SBP exempts resident investors from approval for foreign investment

KARACHI: The State Bank of Pakistan (SBP) on Wednesday exempted Pakistani investors from taking the central bank’s permission for foreign investment except when they want to invest abroad for business expansion.

“The equity investment abroad transactions have been divided into four categories bringing more clarity in terms of classification of investments and its related procedures,” the SBP said in a statement. The equity investment abroad could now be made without the need of having any approval from the SBP for transactions except in one category. Investment abroad by resident companies/ firms for expansion of business needs the SBP’s approval.

“In terms of existing policy, the firms/ companies have to seek prior approval of SBP for making equity investment abroad, subject fulfillment of defined criteria. Residents would need to approach SBP for approval through their banks as per existing policy,” the SBP said.

However, under the revised regulations export-oriented companies will be allowed to establish their subsidiaries or branch offices for promoting their exports without the need of obtaining any approval from the SBP and the designated commercial banks will be allowed to entertain the requests by such companies subject to meeting the conditions. Banks are allowed to remit funds abroad on behalf of export oriented companies, up to 10 percent of their average annual export earnings of last three calendar years or $100,000 whichever is higher. Banks have also been allowed to remit $30,000 from 2nd year onward to meet the annual budgeted expenses of representative office established/acquired abroad with an annual increase of 10 percent in expenses, subject to a valid justification. Resident companies, especially startup firms, will be allowed to establish their holding companies abroad without the need of obtaining any approval from the SBP. The designated commercial banks are now allowed to entertain the requests by such companies subject to meeting the conditions. Resident companies, especially startup firms already operating in Pakistan for not more than 7 years, are allowed to form a holding company abroad for raising capital from abroad. Banks have been allowed to remit up to $10,000, for this purpose, subject to certain terms and conditions. The shareholders of resident company can swap shares to mirror the shareholding of local company in the holding company. The holding company is required to bring majority of funds raised from abroad in Pakistan until the certain thresholds are met.

Similarly, resident individuals will be allowed to make investments in listed securities abroad without the need of obtaining any approval from the SBP. The authorised commercial banks will be allowed to complete requests by export companies subject to meeting the conditions. Banks have been allowed to remit a maximum amount of $25,000, during a calendar year, on behalf of resident individuals to acquire shares of listed companies abroad subject to condition that their shareholding shall not exceed 1 percent of shares of the investee company at any time.

Banks have been allowed to remit $50,000, during a calendar year, on behalf of resident employees of subsidiaries of foreign companies in Pakistan for participating in the share option plans of parent companies subject to condition that stake of an individual employee in parent company shall not exceed 3 percent shareholding of investee company. Resident individuals can acquire the shares of companies abroad against their efforts and services (sweat equity), without any monetary consideration subject to condition that their maximum shareholding shall not exceed 20 percent of shares of the investee company at any time. The SBP said the foreign exchange manual describes the various procedures to be adopted by authorised commercial banks and the conditions to be met by resident Pakistani investors.

“There are several kinds of investments abroad by resident Pakistanis that are helpful to boost country’s exports and attract foreign investment in the country. To facilitate such investments SBP recently took the initiative of reviewing its regulations in consultation with different stakeholders, and revised in its policy related to equity investment abroad by resident Pakistani individuals, firms and companies,” the SBP said.