Is foreign remittance income from freelancing or remote work tax-free or taxable?

In recent years, remote work has gained remarkable popularity among young and skilled professionals in Bangladesh. Global companies across various industries now offer opportunities for Bangladeshi talent to work remotely, including through Business Process Outsourcing (BPO), freelancing, and contractual service arrangements.

Many professionals are earning income in foreign currency, which is then remitted to Bangladesh through formal banking channels. This trend has given rise to a common misconception: if money comes from abroad, it is remittance and therefore tax-free.

However, the Income Tax Act 2023 outlines a more detailed and structured approach, where the taxability of remote work or BPO-related income depends primarily on the taxpayer’s residency status and the source of the income.

But the key question is: who is a resident taxpayer? According to Section 26 of the Act, the global income of any person classified as a “resident” is subject to tax in Bangladesh, regardless of where that income is earned.

Section 2(45) further clarifies that if you live in Bangladesh for at least 183 days in a tax year, or meet the combined 365-day rule over four years with at least 90 days in a tax year, you are a resident. This means that most freelancers and remote employees working from Bangladesh fall under “resident taxpayer,” and therefore must pay tax on all income, even if it comes from abroad.

Now the question is: when income comes from abroad, can it be considered income of foreign origin? The source of income is a very important factor in determining tax liability. Section 27 states that income deemed to be accrued or arising in Bangladesh is taxable.

If you provide services to a foreign institution while staying in the country, the money you receive in return for that service will be considered income earned from sources in Bangladesh, even if it arrives as remittance from abroad.

So, it is not automatically tax-free. The law also specifies that jobs or services performed in Bangladesh, income earned from establishments or properties located in Bangladesh, fees paid by the government or a resident, interest, royalties, technical services, etc. will all be considered income from sources in Bangladesh.

However, the law provides tax-free benefits in certain cases. Section 17 of the first part of the Sixth Schedule of the Income Tax Act states that if a normal taxpayer of Bangladesh earns income abroad and brings that income to the country through the banking channel, then that income will be excluded from total income, i.e. tax-free.

But this benefit is available only if the taxpayer earns income by physically working abroad. If the foreign income is earned by remote working while staying in Bangladesh, it does not qualify for this benefit, because such individuals are not considered non-resident. As a result, those working for foreign companies from within Bangladesh will not get this tax-free benefit.

Moreover, certain technology-based business activities such as software development, artificial intelligence solutions, data analytics, IT freelancing, and specific BPO-related services including call centres and digital archiving are eligible for tax exemptions from July 1 of 2024 to June 30 of 2027, as per Section 21 of the first part of the Sixth Schedule of the Income Tax Act.

To qualify for this benefit, the activities must be conducted as a registered business, with proper banking transactions, and supported by a valid Trade Licence, TIN, and BIN. Salary income earned from remote employment does not fall within this exemption.

Another issue is tax liability. According to Section 124, it is mandatory to deduct tax at source at the rate of 10 percent if the service fee or revenue sharing of a resident taxpayer comes to the country from abroad and is considered an exchange of services performed within Bangladesh.

Banks often deduct this tax at the time of depositing the remittance money in the bank account. According to Section 150, the tax deducted at source has to be reconciled with the total tax liability in the return. But many taxpayers do not collect the tax invoice deducted by the bank, so they cannot claim the benefit of tax already paid at source.

Whether remote work income is taxable depends on whether the individual is engaged in business or employment. Income earned through platforms like Upwork, Fiverr, or direct project-based contracts is considered business income and may be tax-free if it qualifies as a technology-based business.

However, receiving a regular salary from a foreign organisation is treated as employment income and is taxable in Bangladesh. The tax-free remittance benefit applies only to individuals who physically work abroad and remit their earnings through formal banking channels.

Since remote workers provide services from within Bangladesh, their earnings do not qualify as tax-free foreign employment income and are therefore taxable under domestic rules.

It is important for people in the global workforce to be aware of tax responsibilities. Many remote workers reasonably ask: why tax income earned through their own efforts? The answer is simple: the tax system of the state works based on the location, activities, and sources of income of the citizen.

Taxes are paid to the state for the benefit of the people. So, while joining the global labour market is commendable, evading or misinterpreting tax liability harms both the state and the individual.

Remote work is an inevitable reality in today’s digital economy. This raises new questions about the law. Hence the need for awareness and a clear understanding of one’s position. The idea that remittance always means tax-free must be abandoned. It is part of a citizen’s responsibility to properly declare and pay what falls under the tax net.

The state seeks transparency in revenue; the individual seeks security and assurance. A combination of these two leads to good governance. If remote workers understand the law and file tax returns correctly, both individuals and the state will benefit. Let not misconception, but the correct interpretation of the law, be our guide.

The writer is a financial sector analyst. He can be reached at faysal.aqc@gmail.com