SBP permits export-oriented IT companies to acquire shareholding in foreign entities

The State Bank of Pakistan (SBP) has introduced new measures to enhance IT exports by allowing export-oriented IT companies to acquire shareholding in foreign entities and establish marketing, liaison, and representative offices abroad.

The SBP said in a circular that in order to further facilitate export-oriented companies, particularly those operating in the IT sector, in expanding their footprints abroad and increasing the exports of the country, the provisions of the Foreign Exchange Manual (FEM) have been revised. The major revisions include:

1. Introduction of a new Equity Investment Abroad (EIA) category for export-oriented companies operating in the IT sector.
2. Removal of the requirement of prior designation of the bank for exporters utilising funds for EIA from Exporters Special Foreign Currency Accounts (ESFCAs).
3. Permission for export-oriented companies in the IT sector to acquire interest (percentage of shareholding) in entities abroad.
4. Relaxation of restriction of establishing/acquiring one entity per jurisdiction for export-oriented companies in the IT sector.

The SBP has amended Para 13, Chapter 20 of the Foreign Exchange Manual, which outlines the framework for Equity Investment Abroad (EIA) by residents. 

Furthermore, the SBP has relaxed the restriction of establishing or acquiring only one entity per jurisdiction for IT export companies. These amendments are intended to help IT firms increase their global presence and boost the country’s export performance.

Authorized dealers have been instructed to inform their clients about these changes and ensure compliance. 

For IT companies not yet engaged in exports or lacking sufficient balances in their ESFCAs, authorised dealers may allow remittances up to the average net profit earned over the last three financial years or USD 100,000, whichever is higher.

The SBP also stipulated that, at any given time, an IT company’s overseas investment should not exceed 80% of its equity for non-listed companies and enterprise value for listed companies. If a company plans to establish or acquire more than one entity or office in a specific jurisdiction, it must provide sufficient justification.

Authorized dealers must submit requisite information to the SBP within three working days of any transaction under these new provisions.