Why a Liaison Office need TIN?
(Before starting this post, I think I should give you a clarification. A Liaison Office and Representative Office, refer to the same thing in Bangladesh. In this post, I will mention them as Liaison Office only.)
A Liaison Office need to a get a Tax Identification Number (“TIN”). Some of the foreign investors become surprised to hear that. They ask, why? I get this question quite often. I don’t blame them. Let me explain.
According to the policy of the Board of Investment (“BOI”):
A Liaison/Representative Office of a foreign Company can only maintain liaison/coordination between principal and local agents, distributors/exporters’ institutions through correspondences, personal contracts and other electronic media. Such organizations can also collect, compile analyze and disseminate business information related to its field of activities as mentioned in the approval letter. This sort of foreign office will have no local source of income in Bangladesh. Establishment costs, all operational costs including remunerations of the expatriates and local employees of the concerned Liaison or Representative office will have to be met on receipt of remittances from the head office abroad. No outward remittances of any kind from Bangladesh sources will be allowed except the amount brought in from abroad (the unspent part).
(emphasis added)
So, a Liaison Office cannot have any local income in Bangladesh. That’s the policy of BOI said. This raise the question – if an entity cannot have any income, why will it need TIN? Or even have to file any tax return?
When my clients asked me these questions, I gave them a simple answer.
BecauseNational Board of Revenue (“NBR”) said so. For you information, NBR is the central authority for tax administration in Bangladesh.
NBR, through an office order (অফিস স্মারক) dated 21.10.1998 (pretty old, right?), provided the clarification. According to the office order, a Liaison Office should get TIN. They also must file tax return just like other tax payers.
The decision of the NBR is illogical and a court might declare it illegal if challenged.
**What about VAT? **
A Liaison Office is not supposed to engage in any kind of activities which is taxable. They need to pay VAT on the office rent. A Liaison Office should at least rent an office, right?
Thus, a Liaison Office is not required to obtain VAT registration. This is the clarification provided by NBR. However, this does not mean a Liaison office is exempted from VAT obligation altogether. It still need to pay VAT on the office rent or for any other service it obtained. Also, it should submit the treasury challan for the VAT with the relevant VAT circle.
NBR provided this explanation on 05 June 2014 vide letter no. ব্যাখ্যা পত্র নং-০১/মূসক/২০১৪.