SBP Relaxes Conditions for IT Companies to Invest Abroad

SBP Relaxes Conditions for IT Companies to Invest Abroad

Karachi, July 11, 2024 – The State Bank of Pakistan (SBP) has announced a relaxation in conditions for IT sector companies regarding equity investments abroad. This move, unveiled on Thursday, aims to facilitate export-oriented companies in expanding their international presence and boosting the country’s exports.

To support these companies, particularly those in the IT sector, the SBP has revised the provisions of Para 13(II)A of Chapter 20 of the Foreign Exchange Manual (FEM). The major revisions include:

1. New Equity Investment Category: Introduction of a new category for export-oriented IT companies to make equity investments abroad.

2. Removal of Bank Designation Requirement: Exporters no longer need to designate a specific bank when using funds from Exporters Special Foreign Currency Accounts (ESFCAs) for equity investments abroad.

3. Acquiring Interest Abroad: IT sector companies are now permitted to acquire interest (percentage of shareholding) in foreign entities.

4. Relaxation of Jurisdiction Restrictions: The restriction on establishing or acquiring only one entity per jurisdiction has been relaxed for IT export-oriented companies.

According to the SBP, residents of Pakistan, including companies, are allowed to make equity-based investments in entities abroad on a repatriable basis, subject to the following terms and conditions:

Basic Terms and Conditions:

1. Permitted Countries: Equity investments are allowed only in countries that permit the repatriation of profits, dividends, and capital. Investments in India require prior approval from the SBP.

2. Legitimacy and Tax Compliance: The funds proposed for investment must be legitimate and tax paid. The investor must be financially sound, have a clean loan repayment record, and be on the active taxpayer list.

These changes are part of the SBP’s efforts to enhance the global competitiveness of Pakistan’s IT sector by providing more flexibility and opportunities for international investment. By enabling IT companies to invest abroad, the SBP aims to help them establish a stronger global footprint, which in turn is expected to increase the country’s export revenues.

Industry experts have welcomed the SBP’s decision, viewing it as a positive step towards fostering growth and expansion in the IT sector. They believe that the relaxed regulations will enable Pakistani IT companies to compete more effectively on the global stage, attract international clients, and create new avenues for revenue generation.

As the IT sector continues to grow, these regulatory changes are anticipated to play a crucial role in supporting the sector’s international ambitions. The SBP’s proactive approach in revising the Foreign Exchange Manual reflects its commitment to adapting to the evolving needs of the industry and supporting economic growth through enhanced export performance.

In summary, the SBP’s relaxation of conditions for IT sector equity investments abroad marks a significant move towards fostering a more conducive environment for export-oriented companies. This regulatory update is expected to drive the expansion of Pakistan’s IT sector, contributing to increased export revenues and stronger international ties.