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Investment Law

INVESTMENT LAWS

INVESTMENT POLICIES

Manufacturing/Industrial Sector

Foreign Investors are permitted to hold 100% of the equity of industrial projects without any permission of the Government.

Government sanction is not required for setting up any industry, in terms of field of activity, location, and size, except:

• Arms and Ammunitions
•  High Explosives
•  Radioactive Substances
• Security Printing, Currency and Mint.
• Alcoholic beverages or liquors.

There is no requirement for obtaining No Objection Certificates (NOC) from the provincial governments for locating the project anywhere in the country except in areas that are notified as negative areas.

Non - Manufacturing/Industrial Sector

• Foreign investment 100% equity on repatriable basis is allowed in the following sectors subject to the condition.

i.                    Service,

ii.                  Infrastructure,

iii.                Social and

iv.                 Others

Registration of company with Security Exchange Commission of Pakistan (SECP) under the Companies Ordinance, 1984 is required under intimation to the State Bank of Pakistan.

Service Sector

• FDI in Service Sector is allowed in any activity subject to condition of prior permission/NOC or license from the concerned agencies and subject to provisions of respective sectoral policies. 
• 100% foreign equity allowed on repatriable basis.
• The amount of foreign equity investment in the company/project shall be at least US$ 0.15 Million.

Infrastructure Sector

• Infrastructure Projects, including the development of Industrial Zones.
• The foreign equity allowed in this sector is also 100% on repatriable basis.
• The amount of foreign equity investment in the company/project shall be at least US$ 0.3 million.

Social Sector

The social sector includes

i.                    Education,

ii.                  Technical/Vocational Training,

iii.                Human Resource Development (HRD),

iv.                 Hospitals, Medical and

v.                   Diagnostic Services.

100% foreign equity is allowed if the amount of foreign equity investment in the company/project shall be at least US$ 0.3 million.

Other Sectors

Tourism

•  Tourism has been given a status of Industry as per the Ministry of Industries and Production.
• Plant, machinery & equipment, not manufactured locally, of tourism, hotels and tourism related projects are importable at custom duty of 5% and Zero rated sales tax.

Housing and Construction

•  The Housing and Construction sector has also been declared as Industry. Plant, machinery & equipment, not manufactured locally, of housing & construction industry are importable at custom duty of 5% and Zero rated sales tax.
• Local and Foreign Companies involved in real estate projects will be able to market these projects, only after the title of the property is transferred in the name of a locally incorporated company. Thereafter the "Commencement of Business" certificate is to be issued by the Security Exchange Commission of Pakistan (SECP) to the firm.

Information Technology

• Computer Software and Information Technology (IT) have been declared as industry which includes ?Telecommunication i.e. E-mail/internet/electronic information services, cellular mobile telephone services, audio-fax services, voice mail services, card pay phone services etc.
• Plant, machinery & equipment of Information Technology projects are importable at custom duty of 5% and Zero rated sales tax, if not manufactured locally and as certified through Central Board of Revenue by the Facilitation Committee of Board of Investment (BOI) Islamabad from time to time.

INCENTIVES

Foreign and local investors may avail the following incentives:-

• Custom duty of 5% and Zero rated sales tax on import of plant, machinery & equipment, not manufactured locally.
• As per plant, machinery & equipment, imported the category of export industry and having? failed to achieve targets of exports or exercises the option to forego the benefit of duty concession at post import stage, in excess of customs duty at the rate of one per cent per year of default with a maximum of five per cent of dutiable value at the time of import provided the period of import is equal to or more than five years. 
• Where period of import is less than five years, in excess of five per cent duty, less one per cent per year for each non-defaulting year. This shall be considered full and final discharge of the entire liabilities.

Custom Tariff

Initial Depreciation Allowance

Initial Depreciation Allowance at the rate of 50% is permissible on an ?eligible depreciable asset? placed into service in Pakistan for the first time in a tax year. For the purposes of such allowances, ?eligible depreciable asset? means plant and machinery excluding the following:-

• any road transport vehicle unless the vehicle is plying for hire. 
• any furniture, including fittings;
• any plant or machinery that is acquired second hand; or
• any plant or machinery in relation to which a deduction has been allowed under another section of this Ordinance for the entire cost of the asset in the tax year in which the asset is acquired.

Amortization

Amortization of pre-commencement expenses allowed at the rate of 20% annually.

Amortization of intangible assets allowed over a period of ten years.

Exchange Control

•  Full repatriation of capital, capital gains, dividends and profits, is allowed.
• The facility for contracting foreign private loans (which does not involve any Guarantee by the Government of Pakistan) is available to all those foreign investors, who make investment in sectors open to foreign investment, for financing the cost of imported plant and machinery required for setting up the project. However, loan agreements should be registered/cleared by the State Bank of Pakistan.
• Foreign controlled manufacturing companies / concerns will be allowed unlimited domestic borrowing according to their requirements for working capital.
• Authorized Dealers are authorized to grant rupee loans and credits to foreign controlled companies for meeting their working capital requirements subject to observance of Prudential Regulations prescribed under the Banking Companies.

Technical / Royalty / Services / Franchise Fees

a. Manufacturing Sector

There is no restriction on payment of royalty and/or technical service fees for the manufacturing sector.

However, such agreements shall be registered with the State Bank of Pakistan.

The payments of royalties and technical service fees to foreign companies will be taxed at 15%. However, reduced rates under the treaties with different countries remain applicable.

b. Non-Manufacturing Sector

The payment of franchise, royalty or technical fee in case of non-manufacturing sectors is allowed subject to following conditions:-

• In case of foreign investment in non-manufacturing sectors including food sector, the initial / lump sum fee should not exceed US$ 100,000 irrespective of number of outlets under on franchise.
•  A maximum 5% of net sales (excluding 15% Sales Tax) in the food sector may be allowed as franchise fee only for those items which are core items of the franchise and are the specialties of the trade name.
• The payment of such fees be allowed on monthly basis. No item will be eligible for twice payment of royalty/franchise fee, e.g, soft drinks, etc.
• Percentage/amount of fees etc., for other non-manufacturing projects is also be upto the maximum of 5% of net sales (excluding 15% Sales Tax).
• Initial period for which such fees may be allowed to projects in non-manufacturing sectors should not exceed 5 years.
• Subsequent extension in time period may be considered provided these projects also make investment in allied upstream projects. 
•  The agreements conforming to above guidelines will be sent by the sponsors to State Bank of Pakistan for its information.
• However, any relaxation or deviation from the guidelines will require prior approval of the Cabinet Committee on Investment (CCOI).

Other Facilities

Foreign nationals (investors, executives, expatriate employees) having "CBR's Pass Booklet" are allowed duty-free import of food stuffs and other consumable items equivalent to US$1,000 per year per person in Pakistan. However, imports exceeding the above duty free limit of US$1,000 will be allowed on payment of normal import duties.

• Various communities of foreign investors and their employees are allowed to establish Exclusive Clubs with recreation facilities. 
•  One Airport Entry Pass for protocol purposes will be issued to foreign and local investors/companies, provided the equity investment is at least US$ 10 Million.
• The BOI extends a courtesy service covering reception in Pakistan, hotel bookings, accommodation, transport bookings, and assisting with the business itinerary, etc. for foreign investors visiting Pakistan.
•  A person resident in Pakistan is entitled to a tax relief on any income earned abroad, if such income has already been subjected to tax outside Pakistan Proportionate relief is allowed on such income at the average rate of tax in Pakistan or abroad, which ever is lower.

Agreement on Avoidance of Double Taxation

The Government of Pakistan has signed agreements on Avoidance of Double Taxation with 52 countries including almost all the developed countries of the World. List of countries having agreements with Pakistan for Avoidance of Double Taxation is as under:-