How to Register a Foreign Company in Pakistan?

Foreign Company Registration in Pakistan

Foreign companies seeking to establish a presence in Pakistan have several options, each governed by specific regulations and offering distinct advantages. This article provides a comprehensive overview of the available options, the applicable laws, procedures, time frames, capital requirements, tax rates, profit expatriation policies, recurring compliance obligations, and other corporate and regulatory issues.

As a foreign investor, there are several options available to set up a company in Pakistan. The choice depends on factors such as the type of business, ownership structure, and investment goals. Here’s a detailed overview of the available options:

1.Wholly Owned Subsidiary

A wholly owned subsidiary is a type of company where a foreign company holds 100% of the shares. This option is suitable for foreign companies looking to make a significant investment in Pakistan.

Key Considerations:

• Requires 100% foreign direct investment (FDI)
• Formed as a private or public limited company
• Governed by the Companies Act, 2017
• Requires permission from the Board of Investment (BOI)
• Minimum paid-up capital requirement of PKR 100,000 for a private limited company and PKR 200,000 for a public limited company
• Corporate tax rate of 29% (for the tax year 2023)
• Dividends and profits can be repatriated subject to applicable laws and regulations
• Recurring compliance includes annual returns, audited financial statements, and tax filings

2.Branch Office

A branch office is an extension of a foreign company in Pakistan. It is suitable for foreign companies looking to establish a presence in Pakistan without setting up a separate legal entity. Branch office allow foreign companies to conduct business in Pakistan without incorporating a separate legal entity. These offices can engage in commercial activities but are generally restricted to the scope defined in their registration.

Key Considerations:

• Requires permission from the BOI
• Governed by the Companies Act, 2017 and the Foreign Exchange Regulation Act, 1947
• No minimum capital requirement, but the foreign company must provide a guarantee for the branch’s liabilities
• Corporate tax rate of 29% (for the tax year 2023)
• Profits can be repatriated subject to applicable laws and regulations
• Recurring compliance includes annual returns, audited financial statements, and tax filings

3.Liaison Office

A liaison office is a representative office of a foreign company in Pakistan. It is suitable for foreign companies looking to explore business opportunities or conduct market research in Pakistan. Liaison offices are intended for non-commercial activities, such as promoting business, exploring opportunities, and facilitating communication between the foreign company and local stakeholders. They are not permitted to undertake any trading activities.

Key Considerations:

• Requires permission from the BOI
• Governed by the Companies Act, 2017 and the Foreign Exchange Regulation Act, 1947
• No minimum capital requirement, but the foreign company must provide a guarantee for the liaison office’s liabilities
• Not allowed to engage in any commercial activities or generate revenue
• Expenses are funded by the foreign company
• No corporate tax, but subject to withholding tax on expenses
• Profits cannot be repatriated
• Recurring compliance includes annual returns and tax filings

4.Partnership or LLP with a Local Company

Foreign companies can also form a partnership with a local company in Pakistan. This option is suitable for foreign companies looking to collaborate with a local partner.

Key Considerations:

• Governed by the Partnership Act, 1932 and Companies Act 2017.
• Minimum of two partners, with at least one partner being a Pakistani national
• No minimum capital requirement
• Corporate tax rate of 29% (for the tax year 2023)
• Profits can be repatriated subject to applicable laws and regulations
• Recurring compliance includes annual returns, audited financial statements, and tax filings

5.Joint Venture

A joint venture is a partnership between a foreign company and a local company in Pakistan. This option is suitable for foreign companies looking to share risks and resources with a local partner.

Key Considerations:

• Governed by the Companies Act, 2017
• Minimum of two shareholders, with at least one shareholder being a Pakistani national
• Minimum paid-up capital requirement of PKR 100,000 for a private limited company and PKR 200,000 for a public limited company
• Corporate tax rate of 29% (for the tax year 2023)
• Profits can be repatriated subject to applicable laws and regulations
• Recurring compliance includes annual returns, audited financial statements, and tax filings

It’s important to note that the timeframe and costs mentioned above are approximate and may vary depending on the specific circumstances of each case. It’s recommended to consult with a professional service provider or a legal expert to obtain accurate and up-to-date information.

It’s important to note that the timeframe and costs mentioned above are approximate and may vary depending on the specific circumstances of each case. It’s recommended to consult with a professional service provider or a legal expert to obtain accurate and up-to-date information.

Detailed Breakdown

Branch Office

Applicable Laws: The Companies Act 2017 and regulations from the Board of Investment (BOI).

Procedure:

1. Apply to SECP for name availability.
2. Submit documents including parent company’s incorporation certificate, board resolution, power of attorney, and proposed business activities.
3. Obtain BOI approval.
4. Register with SECP and FBR for tax purposes.

Time Frame: Typically 4-6 weeks.

Capital Requirements: No specific minimum capital requirement.

Tax Rates: Corporate tax rate is 29%. Withholding tax on repatriated profits is 15%.

Dividend & Profit Expatriation: Allowed, subject to WHT.

Recurring Compliance: Annual filings with SECP, tax returns, audited financial statements.

Corporate Issues: Limited liability but activities are subject to the parent company’s solvency.

Regulatory Issues: Requires BOI approval and adherence to foreign exchange regulations.

Liaison Office

Applicable Laws: The Companies Act 2017 and BOI regulations.

Procedure:

1. Apply to SECP for name availability.
2. Submit required documents including parent company’s incorporation certificate, board resolution, and proposed activities.
3. Obtain BOI approval.
4. Register with SECP.

Time Frame: Typically 4-6 weeks.

Capital Requirements: No specific minimum capital requirement.

Tax Rates: Not applicable as no commercial activities are allowed.

Dividend & Profit Expatriation: Not applicable.

Recurring Compliance: Annual SECP filings and an activity report to BOI.

Corporate Issues: Limited to liaison and non-commercial activities.

Regulatory Issues: Requires BOI approval and strict adherence to the defined scope of activities.

Private Limited Company

Applicable Laws: The Companies Act 2017.

Procedure:

1. Apply for name reservation with SECP.
2. Submit incorporation documents including Memorandum and Articles of Association, CNIC copies of directors, and proof of registered office.
3. Register with SECP and obtain a National Tax Number (NTN) from FBR.

Time Frame: Typically 4-6 weeks.

Capital Requirements: Minimum capital of PKR 100,000 (approximately USD 600).

Tax Rates: Corporate tax rate is 29%. Withholding tax on dividends is 15%.

Dividend & Profit Expatriation: Allowed, subject to WHT.

Recurring Compliance: Annual filings with SECP, tax returns, audited financial statements.

Corporate Issues: Separate legal entity with limited liability.

Regulatory Issues: Subject to SECP regulations and foreign ownership restrictions (if any, based on industry).

Joint Venture

Applicable Laws: The Companies Act 2017 and Contract Law.

Procedure:

1. Draft a joint venture agreement.
2. Incorporate the JV company with SECP.
3. Register with FBR for tax purposes.

Time Frame: Typically 6-8 weeks.

Capital Requirements: Based on the joint venture agreement.

Tax Rates: Corporate tax rate is 29%. Withholding tax on dividends is 15%.

Dividend & Profit Expatriation: Allowed, subject to WHT.

Recurring Compliance: Annual filings with SECP, tax returns, audited financial statements.

Corporate Issues: Depends on the JV agreement; typically involves shared control and profit-sharing.

Regulatory Issues: Subject to SECP regulations, industry-specific regulations, and the terms of the JV agreement.

Establishing a business presence in Pakistan as a foreign entity involves navigating through a range of regulatory requirements and choosing the most suitable structure based on the business objectives. Branch offices and liaison offices provide more control to the parent company but come with specific limitations and compliance obligations. Incorporating a local company offers flexibility and limited liability, while joint ventures can leverage local expertise and resources for strategic advantages. It is crucial for foreign investors to consider these factors and seek professional advice to ensure compliance and optimize their investment in Pakistan.

Comparison Among  Various Option for Foreign Company

Foreign entities looking to establish a business in Pakistan have various options, each with its unique set of regulations, benefits, and challenges. Choosing the right structure depends on the nature of business activities, control preferences, compliance willingness, and long-term strategic goals. Understanding these detailed aspects can aid foreign investors in making informed decisions and ensuring smooth business operations in Pakistan. Please feel free to contact one of our consultant if you need any further customised proposal or information on Foreign Company Registration in Pakistan.

Conclusion:

The regulatory regime in respect of foreign investments in Pakistan is covered both through a regular statute as well as policy/administrative decisions of the Board of Investment (the “BOI”). The policies of the BOI are quite fluid and there is a great deal of space which one can achieve in working with it. The BOI has no statutory authority and in the commercial field the strict enforcement of its policies are not evidenced. The major element in the past that induced prompt compliance with BOI policies and the policies of its predecessor, Investment Bureau of Pakistan (“IPB”), was that remittance out of Pakistan could not be made except through the State Bank of Pakistan without IPB/BOI approval. The foreign exchange regime has been liberalized in Pakistan and is governed mainly through Foreign Exchange Regulation Act.

The statutory regulation is to be found in the Companies Act, 2017 (the “Act”). Part XII (Sections 434 to 445) of the Act deals with companies established outside Pakistan and provisions as to establishment of place of business in Pakistan. This Part requires all foreign companies that establish a ‘place of business’ in Pakistan to register with the Securities and Exchange Commission of Pakistan (“SECP”). Foreign companies have been defined to mean companies that are incorporated or formed outside Pakistan.

The Act requires certain reporting requirements, which have to be compiled with by the foreign companies. These reporting requirements include the submission of the copies of the Constitution, bye-laws, full address of the registered office, list of directors, audited balance sheets/profit or loss account, and the address of company in Pakistan. The consequences of non-registration are that the foreign company will not be able to file any suit or claim any set-off in any litigation in the courts of Pakistan although their contracts would be deemed valid. The expression ‘place of business’ has been defined in the Act and the definition is wide enough to include any form of office of a foreign entity in Pakistan may it be liaison office or branch office, therefore, the registration of any of these offices with Securities and Exchange Commission of Pakistan is necessary.In addition to the above statutory framework the BOI issues policy directives from time to time. For example, the BOI has required that foreign companies establishing a branch/liaison office in Pakistan must file an application with the BOI on a specimen provided by the BOI. The BOI also requires filling of application in respect of projects in the field of services, infra-structure, social and agricultural sectors in terms of another specimen requires that all foreign companies must register both with it as well as with the SECP as per the requirements of the Act noted earlier. For example, as per the policies of the BOI a liaison office is established for carrying out auxiliary activities such as maintaining quality control, provision of technical advice and assistance, exploring the possibility of joint collaboration and export promotion and educating the Pakistani users of the company product etc. It is not allowed to engage in any trading or commercial activities.

Options for Foreigners for opening up a Limited Liability Company in Pakistan

A foreign national or a foreign company can form a limited liability company incorporated in Pakistan in the following three ways subject to security clearance:

1. Branch Office
2. Liaison Office
3. Incorporate a New Company
4. Acquisition of shares in an already incorporated company.

Security Clearance Requirement for Foreigners Registering/Acquiring a company in Pakistan.

A shareholder or director of the Company who is a foreign national will have to submit additional documents with Securities and Exchange Commission of Pakistan, at the time of filing documents for registration of a company, for the purpose of seeking security clearance from the Ministry of Interior.

In case of transfer of shares in favor of the foreign national/company and appointment of foreign national as director/chief executive of company in Pakistan, security clearance is also obtained from the Ministry of Interior Pakistan. However, in case of acquisition of share by a foreigner, the company can resume business subject to the concerned foreign person (individual or company) submitting an undertaking to the effect that in case clearance is not granted, it will transfer its shares or resign from the Board of Directors, as the case may be.

For security clearance, following documents of proposed directors/chief executive/shareholders shall be required:

1. Complete Bio Data of all directors/chief executive/ shareholders
2. Resume of each non-resident director and member
3. Copies of the qualifications of each non-resident director and member of the foreign company
4. Copies of Valid Passports of all directors/chief executive/shareholders
5. Nine passport size colored photographs of all directors/chief executive / shareholders seeking such security clearance
6. Contact details including postal address, phone No. and Email ID of all directors/chief executive / shareholder.
7. Signed Undertakings from of all directors/chief executive/ shareholders (Notarized) in the prescribed form confirming that in case of rejection of security clearance the shareholder shall take immediate steps for transfer of his share to some other party who has obtained security clearance, will submit an application for security clearance, or does not require security clearance.

In case a foreign company is the shareholder of a company, the following will be required to be submitted to the Security Exchange Commission of Pakistan in respect of the same:

1. Complete name of the Company
2. Certificates of Incorporation of foreign company notarized and attested by the Pakistani Embassy
3. Copies of Memorandum of Association and Articles of Association (i.e. Constitution Documents) of the foreign company. Both are required to be notarized and attested by the Pakistani Embassy
4. The prescribed bio-data verification form, filled by the directors and CEO of the foreign company. A copy of the CV and valid passport of the person executing the bio data form is also required
5. Copies of passport and CV of the directors and CEO of the foreign company including three passport size colored photographs
6. List of shareholders of the foreign company
7. A brief company profile listing the organizational structure and business of the foreign company
8. Board resolution of the foreign company authorizing purchase of shares of the company in Pakistan and detail of investment/acquisition of shares in the Pakistani company and authorization of authorized signatories for execution of documents and to take all required steps for acquisition of shares of company in Pakistan (Notarized)
9. Registered office address, telephone No., fax No. and official Email ID of the foreign company.
10. Undertaking, in the prescribed format, signed by an authorized person (as per board resolution, copy whereof is also required) of the foreign company. The Undertaking is required to be notarized by a notary public and attested by the Pakistani Embassy
11. Power of attorney in favour of the authorized person executing the undertaking on behalf of the foreign company;
12. The following details of each director and shareholder of the foreign company
    1. Name
    2. Fathers Name
    3. Date of Birth
    4. Nationality
    5. Residential Address
    6. Business Address
    7. Position [director/shareholder/partner]

    As security clearance from the Ministry of Interior Pakistan takes time, the documents filed for registration of new company and forms filed for transfer of shares and appointment of director are accepted by the Securities and Exchange Commission of Pakistan on the basis of Undertaking wherein the foreign director/shareholder/chief executive undertake that they will transfer their shares to any other person/resign as director/chief executive if their security clearance is not confirmed by the Ministry of Interior Pakistan.

Repatriation of Foreign Investment

The Company can repatriate the profits of the foreign investment by obtaining a prior ‘Entitlement Certificate’ issued by State Bank of Pakistan for investment in Pakistan on repatriate basis. The State Bank, on the request of the company, authorizes an authorized dealer for the purpose of remittance of dividend to non-resident shareholders as per procedure outlined in Foreign Exchange Manual. The authorized dealers are Schedule Banks and all inward and outward remittance should be done through the said dealer.

For consultation you may visit our office for a meeting with our team members to chart out a plan towards incorporating a company or legal compliance.