76(5) denies any exemption in a year in which the taxpayer fails to file its return by the tax day, fails to comply with sections 166 and 171, fails to file withholding returns and meet the withholding provisions of Part 7, or receives income from an exempt source other than by bank transfer.[1] Section 76(6) adds that expenses disallowed under section 55 are taxed at the regular rate even in an exempt entity, and section 84(5) excludes such income from the holiday.[1] Turnover tax is adjusted in proportion to the exemption, and manufacturers pay 0.2 per cent of gross receipts for their first three years of commercial production.[3]

Mistakes that cost foreign investors their tax benefits

Most lost tax benefits are self-inflicted. These are the errors we see most often.

• Treating a brochure as a legal basis: an incentive described by a zone authority or in an investment law does not operate as an income tax exemption unless it is notified under section 76.[1]
• Missing the six-month application: the holiday application under section 82 must be filed within six months of commercial operation.[1]
• Using a branch: the statutory holiday is available to a Bangladeshi company or statutory body, not a branch of a foreign company.[1] See our guide to foreign company registration in Bangladesh.
• Recycling equipment: machinery previously used by another entity in Bangladesh disqualifies the holiday entity.[1]
• Ignoring transfer pricing: below-market intra-group pricing is taxed in the holiday entity under section 83.[1]
• Applying treaty rates without a certificate: the payer becomes liable for the shortfall.[3]
• Accepting cash receipts: one year of exempt income received outside the banking system removes the exemption for that year.[1]

Each is avoidable with a compliance calendar owned in Dhaka. Our tax incentives practice audits eligibility and conditions before and during the holiday period.

Tax incentives for foreign investors Bangladesh: what to watch

Four issues will shape the next year. First, whether Invest Bangladesh uses its sections 21 and 22 powers to issue fresh zone and sector packages, and whether those packages are routed through Parliament as the tax expenditure policy requires.[4] [12] Second, whether economic zone and EPZ holidays survive IMF pressure, and on what terms for new entrants.[13] [14]

Third, whether the ITES exemption is extended beyond 30 June 2027, and whether the Part 4 holiday window that closed in June 2025 is reopened.[1] Fourth, how the first Free Trade Zone at Anwara is priced against existing zones.[11] Our overviews of tax law in Bangladesh and income tax rates track general changes.

The tax incentives for foreign investors Bangladesh offers reward investors who choose the right vehicle, location and instrument at the start and then keep the conditions every year. TRW advises on holiday applications, zone packages, treaty certificates and incentive disputes. Our double tax treaty planning and international tax teams can review a structure before capital is committed, or you can contact TRW directly.

Frequently asked questions

Do foreign investors get a tax holiday in Bangladesh?

Yes, if the project is run through a Bangladeshi company or statutory body that qualifies under sections 81 and 82 of the Income Tax Act 2023, or under a zone or sector order. Foreign ownership does not disqualify the entity, but a branch cannot claim the statutory holiday.[1]

How long do tax holidays last?

Typically five to ten years on a sliding scale. Economic zone investors have a ten-year schedule starting at 100 per cent, and hi-tech park investors 100 per cent for seven years and 70 per cent for three.[7] [8]

When must a tax holiday application be filed?

Within six months of commencing commercial operation. If the Board does not decide within 60 days, the application is deemed provisionally approved.[1]

Can an exemption be lost after it is granted?

Yes. Section 76(5) removes it for any year in which the return or withholding returns are not filed properly or exempt income is received outside the banking system, and section 85 allows cancellation for breach of conditions.[1]

What incentives do EPZ enterprises receive?

BEPZA lists a five- to ten-year tax holiday, duty-free import of machinery and raw materials, duty-free export, exemption from dividend tax during the holiday and full repatriation of profit and capital.[6]

Did the Invest Bangladesh Act 2026 change zone incentives?

It moved economic zones and PPP under Invest Bangladesh from 20 August 2026 and gave the Government power to grant customs and other incentives by gazette notification. Specific benefits depend on those notifications.[4]

How many double tax treaties does Bangladesh have?

The NBR lists 43 agreements, including those with China, India, Japan, Singapore, the UK, the US and the UAE. Check that the relevant treaty is in force.[10]

Is a treaty rate applied automatically?

No. The payer needs an NBR exemption or reduced-rate certificate before applying it; the NBR is expected to respond within 30 days.[3]

Are IT and software businesses still tax-exempt?

The Sixth Schedule exemption for listed digital services runs to 30 June 2027 for resident persons and non-resident Bangladeshi individuals, on condition that all transactions pass through banks.[1] [3]

What new incentives came with the Finance Act 2026?

Solar and edible oil exemptions, a nine-year startup growth period, accelerated depreciation outside Dhaka and Chattogram, Free Trade Zones and lower source tax on foreign loan interest.[2] [11]