Key Takeaways
- Foreign investors demand immediate clarification from FBR regarding exemption certificates.
- Rule 19H of the Income Tax Rules is causing delays in share acquisitions.
- Uncertainty over historical transactions is affecting SBP registration formalities.
Foreign investors in Pakistan are urging the Federal Board of Revenue (FBR) to provide immediate clarity on the exemption certificate process, which has been causing significant delays and operational challenges. According to stakeholders, the certification requirements introduced through Rule 19H of the Income Tax Rules are creating uncertainty and hindering the registration of foreign-held shares with the State Bank of Pakistan (SBP).
The introduction of Rule 19H was intended to facilitate tax compliance on indirect transfers and cross-border share transactions involving Pakistani assets. However, its practical implementation has led to substantial delays in the issuance of exemption certificates, particularly in cases where a non-resident acquires shares from another non-resident. In such instances, the purchaser may be required to withhold tax at the prescribed rate, and an exemption certificate or reduced-rate certificate must be obtained from the Commissioner Inland Revenue.
Investors have reported delays in obtaining these certificates, leading to uncertainty and operational challenges. Some 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, further complicating the process. This has resulted in some transactions not being processed, leaving investors in a state of uncertainty.
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.
Stakeholders have also raised concerns regarding transactions completed before the introduction of Rule 19H. They 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.
The Business Recorder reported that foreign investors are backing the legal framework and insisting that the certification requirements should not apply retrospectively to transfers that had already taken place. They are urging the FBR to issue necessary clarification to remove apprehensions and ensure a smooth process for foreign investors.
