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Bangladesh Bonded Warehouse System 2020: Operations and Duty-Free Import Guide

Overview of the Bangladesh Bonded Warehouse System

The Bonded Warehouse system in Bangladesh allows export-oriented manufacturers to import raw materials duty- and VAT-free, process them, and ship the finished goods abroad. As of 2020, more than 4,000 bonded factories are in operation, with over 95% of the RMG (garment) industry relying on the scheme. Membership in BGMEA or BKMEA is a prerequisite, and raw material utilization is tracked through the customs-administered UD (Utilization Declaration) and UP (Utilization Permission) process.

4,000+
Bonded Factories
2020
$16B
Duty-Free Imports
annual
95%+
RMG Utilization
bonded share
100%
Duty Exemption
CD + SD + VAT
3 years
License Validity
renewable
Annual
Audit Frequency
UD/UP

Bonded Warehouse Types Compared

Bangladesh Bonded Warehouse Types (2020)
TypeEligible EntitiesExemption ScopeAuthorityNo. of Firms
General BondedRMG export factoriesAll raw materialsBGMEA / BKMEA3,500
100% Export BondedNon-RMG exportersRaw materials + machineryCustoms300
Special BondedIndirect exportersPartial raw materialsCustoms150
EPZ BondedEPZ-based companiesFull exemptionBEPZA450

General Bonded accounts for over 80% of all bonded facilities and is primarily used by RMG export factories. Special Bonded targets indirect exporters — yarn spinners, fabric mills, and accessory suppliers — that supply materials to RMG factories.

Bonded Import vs. Regular Import

Bonded Import (Duty-Free)
Customs Duty0% (fully exempt)
VAT0% (exempt)
Condition100% processed for export
DocumentsUD/UP + Back-to-Back L/C
Regular Import (Dutiable)
Customs DutyCD 0–25%
VAT15%
ConditionUnrestricted
DocumentsL/C + Bill of Entry
01
UD/UP Procedures and Controls
The UD/UP system is the cornerstone of bonded raw material management. (1) UD (Utilization Declaration): report of raw material consumption after export, based on the export B/L. (2) UP (Utilization Permission): customs approval of the utilization report (audit). (3) Timeline: UD must be submitted within 180 days of export; UP audit conducted annually. (4) Discrepancy: retroactive duty assessment on unused raw materials. (5) Challenge: the process remains document-heavy — ASYCUDA integration for electronic UD/UP is underway. Korean exporters should verify their buyer's UD/UP compliance status before shipment to confirm duty-free treatment.
02
Back-to-Back L/C and the Bonded System
Payment for bonded imports is typically handled through Back-to-Back Letters of Credit (B2B L/C). (1) Master L/C: export letter of credit opened by the overseas buyer. (2) Back-to-Back L/C: secondary L/C opened by the Bangladeshi importer, backed by the Master L/C, to pay for raw material imports. (3) Settlement: raw material payment is automatically settled upon receipt of export proceeds. (4) Advantage: minimizes working capital requirements for the importer. (5) Korean exporters receiving a Back-to-Back L/C should verify the validity of the underlying Master L/C.
03
Practical Guide for Korean Exporters
(1) Verify bonded buyer status: confirm BGMEA/BKMEA membership and validity of the bonded license. (2) L/C terms: review Back-to-Back L/C conditions (Usance 90–180 days is standard). (3) No C/O required: bonded imports are duty-free, so FTA Certificate of Origin is unnecessary. (4) Packaging markings: recommend noting the Bonded Warehouse number on packaging. (5) Proforma Invoice: state HS code, quantity, and unit price clearly — these are the basis for customs review.
04
Bonded System Reform Outlook
(1) ASYCUDA integration: electronic UD/UP processing to reduce audit lead times. (2) Automated Bonded: real-time tracking systems for raw material in/outflows. (3) Non-RMG expansion: broadening bonded access to leather, plastics, and ceramics exporters. (4) LDC graduation compliance: reviewing compatibility with WTO subsidy rules. (5) Green Bonded: additional incentives for eco-certified bonded factories.

Bonded Import Flow

Step 1
Obtain bonded license
↓
Step 2
Receive Master L/C
↓
Step 3
Open Back-to-Back L/C
↓
Step 4
Duty-free raw material import
↓
Step 5
Processing & production
↓
Step 6
Export shipment
↓
Step 7
UD submission & UP audit
Bangladesh L/C Procedures 2020Letter of Credit payment guide
Bangladesh Customs Clearance Procedures 2020A practical guide to import customs clearance

Bangladesh's Bonded Warehouse system enables duty-free raw material imports for over 4,000 export factories, and stands as a defining feature of the country's export competitiveness. Korean exporters can leverage this duty exemption when transacting with bonded buyers, making an understanding of the Back-to-Back L/C structure and UD/UP procedures essential for smooth trade operations.

Bonded WarehouseDuty-FreeExport2020RMG
Bangladesh Bonded Warehouse System 2020: Operations and Duty-Free Import Guide | Dhaka Trade Portal