All You Need to Know About Foreign Investments in Pakistan
Pakistan’s corporate and investment laws officially allow the sectors of the national economy to have total equity of wholly-owned subsidiaries that too with 100% repatriation rights transmittable through any commercial bank.
For property and currency-related matters, foreign investors are also provided with legal protection, and in case of any occurrence of matters, the investors will be eligible for compensation at the market value.
Among many foreign companies operating in Pakistan, the majority of them are private limited companies, and as per the previous requirement, the establishment of foreign companies in Pakistan required them to invest an amount of $150,000 as minimum capital, but no one was willing to invest such a hefty amount at an initial stage. Now, to foster the establishment and scale foreign operations in Pakistan, foreign companies can set up wholly-owned subsidiaries in Pakistan without any requirement of minimum investment.
Pakistan takes huge pride in the convenience of conducting business operations, especially when it comes to private limited companies. In private limited companies, rules and policies give Board full authority to decide not only the frequency of meetings but also the location, just what the Board of Members consider convenient. Board Resolution can also be approved by circulation, with Board of Members in complete accord. Directors are selected for a term, which consists of three years, and the criterion for the selection is based on the concept of ‘one share-one vote.’ Besides, directors are also allowed for re-election. The Chairman, Director and CEO are selected regardless of their nationality; however, Indian, Yemen and Israel nationals are not given preference.
A chief executive is designated by the Board of Members with special instructions, and he/she is in charge of the company’s daily operations. The CEO operates under the Board, and the law considers the person to be Board’s representative, with authority and full vote.
As mentioned above, the CEO is assigned the responsibilities of daily operations; therefore he must be a Pakistani resident to avoid inconvenience, and if he is not a national resident, he must obtain a ‘multiple work visa.’
As per the law, the company is governed to keep a fulltime audit and law-associate company. As far as the changes as to the names, company name, addresses, CEO/directors, or any other members, are concerned, SECP must be notified by the company within 15 days from the change.
Currently, the corporate tax stands at 35% of the net income. The country has entered the tax treaty with other 52 countries, Double Taxation Treaties, which is a step to alleviate double taxation of the same income. Furthermore, to promote on-time payments of dividend, additional tax charges are also imposed if the reserves go beyond the amount of paid-up capital.
A private firm is allowed to take a loan of up to 100% of paid capital. Moreover, the organization having a major portion of foreign equity is also allowed to borrow against a 5-year repatriable loan from its central organization on the ratio of LIBOR with the addition of 1.5% interest.
According to Instruction No.4 of 2011, SECP has made obtaining an NOC (No Objection Certificate) a mandatory part of constituting a company having foreign shareholders and directors. The NOC is issued by the Ministry of Interior Islamabad, and the process involves the flow of related information from the SECP to the Board of Investment and ultimately to the Ministry of Interior. The whole process usually took 3-4 months; therefore it was a point of major discouragement among foreign investors. Considering the issue, Pakistan Board of Investment reconsidered the rule and revised it.
Now, a ‘Certificate of Incorporation’ is issued to the respective companies within a few days after filing for incorporation to start with their operations until they get an NOC by the Interior Ministry. The only mandatory action required is that the foreign top management/shareholders provide a written acknowledgement that they have agreed to be the directors and/or they own subscribed shares and they will be suspended anytime with immediate action if they face rejection during security clearance.
Now, after several attempts, Pakistan has made reasonable requirements that have opened a gateway for the foreign investors into the Pakistan market; finally, they can start with their operations without waiting for whole 3-4 months delay. This seems to be a major development to foster convenience for foreign entities to work in Pakistan.