Setting Up A Business In Pakistan
From http://www.pasha.org.pk/html_files/pakistan_doingbusiness.htm
Incorporation of companies
In accordance with the recommendation of Corporate Law Commission, Section: 4(a) of Monopolies and Restrictive Trade Practices (Control & Prevention) Ordinance, 1970 shall be deleted/repealed. There will be no ceiling of total value of assets of an undertaking/company for retaining 100% ownership by the investors.
There are three main forms of business:
a. Sole proprietorship b. Partnership c. Company
Sole proprietorship
In sole proprietorship, a business or a profession is carried out by an individual on his own account. No formal procedure or formality is required to be followed for setting up a sole proprietary concern.
Partnership
A partnership is a business relationship entered into by a formal agreement between two or more persons or corporations carrying on a business in common. The capital for a partnership is provided by the partners who are liable for the total debts of the firms and share profit and loss of a business concern according to the terms of the partnership agreement. Partnerships (other than banking companies) are generally limited in size to twenty partners. The interest of a partner is transferable only with the prior consent of the other partner(s). However, a partner's right to a share of the partnership income may be received on trust for another person.
For taxation purposes, partnerships are classified into:
i. Registered and ii. Unregistered firms
The income of the registered firm is subject to Super Tax, before distribution to the partners. Also the individual income of the partners is subject to income tax at the usual rates. For unregistered firms, income tax is levied on the income and the partners are not liable to pay tax on the share of profit received from the unregistered firm(s).
Company
A company as a legal entity, can be formed under the Companies Ordinance, 1984, and can have share capital or can be formed without share capital. A company having share capital may be formed as:
i. Company limited by share. ii. Company limited by guarantee. iii. Unlimited company.
Company limited by share
Liability of its members is limited upto the extent of their share to paid upto capital of the company. These companies may further be classified as public limited and private limited companies.Public Limited Companies can be formed by at least seven persons by subscribing their names to the 'Memorandum & Articles of Association' of the company. The word 'Limited' must be used as the last word of its name. 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. A private limited company, by its 'Article of Association' is restricted to:-
i. The right to transfer shares ii. The number of its members is limited to fifty iii. Any invitation to the public to subscribe for share is prohibited.
Private Limited Company is required to use the words “(Private) Limited” as the last words of its name.
Company limited by guarantee
Means a company having the liability of its members limited by memorandum to such amount as the members may respectively undertake to contribute to the share capital of the company in the event to its winding up. The company limited by guarantee is usually formed on a 'no profit basis'. Guarantee limited companies must use the words “(Guarantee) Limited” as the last words of their name.
Unlimited Company
Means a company having the liability of its members unlimited.
The promoters of any proposed company have to obtain confirmation from the Company Registration Office that the proposed name of the company intended to be set up is available and is not identical with the name of any existing company or the proposed name is not deceptive, inappropriate etc.
Seven or more persons associated for any lawful purpose may subscribe their names to a memorandum and articles of association of the company and, complying with the requirements of the Companies Ordinance, 1984, in respect of the registration, form a public company, and any two or more persons, so associated may in like manner, form a private company.The promoters of the following types of companies having special businesses are required to obtain the letter of intent permission from ministries departments indicated below against each category:
A banking company - Ministry of Finance (Investment
Wing)/State Bank of Pakistan.
An insurance company - Ministry of Commerce.
A provident society - Corporate Law Authority.
Incorporated as a company.
An investment company - Ministry of Finance/Corporate Law
Authority.
A leasing company - Corporate Law Authority.
The following documents are required to be submitted with the concerned Registrar:
4.1 Private Limited Company
1 Memorandum and Article of Association: 2 Declaration on form I regarding compliance with the
requirements of the Companies Ordinance, 1984, signed by one of the Directors/Officers of the company or an Advocate or Chartered Accountant or Cost and Management Accountant;
3 Address of the registered office of the company on Form
21; and
4 Particulars of Directors and Officers, including the Chief
Executive, Secretary, Chief Accountant, Auditor, and legal Advisor on Form 29.
4.2 Public limited company
In addition to the documents required for a private limited company, the following documents are to be filed:
1 List of persons consenting to act as Directors/Chief Executive on Form 27; and 2 Consents to act as Directors or Chief Executive on Form 29. No formal approval from any government agency is required for setting up any industry or business, except for the following: a. Arms and ammunition; b. High explosives; c. Radio-active, substances; and d. Security printing, currency and mint. e. Manufacture of alcohol (except industrial alcohol) is banned.
For setting up an industry, not falling under the above categories, the sponsors can directly apply to any commercial bank or development finance institution for loan, if they so desire.
Provincial governments have already notified negative areas where industries cannot be established for security, defence and environmental reasons. If an entrepreneur is interested to establish an industry in these areas, he would have to obtain location clearance from the concerned provincial government.
After purchase of the land and completion of other formalities, the sponsoring body should apply for necessary access to utilities to the concerned authorities:
Power - WAPDA or Local Electric Supply Company
Gas - Sui Southern Gas Companies.
Telephone & fax - Pakistan TeIecommunication Corporation
Water - Local Government.
All manufacturing concerns, employing more than 10 persons, are required to register with the respective Provincial Chief Inspector of Industries under the Factories Act, 1984.
Companies are required to register with the concerned income tax department and obtain a National Tax Number (NTN).
No import license is required for importing plant/machinery/raw material, instead the company may open a letter of Credit (LC) for the importation of plant/machinery/raw material with any commercial bank or authorized foreign exchange dealers.
I. Foreign companies which intend to undertake export
activities in Pakistan will be allowed to be register without any formality.
II. Permission to companies engaged in contractual
obligations of contracts will be granted on production of valid documents without any formality.
III. The activities of the foreign airline companies, Pakistani
general sales agents and courier companies do not come under the industrial category and therefore to monitor their operation, the government may continue to grant permission for their liaison office in consultation with the concerned agencies.
Permission for opening a liaison office will be granted by the Board of Investment in consultation with the concerned agencies.
Government of Pakistan Ministry of Finance and Economic Affairs NOTIFICATION (CUSTOMS)
S.R.O. 551(I)/98. In exercise of the powers conferred by section 19 of the Customs Act. 1969 (IV of 1969), and sub-section (2) of section 13 of the Sales Tax Act, 1990, the Federal Government is pleased to exempt such machinery, equipment and spares for computers and related peripherals like telematic infrastructure and software development tools (software) from whole of the customs-duty and sales tax leviable thereon, as are used for the software development as are, not manufactured locally, imported for setting up new unit or for balancing, modernization and replacement of existing units of software development houses or industry, in bond, subject to the following conditions, namely:-
i. The software houses must be registered with the Pakistan Software Export Board (PSEB);
i. The importer shall at the time of importation, by documents in his possession, satisfy the Collector of Customs that the machinery, equipment and spares have been imported for setting up software development house or industry and shall furnish an indemnity bond in the form set out below to the extent of customs duty and sales tax exempted under this notification. The said indemnity bond will be discharged subsequently on the production of a certificate, from the Assistant Collector, Customs and Central Excise, or in the case of a unit located in Azad Jammu Kashmir or Northern Areas from the Secretary, Kashmir Affairs and Northern Affairs Division or an officer authorized by him in this behalf to the effect that the machinery or spares as declared to the Customs have been duly installed or used in the factory premises and such other evidences as the Collector of Customs may require and after such inquiry as he deems fit in order to establish such installation. Officers of Customs having jurisdiction shall monitor the production and sales of output of the manufacturing unit in the local market and abroad and shall ensure that the condition of the notification are duly complied with;
ii. The importer shall, at the time of importation of the machinery including computers, peripherals, telematic equipment, spares and software development tools (Software) furnish an undertaking including list of all the intended imports as verified by the PSEB in case of software houses or companies, to the Collector of Customs to abide by the conditions laid down in this notification failing which he shall pay the amount of customs-duty and sales tax and make payment of any penalties that may be imposed in this behalf;
iii. The certificate of installation referred to in condition (i) shall be submitted to the Collector of Customs not later than one year from the date of filing of bill of entry for home consumption relating to such machinery or spares.
i. The machinery and spares released under this notification shall not within a period of five years, from the date of filing of bill of entry for home consumption relating thereto, be used for any purpose or at any place other than for a unit referred to in condition (ii). In case this condition is violated the amount of customs-duty and sales tax, exempted under this notification and such penalties as may be imposed in this behalf shall be recovered under section 202 of the Customs Act, 1969 (IV of 1969); and
ii. An industrial unit or software house or company who fails to export an amount equivalent to three times the CIF value of the imported computer hardware or software development tools over a period of five years shall pay whole of customs-duty and sales tax as leviable at the time of importation of such machinery, etc. to Collector of Customs concerned.
Explanation: For the purpose of this Notification-
i. Production year will be deemed to start from the date on which the industrial unit starts commercial production; and
ii. The expression “existing units” shall mean those units which are or have been set up on or before the date of publication of this notification in official gazette.
[See condition (i)]
(on appropriately stamped non-judicial paper)
THIS DEED OF INDEMNITY is made on the date of _ BETWEEN M/s having registered office at _ (hereinafter called “the importers” which means and includes their successors, administrators, executors and assignees) of the one part, AND the President of Pakistan through the Collector of Customs (hereinafter called the “Collector of Customs”), of the other part. WHEREAS the Federal Government has, by its decision contained in Notification No.SRO_ dated the and subject to the conditions specified in the said Notification, been pleased to direct that such machinery, equipment and spares, as are not manufactured locally, shall be exempt from the whole of customs-duty and sales tax leviable thereon, if imported for software development, in accordance with the said notification. AND WHEREAS M/s having registered office at _ (hereinafter called the importers) have imported the machinery, etc, mentioned in the Schedule to this Bond for purpose of software development in accordance with the conditions specified in the said notification;
NOW, THEREFORE, in consideration of the release of the machinery, etc, without recovery of leviable customs-duty and sales tax, the importers bind themselves to pay on demand to the Government of Pakistan the sum of Rs. being the duty and taxes leviable on the machinery, if the importers fail :-
i. to produce a certificate from Assistant Collector of Customs and Central Excise, Secretary, Kashmir Affairs Division or an officer authorized by him in this behalf, as the case may be, within one year from the date of the importation of the machinery, to the effect that the machinery, etc, has been installed in bond; and
ii. to produce such other evidence as the Collector of Customs may require to satisfy himself that the plant or machinery has been installed in accordance with the conditions of the said Notification.
The importers further agree and bind themselves that the amount covered by this Bond may be recovered as arrears of customs duty under section 202 of the Customs Act, 1969.
This Bond shall become void when the aforesaid certificate has been produced and the Collector of Customs is satisfied that the importers have fulfilled all the conditions of this Bond and the said notification.
Signed by importers on this day of _ 19. Witness
(Signature, name, designation and full address)
Witness __
(Signature, name, designation and full address)
NOTE:- The Bond shall be written on appropriate non-judicial stamp paper and shall be witnessed by a Government servant in BPS 16 or above, an Oath Commissioner, a Notary Public or an officer of a scheduled bank.
State Bank of Pakistan Banking Policy & Regulations Department Central Directorate I.I. Chundrigar Road, Karachi. BPRD CIRCULAR LETTER NO.23 20th OCTOBER, 1998
All Banks,
Dear Sirs,
EXPORT FINANCE SCHEME - PROCEDURE FOR GRANT OF FINANCE FOR EXPORT OF COMPUTER SOFTWARE
Please refer to BPRD Circular No.5 dated 3rd March, 1997 read with BPRD Circular No.24 dated 16th July, 1997 on the captioned subject.
2. It has been brought to our notice, that banks are experiencing difficulties in processing the requests from exporters of Computer Software under the captioned scheme, on the basis of existing formats of Undertaking under Part-I, Form EE and Form EF Statements prescribed thereunder. In order to enable banks to process the cases pertaining to the export of Computer Software, as also to ensure uniformity in this regard, necessary modifications in the formats of the aforesaid documents have been made and the revised formats are enclosed. Documents (including those modified) required to be submitted for obtaining finance/refinance are listed hereunder:
Documents required under Part - I
a. Pre-delivery Finance
i. Undertaking as per revised Annexure “A-1” (specimen attached).
ii. D.P. Note, as per format already in vogue.
iii. Copy of the Contract/L.C./Firm Order executed between registered exporter of computer software and the foreign buyers indicating the value of the software in foreign currency, period of compliance and destination of the export.
b. Post delivery Finance
Copy of Invoice alongwith details of performance of the Contract/L.C./Firm Order stating the expected period of remittance, in addition to the documents prescribed at a) above.
Banks are required to submit the following documents confirming performance of export of software as per schedule prescribed under the Scheme:
c. A copy of each Invoice alongwith copy of the Monthly Statement(s) accompanied by relevant Export Proceeds Realization Certificate(s) within 21 working days from the date of final repayment or expiry of loan whichever is earlier.
d. Exporter's statement duly verified by the bank concerned regarding adjustment(s) of the proceeds towards liquidation of the finance within 3 working days from the date(s) of realization of proceeds.
Documents required under Part - II
2. The following documents shall be required to be obtained by banks for finance under Part II of the Scheme and submission to SBP:
a. For entitlement of limit
i. Undertaking as per existing format.
ii. D.P. Note, as per format in vogue.
iii. Form EE-1 as per modified format (specimen attached).
The bank shall continue to determine the entitlement of limit of exporters concerned equivalent to 50% of export proceeds realized during the last year.
b. For monitoring of the performance
i. Form EF-1 as per specimen attached.
ii. The Computer Software exporters / bank concerned shall be under obligation to submit performance report on the aforesaid form against borrowing within the prescribed period failing which fine as per existing scales of fines shall be recovered by the office concerned.
iii. The EE-1/EF-1 statements shall be submitted by the bank/ exporter to the concerned area office of our FED as per existing practice prevalent in respect of other commodities for which refinance has been availed.
2. Other terms and conditions governing the Scheme including the provisions relating to the submission o documents within the prescribed period and levy of fine for the default shall remain unchanged.
Declaration of Computer Software Technology Industry
The Government of Pakistan has declared the Computer Software Information Technology as an “Industry”.
The government of Pakistan has extended very liberal fiscal and monetary incentives for software exports. The incentive package consists of two major categories i.e., fiscal incentives and corporate incentives as follows:
All computers and related hardware, peripherals including communications hardware and software, telematic infrastructure and software development tools to be used exclusively for software exports are exempt from all duties, taxes, surcharges and leviable octroi etc. The mandatory export obligation on net foreign exchange terms in US dollar value is as follows:
Export obligation to be fulfilled over a period of five years = 3 times CIF Value of the imported computer hardware, software, and/or software development tools.
Example:
CIF Value of Imports = $100
Export Obligation = $300 (over a period of five years)
The export obligation for “software houses/software companies” shall be authenticated and verified by PSEB.
Software houses/software companies" are exempt from corporate income tax on export earnings from "software and related services". Besides the exporter need not be a company for availing of this exemption. Export earnings shall be authenticated/verified by PSEB.
Profits and gains derived by an assessee from the running of any computer training institution or computer training scheme approved by the Central Board of Revenue (CBR), set up between the first day of July, 1997, and the thirtieth day of June, 2000, would be exempt from tax for a period of five years beginning with the month in which such institution is set up.
Financial assistance will be provided to the "software house/software company" by extending the facility of Export Financing Scheme - re-finance for Export of Computer Software by the software houses/ companies and in the shape of loans to software houses/companies by the nationalized/ commercial banks. The State Bank of Pakistan under its Circular no. 23 has fixed an export re-finance limit of 50% of last year's exports.
The PTCL shall provide international high speed data circuits to "software houses/software companies" at rates which are highly competitive as compared to rates offered by other telecom companies in the region.
Subsidised rentals for office facilities/office space in software technology parks (Software Technology Parks) shall be charged, which shall be competitive to such rentals offered by techno-parks in the region. Software technology parks in Pakistan will be made available to "software houses/ software companies". The first such park has since been established at Islamabad.
"Software houses/software companies" are allowed to re-export capital goods without any levies.
Foreign investors will be allowed up to 100% ownership of equity in "software houses/software companies".
The software technology parks will act as a ONE STOP solution to all the needs of a "software house/software company".
Software that is developed in Pakistan or part of which is developed in Pakistan will be protected by law from piracy and complaints can be lodged with Pakistan Software Export Board (PSEB).
"Software houses/software companies" could be located either within STP or anywhere else in Pakistan. "Software houses/software companies" located in STP's shall be allowed to carry out ONLY "software and related services" business within the STP bounds and NO OTHER BUSINESS.
Instance have been reported where the software companies while importing their hardware have been asked to produce sales tax registration certificates. The issue was taken up with the central board of revenue (CBR). The CBR vide its letter no.3 (2) STP/99 dated 31st March, 1999 has confirmed that the software companies who wholly and exclusively import such goods as are exempt from sales tax are not required to register with the sales tax department.