ESTABLISHING AND MANAGING A GRATUITY FUND IN BANGLADESH
A Comprehensive Guide to Legal Requirements, NBR Approval, and Tax Benefits
Prepared by ACE Advisory

LEGAL NATURE OF GRATUITY
Under the Bangladesh Labor Act, 2006, gratuity is a legal entitlement, not a discretionary payment. It must be paid to eligible employees upon separation from service (retirement, resignation, incapacitation, or death) based on length of service and last drawn basic salary.

1. UNDERSTANDING GRATUITY & THE GRATUITY FUND

While paying gratuity is mandatory, creating an advance fund is not explicitly required by the Labor Act. Many employers pay gratuity directly from operating cash flow, which creates financial risk for large workforces.

A Gratuity Fund is a separately managed, trust-held pool established in advance to cover future gratuity obligations. Operating independently from company finances, an NBR-approved Gratuity Fund grants significant corporate and employee tax benefits.

2. STEP-BY-STEP PROCESS

PHASE I: ESTABLISHING THE FUND

• Step 1 - Board Resolution: The company passes a formal resolution to establish the fund as an irrevocable trust (the employer cannot dissolve the trust, reclaim contributions, or reverse the arrangement).
• Step 2 - Appoint Trustees: A Board of Trustees is appointed to oversee the fund with a fiduciary duty to employees (beneficiaries) rather than the employer.
• Step 3 - Draft Legal Documents: Prepare the foundational legal instruments:
  • Trust Deed: Primary legal instrument creating the trust, defining objectives, trustee identities, and governing terms.
  • Fund Rules: Operational guidelines covering eligibility, calculation formulas, contribution obligations, investment policies, disbursement procedures, auditing, and dispute resolution.
• Step 4 - Execute and Operationalize: Sign the Trust Deed and open a dedicated bank account in the fund's name. All contributions and proceeds flow exclusively through this account, kept entirely separate from corporate funds.

PHASE II: OBTAINING NBR APPROVAL

A trustee of the fund (not the employer) must submit the application to the Commissioner of Taxes in the employer's tax jurisdiction.

Required Documentation:

• Company Board Resolution approving the establishment of the fund.
• Trustee Board Resolution to seek tax approval.
• Notarized copies of the Trust Deed and Fund Rules.
• Audited financial statements and bank statements for the latest financial year (if existing from a prior period).
• Employer corporate documents (Certificate of Incorporation, MOA, AOA, e-TIN, BIN, Trade License, and latest proof of tax return submission).
• List of existing beneficiaries (designation, joining date, NID numbers).
• Other documents required under the Income Tax Act, 2023.

PHASE III: ONGOING COMPLIANCE

3. TAX BENEFITS OF NBR-APPROVED FUNDS

4. QUICK REFERENCE GUIDE

Disclaimer
This document is prepared by ACE Advisory for general reference only. It provides a simplified overview of the legal and tax framework and should not be relied upon as formal legal or tax advice. Consult ACE Advisory or a qualified professional before taking any specific action.