Japanese investment in Pakistan
Japan has remained a cornerstone of Pakistan’s economy for the past many years. Japanese Companies have invested in all sectors across Pakistan. Be it auto, trading, manufacturing, infrastructure development, packaging, steel manufacturing, indenting, etc a large number of Japanese Companies have a strong presence in Pakistan.
Pakistan’s Investment and Corporate laws permit wholly-owned Subsidiaries of Japanese Companies with 100% foreign equity in all sectors of the economy including Manufacturing, Trading & Service sectors with full repatriation rights as to Capital & Dividends remittable through a commercial bank without the frequent need to access the State Bank of Pakistan (‘Central Bank’).
Japanese Companies being Foreign Investors have also been provided added legal protection against nationalisation, expropriation and currency inconvertibility, and in such contingencies the foreign investor would be entitled to fair compensation at the prevailing market value.
Many of the Japanese Companies are operating in Pakistan as Private Limited Companies which can be incorporated by a minimum of two shareholders and two directors. A Japanese Company can now set-up a wholly owned subsidiary in Pakistan without the minimum capital requirement. Pakistan prides itself when it comes to ease of doing business. In a Private Limited Company, there is a full freedom for the Board to meet as often as it deems fit and in any country or location which might be convenient to all Board Members. Board Resolution can also be passed by circulation with unanimous consent of all Board Members. Directors are elected for a term of three years on the basis one share – one vote. The Directors are eligible for re-election for more than one term. The Chairman, Directors and Chief Executive Officer can be of any nationality.
The day-to-day Management of a company is entrusted to its Chief Executive who operates under the supervision of the Board. The CEO is considered by law to be a Statutory member of the Board with a full vote. While the Directors need not be resident in Pakistan, the Chief Executive is expected to be resident in Pakistan to conduct day-to-day affairs of the Company. If the Chief Executive is a foreign national, he would need to apply and obtain a Multiple Work Visa, which is a combination of Work Permit & Multiple Visas.
The Company is statutorily required to retain a full time firm of Auditors & Lawyers. Any change as to the name, registered address, directors / shareholders / CEO / Auditors/ Lawyers etc would need to be notified to the SECP within maximum period of 15 days from the date of the change.
In terms of taxation, currently the corporate tax rate is set at 35% of the net income. Pakistan has signed Double Taxation Treaties with 52 countries which enable foreign investors to claim tax credit in their Home Countries in respect of corporate taxes paid in Pakistan. To encourage timely payment of Dividend to the shareholders, an additional tax is levied if the Reserves exceed the Paid-up capital.
A Private Limited Company can borrow upto 100% of Paid up Capital. Additionally a Company with majority foreign equity can also borrow against a 5 year repatriable loan from its Parent Company at the rate of LIBOR plus 1.5% interest. As per SECP Instruction No 4 of 2011, it is now mandatory in case of a Company with foreign Shareholders & Directors to obtain an NOC from the Ministry of Interior, Islamabad as a part of the Company Incorporation Process. Since Security Clearance process was time consuming, the SECP keeping the interests of the foreign investors in mind, has relaxed the rule whereby the Company with Foreign Shareholders and foreign Directors are issued “Provisional Permission” on the basis of an Undertaking to enable them to commence their business activities in Pakistan before the security clearance is issued by Pakistan Ministry of Interior. However the formal Certificate of Incorporation is issued after Security Clearance is in hand.
It is also a positive factor that Pakistan Law accords equal treatment under the law backed by good institutional and regulatory framework. Moreover for affording added protection and incentive to foreign investors, Pakistan has ratified the New York Convention with the result that Foreign Arbitral Awards are respected in Pakistani Courts. Professionals in law and other fields of expertise are also available to guide and protect the investors.