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| Corporate practice bd |
What is difference between Direct Export & Deemed Export?
In the context of VAT and export in Bangladesh, "Direct Export" and "Deemed Export" refer to different ways in which goods are considered to be exported, with implications for VAT treatment and benefits. Let's explore the main distinctions.
Direct Export:
Physical Movement: This is the conventional understanding of export, where goods physically cross the border of Bangladesh and are sent to a buyer located outside the country.
VAT Treatment: Direct exports from Bangladesh are zero-rated for VAT purposes. This means no output VAT is charged on the export sale. Furthermore, exporters are entitled to claim input tax credits on the raw materials, inputs, and services used in producing these exported goods.
Documentation: Direct exports involve standard customs procedures and documentation, including export declarations, bills of lading, invoices, etc., to prove that the goods have indeed left the country
Beneficiaries: The direct beneficiary is the foreign buyer who receives the goods outside Bangladesh.
Deemed Export:
No Physical Movement Outside Bangladesh (Usually): Deemed exports refer to specific categories of transactions where goods supplied do not physically leave Bangladesh, but these supplies are still treated as exports by the government for certain benefits and VAT implications.
VAT Treatment: Unlike direct exports which are zero-rated, deemed exports are generally subject to the standard VAT rate (currently 15%) at the time of supply. However, the supplier of deemed exports is usually eligible for a refund of the VAT paid. The exact mechanism and conditions for this refund are specified by the National Board of Revenue (NBR).
Purpose: The concept of deemed export is to provide benefits similar to those of direct exports to certain domestic suppliers who contribute to export activities or specific government-promoted projects within Bangladesh.
Examples in Bangladesh: Based on general understanding and common practices in other regions (specific Bangladeshi regulations should be consulted for a definitive list), deemed exports might include:
Supplies to Export-Oriented Units (EOUs) or units in Export Processing Zones (EPZs): When a domestic supplier provides goods to a unit that will use these goods to manufacture products for export.
Supplies to projects funded by international organizations or under bilateral/multilateral agreements
Supplying capital goods to entities that possess an Export Promotion Capital Goods (EPCG) license.
Documentation: Deemed exports require specific documentation to prove that the supply falls under a recognized category of deemed export. This might include supply contracts, end-user certificates, and other documents as prescribed by the NBR
Typically, a domestic entity, such as an Export Oriented Unit (EOU), directly benefits.
Key Differences Summarized:
|
Feature |
Direct Export |
Deemed Export |
|
Physical Movement |
Goods physically leave Bangladesh |
Goods usually do not physically leave Bangladesh |
|
VAT on Supply |
Zero-rated (0%) |
Standard rate (refundable under certain conditions) |
|
Input Tax Credit |
Entitled to claim |
Entitled to claim (after paying output VAT) |
|
Documentation |
Standard export customs documents |
Specific documents to prove deemed export status |
|
Beneficiary |
Foreign buyer |
Domestic entity linked to export/specific projects |
In the context of VAT in Bangladesh:
Direct exporters benefit from an immediate zero VAT rate on their export sales, simplifying their VAT obligations related to those sales.
Deemed exporters, while initially paying VAT, can claim refunds, aiming to provide them with similar economic benefits as direct exporters by reducing their tax burden related to export-oriented supplies.
It's crucial for businesses in Bangladesh to understand these distinctions and the specific regulations issued by the National Board of Revenue (NBR) to correctly apply VAT and avail any applicable benefits for their export-related transactions. Always refer to the latest official pronouncements for the most accurate information.