Value Added tax (VAT) regime in Bangladesh has no route for the foreign companies without physical presence, causing difficulties for such firms to comply with the law, a global streaming giant has said.
The US-based streaming site Netflix sees some practical challenges in the current VAT law, which is preventing service providers like it from being able to fulfill VAT obligations in Bangladesh.
It said every country in the Asia-Pacific region, which has introduced 'extraterritorial' VAT, has simple option to practically tax foreign taxpayers having no local presence, thus enabling those to comply with their VAT obligations.
The company has proposed simplification of registration, return filing and payment of VAT for foreign taxpayers.
Davy Chen, Asia Pacific indirect tax manager of the Netflix, in a recent letter placed the proposals to the National Board of Revenue (NBR) chairman Abu Hena Md Rahmatul Muneem.
The entertainment service provider also sought a schedule for a virtual meeting with the NBR to discuss the challenges faced by non-residents companies in Bangladesh.
It alleged that double taxation is imposed on foreign taxpayers as subscribers would be charged 15 per cent VAT by Netflix on the amount to be paid to the government while banks will also withhold 15 per cent VAT while subscribers remit fees to Netflix.
"Practically and commercially, this double taxation prevents willing foreign service providers from registering for extraterritorial VAT in Bangladesh," Mr Chen said.
It proposed that banks should withhold VAT on payments made to only non-registered foreign service providers.
The global streaming company said that it is committed to complying with applicable tax requirements in Bangladesh.
Talking to the FE, VAT policy member Masud Sadik said the NBR is amending the law to facilitate foreign taxpayers' compliance with the VAT obligation in Bangladesh.
He, however, said the overseas firms will need to open an office in Bangladesh to get registered with the VAT department.
"We welcome it if foreign companies want to skip hiring VAT agents and are willing to get registered directly," he added.
According to the VAT law, a 15-per cent VAT is applicable on cross-border business to consumer (B2C) electronic services provided by online streaming sites such as Netflix, Amazon Prime etc.
Subscribers have to pay the VAT on the fees for online entertainment sites.
As per the existing law, the non-resident companies have to pay VAT through a local agent, which will be responsible for obtaining registration, submitting returns and paying taxes on behalf of the foreign companies.
In case of VAT evasion, the NBR will hold local VAT agents to account as such companies have no physical presence in the country.
The Netflix found it difficult or even impossible to appoint a local
VAT agent as local agent is held jointly or separately responsible for VAT.
Transferring fund to the bank account of a third-party local agent may be restricted due to anti-money laundering and risk management protocols, it said.
Netflix proposed allowing foreign companies to submit its VAT returns online.
It also requested the tax authority to keep necessary provisions, including minimising the requirement for details of foreign taxpayers.
Currently, businesses require furnishing a number of information such as transactions with registered and unregistered persons, supplies and procurement at standard, reduced and specific rates, details of input tax credit, withholding VAT, etc.
However, most of details are not applicable to a non-resident electronic service provider.
Netflix requested the NBR to allow foreign companies to pay VAT through foreign bank accounts as opening local bank account is not possible for it.
Currently, VAT payment can be made only through a local bank account. It is mandatory to provide details of a local bank account in the VAT registration application form.
"It is not practical for foreign companies to open local bank accounts in every country that needs to remit VAT," it said.
Currently, Netflix International B.V (NIBV), a subsidiary of Netflix Inc, is registered for VAT purposes in dozens of countries such as Singapore, Indonesia, Malaysia, Australia etc even through it does not have any physical presence and has not appointed local fiscal representatives or agents in those countries, it said.
Saudi Arabia and Zimbabwe, which initially required VAT payment via a local representative, decided to withdraw such a requirement.
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