Pakistan is a growing economy with multiple business opportunities in the field of agriculture, services, aviation, export-import, etc. If you want to venture out and use these opportunities, you can set up a subsidiary business in Pakistan.
The country’s GDP stands at $376.493 billion and is ranked 42nd among all the nations. The economy of the country is growing at 6%. Pakistan has a semi-industrial economy, and several companies are in the export business. The primary commodities exported from Pakistan are textiles, leather, chemicals, etc.
Pakistan is undergoing a transformation where several governments or publicly owned companies are turning into private ones. Hence, there is a huge opportunity for foreign companies looking for an expansion or locations for their new subsidiaries. The country ranks 108 out of 190 economies per the World Bank’s Ease of Doing Business Report 2020 regarding starting a business and protecting minor investors.
Pakistan has a sizable youth population that can contribute to the growth of several companies. Read on to learn about the incorporation of foreign subsidiary in Pakistan so that you can set up your business without any hassle.
What are the Types of Subsidiaries in Pakistan?
Some of the popular kinds of subsidiaries to incorporate in Pakistan are as follows:
Private limited companies
A private limited company is a commonly incorporated type of company in Pakistan. Here, the liability of the shareholders is limited to their share of capital brought into the company.
- A private limited company’s name ends with Pvt. Ltd. or Private Limited.
- A minimum of 2 shareholders is needed to start a private limited company. The maximum number of shareholders can go up to 50.
- Having a local resident as a director or shareholder is not mandatory in Pakistan.
- All shareholders must bring in the minimum share capital of PKR 1. However, the government recommends having a minimum share capital of PKR 100,000.
- The director of the company must be chosen from among the shareholders.
- All private limited companies must register their business with Pakistan’s Securities & Exchange Commission.
Public limited companies
Public limited companies are another standard LLC in Pakistan. These companies are listed on the stock exchange, and the shares of these companies are publicly traded.
- Every public limited company should end with the words Ltd. or Limited.
- Registering all public limited companies with the Securities and Exchange Commission of Pakistan is mandatory.
- All public limited companies must have a minimum of three directors and three shareholders.
- There are no minimum capital requirements to incorporate a public limited company. However, the government recommends bringing in PKR 100,000.
Limited liability partnership
Partnerships are an important kind of subsidiary business in Pakistan. Both limited and unlimited partnerships can be incorporated in Pakistan.
- Having a partnership contract in place is mandatory in Pakistan. This contract can be oral or written as per the mutual agreement between the partners.
- At least two people must join to start a partnership in Pakistan. A maximum of 10 partners are permitted in a banking business and 20 partners in any other business.
- There are no minimum capital requirements for a partnership business in Pakistan. However, as the partnership agreement states, the partners must bring in the capital.
- All partners can transfer their shares to another partner if they are on board.
In the case of an unlimited company, the members are held accountable for any losses and liabilities of the company.
- As per the law, a minimum of 2 members is required to start a private unlimited company. The number increases to 3 if you are opening an unlimited public company.
- The liability of all the members who come together to incorporate the company is unlimited.
- The name of any unlimited company must end with the word ‘Unlimited’.
How to Set Up Subsidiaries in Pakistan?
You can consider the following steps while setting up a subsidiary in Pakistan:
Step 1: Decide on the company name
- You must fill out the Name Reservation Application by suggesting three names for your business in order of priority.
- You can search on the SECP to ensure that the names you suggest are available. Using the same or identical company name as an existing company is illegal under the Companies Act.
- The company must pay a fee of PKR 500 along with the Name Reservation Application.
- Once you submit the form, the Company Registration Office (CRO) reviews it. If approved, you will receive a letter of name availability. 6
Step 2: Fill out the incorporation application
- Once you receive the letter of name availability, you must complete the incorporation application in the next 60 days.
- You can complete the form online or offline, adhering to the Inc. Form II of the Incorporation Regulations.
- The incorporation form must have the number of directors and the appointed chief executive officer.
Step 3: Submit the important documents
- You need to submit all the documents in line with the Incorporation Regulations. If registering the company online, you must submit scanned copies of all the documents on the SECP’s website.
- Once you submit all the documents, the CRO will verify them and examine the incorporation form.
- The CRO will register the submitted documents if it approves all submissions.
Once the CRO registers the Memorandum of Association, it will grant a certificate of incorporation. The company must also open a bank account in Pakistan to make all kinds of transactions and process the payroll of all employees.
Benefits of Setting Up a Pakistan Subsidiary
There are numerous benefits to starting a subsidiary business in Pakistan. Some of these benefits include the following:
- Most subsidiaries have no restrictions on the nationality of the shareholders and the directors. Hence, foreign nationals can easily register a subsidiary in Pakistan.
- Pakistan has improved its ranking in the ease of doing business index by 39 positions in the last two years. Hence, setting up a subsidiary business in Pakistan is getting easier.
- The steps of incorporating a subsidiary in Pakistan are easy to understand. Hence, any company can set up a subsidiary business in the country.
- Once you set up a subsidiary, you can legally run your countrywide operations. You can even get into the export business and supply to other countries.
- Pakistan is close to some of the most prominent countries like India, China, etc. Hence, with a subsidiary in Pakistan, you can expand your scale of operations to these nations too.
- A subsidiary company formation in Pakistan gets the same treatment as all the other companies operating in Pakistan. Hence, the subsidiary employees enjoy the same rights as all other companies.
- Most subsidiary businesses have a minimum capital requirement of PKR 1. Hence, setting up a subsidiary in Pakistan is a relatively inexpensive affair.
Documents to Prepare When Forming a Subsidiary in Pakistan
Before you begin the company’s incorporation, you must collect some essential documents. Some of these documents include the following:
- Duly signed Memorandum and Articles of Association by all the subscribers.
- A copy of the letter of name availability issued by the SECP.
- Copies of National Identity Cards or Passports for all the subscribers, directors, and the Chief Executive Officer of the company.
- A copy of a valid National Identity Card of the witness who oversees the document submission.
- A letter of authorization allows the person to complete all the forms and submit all the documents on the company’s behalf.
- In the case of specialized businesses, a no-objection certificate or a letter of intent is mandatory.
- Proof of payment of fee as per the Seventh Schedule of the Companies Act, like a bank challan
- All the details of the parent company, like the profile, directors’ nationality and origin information, certified copies of the memorandum of association, and any other documents as recommended by the SECP.
You must submit all of these documents to the Securities and Exchange Commission of Pakistan to ensure that the company gets incorporated smoothly. You must also register the business with the tax authorities to ensure that the tax payments are made on time.
What Business Forms can Pakistan Subsidiaries Take?
Based on the business requirements and financial constraints, you can incorporate different types of companies in Pakistan. You can open a wholly-owned or partially-owned subsidiary business in Pakistan without hassle. In a partially-owned subsidiary, the company can have multiple foreign founders.
Limited liability companies, both public and private, are pretty common in Pakistan. These companies are easy to incorporate and separate from their shareholders and directors as they are legal entities. However, there are other forms of subsidiaries too that you can consider that are tailor-made to meet your business requirements in Pakistan.
Pakistan Subsidiary Laws
Following the Pakistani government’s mandated subsidiary regulations is essential while opening a subsidiary in Pakistan. These regulations help you meet all the employees’ requirements and adhere to the laws that protect their rights.
The Incorporation Certificate must be obtained before a company may register with the nation’s tax authorities. You must get all the required certificates once the incorporation process is complete. The Companies Act of Pakistan applies to all the subsidiaries formed or incorporated in Pakistan. The laws in the nation where your parent firm is headquartered are therefore irrelevant.
You must also open a bank account to conduct all business and payroll-related transactions. As the law requires, you must pay your staff and all the stakeholders in local currency. The minimum share capital and shareholder regulations must also be followed.
You must duly meet the compliance for a foreign subsidiary in Pakistan once you establish a subsidiary in the country. Some requirements include the following:
- You must pay all the direct and indirect taxes annually on behalf of all the employees.
- Appoint an auditor.
- The duties of the directors and the chief executive officer must be laid down and duly followed.
- You must conduct an annual general meeting and have the meeting minutes at your disposal.
- The company’s annual financial statements must be submitted to Pakistan’s Securities and Exchange Commission.
- The company must appoint a legal advisor if the paid-up capital is at least PKR 5 lakhs.
- C must submit all the post-incorporation details in Form 29 within 14 days of appointing the CEO, legal advisor, auditor, etc.
Taxes on Subsidiaries in Pakistan
All subsidiary businesses in Pakistan must pay a tax on the revenue generated from their regular business activities. These are taxed on their worldwide income.
The tax rate for a banking subsidiary in Pakistan stands at 39%. For all the other companies, the tax rate stands at 29%. If a subsidiary business is considered a small company, the tax rate for these companies is 20%. The subsidiaries also pay a super tax if their income exceeds PKR 150 million. The slab for the super tax is as follows:
Super Tax Rate
PKR 150 million – PKR 200 million
PKR 200 million – PKR 250 million
PKR 250 million – PKR 300 million
>PKR 300 million
All banking companies must pay a super tax of 4%, irrespective of the slab they fall under.
Tax Incentives for Businesses Opening a Subsidiary in Pakistan
Pakistan charges a corporate income tax on all its subsidiaries but has double tax treaties with several countries to avoid double taxation on their worldwide income. Also, small and women-led enterprises enjoy several tax benefits when they open up a subsidiary in Pakistan.
Other Important Considerations
It takes time to set up a subsidiary in Pakistan. You must take a few weeks off to focus on the company’s expansion. You must also travel to and fro to fulfill all legal obligations. If your parent company keeps you busy, you can delegate the duty to another business executive or, if you choose, work alongside them.
Additionally, you must complete every step of establishing a subsidiary company in Pakistan with a set budget. Therefore, set a budget before incorporating a foreign subsidiary in Pakistan because it will help you stay in control.
How Can Multiplier’s Employer of Record Help You Hire and Expand in Pakistan?
Planning to open any business, be it domestic or international, takes time and money. When you start incorporating a subsidiary online, you might need help sticking to all the labor laws and regional regulations.
Why not use a service company like Multiplier to assist your company in overcoming this growth barrier?
Multiplier takes care of all the formalities in entering a new market, so you don’t need to worry. You can collaborate with Multiplier, who has domestic and international expertise and will ensure that all Pakistani labor laws and conventions are strictly adhered to. With an EOR like Multiplier, you can quickly create international teams and use new market opportunities.