Bangladesh Bank Issues New Guidelines on Preference Shares for Foreign Investors

Bangladesh Bank has issued new guidelines on the issuance of preference shares in favour of non-resident investors, payment of dividends, conversion of shares and repatriation of investment proceeds to attract foreign investment.

Under the new guidelines, companies will not need prior approval from Bangladesh Bank if they set dividends on preference shares for non-resident investors at up to 5 per cent of the face value. However, approval from the central bank will be required if the dividend rate exceeds this limit.

On Tuesday (November 3), the Foreign Exchange Investment Department (FEID) of Bangladesh Bank issued a circular in this regard. Through FEID Circular No. 04, the central bank instructed all authorised dealer (AD) banks in the country to follow the new guidelines. The circular came into immediate effect.

According to the new guidelines, any resident company operating in the manufacturing or service sectors may issue preference shares in favour of non-resident or foreign investors. However, such companies must comply with the Companies Act, 1994, applicable regulations of the Bangladesh Securities and Exchange Commission (BSEC), and the provisions of their respective memorandums and articles of association.

The investment proceeds against preference shares must be brought into Bangladesh in foreign currency through legitimate banking channels. The company concerned must also enter into a subscription agreement with the non-resident investor for issuing such shares. The agreement must clearly specify the number of shares, face value, issue price, dividend rate, tenure of the shares, and the terms and conditions for their redemption and conversion into ordinary shares. Where required, prior approval from Bangladesh Bank must be obtained.

The circular states that prior approval from Bangladesh Bank will not be required if the dividend rate on preference shares does not exceed 5 per cent of their face value. However, approval will be mandatory for any higher rate. Approval will also be required for preference shares carrying participating or adjustable dividend rates.

For this purpose, an application must be submitted to the Foreign Exchange Investment Department of Bangladesh Bank through the designated AD bank, explaining the justification for the proposed dividend rate. Following the issuance of preference shares, the concerned AD bank must submit a report to Bangladesh Bank within 14 days.

The report must include the company’s memorandum and articles of association, Form XV approved by the Registrar of Joint Stock Companies and Firms (RJSC) or the return of allotment of shares, an encashment certificate in the prescribed format, and the online Foreign Exchange Transaction Identification Number. Schedule X must also be submitted where applicable.

The new guidelines require preference shares to be issued at face value. Consequently, company valuation will not be required for the issuance or redemption of these shares. However, if preference shares carry the option of conversion into ordinary shares, the fair market value of the ordinary shares must be determined to establish the conversion ratio. In this regard, the procedure specified in Bangladesh Bank’s FEID Circular No. 01, issued on March 8, 2026, must be followed.

If preference shares are converted into ordinary shares, the concerned company must notify Bangladesh Bank through its AD bank. It must also submit the required documents in accordance with paragraph 2(a), Chapter 9, Volume I of the Guidelines for Foreign Exchange Transactions, 2018 edition.

The circular also provides important instructions regarding the repatriation of dividends and investment capital by foreign investors.

If preference shares are issued in compliance with Bangladesh Bank’s regulations, AD banks may remit dividends and redemption proceeds to foreign investors without prior approval from the central bank, subject to compliance with applicable foreign exchange regulations and tax payment requirements.

However, if redemption proceeds are remitted in instalments, a follow-up report must be submitted to the Foreign Exchange Investment Department of Bangladesh Bank within 30 days from the date of each remittance. The report must include the relevant documents, including the TM Form containing the online Foreign Exchange Transaction Identification Number.

The central bank has also prescribed specific banking arrangements for repatriating funds to foreign investors. Dividends and redemption proceeds must be remitted abroad through the same AD bank through which the original investment was brought into Bangladesh. The concerned AD bank must also maintain year-wise records of dividend payments and redemption proceeds repatriated abroad.

It has further been stated that dividends and redemption proceeds must be remitted to the non-resident investor in the same country from which the original investment was sent to Bangladesh. If any instalment of preference shares remains unpaid after its scheduled payment date, or if any portion of the principal or accumulated dividends remains unpaid after the shares mature, no additional interest or compensation may be paid or claimed on the outstanding amount.

However, dividends earned on preference shares may be reinvested in ordinary shares of the same company or another company. In such cases, the fair market value of the ordinary shares of the concerned company must be taken into consideration.

Bangladesh Bank has also emphasised the need to preserve tax-related documents when remitting dividends abroad. The concerned AD bank must retain the auditor’s certificate specifying the tax deducted at source (TDS) and the amount eligible for repatriation. Where tax benefits are claimed under a Double Taxation Avoidance Agreement (DTAA), the necessary certificates and other documents from the National Board of Revenue (NBR) must also be kept on file. These documents must be readily available for inspection by Bangladesh Bank officials upon request.

In addition, if a company wishes to change its designated AD bank, it must obtain a no-objection certificate (NOC) from the previous bank. All documents held by the previous bank relating to the repatriation of dividends abroad must be transferred to the new bank. Bangladesh Bank must also be notified of the change.

In the case of preference share redemption, two copies of Schedule X must be submitted to the Foreign Exchange Investment Department of Bangladesh Bank at two stages: immediately before payment of the final instalment and after the payment has been made. The second Schedule X must reflect the removal of the preference shareholders’ names. The relevant financial statements for both stages must also be submitted.

Bangladesh Bank has stated that fully convertible and irredeemable preference shares will be treated as equity capital. In addition, AD banks must ensure proper compliance with know-your-customer (KYC) requirements, anti-money laundering (AML) regulations, counter-terrorist financing (CFT) measures, tax laws and other relevant laws and regulations when receiving such investments and repatriating the proceeds.