Share transfers: Foreign investors seeking clarity on FBR exemption certificates
ISLAMABAD: Foreign investors have strongly emphasised the need for a streamlined and time-bound exemption certificate process for foreign investors seeking registration of foreign-held shares acquisitions in Pakistan and cross-border share transactions involving Pakistani assets.
The Federal Board of Revenue (FBR) should immediately issue necessary clarification to remove apprehensions of the foreign investors. Backed by legal framework, foreign investors insisted that the certification requirements introduced through Rule 19H of the Income Tax Rules should not apply retrospectively to transfers that had already taken place and were awaiting only State Bank of Pakistan (SBP) registration formalities.
Stakeholders told Business Recorder that the introduction of Rule 19H of the Income Tax Rules following amendments to section 37 of the Income Tax Ordinance was intended to facilitate tax compliance on indirect transfers and cross-border share transactions involving Pakistani assets.
However, its practical implementation has created significant uncertainty and operational challenges for foreign investors seeking registration of share acquisitions with the SBP.
Under the current framework, where a non-resident acquires shares of a Pakistani investee company from another non-resident, the purchaser may be required to withhold tax at the prescribed rate. Where the seller is exempt from tax under domestic law or a tax treaty, or is subject to a lower effective tax rate, an exemption certificate or reduced-rate certificate must be obtained from the Commissioner Inland Revenue before the transaction can be processed.
In practice, investors have reported substantial delays in the issuance of exemption certificates. More recently, certain tax authorities have adopted the position that transactions between two non-residents involving shares of a Pakistani company may fall within section 101A of the Ordinance. On this basis, exemption certificates are reportedly not being issued in some cases, leaving transactions in a state of uncertainty.
As a result, foreign investors are facing delays in registering their shareholdings with the SBP despite having completed the underlying acquisition.
The issue has become particularly problematic because SBP’s registration process for foreign-held shares is increasingly linked with evidence of compliance under Rule 19H.
Consequently, delays at the FBR level are directly affecting the ability of investors to secure timely registration of their investments and exercise shareholder rights with certainty.
Concerns have also emerged regarding transactions completed before the introduction of Rule 19H. In such cases, stakeholders have sought clarification that the certification requirements introduced through Rule 19H should not apply retrospectively to transfers that had already taken place and were awaiting only SBP registration formalities. However, the absence of a clear clarification from the FBR has resulted in further delays and uncertainty for affected investors.
Given Pakistan’s objective of attracting and retaining foreign investment, stakeholders have emphasised the need for a streamlined and time-bound exemption certificate process, along with clear guidance on the treatment of historical transactions and cross-border transfers between non-residents. Without such measures, administrative delays may continue to impede foreign investment flows and create avoidable uncertainty in the market, sources added.
Copyright Business Recorder, 2026