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Business & Finance

SBP Modernizes Foreign Exchange Regulations to facilitate Startups, Fintechs & Exports

  • The State Bank of Pakistan (SBP) has notified revisions in chapter 20 of the Foreign Exchange Manual to modernize foreign exchange regulations for facilitating startups, fintechs and exports in Pakistan.
Published February 10, 2021

The State Bank of Pakistan (SBP) has notified revisions in chapter 20 of the Foreign Exchange Manual to modernize foreign exchange regulations for facilitating startups, fintechs and exports in Pakistan.

With this revised foreign exchange policy, SBP will enable Pakistani fintech and startup companies to channelize foreign direct investment in the country by establishing a holding company abroad against remittance of up to US$10,000, and subsequent swapping of shares to mirror the shareholding of local company in the holding company.

The State Bank of Pakistan will also facilitate exports through this revised policy by enabling export-oriented companies to establish subsidiary/branch office abroad against remittance of 10% of their average annual export earnings of the last three calendar years, or USD 100,000 (whichever is higher).

These revisions in the foreign exchange regulations will also allow exporters to explore new, non-traditional markets, and capture more export orders from international buyers, who prefer dealing with subsidiaries of foreign companies in their home country.

Moreover, this new policy will also allow resident Pakistanis to acquire sweat equity. By encouraging residents to acquire equity stake in international firms, SBP hopes to increase foreign exchange earnings in Pakistan in the form of repatriation of dividend or capital gains.

In addition to these, further changes in the foreign exchange regulations will also facilitate portfolio investment in Pakistan including mutual funds, Exchange Traded Funds (ETF) and Real Estate Investment Trust (REIT) Funds through Pakistani Rupee-based Roshan Digital Account (RDA) and Special Convertible Rupee Account (SCRA).

These changes will not only aid the mutual fund and private equity fund industry to grow by attracting more foreign investment, but will also facilitate overseas Pakistanis and non-residents to invest in funds in Pakistan.

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