1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Pakistan seeks inward investment in order 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 pivoting away from infrastructure development to mainly focus on promoting 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 pandemic, fiscal constraints, and regulatory issues including the government’s inability so far to pass legislation formalizing the CPEC Authority (a centralized federal body charged with CPEC implementation across the country). Some opportunities are only open to approved Chinese companies, and CPEC has ensured those projects and their investors receive the 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, Strategic Trade Policy Framework (STPF) 2015-18, Export Enhancement Package 2019, Alternative and Renewable Energy Policy 2019, Merchant Marine Shipping Policy 2019 with 2020 updates, the Electric Vehicle Policy 2020-2025, and the Textile Policy 2021 (still awaiting final approval) 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. A new STPF 2020-25 and the Textile Policy 2021 have been approved by the Prime Minister but are still awaiting final Cabinet approvals.
In the absence of the new STPF 2020-2025, incentives introduced through STPF 2015-18 remain in place. 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 investments 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 investor 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 prioritizes investment retention through “business dialogues” (virtual or in-person engagements) with existing and potential investors. BOI plays the leading role in initiating and managing such dialogues. However, Pakistan does not have an Ombudsman’s office focusing on investment retention.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreigners, except Indian and Israeli citizens/businesses, can establish, own, operate, and dispose of interests in most types of businesses in Pakistan, except 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 any 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. 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 $1.9 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.
Other Investment Policy Reviews
Pakistan has not undergone any third-party investment policy reviews over the past three years.
The government utilizes the World Bank’s “Doing Business” criteria to guide its efforts to improve Pakistan’s business climate. 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. Starting a business in Pakistan normally involves five procedures and takes at least 16.5 days – as compared to an average of 7.1 procedures and 14.5 days for the group of countries comprising the World Bank’s South Asia cohort. Pakistan ranked 72 out of 190 countries in the Doing Business 2020 report’s “Starting a Business” category. Pakistan ranked 28 out of 190 for protecting minority investors. (Note: the 2020 Doing Business Report is the last available report. End Note.)
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 (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 nor incentivize outward investment. Pakistan does not explicitly restrict domestic investors from investing abroad. However, cumbersome and time consuming approval processes, involving multiple entities such as the SBP, SECP, and the Ministries of Finance, Economic Affairs, and Foreign Affairs, generally discourage outward investors. Despite the cumbersome processes, larger Pakistani corporations have made investments in the United States in recent years.
2. Bilateral Investment Agreements and Taxation Treaties
Pakistan has signed Bilateral Investment Treaties (BITs) with 49 countries, although only 27 have entered into force. U.S.-Pakistan BIT negotiations began in 2004 and the text closed in 2012; however, the agreement has not been signed. The government has declared its intention to pull out of BITs currently in force.
Pakistan has a Trade and Investment Framework Agreement (TIFA) in place with the United States. Pakistan has free or preferential trade agreements with China, Malaysia, Sri Lanka, Iran, Mauritius, and Indonesia. It is also a signatory of the South Asian Free Trade Agreement (SAFTA) and the Afghanistan Pakistan Transit Trade Agreement (APTTA). A revised China-Pakistan Free Trade Agreement entered into force January 1, 2020. Pakistan is negotiating free trade agreements with Turkey and Thailand.
A U.S.-Pakistan bilateral tax treaty was signed in 1959. Pakistan has double taxation agreements with 63 other countries. A multilateral tax treaty between the SAARC countries (Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka) came into force in 2011 and provides additional provisions for the administration of taxes. In 2018, Pakistan updated its tax treaty with Switzerland.
Pakistan relies heavily on multinational corporations for a significant portion of its tax collections (up to one-third of revenue collected by the FBR, according to reports by the Overseas Investors Chamber of Commerce and Industry.) Foreign investors in Pakistan regularly report that both federal and provincial tax regulations are difficult to navigate, and tax assessments are non-transparent. Since 2013, the government has requested advance tax payments from companies, complicating businesses’ operations as the government intentionally delays tax refunds. The World Bank’s Doing Business 2020 report notes that companies pay 34 different taxes, compared to an average of 26.8 in other South Asian countries. On average, according to the 2020 Doing Business report, businesses spend over 283 hours per year calculating these payments.
In 2016, Pakistan signed the OECD’s Multilateral Convention on Mutual Administrative Assistance in Tax Matters. The Convention will help Pakistan exchange banking details with the other 80 signatory countries to locate untaxed money in foreign banks. Pakistan is a member of the Base Erosion and Profit Shifting (BEPS) framework and will automatically exchange country-by-country reporting as required by the BEPS package.
4. Industrial Policies
The government’s investment policy provides both domestic and foreign investors the same incentives, concessions, and facilities for industrial development. Though some incentives are included in the federal budget, the government relies on Statutory Regulatory Orders (SROs) – ad hoc arrangements implemented through executive order – for industry specific taxes or incentives. The government does not offer research and development incentives. Nonetheless, certain technology-focused industries, including information technology and solar energy, benefit from a wide range of fiscal incentives. Pakistan currently does not provide any formal investment incentives such as grants, tax credits or deferrals, access to subsidized loans, or reduced cost of land to individual foreign investors.
In general, the government does not issue guarantees or jointly finance foreign direct investment projects. The government made an exception for CPEC-related projects and provided sovereign guarantees for the investment and returns, along with joint financing for specific projects.
To encourage use of electrical vehicles (EV), the Government of Pakistan incentivized imports of EVs via the Electric Vehicles Policy 2020-2025 as completely built up (CBU)/finished vehicles and EV specific parts in complete knock down (CKD)/unassembled vehicles. Incentives include rebates on customs duties, regulatory duties, exemptions from sales tax, and lower tariff rates. (Note: sector contacts state that implementation of the EV policy is delayed as the government has yet to finalize the draft finance bill to introduce the duty exemptions. Full implementation is expected in 3Q 2021. End Note.)
Foreign Trade Zones/Free Ports/Trade Facilitation
To boost exports, the government established fiscal and institutional incentives for export-oriented industries who located operations in Export Processing Zones (EPZ), the first of which was established in Karachi in 1989. Subsequently, EPZs were established in Risalpur, Gujranwala, Sialkot, Saindak, Gwadar, Reko Diq, and Duddar. However, today, only Karachi, Risalpur, Sialkot, and Saindak EPZs remain operational. These zones offer investors tax and duty exemptions on equipment, machinery, and materials (including components, spare parts, and packing material); indefinite loss carry-forward; and access to the EPZ Authority (EPZA) “Single Window,” which facilitates import and export authorizations.
The 2012 Special Economic Zones (SEZ) Act, amended in 2016, allows both domestically focused and export-oriented enterprises to establish companies and public-private partnerships within SEZs. According to the Pakistan’s 2013 Investment Policy, any manufacturer that introduces technologies that are unavailable in Pakistan can receive the same incentives available to companies operating in Pakistan’s SEZs.
Pakistan has a total of 23 designated SEZs. All investors in SEZs are offered a number of incentives, including a ten-year tax holiday, one-time waiver of import duties on plant materials and machinery, and streamlined utilities connections. Despite these benefits to both foreign and domestic firms, Pakistan’s SEZs have struggled to attract investment due their lack of basic infrastructure. Khyber Pakhtunkhwa’s Peshawar Economic Zone Office opened in 2020 an Industrial Facilitation Center to provide potential investors with a one-stop shop for existing and new foreign investors. Pakistan also intends to establish nine SEZs under CPEC. Most CPEC SEZs remain in nascent stages of development and currently lack basic infrastructure.
Apart from SEZ-related incentives, the government offers special incentives for Export-Oriented Units (EOUs) – a stand-alone industrial entity exporting 100 percent of its production. EOU incentives include duty and tax exemptions for imported machinery and raw materials, as well as the duty-free import of vehicles. EOUs are allowed to operate anywhere in the country. Pakistan provides the same investment opportunities to foreign investors and local investors.
Performance and Data Localization Requirements
Foreign businesspeople often struggle to obtain business visas for travel to Pakistan. When visas are issued, they are typically only single-entry visas with short-duration validity. Technical and managerial personnel working in sectors that are open to foreign investment are typically not required to obtain separate work permits. While Pakistan announced in 2019 its visa and no objection certification (NOC) policies would be changed to attract foreign tourists and businesspeople, the new visa policies do not apply to U.S. passport holders. In February 2021, Pakistan shifted to a 100-percent e-visa policy to facilitate business (and tourism) travel. Pakistan also started a 30-day single entry “Business Visa in Your Inbox” Electronic Travel Authorization that allows visa on arrival.
Foreign investors are allowed to sign technical agreements with local investors without disclosing proprietary information. Foreign investors are not required to use domestic content in goods or technology or hire Pakistani nationals, either as laborers or as representatives on the company’s board of directors. Likewise, there are no specific performance requirements for foreign entities operating in the country. Similarly, there are no special performance requirements on the basis of origin of the investment. However, onerous requirements exist for foreign citizen board members of Pakistani companies, including additional documents required by the SECP as well as vetting by the Ministry of Interior. Such requirements discourage foreign nationals from becoming board members of Pakistani companies.
There are currently no requirements for foreign IT providers to turn over source code or provide access to encryption. However, the Government of Pakistan has plans to introduce regulations requiring this.
Currently Pakistan does not restrict data transfer outside of the economy or country’s territory except when involving the banking industry. State Bank of Pakistan (SBP) requires financial institutions to have local data storage and any transfer of data outside of Pakistan requires formal approval from SBP.
Currently, Pakistan is in the process of approving a “personal data protection” bill and in 2020 approved the “Removal and Blocking of Unlawful Content Rules.” Each requires data localization and requires platforms with more than 500,000 Pakistani users to register with the Pakistan Telecommunication Authority (PTA) and establish a physical office in Pakistan within nine months of the implementation of the rules. Within three months of the local office’s establishment, a person must be appointed for coordination, and a data server system must be set up within 18 months. The rules are also slated to be applied to internet service providers. All companies and providers are instructed to restrict content contrary to the “security, prestige, and defense of the country.”
The government agencies involved are: the State Bank of Pakistan, the Ministry of Information Technology and Telecommunications, and the Pakistan Telecommunication Authority.
5. Protection of Property Rights
Although Pakistan’s legal system includes the enforcement of property rights and both local and foreign owner interests, it offers incomplete protection for the acquisition and disposition of real property. There is no data with respect to the percentage of land with clear title and land title issues are common. With the exception of the agricultural sector, where foreign ownership is limited to 60 percent, no specific regulations regarding the leasing of land or acquisition by foreign or non-resident investors exists. Corporate farming by foreign-controlled companies is permitted if the subsidiaries are incorporated in Pakistan. There are no limits on the size of corporate farmland holdings, and foreign companies can lease farmland for up to 50 years, with renewal options.
The 1979 Industrial Property Order safeguards industrial property in Pakistan against government use of eminent domain without sufficient compensation for both foreign and domestic investors. The 1976 Foreign Private Investment Promotion and Protection Act guarantees the remittance of profits earned through the sale or appreciation in value of property.
Though protections for legal purchasers of land are provided, even if unoccupied, land titles remains a challenge. Improvements to land titling have been made by the Punjab, Sindh, and Khyber Pakhtunkhwa provincial governments who have dedicated significant resources to digitizing land records. In the newly merged tribal districts of Khyber Pakhtunkhwa, land rights are held collectively by the tribes, not privately by individuals and there are functionally no ownership records. However, the provincial government is currently undertaking a long-term land registration process in the newly merged districts for tribally owned land.
In urban centers, undocumented possession of unoccupied land, squatting, is a continuing issue. However, if it can be proven that the land was acquired legally, government agencies are supportive of the legal owner taking possession of their property.
Intellectual Property Rights
The Government of Pakistan has identified protecting intellectual property (IP) rights as a reform priority and has taken concrete steps over the last two decades to strengthen its IP regime. In 2005, Pakistan created the Intellectual Property Office (IPO) to consolidate government control over trademarks, patents, and copyrights. IPO’s mission also includes coordinating and monitoring the enforcement and protection of IPR through law enforcement agencies. Enforcement agencies include the local police, the Federal Investigation Agency (FIA), customs officials at the FBR, the CCP, the SECP, the Drug Regulatory Authority of Pakistan (DRAP), and the Print and Electronic Media Regulatory Authority (PEMRA).
Although the creation of IPO consolidated policy-making, confusion surrounding enforcement agencies’ roles still constrains performance on IP enforcement, leaving IP rights holders struggling to elicit action to address IP infringement. Although IPO established ten enforcement coordination committees to improve IP enforcement, and has signed an MOU with the FBR, CCP, Collective Management Office, Pakistan Agricultural Research Council, and SECP to share information, the agency labors to coordinate disparate bodies under current laws. Weak penalties and the agencies’ redundancies allow counterfeiters to evade punishment, while companies struggle to identify the correct forum in which to file a complaint.
The Intellectual Property Office as an institution has historically suffered from leadership turnover, limited resources, and a lack of government attention. Since 2016, the Government of Pakistan has taken steps to improve the IPO’s effectiveness, starting with bringing IPO under the administrative responsibility of the Ministry of Commerce. The IPO Act 2012 stipulates a three-year term, 14-person policy board with at least five seats dedicated to the private sector. Section 8(2) of the IPO Act also stipulates, “the board shall meet not less than two times in a calendar year.” 2020 was a challenging year due to complications from the COVID-19 pandemic and resultant lockdowns. As a result, no policy board meeting was held during the year. IPO is severely under-resourced in human capital, currently working at only 52 percent of its approved staffing. New hiring rules await final approval from the Ministry of Law. IPO aims to start recruiting new staff once these rules are approved by the Ministry of Law.
The Intellectual Property Office is also charged with increasing public awareness of IP rights through collaboration with the private sector. COVID-19 slowed IPO’s momentum in this area with only 20 webinars and virtual interactions concluded during 2020 (down from more than 100 in 2019) – a significant portion of which focused on Pakistan’s new Geographical Indication (GI) Law. Academics and private attorneys have noted that the creation of the IPO has improved public awareness, albeit slowly. While difficult to quantify, contacts have also observed increased local demand for IPR protections, including from small businesses and startups. Private and public sector contacts highlight that the educational system is a “missing link” in IPR awareness and enforcement. Pakistani educational institutions, including law schools, have rarely included IPR issues in their curricula and do not have a culture of commercializing innovations. However, the International Islamic University now includes an IP rights-specific course in its curriculum and Lahore University of Management Sciences has content-specific courses as part of its MBA program. IPO officials have expressed interest in collaborating with Pakistani universities to increase IPR awareness. IPO is working with the Higher Education Commission to offer IPR curricula at other universities but has achieved limited traction. In collaboration with the World Intellectual Property Organization (WIPO), Technology Innovation Support Centers have been established at 47 different universities in Pakistan.
In 2016, Pakistan established three specialized IP tribunals: in Karachi covering Sindh and Balochistan, in Lahore covering Punjab, and in Islamabad covering Islamabad and Khyber Pakhtunkhwa. IPO had initiated a plan to create additional tribunals in 2019, however, the proposal is still awaiting approval from the Ministry of Law. These tribunals have not been a priority in terms of assigning judges. They have experienced high turnover, and the assigned judges do not receive any specialized technical training in IP law.
Pakistan’s IPR legal framework remains inadequate, consisting of 40-year-old subordinate IP laws on copyright, patents, and trademarks alongside the 2012 IPO Act. The IPO Act provides the overall legal basis for IP licensing and enforcement while subordinate laws apply to specific IP fields, but inconsistencies in the laws make IP enforcement difficult. Since 2000, Pakistan has made piecemeal updates to IPR laws in an incomplete bid to bring consistency to IPR treatment within the legal system. With the help of Mission Pakistan, CLDP, and the U.S. Patent and Trademark Office (USPTO), IPO is updating Pakistan’s IPR laws to minimize inconsistencies and improve enforcement, but progress has been slow.
In February 2021, Pakistan acceded to the Madrid Protocol on Trademarks.
The U.S. Mission in Pakistan, with the support of USTR, the Department of Commerce, and USPTO, has engaged with the Government of Pakistan over several years seeking resolution of long-standing software licensing and IP infringements committed by offices within the Government of Pakistan which undermine Pakistan’s credibility with respect to IP enforcement. In early 2021, several U.S. agencies, including the Commercial Law Development Program, United States Patent and Trademark Office, USAID, and the U.S. Food & Drug Administration, launched a six-month, 16-part capacity building series with Pakistani IP enforcement and relevant officials focused on curbing the flow of counterfeit pharmaceuticals within and through Pakistan. The program provides instruction on forensic tools, pharmaceutical supply chain integrity, cyber intelligence, and the identification of transnational criminal organizations exploiting trade routes. The program seeks to address intellectual property rights enforcement issues while protecting public health and safety.
Pakistan is currently on the Special 301 report Watch List.
Pakistan does not track and report on its seizures of counterfeit goods.
Resources for Intellectual Property Rights Holders:
Intellectual Property Counselor for South Asia
U.S. Patent and Trademark Office
Foreign Commercial Service
For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance and Development Finance Programs
The Development Finance Corporation is active in Pakistan with a current portfolio in excess of $400 million as of June 2020, including investments in, insurance for, or financing of microfinance, wind energy, and healthcare projects, among others, with more in the pipeline. An Investment Incentive Agreement was signed between the United States and Pakistan in 1997.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|Host Country Statistical source*||USG or international statistical source||USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other|
|Host Country Gross Domestic Product (GDP) ($M USD)||2020||$284,641||2019||$278,222||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical source*||USG or international statistical source||USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other|
|U.S. FDI in partner country ($M USD, stock positions)||2020||$106||2019||$256||USTR data available at
|Host country’s FDI in the United States ($M USD, stock positions)||2020||$9.7||2019||$154||USTR data available at
|Total inbound stock of FDI as % host GDP||2020||1.2%||2019||1.7%||UNCTAD data available at
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||34,808||100%||Total Outward||1,922||100%|
|United Kingdom||9,965||28.6%||United Arab Emirates||487||25.3%|
|The Netherlands||3,931||11.3%||United Kingdom||159||8.3%|
|United Arab Emirates||2,200||6.3%||Bahrain||151||7.9%|
|China, P.R.: Mainland||2,132||6.1%||Bermuda||130||6.8%|
|“0” reflects amounts rounded to +/- USD 500,000.|
|Portfolio Investment Assets|
|Top Five Partners (Millions, current US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||324||100%||All Countries||159||100%||All Countries||165||100%|
|Saudi Arabia||138||43%||Saudi Arabia||127||80%||United Arab Emirates||72||44%|
|United Arab Emirates||73||23%||United States||10||6%||Oman||28||17%|
|Indonesia||16||5%||British Virgin Islands||7||5%||Qatar||15||9%|