1. Openness To, and Restrictions Upon, Foreign Investment
Pakistan seeks inward investment to boost economic growth, particularly in the energy, agribusiness, information and communications technology, and industrial sectors. Since 1997, Pakistan has established and maintained a largely open investment regime. Pakistan introduced an Investment Policy in 2013 that further liberalized investment policies in most sectors to attract foreign investment and signed an economic co-operation agreement with China, the China-Pakistan Economic Corridor (CPEC), in April 2015. CPEC Phase I, which concluded in late 2019, focused primarily on infrastructure and energy production. CPEC Phase II, which is ongoing, is reportedly pivoting away from infrastructure development to mainly promote Pakistan’s industrial growth by establishing special economic zones throughout the country. The PRC has also pledged to provide $1 billion in socio-economic initiatives focused on agriculture, health, education, poverty alleviation, and vocational training by 2024. However, progress on Phase II is significantly delayed due to the COVID-19 pandemic, fiscal constraints, and regulatory issues. The government took almost two years to pass legislation formalizing the CPEC Authority (a centralized federal body charged with overseeing CPEC implementation across the country). Some opportunities are only open to approved Chinese companies, and CPEC has ensured those projects and their investors receive authorities’ attention.
To support its Investment Policy, Pakistan also has implemented sectoral policies designed to provide additional incentives to investors in those specific sectors. The Automotive Policy 2016, Export Enhancement Package 2019, Alternative and Renewable Energy Policy 2019, Merchant Marine Shipping Policy 2019 (with 2020 updates), the Electric Vehicle Policy 2020-2025, the Textile Policy 2021 (which took over two years for final approval), and then Prime Minister Imran Khan’s reform package for IT sector development (announced in February 2022) are a few examples of sector-specific incentive schemes. Sector-specific incentives typically include tax breaks, tax refunds, tariff reductions, the provision of dedicated infrastructure, and investor facilitation services.
The last Strategic Trade Policy Framework (STPF) – which lays out the government’s broad trade policy outlooks and priorities – expired in 2018; the Cabinet approved an updated STPF 2020-25 in November 2021. Following the expiration, incentives introduced through STPF 2015-18 remained in place until the updated STPF came into effect. Nonetheless, foreign investors continue to advocate for Pakistan to improve legal protections for foreign investments, protect intellectual property rights, and establish clear and consistent policies for upholding contractual obligations and settlement of tax disputes.
The Foreign Private Investment Promotion and Protection Act (FPIPPA), 1976, and the Furtherance and Protection of Economic Reforms Act, 1992, provide legal protection for foreign investors and investment in Pakistan. The FPIPPA stipulates that foreign investment will not be subject to higher income taxes than similar investments made by Pakistani citizens. All sectors and activities are open for foreign investment unless specifically prohibited or restricted for reasons of national security and public safety. Specified restricted industries include arms and ammunitions; high explosives; radioactive substances; securities, currency and mint; and consumable alcohol. There are no restrictions or mechanisms that specifically exclude U.S. investors.
Pakistan’s investment promotion agency is the Board of Investment (BOI). BOI is responsible for attracting investment, facilitating local and foreign investors, implementation of projects, and enhancing Pakistan’s international competitiveness. BOI assists companies and investors who seek to invest in Pakistan and facilitates the implementation and operation of their projects. BOI is not a one-stop shop for investors, however.
Pakistan pursues investor retention through “business dialogues” such as webinars and seminars with existing and potential investors. BOI plays the leading role in initiating and managing these dialogues. However, Pakistan does not have a dedicated ombudsman’s office focused on investment retention.
Foreigners, other than Indian and Israeli citizens/entities, can establish, own, operate, and dispose of interests in most types of businesses in Pakistan, excepting those involved in arms and ammunitions; high explosives; radioactive substances; securities, currency and mint; and consumable alcohol. There are no restrictions or mechanisms that specifically exclude U.S. investors. There are no laws or regulations authorizing domestic private entities to adopt articles of incorporation discriminating against foreign investment.
Pakistan does not place limits on foreign ownership or control. The 2013 Investment Policy eliminated minimum initial capital requirements across sectors so that there is no minimum investment requirement or upper limit on the allowed share of foreign equity, with the exception of investments in the airline, banking, agriculture, and media sectors. Waiver to these limits require approval from the cabinet and prime minister.
Foreign investors in the services sector may retain 100 percent equity, subject to obtaining permission, a “no objection certificate,” and license from the concerned agency, as well as fulfilling the requirements of the respective sectoral policy. In the education, health, and infrastructure sectors, 100 percent foreign ownership is allowed, while in the agriculture sector, the threshold is 60 percent, with an exception for corporate agriculture farming, where 100 percent ownership is allowed. Small-scale mining valued at less than PKR 300 million (roughly $1.7 million) is restricted to Pakistani investors.
Foreign banks may establish locally incorporated subsidiaries and branches, provided they have $5 billion in paid-up capital or belong to one of the regional organizations or associations to which Pakistan is a member (e.g., Economic Cooperation Organization (ECO) or the South Asian Association for Regional Cooperation (SAARC)). Absent these requirements, foreign banks are limited to a 49-percent maximum equity stake in locally incorporated subsidiaries.
There are no restrictions on payments of royalties and technical fees for the manufacturing sector, but there are restrictions on other sectors, including a $100,000 limit on initial franchise investments and a cap on subsequent royalty payments of 5 percent of net sales for five years. Royalties and technical payments are subject to remittance restrictions listed in Chapter 14, Section 12 of the SBP Foreign Exchange Manual (http://www.sbp.org.pk/fe_manual/index.htm).
Pakistan maintains investment screening mechanisms for inbound foreign investment. The BOI is the lead organization for such screening. Pakistan blocks foreign investments where the screening process determines the investment could negatively affect Pakistan’s national security. Though BOI is the official lead agency for investment screening mechanism, they lack in-house capacity for running such screenings and rely heavily on intelligence agencies for the required due diligence.
Pakistan has not undergone any third-party investment policy reviews in the past three years.
Sustainable Development Policy Institute (SDPI) is the leading civil society think tank in Pakistan and in 2020 reported on “excessive regulations” as the key barrier to attracting more foreign investment. Details are at
The Board of Investment’s “Doing Business Reform Strategy 2018-21” is the national roadmap for improving Pakistan’s investment climate. In last few years, the government has simplified pre-registration and registration facilities and automated land records to simplify property registration, eased requirements for obtaining construction permits and utilities, introduced online/electronic tax payments, and facilitated cross-border trade by expanding electronic submissions and processing of trade documents.
The Securities and Exchange Commission of Pakistan (SECP) manages company registration, which is available to both foreign and domestic companies. Companies first provide a company name and pay the requisite registration fee to the SECP. They then supply documentation on the proposed business, including information on corporate offices, location of company headquarters, and a copy of the company charter. Both foreign and domestic companies must apply for national tax numbers with the Federal Board of Revenue (FBR) to facilitate payment of income and sales taxes. Industrial or commercial establishments with five or more employees must register with Pakistan’s Federal Employees Old-Age Benefits Institution (EOBI) for social security purposes. Depending on the location, registration with provincial governments may also be required. The SECP website (https://www.secp.gov.pk/) offers a Virtual One Stop Shop (OSS) where companies can register with the SECP, FBR, and EOBI simultaneously. The OSS can be used by foreign investors.
Pakistan does not promote or incentivize outward investment.
While Pakistan does not explicitly restrict domestic investors from investing abroad, cumbersome and time-consuming approval processes, involving multiple entities including the SBP, SECP, and the Ministries of Finance, Economic Affairs, and Foreign Affairs, discourage outward investments. Despite those processes, larger Pakistani corporations have made investments in the United States in recent years.