The Bangladesh Bank has taken a step forward to facilitate the local resident contracting firms in implementing projects awarded by foreign project implementing agencies. This is done by allowing the local resident contracting firms to open bank accounts abroad jointly with its’ non-resident co-partners.
Under paragraph 4, chapter 13 of the Guidelines for Foreign Exchange Transactions-2018, Volume 1, Authorized Dealer Banks (“ADs”) may open foreign currency accounts for local and joint venture contracting firms employed in executing projects of foreign donor agencies, as per the terms of the approved contract with the government authority without prior permission of the Bangladesh Bank. Now, as per the FE Circular No. 26 dated 27.07.2021, issued by the Foreign Exchange Policy Department, Bangladesh Bank (“the Circular”), the local resident contracting firms engaged in implementing projects awarded by foreign project implementing agencies may open bank accounts in the respective countries abroad jointly with non-resident co-partners to credit payments received against the works (“joint foreign bank account”).
This Circular also provides the mechanism in which this joint foreign bank account can be used. For instance, short term loan proceeds against project works from external sources may be credited in the accounts. However, collaterals from Bangladesh cannot be provided for availing such loans. The balance available in the joint foreign bank account can be used for settlement of project related bonafide payments in the foreign countries. This will enable the resident contracting firms to settle such bonafide payments fast and maintain a good business relation with the non-resident co-partners.
The Circular lays out a set of instructions which must be followed by the resident contracting firms in order to open the joint foreign bank account. The resident contracting firms shall maintain bank accounts with ADs who are designated for making transactions with the joint foreign bank account opened abroad. The designated ADs need to monitor the transactions and as such the designated ADs shall have the following arrangements with the resident contracting firms:
(a) The resident contracting firms need to submit quarterly progress reports of the project that they are working on along with the bank statements to their designated AD. The resident contracting firms must submit such progress report within 10 (ten) days of the following month at the end of the quarter;
(b) The resident contracting firms must also repatriate their surplus earnings to Bangladesh through their designated AD. The time period for repatriating the surplus earnings from the project works shall be made within 1 (one) month of the completion of the said project. It is essential that the resident contracting firms adhere by these rules as it will bring remittance into the country.
The Circular also brings forward the option of opening an escrow account. In case the joint foreign bank account cannot be operated as per the underlying contracts between the parties, the resident contracting firms may, if required, opt for an escrow account abroad. The escrow account shall be operated by escrow agents subject to the instructions mentioned above.
The repatriated funds may be credited from the ERQ (Export Retention Quota) Accounts at the option of the resident contracting firms up to the amount as may be required for the service exports. Thereafter, the remainder needs to be encashed and credited in Taka accounts of the resident contracting firms.
Although the Circular has brought some relief to the resident contracting firms, the Bangladesh Bank has directed the resident contracting firms to follow the guidelines provided in the Circular. Hence, the responsibility falls upon the AD to ensure that the resident contracting firms have paid their applicable taxes and adhered to the other guidelines of the Bangladesh Bank.
The designated ADs shall also intimate the Bangladesh Bank with detailed information about the activities of the resident contracting firms within 1 (one) month of opening of the said bank accounts. Similarly, the Bangladesh Bank shall also be informed about the closure of the project works including the closure of the bank accounts.
The objective of the Circular is to ease the transaction process between the local/resident contracting firms and the non-resident co-partners. However, the Bangladesh Bank will constantly monitor the activities of the said transactions through the designated ADs. Thus, it is for the betterment of the business of the local/resident contracting firms that they abide by the guidelines stipulated in the Circular.
Written by Tanzim Ahmed, Associate and Sadia Islam, Consultant at Vertex Chambers
† Disclaimer: The opinions and comments expressed in this Blawg are not to be regarded or construed as legal advice by and from Vertex Chambers or any of its members. It is highly advisable that any person should seek independent legal advice before relying on any of the contents of this Blawg.
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