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Last update: November 2011

Pakistan

Investing in Pakistan

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About Pakistan

Pakistan's economy is still very dependent on agriculture. Even though the economy has transformed from a low skilled agrarian economy to a modern industrial nation, agriculture still employs nearly 43% of the labour force, while industry provides 20.3% and services 36.6% of employment opportunities to the labour force.

The Gross Domestic Product (GDP) of Pakistan comprises of Services (53%), Industry (24%) and Agriculture (23%). The importance of the agricultural sector, climatic conditions and water resources has a significant impact on the yearly economic performance of the country.

Pakistan presents numerous and significant opportunities for investments aiming both at using Pakistan as an export base and at tapping an emerging market with a rapidly growing middle class.

The legal situation, arbitration schemes and protection of rights issues are being improved. Labour is usually very cooperative while skills depend a lot on sectors concerned. The banking system is efficient and liquidity is not presently a problem. There are practically no foreign exchange controls on capital and dividend repatriation.

The largest export sector of Pakistan is the textile and apparel sector with nearly 70% of the total exports; the balance is made up of cereals (mainly rice), miscellaneous manufactured goods (mainly toys and sports goods), chemicals, food and fish products and scientific instruments.

The European Union has recently agreed to offer trade concessions to Pakistan in a bid to help improve trade, increase politcal stability and improve economic conditions. The EU currently exports $3.6 billion of goods and services to Pakistan  and imported $3.3 billion.

UK exports to Pakistan were worth £494m in 2008 and £529.9m in 2009. Britain and Pakistan have always enjoyed good trade relations.

The UK is the fourth largest OECD exporting country to Pakistan, with an 19.7 percent share of the market. It is listed as the second largest investor in the country.

Source: UK Trade and Investment &  European Commission

 

Foreign Direct Investment

Pakistan has one of the most attractive foreign investment regimes in South Asia. Foreign companies can invest in all three key sectors of the economy namely Agriculture, Industry and Services. The industry sector where foreign equity investment up to 100% is permitted in most cases is the most open.

Major investors in the country come from the UK, the Middle East and the US, each contributing 25% of FDI. China has traditionally had a strong presence in the country, mostly through infrastructure development and supply of low cost goods and equipment.

As far as the inflows of foreign direct investment into Pakistan are concerned, the USA, the UK, and the UAE are the three major sources of foreign direct investment (FDI) in the country.

The UK and Pakistan have an Investment and Promotion Agreement that has recently been extended to cover the Isle of Man, Jersey and Guernsey.

Source: European Commission - Asia Invest Programme 
            UK Trade & Investment

 

Foreign Investment Policy

The investment policy regime has been liberalised with most economic sectors open for foreign involvement.

The Government has therefore liberalised its investment policy, promoted a stronger and faster enabling framework and opened up almost all sectors for foreign investment while offering tax and other incentives for investment as well as enabling 100% ownership for foreign investment in many areas. The new Investment Policy provides equal investment opportunities for both domestic and foreign investors.

The Government has decided to give "priority industry" status for foreign investment into information technology, oil and gas exploration, mining, leather production, corporate farming, livestock and dairy, financial business and trade, infrastructure, tourism, housing and construction sectors. Complete freedom of choice has been provided on where to locate an activity.

Source: European Commission - Asia Invest Programme

 

Board of Investment

In order to streamline and co-ordinate the process of investment and to create an investor friendly culture in the country, the government established the Board of Investment (BOI) as the central investment promotion and facilitation agency. The Board of Investment is chaired by the Head of the Government, and overseen by the Minister for Industries and Production.

The main functions of the Board are to promote investment opportunities in all sectors of the economy and to provide investment facilitation services to local, foreign and overseas Pakistani investors. The BOI acts as the focal point of contact between potential investors and all the agencies of the government concerned with investment proposals and responsible for providing infrastructure and other facilities.

Source: European Commission - Asia Invest Programme

 

Entry into Pakistan

Entry into Pakistan has been considerably relaxed for foreign investors. A buisness visa will be needed if the person is conducting any kind of business, or investment into Pakistan.

To find out the lastest information on how to obtain a business visa, please check out the Pakistan Visa page on the IPTU website, or the Board of Investment visa section. 


IPTU - Pakistan visa's section

Board of Investment Pakistan - Visa Section

 

Setting up a company

The main difficulties of operating a business in Pakistan have been largely streamlined over the last few years, through the dynamic involvement of the administration. Business regulations have been simplified and the Government agencies tend to be supportive of foreign investments.

There are three main forms of business in Pakistan, defined as follows:

  • Sole Proprietorship: an individual on his/her own account carries out the business or profession. No formal procedure or formality is required for setting up a sole proprietary
  • Partnership: a business relationship entered into by a formal agreement between two or more persons or corporations carrying on a business in common. Such partnerships are created under the Partnership Act of 1932 and if needed is registered with the Registrar of Firms
  • Company: a legal entity formed under the Companies Ordinance, 1984. It can have share capital or can be formed without share capital.

Source: European Commission - Asia Invest Programme

For further information, please go to our Pakistan products to market/setting up a company's section

 

Types of companies

A company having share capital may be formed as:

  • Unlimited company
  • Company limited by guarantee
  • Company limited by shares

Companies limited by shares may further be classified as public limited and private limited companies:

  • Public Limited Companies can be formed by at least three persons by subscribing their names to the 'Memorandum and Articles of Association' of the company
  • Private Limited Companies may be formed by at least two persons by subscribing their names to the 'Memorandum and Articles of Association' of the company.

Source: European Commission - Asia Invest Programme

 

Approvals/clearances required for new projects

No government sanction is required for setting up any industry, in terms of field of activity and size, but a prior approval of the ministries is required before incorporation of a company in:

  • Banking: Ministry of Finance and State Bank of Pakistan
  • Insurance: Ministry of Commerce
  • Investment Finance: Ministry of Finance and State Bank of Pakistan
  • Venture Capital: Securities and Exchange Commission of Pakistan
  • Asset management: Securities and Exchange Commission of Pakistan
  • For any of the following industries (arms and ammunition; security printing, currency and mint; high explosives; radio active substances): Ministry of Industries and Board of Investment

Source: European Commission - Asia Invest Programme

 

Taxation in Pakistan

In order to attract foreign investment, the Government of Pakistan grants tax exemptions in the following areas:

  • Interest income on foreign currency accounts
  • Profit from educational institutes
  • Profit from computer training and educational centres
  • Capital gains on sales of shares of listed companies
  • Income from pioneer industrial undertakings
  • Income from manufacture of electronics
  • Income from manufacture of solar energy equipment
  • Income from industrial undertaking in Export Processing / Special Industrial Zones
  • Income from fruit processing
  • Income from manufactures of soft and stuffed toys.

The Government of Pakistan has so far signed agreements to avoid double taxation with 39 countries including almost all the developed countries of the world. These agreements lay down the ceilings on tax rates applicable to different types of income arising in Pakistan. They also lay down some basic principles of taxation, which cannot be modified unilaterally.

Source: Asia Trade Hub

 

Labour Rules/Regulations

Pakistanis labour laws trace their origination to legislation inherited from India at the time of partition of the Indo-Pak subcontinent. The laws have evolved through a continuous process of trial to meet the socio-economic conditions, state of industrial development, population and labour force explosion, growth of trade unions, level of literacy, Government's commitment to development and social welfare.

To meet the above named objectives, the government of the Islamic Republic of Pakistan has introduced a number of labour policies, since its independence to mirror the shifts in governance from martial law to democratic governance.

The main statutes governing termination of employment in Pakistan are the West Pakistan Industrial and Commercial Employment (Standing Orders) Ordinance, 1968 (ICEO), and the Industrial Relations Ordinance, 1969 (IRO).  But there are some other relevant legislations:

  • The Factory's Act, 1934
  • The Payment of Wages Act, 1936
  • The Mines Maternity Benefit Act, 1941
  • The Maternity Benefit Ordinance, 1958
  • The Provincial Employees Security Ordinance 1965
  • The West Pakistan Shops and Establishments Ordinance, 1969
  • The old age benefits Act-1976
  • The Employment of Children Rules, 1995
  • The Industrial Relations Ordinance (IRO), 2002
  • Companies profits (workers participation) Act 1968
  • Industrial and commercial employment Ordinance 1968
  • Provincial Employees Social Security Ordinance 1965
  • Workmen’s Compensation Act 1923

Source: International Labour Organisation and Pakistan Investment Board

For further information, go to our Pakistan products to market/employment law's section

 

Intellectual Property Rights

The laws in Pakistan generally provide for protection of intellectual property rights. Nevertheless, intellectual property piracy in Pakistan remains widespread. The government has embarked on the task of rewriting legislation in the areas of copyrights, patents, and trademarks.

The legal system protects and facilitates the acquisition and disposition of property rights. Pakistan is a member of the World Intellectual Property Organisation (WIPO), the Universal Copyrights Convention and the Bern Copyright Union, but not of the Paris Convention for the Protection of Industrial Property.

Recently, the Pakistan Government has established the IPO-Pakistan, which is aimed at addressing the issues and shortcomings that were impeding the effective management of intellectual property. This has empowered the Federal; Investigation Authority (FIA) and activating Pakistan customs against Intellectual property rights violations.

Source: UK Trade and Investment

For further information, please go to our Pakistan useful info, Intellectual Property Right's section

 

 

Last update: November 2011

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