At a meeting of the Economic Coordination Committee (ECC) of the cabinet presided over by Finance Minister Dr. Abdul Hafeez Shaikh, ECC has approved a new policy on equity investment abroad. The decision was taken on the recommendation of the State Bank of Pakistan (SBP) after feedback from various stakeholders like the Pakistan Business Council, software exporters, venture capital firms, and start-ups.
Big step by the govt to facilitate investment in Pak #startups with hold-co entities in foreign, more mature, safer jurisdictions. This has been a big challenge to date. @StateBank_Pak has been absolutely phenomenal in its support for startups & investors. https://t.co/S37uK54pmo
— Khurram Zafar (@kayzafar) January 21, 2021
According to an official statement, the ECC “approved a draft policy on equity investment abroad by residents/firms, which caters to the needs of the business community and aims to improve the ease of doing business, promote exports, facilitate resident companies in raising capital from abroad. It will also fulfill legitimate investment needs of the individuals.”
The decision was taken because the stakeholders felt that the existing policy did not meet legitimate business requirements. The investment proposals abroad below $10 million by any business are required to be evaluated by SBP and for amounts greater than $10 million, ECC needs to approve the proposal. This is a slow process that causes hindrances for companies, especially those that are export-oriented. The businesses also felt that the businesses should be allowed to establish holding companies abroad for raising capital for their local operating companies.
Under the new policy, exporters can remit up to 10 percent of their average annual export earnings of the last three year calendar years or $100,000 (whichever is higher) during a calendar year to set up subsidiaries or branch offices without prior approval of the SBP. Companies can also form a holding company abroad to which they can remit up to $10,000 with the approval of SBP. After the approval of SBP, residents can now also invest in foreign companies with remittances up to $25,000 in a calendar year. This will need to be done through authorizes dealers or a bank.