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October 13, 2023

Bonded Warehouse Legal Requirements for Export-Oriented Companies in Bangladesh

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Navigating Bonded Warehouse Legal Requirements for Export-Oriented Companies in Bangladesh

Bangladesh’s burgeoning export-oriented manufacturing sector plays a pivotal role in the country’s economy. To facilitate this growth and encourage export activities, the government has established various legal provisions, including bonded warehouses. These warehouses serve as crucial hubs for the storage of goods intended for export. However, understanding the legal requirements and conditions for export-oriented companies operating within this framework is vital. In this article, we’ll delve into the legal landscape surrounding bonded warehouses in Bangladesh, exploring key legal conditions, the distinction between export-oriented and non-export-oriented factories, and safeguards to ensure compliance.

Query 1: Selling Bonded Goods in the Domestic Market for Export-Oriented Factories

Export-oriented factories, often the backbone of Bangladesh’s exports, sometimes encounter situations where they need to sell bonded goods in the domestic market. This may arise due to various reasons, such as local demand, production surpluses, or other market dynamics. However, it’s crucial for export-oriented factories to comply with specific legal conditions when selling bonded goods domestically.

The Customs Act of 1969, under Section 104, delineates the legal conditions for the clearance of bonded goods for home consumption. Section 104 reads as follows:

“104. Clearance of bonded goods for home consumption.- Any owner of warehoused goods may, at any time within the period of their warehousing…….clear such goods for home consumption by paying –

  • the duty assessed on such goods under the provisions of this Act; and
  • all rent, penalties, interest, and other charges payable in respect of such goods.

Provided that necessary permission will have to be taken from the Commissioner of Customs (Bond) or any other Commissioner of Customs authorized by the Board fifteen days in advance in case of Special Bonded Warehouse for special purposes to be determined by the Commissioner of Customs (Bond) or any other Commissioner of Customs authorized by the Board.”

In essence, Section 104 of the Customs Act 1969 allows export-oriented factories to sell bonded goods in the domestic market. To do so, they must fulfill the following legal requirements:

  1. Payment of Applicable Duties: Export-oriented factories must pay the duties assessed on such goods, which should be calculated in line with the provisions of the Customs Act.
  2. Settlement of Arrears: All rent, penalties, interest, and other charges associated with these goods must be cleared.
  3. Advance Permission: Export-oriented factories seeking to clear bonded goods for home consumption should obtain prior permission from the Commissioner of Customs (Bond) or any other Commissioner of Customs authorized by the Board. This permission needs to be secured at least fifteen days in advance, particularly in cases involving Special Bonded Warehouses for specific purposes, as determined by the relevant authorities.

This legal framework ensures that when export-oriented factories sell bonded goods in the domestic market, they adhere to the tax and fee obligations that would have been applicable if these goods had been exported.

Query 2: Qualifying as a Non-Export Oriented Factory

In contrast to export-oriented factories, non-export oriented factories are subject to a different set of criteria. To qualify as a non-export oriented factory, there is a fundamental condition: the factory should not be owned by an export-oriented company. This distinction underlines the pivotal role of ownership in categorizing factories in Bangladesh. Essentially, if a factory’s ownership structure is not linked to an export-oriented entity, it falls within the purview of a non-export oriented factory.

Query 3: Safeguards and Mechanisms

Safeguards and mechanisms to ensure compliance with the legal requirements surrounding bonded warehouses and export-oriented factories can vary depending on specific situations. However, certain general practices are recommended to help mitigate risks and ensure legal compliance.

One common approach is to obtain an undertaking from the seller or manufacturer. This undertaking essentially requires the seller/manufacturer to declare that they will operate within the legal boundaries set by the laws of the land. If they fail to do so, the buyer or reseller will not be liable to any claims or prosecutions initiated by the government.

Such undertakings are valuable legal instruments that not only protect the interests of the buyer but also emphasize the importance of legal compliance within the business ecosystem. They provide a mechanism for recourse in the event of non-compliance with the stipulated legal requirements.

Below is an expansive table summarizing the key legal points regarding bonded warehouse requirements for export-oriented factories in Bangladesh:

Legal AspectSummaryExport-Oriented FactoriesNon-Export Oriented FactoriesSafeguards and Mechanisms
Section 104 of Customs Act 1969This section outlines the legal conditions for clearing bonded goods for home consumption, allowing export-oriented factories to sell such goods domestically.Fulfill specific criteria:N/AImplement an undertaking mechanism.
Payment of Duties and ChargesExport-oriented factories must pay the duties assessed on the bonded goods and clear all associated rent, penalties, interest, and other charges.Required as per tax laws.N/AEnsures legal compliance with tax obligations.
Advance PermissionTo clear bonded goods for home consumption, export-oriented factories need prior permission from the Commissioner of Customs (Bond) or an authorized Commissioner, secured at least fifteen days in advance.Necessary for specific cases.N/AEnsures adherence to formal procedures and approvals.
Qualifying as Non-Export Oriented FactoryNon-export oriented factories should not be owned by export-oriented companies, and their classification depends on ownership structure.Not applicable.Ownership-based distinction.Identifies businesses not linked to export-oriented entities.
Undertaking from Seller/ManufacturerImplementing an undertaking mechanism is a common safeguard to ensure compliance. Sellers/manufacturers declare their commitment to abide by legal requirements, protecting buyers from non-compliance consequences.Recommended practice.Recommended practice.Offers a mechanism for recourse and compliance enforcement.

This table provides an extensive summary of the legal aspects related to bonded warehouses, export-oriented and non-export oriented factories, and the use of undertakings as safeguards to ensure legal compliance.

The legal requirements and conditions surrounding bonded warehouses and the distinction between export-oriented and non-export-oriented factories are vital components of Bangladesh’s trade and commerce landscape. Ensuring compliance with these legal provisions is not only crucial for businesses but also contributes to the growth and stability of the country’s export-oriented sector. By understanding and adhering to these legal requirements and implementing safeguards where necessary, businesses can operate within a legal framework that supports their activities while maintaining the integrity of Bangladesh’s trade regulations.


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