SBP amends rules to facilitate cross-border payments

KARACHI: The State Bank of Pakistan (SBP) on Thursday notified revision in the foreign exchange instructions pertaining to commercial remittances with the objective of promoting ease of doing business and facilitating legitimate cross-border commercial payments on account of services.

The SBP has revised the policy on remittance of RFT fees. The banks have been delegated the authority to register the agreements of parties and to allow remittances of RFT fees under the revised policy.

The threshold for remittance of such fee has been revised upwards to cater to the needs of the business community. Now, the entities belonging to the manufacturing sector, through their designated bank, can remit $1 million as upfront payment and up to 8 per cent of the 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 the foreign counterparts, can remit recurring royalty payment of up to 10 per cent of the net export sales, i.e., excluding taxes and cost of imported components.

In view of the 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/annum.

Further, for acquiring digital services from the companies not included in the list, the per annum limit of remittances has also been increased from $25,000 to $40,000.

Moreover, to facilitate businesses in acquiring services from abroad, apart from digital service providers, the central bank has enhanced the threshold from $10,000 to $25,000 up to which the banks can process the request for acquiring services from abroad.

Beyond this limit, the remittances can be made after getting the agreement registered with the Foreign Exchange Operations Department (FEOD) of the SBP-Banking Services Corporation (BSC).

To facilitate the branches of foreign companies in remitting legitimate payments such as profit, head office expenses and winding up proceeds, the SBP has made changes in the existing regulations and authorised banks to allow such remittances with minimum involvement of the State Bank.

The branches of foreign companies working in Pakistan and intending to remit profit/head office expenses/winding up proceeds, would 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, the companies are increasingly restructuring their business processes by outsourcing their supporting (non-core/shared service) functions to the related or third parties abroad.

Accordingly, to cater to the demands of such companies, the SBP has introduced foreign exchange regulations on Business Process Outsourcing for non-core activities.

Now the resident companies intending to outsource non-critical/non-core business processes to foreign entities can approach FEOD, SBP-BSC, through a bank, for the acknowledgment of underlying agreement based on the guidelines.

After obtaining acknowledgment, the designated bank can effect remittance as per the 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 at harmonising the foreign exchange regime with the current business environment.

The banks have been delegated to process such payments up to a certain threshold under the newly-introduced policy.

With the intention to facilitate the business community of Pakistan in making the payment of charter cost directly to the owner of ship/aircraft, the SBP has revised the regulations and the banks have been authorised to process such payments without prior regulatory approval of the SBP.

It is envisaged that the abovementioned facilitative measures will help the business community of Pakistan grow their businesses.