Cross-border
Can a Pakistani Legally Own a Company Abroad?
A Pakistani company can, within limits set by Para 13 of Chapter 20 of the Foreign Exchange Manual, and the rules were widened for IT exporters in July 2024. A resident individual is in a different position: the general permissions cover listed shares, employee stock options and sweat equity, and none of them covers incorporating your own company abroad. That gap is where most freelancers with a US LLC are sitting.
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Where these figures come from
- Sources
- Sourced from the State Bank of Pakistan's Foreign Exchange Manual and circulars, and the Income Tax Ordinance, 2001 for what must be declared.
- Last checked against the sources
- by BarrioVibe.
This is general guidance from the sources above, not advice on your situation. Procedures and official fees change, so confirm the current position before you file, or speak to us first.
What changed for IT companies in 2024
FE Circular No. 01 of 11 July 2024 revised Para 13(II)A of Chapter 20 to make it easier for export-oriented companies, particularly in the IT sector, to expand abroad. Four changes: a new equity investment category for IT-sector exporters, removal of the requirement to designate a bank in advance where the funds come from an Exporter's Special Foreign Currency Account, express permission for IT export companies to acquire a percentage shareholding in an entity abroad rather than only establishing one, and relaxation of the rule limiting a company to one entity per jurisdiction.
That is a genuine liberalisation and it is the reason the question is worth asking again in 2026 if you last looked before it. What it is not is a general opening, and the detail below is where most applications actually turn.
The three routes for a company, and what each allows
Para 13(II)(A1)(2). Which one applies decides both the ceiling and whether you need to designate a bank first.
| Source of funds | How much | Prior bank designation |
|---|---|---|
| Exporter's Special Foreign Currency Account | Funds available in the account | Not required |
| Special Foreign Currency Account holding equity raised from abroad | Funds available in the account | Not required |
| Neither, for an IT company not yet exporting | Average net profit of the last three years, or USD 100,000, whichever is higher | Required |
The conditions that apply to all three
Para 13(II)(A1)(3). The first two are the ones that most often decide an application, and neither appears in the secondary coverage of the 2024 circular.
- Total investment abroad must not exceed 80% of the company's equity, after adjusting for investments in subsidiaries and associates, goodwill, deferred tax assets and receivables from related entities, for a non-listed company
- The foreign business must be of a similar nature to what the applicant already does in Pakistan. An extended line of business or vertical integration counts as similar; an unrelated venture does not
- Operational expenses of a marketing, liaison or representative office abroad are capped at USD 30,000 a year from the second year, with increases of up to 10% a year on justification
- More than one entity in a single jurisdiction requires justification to the satisfaction of the Authorized Dealer
- An acquisition of an unlisted company above USD 1 million requires a valuation report from an accredited business valuation firm in the target country
- Past performance counts: previous investments abroad are weighed on profit repatriation and increase in exports when a new request is assessed
What we are and are not saying about that gap
We are saying the general permissions do not reach it. We read Para 13(II)(D) and its three categories do not describe forming your own company abroad, and the 2024 liberalisation that consultants cite applies to Para 13(II)A, which is about companies rather than individuals.
We are not saying it is prohibited, because we did not read a provision expressly prohibiting it, and the difference between "not generally permitted" and "prohibited" is real: the framework contemplates prior State Bank permission for cases outside the general permissions. What follows practically is that this is a question to put to your bank's designated branch or to take advice on, and not one to resolve by reading a formation vendor's FAQ.
What you owe after the investment is made
Para 13(III). These are ongoing duties and the annual one is the one people forget, because nothing prompts it.
- Documentary evidence of the establishment or acquisition, through your Authorized Dealer, within one month of making the investment
- A return to the State Bank on form V-100, through the same channel, within one month
- Audited financials of the investee company, submitted annually
- Dividends and disinvestment proceeds, including capital gains, repatriated through normal banking channels, converted to rupees, with the original Proceeds Realization Certificate filed with the State Bank. Those amounts may not be credited to a foreign currency account
If the company is already there without permission
No published State Bank instrument provides an amnesty, a condonation or a retrospective approval for a foreign entity already established without permission. The only mechanism in Chapter 20 is Para 13(IV)(3), under which your Authorized Dealer forwards an application for exemption or waiver to the Director of the Exchange Policy Department, and that is prospective and requires the bank's own recommendation.
The 2018 Foreign Assets Declaration and Repatriation Act is sometimes offered as the answer. It was a tax amnesty, it expired, and it did not cure exchange control contraventions. We are stating the absence rather than inventing a route: what the published material does not contain is a clean fix, and this is a position to take to your bank and an adviser rather than resolve from a web page.
How this sits with the tax side
The two regimes meet at the point where money comes back. The exchange regulations require dividends and disposal proceeds to be repatriated and converted, and the tax side then asks what is taxable on that income and whether the holding itself was declared under section 116A.
They also fail together. An undeclared foreign company is a section 116A problem with a penalty running at 2% of the asset value for each year of default. If it was also acquired outside the exchange framework, that is a second and separate exposure with a different regulator, and neither cures the other.
Questions
The questionspeople ask
Can a Pakistani company own a subsidiary abroad?
Yes, within Para 13 of Chapter 20 of the Foreign Exchange Manual. An export-oriented IT company can invest from its Exporter's Special Foreign Currency Account without designating a bank in advance, or, if it has no such balances, up to the higher of its average net profit over three years or USD 100,000 after designating one.
Can a Pakistani individual open a company in the USA?
The State Bank's general permissions for resident individuals cover three things: shares in listed companies abroad up to USD 25,000 a year, employee stock option plans up to USD 50,000 a year, and sweat equity. Forming your own private company abroad is not among them. It is not expressly prohibited in what we read, but it is outside the general permissions, so it is a question for your bank or an adviser rather than an assumption.
What did the State Bank change in July 2024?
FE Circular No. 01 of 11 July 2024 revised Para 13(II)A to create a new equity investment category for IT-sector exporters, remove prior bank designation where funds come from an Exporter's Special Foreign Currency Account, permit IT export companies to acquire a shareholding rather than only establish an entity, and relax the one-entity-per-jurisdiction restriction for them.
How much can a Pakistani company invest abroad?
At any point the total investment abroad must not exceed 80% of the company's equity for a non-listed company, adjusted for investments in subsidiaries and associates, goodwill, deferred tax assets and related-party receivables. Within that, the ceiling depends on the route: available funds in an ESFCA or SFCA, or the higher of three-year average net profit and USD 100,000.
Can a Pakistani startup do a Delaware flip?
There is a route in Para 13(II)(A2)(b), with three cumulative conditions: incorporated in Pakistan for not more than 7 years and not by splitting up or reconstruction, annual revenue below PKR 2 billion since incorporation, and equity including retained earnings below PKR 300 million. The holding company must then repatriate 80% of funds raised abroad until USD 1 million and 50% thereafter until USD 10 million cumulative.
Do I have to report a foreign investment to the State Bank after making it?
Yes. Documentary evidence and a return on form V-100 within one month of the investment, audited financials of the investee company every year, and repatriation of dividends and disposal proceeds through banking channels with the original Proceeds Realization Certificate filed with the State Bank.
Does the foreign business have to be related to what I do in Pakistan?
Yes, for a company. The business in which the investment is made should be of a similar nature to the applicant's Pakistani business. An extended line of business or vertical integration is treated as similar; an unrelated venture is not.
What is the penalty for investing abroad without SBP permission?
Section 23(1) of the Foreign Exchange Regulation Act 1947 provides for rigorous imprisonment up to five years, or a fine, or both, with possible confiscation of the property, and section 23(2) makes the offence cognizable and non-bailable. A prosecution can only begin on a written complaint by someone authorised by the State Bank, and where the charge is acting without permission the accused must first be given a chance to show he had it.
Can I regularise a foreign company I already set up?
No published State Bank instrument offers an amnesty or retrospective approval. Chapter 20 Para 13(IV)(3) allows an application for exemption or waiver through your Authorized Dealer, but it is prospective and needs the bank's recommendation. The 2018 Foreign Assets Act was a tax amnesty, has expired, and did not cure exchange control contraventions.
Do controlled foreign company rules apply to my foreign subsidiary?
Only if all four conditions in section 109A(2) hold, and one is that the company does not derive active business income. A genuine operating software subsidiary usually does, which takes it outside. Attributable income is also nil where the resident holds under 10%, or where the company's income is below PKR 10 million.
Does my Pakistani company need a board resolution to fund its foreign subsidiary?
More than that. Section 199(1) of the Companies Act 2017 requires a special resolution of the members, stating the nature, period, amount and terms, for any investment in an associated company or undertaking, and that includes equity, loans, advances and guarantees. A foreign subsidiary is an associated undertaking under section 2(4)(b).
If I declared my foreign company to FBR, am I compliant?
On the tax side, if the section 116A statement was filed correctly. Exchange control is a separate question with a separate regulator: whether you were permitted to acquire the shareholding at all is governed by the Foreign Exchange Manual, and declaring an asset does not authorise having acquired it.
Also here
Relatedguides
Declaring a foreign company
What section 116A requires of a Pakistani resident who owns a company abroad, the penalty that runs every year, and the point at which it stops being a filing question.
Freelancer tax
Which rate applies to your export receipts, why domestic clients usually withhold nothing, and the provincial question that catches people in KPK.
Already set up abroad without permission?
There is no published amnesty route, and the exchange control question is separate from the tax one. What that leaves is a conversation with your bank and an adviser, framed properly.