KARACHI: The State Bank of Pakistan (SBP) on Monday issued a draft of Foreign Exchange Manual and proposes changes in procedure for repatriation of profit by foreign firms operating in Pakistan.
The SBP invited comments on the draft amendments in Foreign Exchange Manual from stakeholders to finalize the changes.
According to the SBP branches of foreign firms and companies, other than banking companies, operating in Pakistan shall submit application through a bank, intended to be designated for the purpose of remittance of profit/head office expenses to Foreign Exchange Operations Department (FEOD), SBP-Banking Services Corporation for Acknowledgment. Such application shall be accompanied by documentary evidences to the effect that the firm was in existence and conducting business operations in Pakistan prior to 3rd October, 1963 or permission letter from the Board of Investment for conducting business operations in Pakistan if the branches of foreign firms and companies were established in Pakistan on or after 3rd October, 1963.
After acknowledgement of FEOD, SBP-BSC, the designated Authorized Dealer may remit the profit/head office expenses/winding up proceeds of branch/liaison office after reviewing the information/documents mentioned in succeeding paragraphs.
(a) Remittance of Profit/Head Office Expenses:
Applications for remittance of net remittable profits/ head office expenses by the branches of foreign companies other than banks, operating in Pakistan to their Head Offices abroad should be submitted on Form ‘M’ to the designated Authorized Dealer duly supported by the following information/documents:
a) Audited Financial Statements of the branch(es) in Pakistan with complete notes thereon for the period in question and latest year.
b) Audited Consolidated Balance Sheet and Profit & Loss Account of the Head Office..
c) Reconciliation of the Head Office Accounts certified by external auditor.
d) Tax provision made during the year for (i) the current year and (ii) prior years along with its computation.
e) A certificate from the auditors in Pakistan that tax provision in the accounts is sufficient to meet all tax liabilities in Pakistan including any tax contingencies, which may arise in future.
f) Assessment orders for the previous years, if not submitted earlier.
g) Certificate from the auditors showing the liability for staff gratuity as at the close of accounts and provision there against. If no provision has been made, reasons thereof.
h) Details of other/miscellaneous income and Head Office expenses if not provided separately in Financial Statements.
i) Amount charged/claimed on account of Head Office expenses for the current year (if not separately shown in the accounts) and the basis of its calculation alongwith Head Office expenses claimed/allowed by the Income Tax Authorities for the preceding 3 years.
j) Full particulars of additions, if any, made to fixed assets in Pakistan, during the period and the source of funds utilized for financing such additions.
k) Confirmation to the effect that sufficient cash flows are available and no credit financing/ loan will be required to fund the remittance of profits/head office expenses.
l) Certificate from external auditor that amount charged under HO expenses does not contain any interest on actual cost of goods /services provided to branch. Besides, for Head Office expenses, the basis of allocation of expenses and certification from the external auditor of the Group/Head Office is also required certifying the fact that the transfer pricing complies with the OECD guidelines. Further, the local external auditor of applicant would also certify about the services/deliverable received along with compliance of all FBR rules/ regulations (including transfer pricing).
m) In case branch (es) intend to make remittance of profit in installments, complete schedule thereof will provided.
n) Certificate from external auditor showing calculation of Head Office expenses in terms of section 105(2) of Income Tax Ordinance 2001 as amended from time to time.
o) Certificate from external auditor to the effect that tax & legal related contingencies
(b) Remittance of Winding up proceeds of Branch/Liaison Office:
Application for remittance of winding up proceeds of Branch/Liaison Office shall be submitted to designated Authorized Dealer upon complete closure/winding up as the case may be along with the following documents in addition to applicable for profit / Head office expenses mentioned above:
a) External Auditor’s certificate on the following areas with supporting documents wherever applicable:
(i) Indicating the manner in which the remittable amount has been arrived at duly supported by a statement of assets and liabilities of the applicant indicating therein the manner of disposal of assets;
(ii) Confirming that all liabilities in Pakistan including arrears of gratuity, tax and other benefits to employees, etc. of the office have been either fully met or adequately provided for.
(iii) Confirming that all income accruing from the resources of Pakistan (including proceeds of exports) have been repatriated or realized in Pakistan.
(iv) Confirmation from the applicant/parent company that no legal proceedings in any court/tribunal of Pakistan are pending against the Branch/Liaison Office and there is no legal impediment to the remittance.
(v) Confirmation to the effect that compliance of applicable regulations of Securities Exchange Commission of Pakistan and Board of Investment regarding closure/winding up of Branch/Liaison office has been observed. An Undertaking from the Principal/Head Office that any liability if identified to be payable as per Laws of Pakistan, the same will be settled by them on first legitimate demand without any delay.
