FEPD Circular Letter No. 12: Deduction of tax at sources on service income received from abroad

Foreign Exchange Policy Department Bangladesh Bank Head Office Dhaka www.bangladeshbank.org.bd

Circular Letter No. FEPD(Export Policy)220/2011-12 Date: 25 August, 2011 10 Bhadra, 1418

To All Approved Dealer Banks Head Office / Principal Office.

Dear Sirs,

Regarding deduction of tax at source by banks or financial institutions on service charges or consultancy fees received from abroad under Section 52Q of the Income Tax Ordinance, 1984.

The letter No. NBR/Gen/Cor-7/02/2011(Part-1)/150, dated 28/07/2011, sent by the National Board of Revenue of the People's Republic of Bangladesh on the subject cited above, is reproduced verbatim on the next page for necessary action.

Yours faithfully,

(Md. Zahirul Haque) Deputy General Manager Phone: 7120375

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Government of the People's Republic of Bangladesh National Board of Revenue Revenue Bhavan Segunbagicha, Dhaka.

File No. NBR/Gen/Cor-7/02/2011(Part-1)/150 Date: 28/07/2011

Subject: Regarding deduction of tax at source by banks or financial institutions on service charges or consultancy fees received from abroad under Section 52Q of the Income Tax Ordinance, 1984.

I am directed to refer to the subject cited above.

2. In this regard, it is informed that a new Section 52Q has been added to the Income Tax Ordinance, 1984 through the Finance Act, 2011. According to this provision, tax at source is to be deducted at a rate of 10% on money received from abroad in consideration of any service provided or work done by a foreign person or institution located in the country. Such tax deduction shall be applicable when banks or financial institutions credit the amount to their customer's account. In this regard, the following points are to be considered:

(a) The service is performed or work is done solely by a resident taxpayer within the country; (b) The service is provided or work is done for a foreign person or company; (c) Money is received in consideration of such service or work from abroad; and (d) The money is sent as service charge, consultancy fee, commission, honorarium, or under any other name.

This section on tax deduction at source shall apply only if all the above conditions are met. However, it is specifically mentioned that no tax at source shall be deducted from wage earners' remittances.

3. According to Paragraph 33 of Part-A of the Sixth Schedule of the Income Tax Act, income from software development business or Information Technology Enabled Services (ITES) is tax-exempt until June 2013. Therefore, no tax at source shall be deducted on money received from abroad in consideration of such services or work until that time. There is also no need to present any confirmation from the Income Tax Department in support of the complete tax exemption for such income until the specified time. The following sectors are included under ITES:

Digital Content Development and Management, Animation (both 2D and 3D), Geographic Information Services (GIS), IT Support and Software Maintenance Services, Web Site Services, Business Process Outsourcing, Data entry, Data Processing, Call Centre, Graphics Design (digital service), Search Engine Optimization, Web Listing, E-commerce and Online Shopping, document conversion, imaging and archiving.

4. In this context, it is specifically requested that all concerned be instructed to take necessary measures for deduction of tax at source in light of the newly introduced Section 52Q of the Income Tax Ordinance, 1984.

(Amin Rahman) Member (Income Tax Policy) National Board of Revenue, Dhaka.