How to Prepare and Submit Liaison Office Tax Return in Bangladesh?

A liaison office or representative office of a foreign company in Bangladesh is generally established to undertake liaison, communication, promotional, market research and representative activities. A liaison office does not normally carry out commercial activities or generate income in Bangladesh.

Therefore, where a liaison office operates within the scope of its approved activities and does not earn taxable income in Bangladesh, there may be no income tax payable on its own operations. However, this does not mean that the liaison office is exempt from tax compliance obligations.

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

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

Further, section 166 requires a company to file an income tax return. Accordingly, a liaison office should file its annual income tax return even where it has no taxable income and no income tax is payable.

The return should properly disclose the nature of the liaison office’s activities, its expenses in Bangladesh and the funds received from its foreign head office.

Need assistance with preparing and submitting Liaison Office Income Tax Return in Bangladesh? Our professional team can assist you with accurate Liaison Office Income tax return preparation and timely submission. Contact us at +880 1677 970763 (Call & WhatsApp) or email ferdous@fmgaccountants.com.

How to Prepare the Liaison Office Tax Return?

The preparation of the return generally involves the following steps:

Prepare the Financial Statements

The liaison office should prepare its financial statements or income and expenditure statement for the relevant income year.

Since it does not generate commercial income in Bangladesh, its accounts will generally consist of expenses such as:

• Salaries and employee benefits
• Office rent
• Professional fees
• Utilities and communication expenses
• Travelling and transportation expenses
• Other administrative expenses

The source and movement of funds received from the foreign head office should also be properly documented.

Determine Taxable Income

The tax computation should be prepared based on the actual activities of the liaison office.

Where the liaison office has not earned taxable income in Bangladesh, its taxable income may be nil, resulting in no income tax payable. Nevertheless, the annual return filing obligation remains.

TDS Compliance on Liaison Office Expenses

Although a liaison office may not generate income, it makes various payments in Bangladesh. Certain payments are subject to Tax Deduction at Source (TDS) under the Income Tax Act, 2023.

Depending on the nature of the payment, TDS may apply to salary, rent, professional services, contractual payments and other specified payments.

The liaison office should therefore determine the applicable TDS provision and rate before making each relevant payment.

Section 142: Higher TDS Rate in Certain Cases

Section 142 of the Income Tax Act, 2023 does not itself impose a penalty for failure to deduct TDS. Rather, it provides for a higher rate of tax deduction or collection in specified circumstances.

For example, where the required proof of submission of return is not produced in circumstances covered by the section, the applicable withholding rate may be increased by 50%. The section also provides for a higher rate in certain cases where payment is not made through bank transfer.

Therefore, section 142 should be considered when determining the correct TDS rate applicable to a payment.

Section 143: Consequences of Failure to Deduct TDS

Section 143 deals with the consequences where a person fails to deduct or collect tax, deducts or collects tax at a lower amount, or fails to deposit tax that has been deducted or collected.

In such circumstances, the person may be treated as an assessee-in-default and may be required to pay the tax that should have been deducted or the relevant shortfall. The section also provides for an additional amount at 2% per month in specified circumstances, subject to the limits prescribed under the Act.

Therefore, a liaison office having no taxable business income can still face tax liabilities for failing to comply with TDS requirements.

VDS Compliance on Liaison Office Expenses

A liaison office should also review VAT obligations on the goods and services it purchases in Bangladesh.

Where it is required to act as a VAT withholding entity, it must deduct and deposit VAT at source (VDS) in accordance with the Value Added Tax and Supplementary Duty Act, 2012 and applicable rules.

Failure to comply with VAT withholding requirements can result in tax recovery, interest and monetary penalties.

Submission of the Liaison Office Tax Return

Before submitting the annual return, the liaison office should:

Prepare its financial statements and tax computation;
Properly disclose its Bangladesh expenses and head-office funding;
Reconcile TDS deducted and deposited during the year;
Review VDS compliance on applicable payments;
Prepare the prescribed income tax return and schedules;
Attach the required financial statements and supporting documents; and
Submit the return within the applicable statutory deadline.

Conclusion

A liaison office in Bangladesh generally does not generate taxable business income from its approved liaison activities. Therefore, there may be no income tax payable by the liaison office itself.

However, it remains responsible for filing its annual income tax return and complying with TDS and VDS requirements on its payments and expenses. Sections 142 and 143 are particularly relevant when reviewing TDS compliance, while the applicable VAT withholding provisions should also be considered.

Proper tax compliance is therefore important even where the liaison office has no taxable income in Bangladesh.