SBP updates guidelines for equity investments abroad

KARACHI: The State Bank of Pakistan updated its guidelines on Thursday regarding residents’ equity investment abroad (EIA) in an attempt to help export-oriented businesses -- especially those in the IT industry -- expand their international presence and boost national exports.

Major revisions in the provisions of the foreign exchange manual include the creation of a new EIA category for export-oriented IT companies and the elimination of the need for exporters to designate their bank in advance to use funds from their export-oriented special foreign currency account for EIAs, a circular said.

The SBP has allowed export-oriented IT companies to acquire an interest (a percentage of shareholding) in foreign entities, as per the updated instructions, it added.Export-oriented IT enterprises are no longer restricted to creating or purchasing a single entity per jurisdiction, it said.

The residents of Pakistan including companies are allowed to make equity-based investment in entities abroad, on repatriable basis, subject to certain terms and conditions, according to the circular.

“Equity investment abroad is allowed only for those countries that allow repatriation of profits, dividends, and capital,” it said.“However, equity investment in India shall be subject to the SBP’s prior approval. The funds proposed for investment should be legitimate and tax paid, the investor should be financially sound, have a clean record of loan repayments, and be on the active taxpayer list.”

To help companies working in the IT sector in increasing exports by extending their enterprises offshore, the formation of subsidiary/branch offices abroad by these companies has been granted.