The Startup Regime in Bangladesh

- Prepared by ACE Advisory

1. What Is A "Startup"?

A company qualifies as a "Startup" under the Income Tax Act 2023 (8th Schedule, Part 2) where it:

has annual turnover not exceeding BDT 100 crore in any income year;
is incorporated under the Companies Act 1994; and
was not created through an amalgamation or demerger scheme,

and falls under one of the two categories below.

Standard Startup

An entity engaged in the invention, development, or improvement of a product, service, process, business model, or technology, or an entity operating under a new business model with the potential to generate large-scale employment or create wealth.

Deep Tech Startup

An entity founded on artificial intelligence, technology-based financial services (FinTech), information or scientific research, or engineering knowledge, and which holds its own intellectual property.

"Innovation" (relevant to the Standard Startup test)

The development or a meaningful improvement of a product, service, process, business model, or technology that increases capability, quality, or utility, or that provides a better and more effective solution to an existing problem.

Source: Income Tax Act 2023, 8th Schedule, Part 2

2. Eligibility Criteria

To be treated as a Startup and access the benefits described in this note, an entity must satisfy all of the following:

Meets the turnover, incorporation, and category tests set out in Section 1 above; and
Is registered with the National Board of Revenue (NBR) as a Startup- registration is a precondition for both the income tax sandbox benefits and the VAT exemption; unregistered entities meeting the definition do not qualify for these benefits.

3. Registration- Status Is Not Permanent

The NBR may cancel a Startup's registration, provided it first discloses adequate cause and gives the entity an opportunity of hearing.

Practical Implication
Registration can be withdrawn. A Startup should be able to demonstrate, on an ongoing basis, that it continues to meet the underlying eligibility criteria (turnover cap, category classification, and non-merger/demerger origin).

4. Income Tax Benefits (During "Growth Years")

"Growth years" means the 9-year period following the end of the income year in which the Startup was incorporated. The following benefits apply to a registered Startup during this period:

(a) 0% Minimum Tax

Section 163(6), Income Tax Act 2023

The turnover tax on the gross receipts of the company under section 163(6) is reduced to 0% for a registered Startup during its growth years.

(b) Relief from Sections 55 & 56

8th Schedule, Part 2, Para 1

Sections 55 and 56 of the Income Tax Act 2023- which impact the computation of "income from business or profession" by disallowing certain expenses beyond prescribed limits, and by imposing additional tax liability for failure to deduct income tax at source- do not apply to a registered Startup's business/profession income during growth years.

Note
Section 56ka, newly inserted by the Finance Act 2026, imposes additional tax liability for failure to deduct income tax at source when procuring capital assets. Startups have not been relieved of this liability.

(c) 9-Year Loss Carry-Forward

8th Schedule, Part 2, Para 2

A loss incurred by a registered Startup in a growth year may be carried forward and set off for 9 years following that year- and this carry-forward survives new investment or a change in the Startup company's shareholders.

(d) Reporting Relief via Read-Only NBR Access

8th Schedule, Part 2, Para 4

A registered Startup may grant the tax authority read-only digital access to its systems or accounts. Where it does so, it is relieved of other reporting obligations- except that income tax return filing under section 166 and withholding tax return filing under section 177 remain mandatory regardless.

Practical Implication
This is an access trade-off, not a blanket exemption from reporting: annual tax return u/s 166 and quarterly withholding tax returns under section 177 must still be filed on time.

5. VAT Benefits (1 July 2026 – 30 June 2035)

SRO 147-Law/2026, dated 7 June 2026

A registered Startup (as defined in Section 1, and separately registered with NBR as a Startup) is exempt from VAT on:

all VAT chargeable on its local-level supplies;
all VAT chargeable on its import of any service; and
all VAT chargeable on rent paid for space and premises.

No VAT Deduction at Source (VDS)

Where a registered Startup supplies goods or services to a VAT-withholding entity, that entity is not required to make VDS on the supply.

Record-Keeping

A registered Startup may maintain its tax-related documents and accounts on a server via an ERP system or NBR-specified VAT software, under section 107(2ka) of the VAT and SD Act, 2012. Records so maintained are treated as legally acceptable evidence, provided they can be presented electronically to the VAT authority on request.

Practical Implication- Input Tax Credit
The SRO grants an exemption on output VAT liability, not zero-rating. Under standard VAT principles, exempt supplies typically do not carry a right to claim input tax credit on related purchases.

6. Summary- Conditions To Retain Benefits

Continue to meet the turnover cap, incorporation, and category criteria on an ongoing basis.
Keep NBR Startup registration active and in good standing (both for income tax and VAT purposes).
Maintain records via ERP or NBR-approved VAT software if relying on the electronic record-keeping facility.
File returns under sections 166 and 177 even if read-only access has been granted in lieu of other reporting.

Disclaimer
This document summarizes selected statutory and regulatory provisions currently in force and is for general information only. It does not constitute tax or legal advice. Please contact ACE Advisory before acting on any matter summarized above.