A Simple Guide to Compliance for Bangladeshi Early-Stage Entrepreneurs: Fundamentals and Sole Proprietorship Business (Part 01)

Written by Bishwamitra Chowdhury

Starting a business is an exciting journey, but navigating the legal and regulatory landscape can be challenging, especially for early-stage entrepreneurs. In Bangladesh, there are several key compliance requirements that every business owner must understand and follow, from obtaining the right licenses to filing taxes and VAT returns.

This toolkit is designed to simplify the compliance process for sole proprietorships—a common and accessible business structure for new entrepreneurs. Whether you're opening a small retail shop, starting an online business, or offering a service, adhering to local laws is essential for smooth operations and long-term success.

We’ll walk you through each step, from registering your business and obtaining necessary permits to understanding the process of monthly VAT filing and annual income tax returns. This guide covers the essentials, including:

• Starting Requirements: How to get a trade license, open a bank account, and register for TIN and VAT.
• Monthly Compliance: Understanding VAT collection, filing VAT returns, and paying your dues.
• Yearly Compliance: Filing your income tax returns and renewing your trade license.
• Special Requirements: Knowing when to hire an auditor and applying for additional permits based on your business type.

With clear, step-by-step instructions, we aim to demystify the compliance process, ensuring that you spend less time worrying about paperwork and more time growing your business. This guide also highlights how you can easily complete most compliance tasks online using government portals, allowing you to handle these processes independently or with minimal external support.

Let’s get started on building a strong, compliant foundation for your business!

 1. Getting a Trade License

What is a Trade License?

A trade license is a mandatory document issued by your local authority that allows you to legally operate your business. Without this, you cannot start your business, and it must be renewed every year.

Steps to Get a Trade License:

1. Identify Your Local Authority:

• City Corporation for urban areas.
• Union Parishad for rural areas.
• Visit the relevant office based on where your business is located.

2. Prepare the Necessary Documents:

• National ID Card: Photocopy and the original for verification.
• Passport Sized Photos: Usually, 23 copies.
• Proof of Business Address: This could be a utility bill (electricity, gas, water) or a rental agreement.
• Trade Name: If you are not using your own name as the business name, make sure to decide on and use a business name (especially if it needs to be on documents).

3. Fill Out the Application Form:

• Get the application form from your local authority.
• Provide details such as the nature of your business, business location, owner information, and other relevant details.

4. Submit the Application and Pay the Fees:

• Fees vary by location and business type but usually range from 7,000 to 10,000 BDT.
• Fees are paid at the local authority office.

5. Receive Your Trade License:

• After submission, it typically takes a few days to a couple of weeks to receive your trade license.
• Keep the original copy safe, as it will be required for bank accounts, tax registration, and other business dealings.

6. Renewal:

• Your trade license is valid for one year.
• Renewal Period: Typically between June and September. You will need the original trade license and pay the same renewal fee.

 2. Opening a Bank Account

 Why Open a Business Bank Account?

A dedicated business bank account helps you separate personal and business finances, track expenses, and facilitate transactions. This is essential for credibility and compliance, especially for tax purposes.

Steps to Open a Bank Account:

1. Choose the Right Bank:

• Research which banks offer accounts best suited for your needs.
• Look at things like fees, minimum balance requirements, transaction limits, and whether the bank has online banking services.
• Some banks are more business friendly and may offer specific business accounts that cater to sole proprietors.

2. Gather Required Documents:

• Trade License: Your trade license will prove your business legitimacy.
• National ID Card: Personal identification is necessary.
• Passport Sized Photos: Typically, 24 copies are required.
• Proof of Business Address: If not already mentioned in your trade license, you might need to submit a utility bill or rental agreement.
• TIN: While not mandatory, it can help streamline processes and give your business credibility, especially for larger transactions.

3. Visit the Bank:

• Take the required documents to the branch of your chosen bank.
• Fill out the account opening forms and submit all the documents.

4. Make the Initial Deposit:

• Each bank has different minimum deposit requirements. Check with your bank, as this can range from 5,000 to 50,000 BDT, depending on the bank and the account type.

5. Receive Account Details:

• Once your account is approved, you will be given a checkbook, ATM card (if available), and online banking access (if available).
• Keep all these details safe and ready for use in daily business transactions.

 3. Obtaining a TIN (Tax Identification Number)

What is a TIN?

A Tax Identification Number (TIN) is a unique number issued by the National Board of Revenue (NBR) that is used to track your tax payments. While not mandatory for all sole proprietors, it is highly recommended if you intend to expand your business or work with larger clients.

Steps to Get a TIN:

1. Determine if You Need It:

If your business is small and operates within certain limits, a TIN may not be mandatory. However, it is recommended to obtain one if:

• You plan to grow your business.
• You deal with larger transactions or clients.
• You want to apply for loans or licenses like import/export permits.

2. Apply for a TIN:

   Online Application:

• Visit the NBR eTIN registration portal at https://secure.incometax.gov.bd/TINHome.
• Follow the instructions, fill out the application form, and submit your details.

   Offline Application:

• Visit your local tax office and request a TIN application form.
• Fill it out with your business and personal details.

3. Submit Required Documents:

• National ID Card: A photocopy is needed.
• PassportSized Photos: Usually 2 copies.
• Copy of Trade License: This will verify your business.

4. Receive Your TIN:

• Once the application is submitted, it can take a few days to receive your TIN.
• You can download the certificate online or pick it up from the tax office.

5. Cost: There is no cost to obtain a TIN. However, if you choose to hire a lawyer or consultant for assistance, they may charge a fee of 500-1,000 BDT.

 4. Registering for VAT

What is VAT Registration?

If your business deals with goods or services that are subject to VAT, you must register for VAT and obtain a Business Identification Number (BIN). VAT applies to businesses with an annual turnover above 3 crore BDT or those selling VATable goods/services.

Steps to Register for VAT:

1. Determine if You Need VAT Registration:

• Businesses with annual revenue above 3 crore BDT must register for VAT.
• Even if your business is smaller, if you deal in VATable goods or services, registration is recommended.

2. Apply Online:

• Go to the NBR website (https://vat.gov.bd/) and fill out the VAT registration form.
• You’ll need to provide business details such as your trade license, TIN, and bank account details.

3. Documents Needed:

• Trade License: To prove your business is legitimate.
• TIN Certificate: To associate the business with your tax ID.
• Bank Account Details: For financial tracking.
• Proof of Business Address: Utility bill or rental agreement.

4. Receive Your VAT Registration:

After submitting your application, you will be issued a Business Identification Number (BIN), which is your VAT registration number.

5. Cost:

There is no cost for VAT registration. However, penalties apply if you fail to submit your monthly VAT returns on time.

5. Import and Export Registration (IRC and ERC)

Import Registration Certificate (IRC)

1. What is IRC?

If you plan to import goods, you need an Import Registration Certificate (IRC) from the Chief Controller of Imports and Exports (CCI&E).

2. Steps to Obtain IRC:

• Apply at the CCI&E office or online.
• Submit your trade license, TIN, VAT registration, and bank solvency certificate.
• There’s typically no significant cost except for administrative fees or any consultant/lawyer fees.

3. Documents Required:

• Trade License
• TIN Certificate
• Bank Account Details
• Proof of Solvency from your bank

Export Registration Certificate (ERC)

1. What is ERC? If you plan to export goods, you’ll need an Export Registration Certificate (ERC) from the same authority.

2. Steps to Obtain ERC: Similar to the IRC process, you need to apply at the CCI&E office and submit the required documentation (trade license, TIN, VAT).

6. Monthly and Yearly Compliance

Monthly VAT Filing

What is VAT Filing? VAT (Value Added Tax) is a consumption tax applied to goods and services. If your business deals with VATable goods or services, you must file a VAT return every month. VAT returns ensure that the government receives the correct amount of VAT collected from customers and accounts for the VAT paid on purchases.

Steps to File VAT Returns:

1. Determine Your VAT Liability:
   • After collecting VAT on your sales, you must adjust it based on the VAT you’ve paid on purchases.
   • You will work with two specific forms:
     • Chalan 6.3: This form documents the VAT you’ve collected from sales. You’ll need to provide this form to anyone from whom you’ve collected VAT.
     • Chalan 6.6: This form records the VAT you’ve paid on your purchases.
2. Calculate VAT Due:
   • Subtract the amount in Chalan 6.6 (VAT paid on purchases) from Chalan 6.3 (VAT collected on sales).
   • The remaining amount is the VAT you owe to the government.
3. Submit VAT Returns:
   • VAT returns must be filed online by the 15th of the following month.
   • You can submit it directly via the NBR e-filing system (https://vat.gov.bd/) and NBR Tax Portal: https://nbr.sblesheba.com, 
   • You can find many videos and write ups on how to calculate and submit VAT and TAX. Like this one by TaxHelpBD.
   • But if you lack the knowledge, you may choose to use a consultant. However, most businesses can handle this process themselves without needing a consultant.
4. Make the VAT Payment:
   • Once the VAT return is filed, you need to make the payment online. This can be done via bank transfer or using digital payment methods linked with the NBR portal.
5. Avoid Late Fees:
   • If you fail to submit VAT returns on time, penalties can range from 4,000 to 5,000 BDT. Ensure all payments are made by the 15th of each month.

Yearly Tax Filing:

What is Income Tax Filing? At the end of each financial year, you must submit your income tax returns to the National Board of Revenue (NBR). This ensures that you are paying the appropriate taxes on your business profits.

Steps to File Income Tax Returns:

1. Gather Financial Data:
   • You need to track all business-related transactions, including:
     • Bank Account Statements: Summarize all your business’s financial transactions.
     • Sales Records: Keep a detailed record of your revenue.
     • Purchase Receipts: Document all business-related expenses.
     • VAT Paid and Collected: Information from your monthly VAT returns will be crucial for your tax filing.
2. Calculate Total Business Income:
   • Determine your total income by subtracting business expenses from your revenue.
   • This includes VAT payments, business expenses, and any other deductible costs.
3. File Your Tax Return:
   • You can file your tax returns online via the NBR portal or physically at your local tax office.
   • If your annual turnover exceeds 3 crore BDT, you are required to hire an auditor to review your financial statements and submit an audited report along with your tax return.
   • The tax filing deadline is November 30th of each year.
4. Pay Any Taxes Owed:
   • If your calculations show that you owe additional taxes, make the payment through the designated NBR system. Payment methods include bank transfers or other digital payment options.
5. Avoid Late Penalties:
   • Failing to file your taxes on time can lead to penalties. Make sure you are fully compliant by submitting all forms and payments before the deadline.

Costs for Starting a Sole Proprietorship

When starting a sole proprietorship in Bangladesh, the expenses involved are minimal. Here are the key costs:

• Trade License: The only mandatory cost is obtaining a trade license. The fee varies depending on the location and type of business but typically ranges between BDT 7,000 to 10,000.
• Bank Account: There is no cost to open a business bank account.
• TIN (Tax Identification Number): Obtaining a TIN is free of cost. A lawyer may charge a fee ranging from BDT 500 to 1,000 for assistance, but in some cases, it may be done for free, depending on the lawyer.
• VAT Submission: There is no cost for submitting VAT returns. However, if you have a backlog or fail to file on time, penalties ranging from BDT 4,000 to 5,000 can apply.

In general, the sole proprietorship setup is straightforward and cost-effective, with the main expense being the trade license.

Conclusion:

By following these detailed steps, you’ll ensure that your sole proprietorship business in Bangladesh stays compliant with legal and tax requirements. Make sure to stay on top of deadlines and keep your finances. 

About the Author: Bishwamitra Chowdhury is a seasoned professional with over 9 years of experience shaping Bangladesh's social entrepreneurship landscape through startups, incubation programs, and research projects that blend business, technology, and social impact.

As Director at Impact Hub Dhaka, Bishwamitra oversees operations and partnerships. Previously, he served as Senior Program Manager at YY Ventures, designing and facilitating training programs for early-stage founders. His experience includes managing collaborations with major institutional partners like USAID, UNFPA, and ILO, and co-leading research studies on issues such as the economic ramifications of COVID-19 in Bangladesh. He was recognized as an Acumen Fellow in 2020.

Beyond his professional work, Bishwamitra volunteers with Pawmang School, a charity residential school in Lama, Bandarban that supports 100+ indigenous students.