Sole Proprietorship in Bangladesh: How to Set One Up, What It Costs, and When It Stops Making Sense

In this guide: What a proprietorship is, legally · The trade licence: fees, documents and renewal · Tax: the owner's return, TIN and VAT · Liability: the real cost of simplicity · Converting to a company later

The short answer

Choose a trade name, apply to the licensing office of your city corporation, pourashava or union parishad for a trade licence (NID, photographs, the rent agreement or holding-tax receipt for the premises, and for some trades a no-objection or sector certificate), pay the category fee and collect the licence — in Dhaka North and South the application is online and takes about a week. Get the owner’s eTIN from the NBR portal if you do not already have one; it is free and the trade licence office and every bank will ask for it. Open a bank account in the trade name with the licence, TIN and NID. If the business will supply goods or services above Tk 30 lakh a year, or is in a sector the VAT law lists regardless of turnover, take VAT enlistment (turnover tax) or a BIN. Those four — licence, TIN, account, BIN where needed — are the whole structure. Everything else (IRC/ERC for import or export, a DNCRP or BSTI certificate, a Department of Textiles or DoT registration) depends on the trade, not on the form. Renew the licence each year before the financial year ends, file the owner’s income-tax return by 30 November showing the business income in the appropriate schedule, and keep the business books separate from household money even though the law does not require it, because the tax officer and any future buyer will.

What a proprietorship is, legally

There is no statute. A proprietorship is simply an individual carrying on a business; the Contract Act, the Sale of Goods Act, the Negotiable Instruments Act and the tax laws apply to the individual. Consequences follow: the trade name is not a legal person and cannot own property, sue or be sued — a suit is brought by or against “Rahim Uddin, proprietor of Padma Traders”; contracts, leases and loans are the owner’s personally; the business cannot be sold as such, only its assets and goodwill; and on the owner’s death the business passes with the estate, the licence lapses and the bank account is frozen until succession is settled. A proprietorship can have employees, branches and a large turnover; what it cannot have is a second owner. The moment a partner is taken in it becomes a partnership (see our partnership guide); the moment an investor wants shares it must become a company.

The trade licence: fees, documents and renewal

The licence is issued under the local-government laws and the Model Tax Schedule by the licensing department of the city corporation (Dhaka North and South, Chattogram, and the others), the pourashava or the union parishad where the business premises are. The fee depends on the category of business in the schedule — a small retail shop, a consultancy, a manufacturing unit and a contractor each sit in a different band — and ranges from a few hundred taka to about Tk 20,000 a year, plus signboard tax, a source-tax deduction on renewal under the Income Tax Act, and a form fee. Documents: the owner’s NID and photographs, the rent agreement or holding-tax receipt for the premises, the trade name, and for licensed trades the sector paper (a DNCRP or BSTI certificate, a fire licence for a factory, a pharmacy licence from the DGDA, an approval from the Department of Environment). Dhaka’s two corporations issue online and most licences arrive in about a week; a union parishad licence is same-day. Renewal is annual and the penalty for late renewal is a surcharge on the fee. A licence is for one premises; a second shop needs a second licence. Our trade licence, TIN and BIN guide has the step-by-step for each office.

Tax: the owner's return, TIN and VAT

Income tax: the business has no return of its own. Its profit is business income of the owner, computed in the business schedule of the owner’s individual return and taxed at the individual slab rates with the individual’s threshold and rebates — which is why a profitable proprietorship with no other income pays less tax than the same business as a company until it earns well into the top slab. A TIN is mandatory for the licence itself (ITA 2023, s.264 lists a trade licence among the transactions that require one), and the return must be filed by 30 November whether or not tax is due. Source tax is deducted from the proprietor’s receipts by companies and government buyers at the contractor or supplier rates, and the trade licence renewal collects a small source tax. VAT: enlistment for turnover tax applies from Tk 30 lakh of annual turnover and full registration (a BIN) from Tk 50 lakh, with registration compulsory regardless of turnover for importers, exporters, supplementary-duty goods, tenders and the sectors in the NBR’s list; the proprietor, not the trade name, is the registered person, with the trade name on the certificate. Our VAT registration guide has the thresholds and forms.

Liability: the real cost of simplicity

Every obligation of the business is the owner’s. A supplier owed money, a customer injured by a product, an employee claiming wages, the NBR assessing arrears, a landlord suing on the lease — each can proceed against the owner’s house, car and savings, and a judgment against “the proprietor” is executed against personal property. There is no insurance of this in law and no “limited liability proprietorship” in Bangladesh. Three practical mitigants: keep personal and business banking separate so the accounts are defensible; insure (fire, product and public liability policies are cheap); and put real property in a spouse’s name only with advice, because transfers made to defeat creditors are voidable. The alternative is to incorporate. A private limited company needs two shareholders and two directors; a one-person company under ss.392A–L needs one, but with a paid-up capital of at least Tk 25 lakh and turnover between Tk 1 crore and Tk 50 crore, which excludes most small traders — see our OPC guide and the structure comparison.

Converting to a company later

There is no conversion procedure: a proprietorship cannot “become” a company because it is not an entity. What happens in practice is that the owner incorporates a new private limited company (with a second subscriber, often a family member, or as an OPC if the thresholds are met) and then transfers the business to it by a business transfer agreement — assets, stock, contracts, employees and goodwill — usually against shares in the company. Each licence and registration is then re-issued in the company’s name: a new trade licence, the company’s own TIN and BIN, new bank accounts, and fresh IRC/ERC or sector registrations; the old ones are cancelled or allowed to lapse. Two points to plan for: VAT on the transfer of stock and assets (a transfer of a business as a going concern has specific treatment under the 2012 Act, which needs to be applied correctly), and capital gains for the owner on assets transferred above cost. Done in the right order, the business keeps trading throughout; done piecemeal, it ends up with two sets of licences and a tax enquiry. Our registration guide covers the incorporation side.