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Foreign Exchange and Remittances
As a prior action of its July 2019 IMF program, Pakistan agreed to a flexible market-determined exchange rate. The SBP regulates the exchange rate and monitors foreign exchange transactions in the open market, with interventions limited to safeguarding financial stability and preventing disorderly market conditions. Other government entities can influence SBP decisions through their membership on the SBP’s board; the Finance Secretary and the Board of Investment Chair currently sit on the board.
Banks are required to report and justify outflows of foreign currency. Travelers leaving or entering Pakistan are allowed to physically carry a maximum of $10,000 in cash. While cross-border payments of interest, profits, dividends, and royalties are allowed without submitting prior notification, banks are required to report loan information so SBP can verify remittances against repayment schedules. Although no formal policy bars profit repatriation, U.S. companies have faced delays in profit repatriation due to unclear policies and coordination between the SBP, the Ministry of Finance and other government entities. Mission Pakistan has provided advocacy for U.S. companies which have struggled to repatriate their profits. Exchange companies are permitted to buy and sell foreign currency for individuals, banks, and other exchange companies, and can also sell foreign currency to incorporated companies to facilitate the remittance of royalty, franchise, and technical fees.
There is no clear policy on convertibility of funds associated with investment in other global currencies. The SBP opts for an ad-hoc approach on a case-by-case basis.
The 2001 Income Tax Ordinance of Pakistan exempts taxes on any amount of foreign currency remitted from outside Pakistan through normal banking channels. Remittance of full capital, profits, and dividends over USD 5 million are permitted while dividends are tax-exempt. No limits exist for dividends, remittance of profits, debt service, capital, capital gains, returns on intellectual property, or payment for imported equipment in Pakistani law. However, large transactions that have the potential to influence Pakistan’s foreign exchange reserves require approval from the government’s Economic Coordination Committee. Similarly, banks are required to account for outflows of foreign currency. Investor remittances must be registered with the SBP within 30 days of execution and can only be made against a valid contract or agreement.