Foreign Investment in Pakistan

Foreign direct investment (FDI) refers to long term participation by  a country A into country B (in this case Pakistan) . It usually involves participation in management, joint-venture, transfer of technology and expertise. There are two types of FDI: inward foreign direct investment and outward foreign direct investment, resulting in a net FDI inflow (positive or negative).

Foreign direct investment (FDI) is a measure of foreign ownership of productive assets, such as factories, mines and land. Increasing foreign investment can be used as one measure of growing economic globalization.

WHO CAN BE A FOREIGN INVESTOR?

A foreign direct investor may be classified in any sector of the economy and could be any one of the following:

  • An individual;
  • A group of related individuals;
  • An incorporated or unincorporated entity;
  • A public company or private company;
  • A group of related enterprises;
  • A government body;
  • An estate (law), trust or other societal organisation; or
  • Any combination of the above.

HOW CAN A FOREIGN INVESTOR INVEST HIS FUNDS?

The foreign direct investor may invest in by any of the following methods in Pakistan:

  • by incorporating a wholly owned subsidiary or company, by acquiring shares in an associated enterprise
  • through a merger or an acquisition of an unrelated enterprise
  • participating in an equity joint venture with another investor or enterprise

WHAT ARE THE FOREIGN DIRECT INVESTMENT INCENTIVES IN PAKISTAN?

The simple answer is that making a direct foreign investment allows companies to accomplish several tasks:

  • Avoiding foreign government pressure for local production. 
  • Circumventing trade barriers, hidden and otherwise. 
  • Making the move from domestic export sales to a locally-based national sales office. 
  • Capability to increase total production capacity. 
  • Opportunities for co-production, joint ventures with local partners, joint marketing arrangements, licensing, etc;   
  • low corporate tax and income tax rates in Pakistan
  • tax concessions/exemptions to particular businesses
  • special economic zones developed by the government of pakistan
  • cheap labour in Pakistan
  • Job training & employment subsidies
  • Infrastructure subsidies
  • Research and Development support
  • Early Entry Advantage.

Pakistan has a very liberal policy on repatriation for foreign direct investors, therefore, investing in Pakistan may give a foreign direct investors the following added advantages.

  • Remittance of royalty, technology and franchise fee is allowed to projects in social, service, infrastructure, agriculture and international chains food franchise.
  • Minimum share of the local (Pakistani) partner in a joint venture will be 60:40 for the service sector. However, 100% foreign equity can be owned for first 5 years.
  • The FBR (Federal Board of Revenue) will not question as to the source of investment; however, the FBR will only want to know whether the investor has paid requisite Income Tax on that specific investment. The FBR will not inquire into the source of the funds.
  • Foreign investors are allowed to invest in industrial project on 100% equity basis without any permission from the government.
  • There is no requirement for a No Objection Certificate from the Provincial Government.
  • In addition to manufacturing sector foreign investment on a repatriate-able basis is allowed in services, infrastructure and social sectors.
  • Full repatriation of capital gains, dividends and profits.
  • The facility for contracting foreign private loans is available to all those foreign investors who make investment in the approved sectors.
  • Foreign controlled manufacturing concerns are allowed to borrow on the domestic market according to their requirements.
  • Foreign controlled semi-manufacturing and non-manufacturing concerns can access loans equal to @ 75% & 50%, respectively, of their paid up capital including reserves.
  • BOI’s (Board of Investment) approval is not required for foreign companies to open a bank account.

 CORPORATE STRUCTURES

Various Corporate structures are available for setting up a place of business in Pakistan for which Masood and Masood, Corporate and Legal Consultants can give you the optimum advice putting into prospective the current Pakistan Legislation and the individual person/companies position.

In terms of the Investment Policy of the Government of Pakistan, there are three (03) ways, whereby, a foreign company may have its presence in Pakistan.

  • Liaison Office;
  • Branch Office; and
  • Locally incorporated subsidiary

HOW WILL MY FUNDS GET INTO PAKISTAN AND WHAT WILL BE THE EXIT STRATEGY.

State Bank of Pakistan (SBP) regulates remittances in and out of Pakistan under legislature. There is no restriction on inward remittances by State Bank of Pakistan (SBP) but any outward remittances whether be royalty, technical fee and dividend have to have a prior approval from SBP, which the authorising bank/agent would do on the company’s behalf.  Similarly any contract for any such remittance needs prior approval of SBP. In case you require any assistance with the approval from State Bank of Pakistan do let Masood and Masood know and we will  happily complete all the legal paper work and technical formalities.

WILL A FOREIGN INVESTOR BE TREATED LESS FAVOURABLY ON INVESTMENT IN PAKISTAN?

Foreign Private Investment (Promotion and Protection) Act, 1976 and the Furtherance and Protection of Economic Reforms Act, 1992 provide legal cover for protection of foreign investors/investment in Pakistan.

Furthermore, since Pakistan has entered into Bilateral Agreements on Promotion and Protection of Investment with more than 46 countries. These Agreements provide the following:

  • The Contracting Parties shall encourage investments in their respective territories by investors of the other Contracting Parties
  • Non-discrimination between local investors and foreign investors
  • Equal/non-discriminatory treatment in case of compensation for losses owing to war, other armed conflicts or a state of national emergency
  • Free transfer of investments, and income deriving therefrom including profits, dividends, interest income, proceeds of sales or liquidation, repayments of loans, salaries, wages and other compensation, etc.
  • A dispute settlement mechanism to settle any dispute between the countries with respect to the interpretation of the respective agreement and a dispute settlement procedure to settle any dispute between a host country and an investor of the other country

DOES MASOOD AND MASOOD HAVE EXPERIENCE IN HANDLING FOREIGN CLIENTS?

Yes, we have successfully managed to assist many multinationals and foreign individuals to invest in Pakistan and form a place of business to that effect.  Masood and Masood is currently dealing with various foreign direct investment projects in Pakistan including, but not limited to, the following:

  • Real estate projects
  • Power projects
  • Oil and gas related projects
  • Development projects
  • Construction projects
  • IT related projects
  • Various manufacturing projects
  • Service related projects
  • Non-manufacturing projects
  • Health related projects
  • Cosmetics & toiletries related projects 

 DECISION TIME

If you are confident that you want to invest in Pakistan or you want a pre investment feasibility report, you know Masood and Masood, Corporate and Legal Consultants are the people to be called over.

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