Since July 1, 2018, foreign businesses selling digital services to customers in Bangladesh must apply VAT to their sales there. However, the digital services could fall into a standard (15%) or reduced VAT rate (5%) category.
In its 2018-19 budget Bangladesh determined that a ‘virtual business’ had to apply the 5% VAT system to their sales. The term ‘virtual business’ was later clarified to mean digital platforms such as Facebook, YouTube, and Google.
However, since then the definition of affected digital services has been crystallized further. Today, some digital services may actually attract the Bangladesh standard VAT rate of 15%. Bangladesh defines the services that the reduced VAT rate of 5% should apply to as “Information Technology Enabled Services (ITES)” and the following services (list is not exhaustive) are included:
Businesses need to perform a significant analysis of their digital services sold in Bangladesh to conclude which VAT category their sales fall under.
Other significant requirements in Bangladesh include:
With regard to settlement of tax, businesses need to be aware that payment needs to be received by the tax authorities prior to filing the VAT return which is due on the 15th of the following month.
The payment can only be made via the local tax representative who needs to take a cheque to the tax authorities. This makes payment deadlines very tight and generally it is recommended to start the payment process around the 5th day of the month following the tax period.
In his speech unveiling the 2018-19 budget, the country’s then Finance Minister, AMA Muhith, said: “With the fast development of internet technology, social media, and mobile application platform-based virtual businesses are booming. In order to bring these online-based virtual businesses within the tax net, a new service code has been defined as ‘Virtual Business’ on which 5 per cent VAT shall be imposed.”
This was a significant development in Bangladesh as it marked the country’s first major attempt to tax the digitalisation of the economy. Previously, in July 2017, just days after new VAT rules were announced, the Bangladesh government reversed a decision to implement the Value Added Tax and Supplementary Duty Act, 2012. The reversal was due to internal pressures.
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