How can a foreigner open a company in Pakistan?

Pakistan presents several lucrative prospects for foreign companies willing to do the work required to establish a strategic presence in the market. Business incentives and specific infrastructure support are available to international enterprises.

The Government of Pakistan has signed agreements with 47 countries to prevent double taxation. As a result, sending money to foreign shareholders will be easier and will be subject to less withholding tax. In addition, the government provides four special economic zones in Gujranwala, Sialkot, Rizalpur and Karachi.

A foreign company, which can be any resident company outside Pakistan, can establish a 100% legal entity in Pakistan with full capital protection. They can hire local and international staff and operate as a Pakistani company.

Requirements for starting a business in Pakistan

Minimum capital

Private limited liability corporations in Pakistan are not subject to formal minimum capital requirements. For this reason, it is generally accepted that the minimum capital is 100,000 Pakistani rupees (or about 823 US dollars). However, in practice, the paid-in capital you invest should match your expected costs. For example, you must have enough money if you are going to build a factory for your company.

Business license

Companies must apply for a business license before starting a business in Pakistan. Depending on the nature of the business, apply for a license from the relevant authorities. For example:

• Food business — Pakistan Food Authority
• Travel company — Pakistan Tourism Services Department
• Textile business — Pakistan Ministry of Textiles
• Liquefied petroleum gas business — Oil and Gas Regulatory Authority

Types of companies in Pakistan

Sole ownership

The simplest form of business ownership for an individual — sole proprietorship. The owner is responsible for obligations and debts, since he is not a separate legal entity. He pays taxes on the personal income of an individual entrepreneur.

Partnership

Another simple business structure — partnership or association of persons. Despite the fact that there are more partners, the company operates as an individual enterprise. A direct agreement between the partners describes their respective shares and business rules. The partnership is not a legal entity; the partners are fully responsible for their obligations. Income received from a partnership is taxed only once. Partners are not responsible for paying taxes on any wages or profits they receive.

Limited Liability Company (LLC)

A limited liability partnership is a separate legal entity. It protects its partners from joint and several liability caused by the wrongdoing of the other party. With minimal compliance costs, this business form combines the benefits of a limited liability company with the adaptability of a general partnership (governed by the Partnership Act 1932).

Closed joint stock company

The best corporate structure for companies seeking small to medium amounts of financing is a private limited liability company (PLC). It is a legal entity independent of its shareholders. The board of directors, elected by shareholders, works with the CEO to make operational decisions for the business.

The corporation pays corporate income tax on its income, and the shareholders individually pay taxes on their income (dividends or salaries), unlike an LLP, in which only the income of the partners is taxed.

Depending on the size of the corporation, a company secretary, legal counsel, and auditor may also be required.

Documents required for registering a foreign company in Pakistan

Copies of Passports and Valid Identification Cards: Valid copies of passports of directors, shareholders and secretaries of the company along with their valid Identity Cards serving as proof of identity and copies of passports.

• No Objection Certificate (NOC). NOC from the relevant embassy confirming compliance with the laws of the country of origin.
• Approvals. To register a foreign company in Pakistan, you need to obtain approval from the Board of Investment (BOI).
• Memorandum and Articles of Association. These documents describe the structure, goals and scope of the company.
• Confirmation of registered address. Confirmation of the physical address in Pakistan at which the company will operate.
• Bank letter of recommendation. A letter of recommendation from a recognized bank confirming the financial position and reliability of the company.
• Board Resolution. A formal resolution of the board of directors of a parent company authorizing the registration of a company in Pakistan.
• Declaration of Compliance. Declaration by directors and shareholders confirming their compliance with local laws.
• Form 29 and Form A-21. Filing these forms with the Registrar of Companies to begin the registration process.
• Company seal and sample signature. Sample of a company seal and signature of an authorized person for legal transactions.
• Tax documents. Federal Board of Revenue (FBR) registration and other tax related documents
• Appointment of authorized representatives. A formal document designating the persons authorized to act on behalf of the company.

Company registration process

The first step in the Pakistani company registration process is to select the legal corporate structure of your company. To register your company in Pakistan, you need to take the following steps:

Step 1. Approval of the company name.

Choosing a name for a business — the first stage of company registration in Pakistan.

It is important to create a unique business name that will differentiate you from competitors in your industry. You can find information about the online application and application process on the SECP website.

Step 2. Submission of necessary documents.

You must file articles of incorporation with the Securities and Exchange Commission of Pakistan (SECP) once the company name is approved.

Step 3. Obtaining a certificate of registration.

After submission, documents are assessed by SECP. They check your reliability.

Digital signatures are produced by National Institutional Facilitation Technologies (NIFT) and are available through SECP. They also issue a certificate of registration.

A corporate presentation may be required. However, this will depend on where the company was founded.

Step 4. Deposit of shares.

After registration, shareholders must deposit the corresponding shares into the company's bank account.

Step 5: Register taxes on income, sales and professional services.

Last steps in establishing a corporation in Pakistan — obtaining Federal Board of Revenue (FBR) clearance and national tax number.

You can also purchase a sales tax registration plate if needed.

You will be able to register your company as an employer after completing the company registration process in Pakistan. After this, you can open your company in Pakistan and hire more employees.

Tax obligations

An important component of setting up and operating a foreign company in Pakistan is following the tax system, as foreign companies operating in Pakistan have a number of tax obligations.

• Corporate income tax. Foreign companies are required to pay corporate income tax on their profits earned in Pakistan. The tax rate varies depending on the nature of the business and other factors.
• Withholding tax. Certain payments made by foreign companies, such as dividends, royalties and interest, may be subject to withholding tax. The income tax rate is determined by the tax laws of Pakistan.
• Sales tax and federal excise tax. If a foreign company is engaged in supplying goods or services in Pakistan, it may be required to collect and remit sales tax or federal excise tax.

Tax benefits for foreign companies

Pakistan offers various tax incentives to attract foreign investment and promote economic growth. Some common incentives include:

• Tax incentives. Some industries and sectors may benefit from tax incentives or reduced tax rates to encourage investment.
• Deductions and Depreciation Allowances. Foreign companies may be eligible for deductions and allowances for capital expenditures, research and development expenses, and depreciation.
• Repatriation of profits. Pakistan allows repatriation of profits and dividends received by foreign companies, subject to compliance with applicable tax laws.