IT services company refers to the application of business and technical expertise to enable organizations in the creation, management and optimization of or access to information and business processes. The distinct categories of services include business process services, application services and infrastructure services.
The Information Technology Sector in Pakistan is a growing and developing industry that has the potential to expand more in the future. Information Technology (IT) is a broad term which can refer to the use of computers, storage, networking and other physical devices, infrastructure and processes to create, process, store, secure and exchange all forms of electronic data. The word (IT) is usually used in the context of business operations, as opposed to technology used for personal or entertainment purposes. The commercial use of IT includes both computer technology and telecommunications. This term has grown to embrace an array of technologies and related disciplines. Over time, each of these IT components and functions has become more complex, embracing ever-growing subsets of technologies and methodologies.
The IT industry in Pakistan is a booming industry in the country, with export remittances of IT and IT enabled Services (IT-eS) reached up to $1.11 billion, with a growth rate of 20.75%, contributing 1% to the GDP of Pakistan, at about $3.5 billion. The State Bank has marked the software exports in Pakistan to be currently worth $700 million. The Digital Policy 2018 and Pakistan Vision 2025, intends to boost the IT sector, by furthering its development and inclusion in the system.
In order to promote the IT Sector in Pakistan, the government has introduced several incentives, beneficial for IT and IT-eS professionals. The Government of Pakistan offers lucrative tax incentives to IT startups including zero income tax on IT and ITeS exports till June 2025 as per Clause 133 of Second Schedule of the Income Tax Ordinance 2001. Other tax exemptions are available to startups which register themselves with the Pakistan Software Export Board (PSEB), such as being exempted from tax for three years in profits and gains derived by a startup, as per Section 143 of Second Schedule of Income Tax Ordinance 2001. Other incentives given to the IT sector include:
- Exemption from sales tax on export of IT services from Islamabad and other federal territories. (FBR’s SRO 590(I)/2017 dated 01.07.2017)
- Exporters of software to retain amounts up to 35% of their export earnings in Special Exporters Foreign Currency Accounts (State Bank’s Foreign Exchange Manual, Chapter 12, Clause 12(ii))
- Establishing Software Technology Parks, providing IT enabled office space
- Allowance of up to 100% foreign ownership of IT and ITeS companies
- Allowing up to 100% repatriation of profits for foreign IT and ITeS investors
- Implementing Tax Holidays for venture capital funds (Section 101 of Second Schedule of Income Tax Ordinance 2001)
- Awarding 5% cash rewards on the net export remittances of PSEB registered IT/ITeS companies.
For the incorporation and registration of IT/ITeS companies in Pakistan, three agencies are engaged for this purpose, namely:
- Securities & Exchange Commission of Pakistan (SECP)
- Federal Board of Revenue (FBR)
- Pakistan Software Export Board (PSEB)
REGISTRATION WITH SECP
The SECP is a regulator granted with the mandate to regulate the corporate sector and thereby specifically handles the object of incorporation of all public and private companies. The incorporation procedure is divided into three steps:
RESERVATION OF NAME
The first step towards the incorporation of a company is to reserve a suitable name subject to Section 10 of the Companies Act 2017. Three proposed names which fulfill the criteria provided are to be specified for approval. Such reservation can either be made by a separate application or the same can be made alongside the application for incorporation. No extra fee is chargeable for reserving a name alongside the application for incorporation of company. However, for a separate application, a fee of rupees 200/- is chargeable for an e-application and for a physical application a fee of rupees 500/- is chargeable.
After the submission of the application and due fees, the registrar will examine the names provided, and if they fulfill the criteria provided, will issue a certificate for reservation of name for up to 60 days, within which the application for incorporation of company is to be made.
APPLICATION FOR INCORPORATION
As previously stated, an application for incorporation of company can either be separate or alongside application for reservation of name. Fee for incorporation is in accordance to the type, capital and size of the company, in accordance to Seventh Schedule of the Companies Act 2017. Such application is to be accompanied by the following documents:
- Memorandum of Association duly signed by the subscribers. In case of physical submission, it shall be duly stamped under Stamp Act, 1877;
- Articles of Association duly signed by the subscribers;
- Copies of NIC/NICOP of the subscribers / directors / chief executive officers;
- Copy of NIC of witness in case of physical filing of application;
- Duly stamped authority letter of subscriber or intermediary authorizing him to file documents for incorporation for a physical submission; and
- Original paid bank challan in case of physical submission.
For an online application, all relevant documents are to be scanned and uploaded except for the memorandum and articles which will be generated online.
ISSUANCE OF INCORPORATION CERTIFICATE
Once all the relevant documents have been submitted to the registrar, he shall examine the same and determine if all relevant documents are complete and all requirements have been complied with. Once the registrar is satisfied, he shall register the memorandum and other documents, and will issue a certificate for incorporation of company under his signatures and authenticated by his official seal.
REGISTRATION WITH FEDERAL BOARD OF REVENUE (FBR)
Previously a separate application had to be made to the FBR for issuance of BNTN number, however the SECP has introduced a one window facility, whereby which the data collected by the SECP is sent to the FBR for registration of NTN number.
REGISTRATION WITH PAKISTAN SOFTWARE EXPORT BOARD (PSEB)
Although registration of an IT/ITeS company with the PSEB is optional, but it is necessary to avail the tax exemptions listed above. The registration process entails creating a login at the PSEB website and filling and submitting the online registration form with the necessary documentary requirements, for initial PSEB approval.
After obtaining the PSEB approval, the requisite fee and payment receipts are to be uploaded and submitted for final approval. Once the payment is verified, a PSEB registration certificate is issued. The necessary document required for the registration process includes:
- Business NTN
- CNIC of all Directors / Proprietors (Passport Copies for Foreign Nationals)
- Attested copies of Memorandum & Articles of Association
- Attested Copy of Form 29
- Attested Copy of Incorporation Certificate
- Business Bank Statement of the preceding six months or a Business Bank Account Letter / Certificate in case of a new account
The requisite fees for the registration process is as following:
NEW COMPANY REGISTRATION CHARGES
|01||Registration fee for IT/ITeS companies operating from Karachi, Lahore, Islamabad, Rawalpindi, Peshawar, Faisalabad and Sialkot||Rs.10,000|
|02||Registration fee for IT & ITeS Companies operating from cities other than Karachi, Lahore, Islamabad, Rawalpindi, Peshawar, Faisalabad and Sialkot. Offer valid till 30th June, 2021||Nil|
|03||Registration fee for IT Startup (established within past12 months) operating from Karachi, Lahore, Islamabad, Rawalpindi and Peshawar||Rs.5,000|
|04||Registration fee for IT Startup (established within past 12 months) operating from established public/private Incubators in Karachi, Lahore, Islamabad, Rawalpindi and Peshawar. Offer valid till 30th June, 2021||Rs.1,000|
|05||Registration fee for IT Startups (established within past 12 months) operating from cities other than Karachi, Lahore, Islamabad, Rawalpindi and Peshawar. Offer valid till 30th June, 2021||Nil|
Table: Company Registration Charges