Startup sandbox rules likely to ease

The government is expected to revise the definition of the “startup sandbox”, paving the way for a wider range of companies to access the significant tax benefits announced in the proposed budget, in a move expected to provide a major boost to Bangladesh’s startup ecosystem.

In the proposed budget, the government announced sweeping VAT exemptions for startups, including zero VAT on local sales, international expenses and establishment-related costs such as office rent.

Initially, these benefits were limited to startups registered under the “startup sandbox”, a regulatory framework introduced in 2023 to support innovative businesses through relaxed rules and policy incentives. However, the existing sandbox rules are set to be changed.

A startup sandbox is essentially a controlled policy environment where early-stage companies can test and operate under special regulatory and tax benefits for a defined period. It is designed to help startups grow without facing the full burden of conventional taxation and compliance requirements.

Under the existing sandbox rules, only startups incorporated after 2017 are eligible for registration. Additionally, companies with annual turnover exceeding Tk 100 crore are not allowed to remain under the scheme.

Now, two major changes are under consideration, a government official told The Daily Star on condition of anonymity.

First, all startups recognised as innovative ventures in 2026 could qualify for sandbox benefits regardless of when they were founded.

This means older startups such as Chaldal and Pathao may become eligible despite having been founded more than a decade ago.

Second, startups may move into the regular tax regime only if they record profits exceeding Tk 100 crore for three consecutive years.

Industry insiders said the restrictive rules under the existing sandbox framework prevented startups from benefiting from the previously limited incentives, which have now been significantly expanded.

“We applaud the government’s prompt review and amendment of the startup definition in the Finance Bill. This reflects a genuine desire to support startups and sends a positive signal to promising young entrepreneurs and prospective foreign investors in Bangladesh,” said Fahim Ahmed, CEO of Pathao.

“The startup definition in the original bill, if left uncorrected, would have prevented companies that are more than 10 years old or generate over Tk 100 crore in annual turnover from availing themselves of the sandbox benefits, placing them at a disadvantage compared with competitors in their respective industries.

“We have found government stakeholders to be responsive to our concern that this could have resulted in the unintended consequence of penalising startups that have successfully scaled up, created jobs and attracted foreign investment in Bangladesh,” he added.