All Authorized Dealers
In Foreign Exchange,

Dear Sirs,

FOREIGN CURRENCY ACCOUNTS

Please refer to the instruction conveyed vide F.E. Circular No. 12 dated 29^th May, 1998 on the captioned subject. The position has been reviewed and the following modifications have been made, which are applicable both to foreign currency accounts and certificates of investment:-

1. There are no restrictions on opening of new foreign currency accounts by persons other than those mentioned in sub-para (i) of paragraph 1 of F.E. Circular No. 12 of 1998.

2. No fresh credit, except in respect of interest / profit accruing on existing deposits, can be made in respect of the accounts mentioned in sub-para (i) of paragraph 1 of F.E. Circular No. 12 of 1998 i.e. accounts of persons resident in Pakistan, and firms and companies functioning in Pakistan including foreign controlled companies (which includes branches of foreign companies).

3. The reference to 'non-resident' employees of the diplomatic missions accredited to Pakistan, vide paragraph 4 of F.E. Circular No. 12, relates to the diplomatic officers who are permitted under the foreign exchange regulations to maintain foreign currency accounts.

4. The relaxation made in respect of foreign currency accounts of international organizations includes the United Nations and its agencies. The reference to the non-resident employees of international organizations relates to the foreign nationals employed by them. The foreign currency accounts maintained by the British Council, JICA, CIDA, ICRC, SDC and the schools run by the Foreign Missions in Pakistan (viz. American School) are also exempt from the restrictions imposed vide F.E. Circular No. 12 of 1998.

5. Those deposits which cannot be withdrawn under our instructions or, where there is no restriction, are not withdraw, may be rolled over by the banks / NBFIs in consultation with the account-holders. The State Bank will continue to provide forward cover on payment of the prescribed fee.

6. In respect of those foreign currency accounts which are not permitted to receive further credits (except interest profits), the items in transit, which had originated from abroad upto 29^th May, 1998 may be allowed to be credited, provided the amounts do not represent export proceeds or foreign exchange which was otherwise required to be surrendered to an Authorised Dealer, and forward cover obtained in the prescribed manner.

7. It would be in order to allow change of the currency of a deposit from one foreign currency to another foreign currency, if so desired by the account-holder.

8. The restrictions placed on receipt of funds in foreign currency accounts, do not apply to the funds received under the National Debt Repayment Programme.

9. The status of a foreign currency account cannot be changed from 'resident' to 'non-resident'.

2. It has also been decided to allow deposits into and withdrawals from the foreign currency accounts of the following:-

1. Foreign contractors who are working in Pakistan under contract and who are meeting their operational expenses either from the foreign currency brought / received by them from abroad or paid to them by the contracting public sector agencies in Pakistan, and the foreign sub-contractors of such contractors.

2. Oil / Gas exploration companies and mineral companies, who finance their activities in Pakistan out of remittances received from abroad and / or foreign currency payable to them by a public sector organization in Pakistan, or foreign currency received for oil/gas supplied by them.

3. Representative / Liaison offices of foreign companies which meet their expenses out of remittances received from abroad.

4. Exporters, opened in terms of the instructions contained in paragraph 29, Chapter XII of the Foreign Exchange Manual, to the extent of crediting the amounts of commission / differential and their use for promotional publicity, collection of commercial intelligence, purchase of designs / patterns, market studies, bonafide export claims and shortfall in realization of export proceeds.

5. Exporters, opened in terms of paragraph 7 of F.E. Circular No. 24 of 1995, of the temporary credit of export proceeds of consignments for which they had obtained foreign currency loans, pending maturity of the loan.

Any payment made from the above types of accounts to Pakistan national living in Pakistan or to firms / companies having rendered services in Pakistan shall, however, be made in Pakistan rupee at the Authorised Dealers TT buying rate (and not @ Rs. 46 to a dollar). Oil / Gas / Mineral exploration companies may, however, make payment in foreign currency to the firms of foreign origin if there is a contractual obligation in this regard, which should be verified by the Authorised Dealers before allowing payment.

3. Withdrawals from the accounts of foreign nationals working in Pakistan who wish to withdraw reasonable amounts for meeting their expenses in Pakistan and commitments at home or who are leaving the country will be considered by the State Bank on case to case basis. This facility may be considered on the basis of a certificate to be given by their employers.

4. In partial modification of the instructions issued vide F.E. Circular No. 14 of 1998, it would be permissible for the Authorised Dealers to allow withdrawals from a foreign currency account of a foreign importer for payment in rupees (at the Authorised Dealers' buying rate) of the proceeds of goods exported to him from Pakistan, provided the name of the account-holder and the consignee, as declared on the 'E' form, is the same.

5. It is clarified that the special rate of exchange of Rs. 46 to a dollar applies to those holders of foreign currency accounts, whether maintained by residents or non-residents, who will convert them into rupees before 1^st September, 1998. These accounts will enjoy the following as announced by the Government:

5. Exemption from probe by tax authorities.

6. Banking confidentiality;

7. Exemption from wealth tax for six (6) years according to details to be announced subsequently by Central Board of Revenue; and

8. Exemption from income tax on the interest or profit earned on the dollar accounts before conversion.

Foreign currency deposits having specified maturates which extend beyond August 31, 1998 can also be converted into rupees on any earlier date. Authorised Dealer will allow such premature withdrawals / encasement. In such an eventuality the depositor will receive a lower profit according to established banking practice.

6. Inquiries are being received whether the Authorised Dealers may issue enactment certificates in those cases where the account-holders withdraw amounts from their foreign currency funds in rupees. It is advised that there is no objection to encasement certificates being issued in such cases, for the actual amounts of foreign currency debited and the actual amounts of rupees paid.

7. Application in respect of withdrawals by foreign nationals, as mentioned in paragraph 3, and any other hardship case not covered by this circular, may be referred by the Authorised Dealer maintaining the account, or by their Head Office / Principal Office in Pakistan to the Additional Director, Foreign Exchange Department, State Bank of Pakistan, Central Directorate, Karachi (Fax No. 2422083)