C101 UPDATED

Date 23rd December,1992

F.E Circular No.101

All Authorized Dealers in
Foreign Exchange

Dear Sirs,

AGREEMENTS FOR TRANSFER OF TECHNOLOGY
PAYMENT OF ROYALTY/TECHNICAL FEE TO THE
FOREIGN COLLABORATORS:

In suppression of the instructions circulated vide F.E. Circular No.16 of 1992, it has since been decided by the Government to abolish the 'Guidelines for Agreements for Transfer of Technology' enclosed therewith.

2. Accordingly, paragraph 10 (a), Chapter XIV of the Foreign Exchange Manual, 1987 has been revised as follows:-

"10 (a) I. Royalty and Technical Fee has been defined as under:-

Definition of Royalty: Royalty is a fee paid by a local firm to the foreign collaborator in consideration of:-
"License to use the foreign manufacturers’ patent/brand name for marketing the product(s)".

Definition of Technical Fee: It is a fee paid by the local firm to the foreign collaborator in consideration of:-

"i) Engineering and Technical Services including assistance on manufacturing process, testing and quality control, assistance by way of making available patented process and/or secret know-how and rights to avail of the Technical/confidential information resulting form continuous technical research and development etc; and

ii) Technical training of local personnel".

Note:
No technical fee shall be allowed for simple conventional process goods, which are being produced in the country without foreign technical collaboration.

Upon execution of an agreement for transfer of technology with foreign collaborator, the local firm engaged in manufacturing will designate any of the Authorized Dealers. (Banks) in foreign exchange in Pakistan through whom payments under the agreement will be made and send an authenticated copy of the agreement to the State Bank of Pakistan, Foreign Exchange Department (Investment Division), Central Directorate, Karachi through the designated bank within 30 days from the date of its execution. The State Bank will record the agreement if it conforms to the foregoing definitions of Royalty/Technical Fee and send an acknowledgement or return it if the same is not in accord therewith.
Remittance of Royalty/Technical Fee may be allowed by the Authorized Dealer designated for the purpose, without the prior approval of the State Bank subject to the following:-

Application for remittance of Royalty/Technical Fee is submitted by the firm concerned in the prescribed form (Appendix V-52) in duplicate alongwith a copy of the acknowledgement letter issued by the State Bank.

The correctness of the information furnished in the application (Appendix V-52) must be certified by the Auditors of the firm in the space provided for the purpose. An additional statement showing calculation of Royalty/Technical Fee duly certified by the Auditors should also be enclosed with the application.

Payment of income tax supported by a certificate from the auditors of the paying firm. In case it is claimed that the amount of Royalty / Technical Fee is exempt from levy of Pakistan taxes, the applicant should invariably produce a certificate to this effect from the competent tax authority and the said certificate should be enclosed in original with the prescribed application to be sent alongwith other relevant documents while reporting the transaction to the Foreign Exchange Department

The applicant company must be incorporated and operating in Pakistan.

Please note Appendix V-52 is referring to the Sixth Edition (1987) of the Foreign Exchange Manual. In the revised Seventh Edition (1992) of the F.E. Manual, this particular Appendix has been renumbered to Appendix V-58. The Corrected Appendix is hyperlinked/used in the Updated F.E. Manual.

3. Authorized Dealers may continue to allow remittance of Royalty / Technical Fee in respect of agreements already registered with the State Bank / approved by the Government strictly in accordance with the terms of their registration/approval.

4. Please bring the above to the notice of your constituents concerned.