SBP retools forex rules for commercial remittances

KARACHI: State Bank of Pakistan (SBP) has revised foreign exchange rules related to commercial remittances to promote ease of doing business and legitimate cross-border commercial payments on account of services, it said on Thursday.

The significant changes were made in the chapter 14 of the Foreign Exchange Manual.

“It is envisaged that the facilitative measures will help the business community of Pakistan in growing their businesses,” read the SBP’s statement.

The SBP has revised the policy on remittance of royalty, franchise and technical fees (RFT). Banks have been delegated the authority to register the agreements of parties and to allow remittances of RFT fees under revised policy. The threshold for remittance of such fees has been revised upwards to cater the needs of the business community.

Now, entities belonging to the manufacturing sector, through their designated bank, can remit $1 million as upfront payment and up to 8 percent of net sales (excluding taxes and cost of imported components). Moreover, a new category i.e. royalty on export related manufacturing has been introduced under which Pakistani entities collaborating with foreign counterparts can remit recurring royalty payment of up to 10 percent of net export sales (i.e. excluding taxes and cost of imported components).

In view of increasing reliance of businesses on digital services procured from abroad, the SBP has enhanced the per year limit assigned to 62 whitelisted digital service provider companies from $200,000 to $400,000 per annum. Further, for acquiring digital services from companies not included in the list, the per year limit of remittance has also been increased from $25,000 to $40,000.

Moreover, to facilitate businesses in acquiring services from abroad, apart from digital service providers, SBP has enhanced the threshold from $10,000 to $25,000 up to which banks can process requests for acquiring services from abroad. Beyond this limit remittances can be made after getting the agreement registered with Foreign Exchange Operations Department (FEOD) of SBP-Banking Services Corporation (BSC).

In order to facilitate branches of foreign companies in remitting legitimate payments such as profit, head office expenses and winding up proceeds, the SBP has made changes in existing regulations and authorised banks to allow such remittances with minimum involvement of SBP. The branches of foreign companies working in Pakistan and intending to remit profit/ head office expenses/ winding up proceeds, shall get their bank designated from the Exchange Policy Department, SBP, after which the remittances under these heads can be made by the designated bank.

To share expertise and reduce related costs, companies are increasingly restructuring their business processes by outsourcing their supporting (non-core/shared service) functions to the related or third parties abroad. Accordingly, in order to cater the demands of such companies, SBP has introduced foreign exchange regulations on Business Process Outsourcing for non-core activities.

Now resident companies intending to outsource non-critical/non-core business processes to foreign entities can approach FEOD, SBP-BSC, through a bank, for acknowledgment of underlying agreement based on the guidelines. After obtaining acknowledgment, the designated bank can affect remittances as per applicable regulations.

The SBP has issued specific instructions on logistic related cross-border payments such as container detention charges, port demurrage charges etc with an aim of harmonising foreign exchange regime with current business environment. Banks have been delegated to process such payments up to a certain threshold under the newly introduced policy.