How to Prepare and Submit Branch Office Tax Return in Bangladesh

A branch office in Bangladesh is an extension of a foreign company established to carry out approved commercial or business activities in Bangladesh. Unlike a liaison office, a branch office may generate income from its business activities in Bangladesh and is therefore subject to income tax on its taxable income in accordance with the Income Tax Act, 2023.

A branch office is also treated as a company for income tax purposes. Therefore, its annual income tax return is generally prepared and submitted following the provisions applicable to companies.

Is a Branch Office Required to File an Income Tax Return?

Yes. Under section 2(31) of the Income Tax Act, 2023, a branch office of a foreign entity is included within the definition of “company”.

Further, section 166 requires a company to file an income tax return. Therefore, a branch office operating in Bangladesh is required to submit an annual income tax return, irrespective of whether it has taxable income or a tax liability for the relevant year.

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How to Prepare a Branch Office Tax Return?

The preparation of a branch office tax return generally involves the following steps.

1. Prepare the Financial Statements

The branch office should prepare its financial statements for the relevant income year based on its Bangladesh operations.

The accounts should properly record its:

Revenue from business activities
Cost of goods or services
Employee expenses
Office rent and administrative expenses
Depreciation
Finance costs
Other allowable business expenses

The branch should also maintain proper records of transactions with its foreign head office and other related parties.

2. Calculate Business Income

Under section 45 of the Income Tax Act, 2023, income from business is determined in accordance with the provisions of the Act.

The branch should start with its accounting profit or loss and make the necessary tax adjustments to arrive at taxable business income.

Sections 49 to 54 contain provisions relating to allowable business deductions, while sections 55 and 56 deal with expenditures that are not admissible or may result in special business income.

Depreciation and other specific deductions should also be considered in accordance with the relevant provisions of the Act.

3. Consider Transactions with the Foreign Head Office

Transactions between the Bangladesh branch and its foreign head office or associated enterprises should be carefully reviewed for tax purposes.

Where the branch has international transactions falling within the transfer pricing provisions, the applicable requirements under sections 234 to 240 should be considered. In particular, the statement of international transactions under section 238 may need to be submitted with the income tax return.

4. Calculate Income Tax Payable

After determining taxable income, the applicable corporate income tax rate should be applied to calculate the tax liability.

The branch should also consider applicable withholding taxes, advance tax, minimum or turnover tax provisions, where applicable, and any tax already paid or deducted at source.

The provisions of section 163 should be reviewed to determine whether any advance tax, final tax or turnover tax requirement applies.

5. Review TDS and VDS Compliance

A branch office makes various payments in Bangladesh and may be required to deduct tax at source under the Income Tax Act, 2023.

It should also review its VAT obligations, including VAT deduction at source (VDS), where applicable.

Failure to properly deduct and deposit TDS or VDS can result in additional tax liabilities, interest and penalties.

Documents Required for the Tax Return

Under section 169, a company is required to submit its return in the prescribed form together with the required schedules, statements, accounts and supporting documents.

For a branch office, the relevant documents generally include:

Financial statements
Tax computation
Details of TDS and advance tax paid
Details of payments to the foreign head office
Details of international transactions, where applicable
Transfer pricing documentation, where applicable
Other schedules and documents prescribed by the tax authority

The financial statements and tax computation should be properly reconciled with the income tax return.

Payment and Submission of the Return

Under section 173, income tax and applicable surcharge are required to be paid on or before the date of filing the return, subject to the provisions of the Act.

The return should then be submitted in the prescribed manner within the applicable statutory deadline under section 170.

The branch should retain the acknowledgement or proof of return submission for its records and future compliance requirements.

Conclusion

A branch office is different from a liaison office because it can conduct commercial activities and generate income in Bangladesh. Consequently, its tax return generally involves a full computation of business income, allowable and disallowable expenses, applicable corporate tax, withholding taxes, advance tax and, where relevant, transfer pricing compliance.

Proper accounting records, tax computation and supporting documentation are therefore essential for preparing and submitting a branch office tax return in Bangladesh.