The State Bank of Pakistan (SBP) has proposed a new policy framework - a policy on investment abroad by resident Pakistanis 2016 - which would allow individuals, sole proprietors and partnership concerns to invest abroad (against allowed financial commitments) with a cap of 50 percent of their net worth calculated by taking average of last three declared tax returns filed with the Federal Board of Revenue (FBR). Sources told Business Recorder here on Tuesday that the Exchange Policy Department SBP has drafted "A Policy on Investment Abroad by Resident Pakistanis 2016".
The draft has been circulated to government departments for comments. The policy has proposed revision in the existing policy on investment aboard by resident Pakistanis. As per proposed SBP policy, as given in the previous policy, the proposed policy framework will allow investments only in those countries whose foreign exchange regulations permit the repatriation of profit/dividend, disinvestment proceeds, sale proceeds and liquidation proceeds back to Pakistan.
The new policy will cater to all financial commitments with respect to overseas investment ie Equity Shares, Preference Shares, Loans, and Guarantees etc within the prescribed limit. However, under the proposed policy, out-ward direct investment will be allowed only in economic activity generating ventures in any field of business from establishment/incorporation/acquisition of wholly owned subsidiary to Joint Ventures or establishment of branch offices, it said.
Investment in shell companies and SPVs will be discouraged. However, elaborated guideline has been proposed for resident Pakistanis for equity investment in shell companies and SPVs. In the proposed policy, it has also been clarified that portfolio investment is not allowed except placement of FE-25 deposits by Authorized Dealers (banks) and portfolio investment by Mutual Funds only within the scope as defined by SECP for mutual funds.
The proposed policy will also allow individuals, sole proprietors and partnership concerns to invest abroad (against allowed financial commitments) with a cap of 50 percent of their net worth calculated by taking average of last three declared tax returns filed with FBR.
Under the proposed policy, investment made by private and public limited companies will be capped at 50 percent of their average net worth of the last three years. New policy will authorise ADs to affect remittance for establishment of liaison/marketing/representative office abroad and their recurring operational expenses to the extent of USD 50,000 per year without prior approval from SBP. Similarly, in case of establishment representative/liaison/marketing offices abroad by commercial banks, ADs can effect remittance to an extent provided in the new policy after N()C from BP&RD and no prior approval of EPD will be required.
As per the new policy proposal, outward investment in real estate and property will not be allowed to resident Pakistanis. However, non-resident Pakistanis returning back to the country permanently will file returns with State Bank of Pakistan on prescribed form (V-96) along with necessary documentary proof with regards to their businesses and properties abroad, established/purchased out of their earnings abroad.
Registered Trust and Society will also be allowed to make investment if they meet the eligibility criteria as discussed in the revised policy, proposed policy said. The proposed policy will ensure the employment of Pakistanis in overseas projects. A mechanism for regularisation of unauthorised investment abroad has also been provided in the proposed policy.
Action against delinquent inventors, on non-repatriation of profits has also been proposed in the proposed policy. As has been provided in the previous policy, SBP will evaluate the investment proposals emanating from private sector and financial sector while public sector corporations will submit their requests after seeking permission and necessary recommendation from their respective ministry.
Under proposed policy, SBP''s authority to approve the investment proposal is proposed to be the same ie USD 5 million. The investment proposals involving an amount over and above US $5 million will be recommended to ECC for their approval. However, requests from commercial banks will be evaluated and approved by SBP regardless of size of amount to be remitted abroad for this very purpose.
Participation in Stock Option Plan on Phantom (non-script) basis will also be allowed. Applicant will approach SBP for acknowledgement of stock option plan and designation of Authorized Dealer for remittance under stock option plan. Subsequently, Authorized Dealers will continue making remittance abroad till the acknowledged stock option plan is valid and no amendments have been made. The sources of funds to effect remittances under the subject policy are also discussed in details.
The proposed policy said that the existing policy is like one size fits all and it does not cater to the needs of different classes of investors/investments. The criteria stipulated in the F. E. Circular require interpretations of different dimensions. It allows resident Pakistanis to invest in companies/joint ventures with the preference that investment will be made in a similar line of business which is being run in Pakistan.
The existing policy does not provide separate mechanism for each category of investors like sole proprietorship, partnerships and limited companies, it said. Existing policy requires clarification with respect to equity investment abroad by individuals. Under existing policy and past precedents, individuals are not allowed to undertake equity investment abroad which prompts them to use non-banking channels for their small investments outside Pakistan.
Similarly, documents requirement for all categories of investment proposals is the same irrespective of the class of investors and the size of investment. Existing policy also does not provide any mechanism for regularisation of unauthorised/unapproved investments abroad. It also lacks in providing a mechanism for a regulatory action for non-compliant investors.
It also does not provide separate mechanism for financial institutions for establishment of their branch offices/liaison offices/marketing offices, branches, subsidiaries, remittance for MCR and subscription of right issue. On account of said limitations, there is a need to review and improve the policy guidelines, the proposed policy added.
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