In Pakistan, the Board of Investment (BOI) plays a crucial role in promoting and facilitating local and foreign investment. The Government of Pakistan (GOP) has implemented an Investment Policy aimed at encouraging and facilitating investment within the country. This policy covers both manufacturing/industrial sectors and services/non-manufacturing sectors, expanding the scope of foreign investments. In this article, we will explore the key aspects of the Investment Policy and discuss the various investment vehicles available for structuring investments in Pakistan.
Investment in Non-Manufacturing Sectors: The Investment Policy allows foreign investment on a repatriable basis in service, infrastructure, social, and agriculture sectors, subject to specific conditions outlined in the policy. Foreign investors are required to register their company with the Securities and Exchange Commission of Pakistan (SECP) under the Companies Ordinance 1984 and inform the State Bank of Pakistan (SBP) once the conditions are fulfilled. Pakistani companies making foreign investments are also required to inform the SECP and the SBP.
Services Sector: Foreign direct investment is permitted in any activity within the services sector, subject to certain conditions. Services that require prior permission or licenses from GOP agencies will receive the same treatment unless they are deregulated from these activities. Additionally, the investment must comply with sector-specific policies, and foreign investors are allowed to hold 100% equity in new companies. The minimum foreign equity investment required is at least US $0.3 million.
Exchange Control: Under the Investment Policy, full repatriation of capital, capital gains, dividends, and profits is permitted. Foreign investors in sectors open to foreign investment in the manufacturing sector can also contract foreign private loans without requiring a sovereign guarantee from the GOP.
Transfer of Technology: The manufacturing sector does not require payment of royalty or technical services fees. However, any agreements related to such fees must be registered with the SBP. The SBP has imposed limits on the terms and amounts of royalty and technical services fees for remittances in foreign currency from Pakistan.
Investment Vehicles in Pakistan
Several investment vehicles are recognized for conducting business activities in Pakistan:
- Sole Proprietorship: A sole proprietorship allows an individual to carry out business independently. While no formal procedure is required for setting up a sole proprietorship, specific registration and filing requirements may apply under tax and other applicable laws.
- Liaison Office: Foreign companies can establish liaison offices to promote their products and services in Pakistan, subject to approval from the BOI. Liaison offices operate as representative offices and are not permitted to engage in profit-generating activities. They must be fully funded by the parent company and register their particulars with the SECP.
- Branch Office: Foreign companies can open branch offices in Pakistan if they are engaged in business activities such as selling goods and services or performing contracts. Approval from the BOI and certain document filings with the SECP are required. Branch offices are subject to Pakistan’s tax laws and are treated as extensions of the foreign parent company.
- Partnership: Partnerships are formal agreements between two or more individuals or corporations conducting business together. Partnerships are governed by the Partnership Act, 1932, and partners share profits, losses, and liabilities according to the partnership agreement.
- Agency: An agency relationship is established through a contract where an agent represents a principal in dealings with third parties. The agent’s authority may be express or implied, and their actions bind the principal. The appointment of an agent in Pakistan does not result in a direct business presence of the principal in the country.
- Joint Ventures: Joint ventures in Pakistan are contractual arrangements and not recognized as separate legal entities. They are governed by contractual agreements that outline control mechanisms, composition of boards, and other arrangements between the parties involved.
- Companies: Companies in Pakistan are incorporated under the Companies Ordinance, 1984. There are two types: companies limited by guarantee and unlimited companies. Companies limited by guarantee are often formed for non-profit purposes, while unlimited companies have unlimited liability of their members.
Understanding Pakistan’s investment policy and available investment vehicles is crucial for local and foreign investors. The Investment Policy, implemented by the BOI, aims to encourage and facilitate investment within the country. By considering the appropriate investment vehicle and adhering to the policy guidelines, investors can navigate the Pakistani market effectively and contribute to its economic growth
