State Bank of Pakistan

Circulars/Notifications - Exchange Policy Department

F.E. Circular No. 03

March 24, 2001

All Authorised Dealers in Foreign Exchange

Dear Sirs,

PAYMENT OF ROYALTY/FRANCHISE AND TECHNICAL FEE BY THE NON-MANUFACTURING FIRMS/COMPANIES

Attention of all Authorised Dealers is invited to Para 10 Chapter XIV of the Foreign Exchange Manual containing the definition and procedure for payment of Royalty and Technical Fee in the manufacturing section.

2. It has now been decided that remittance of Royalty/Franchise and Technical Fee or service Charges may be allowed in the newly opened sectors for Foreign Direct Investment (FDI) as per Government's Investment Policy i.e. Agriculture, Social Infrastructure and service projects including international food chains subject to certain guidelines Accordingly Para 10 of Chapter XIV of Foreign Exchange Manual is amended as under :-

A. The caption of Para 10 may be changed as "Remittance of Royalty/Franchise and Technical Fees"

B. The words "in the Manufacturing sector" may be inserted after the word "Fee" in the first line of Para 10(a) (I).

C. The Following Para may be inserted after Para 10(a)(I) as Para 10(a)(II) and the existing Para 10(a)(II) and 10(a)(III) may be renumbered as 10(a)(III) and 10(a)(IV) respectively :-

"Para 10(a)(II):
The remittance of Royalty/Franchise and Technical Fee or Service Charges in Agriculture, Social Infrastructure and Service Sector projects including international food chains may be allowed according to the following guidelines :-

i. The initial lump sum fee payable to the foreign investor/the party providing technical expertise and/or allowing use of their brand name, should not exceed US$ 100,000/- irrespective of number of outlets under on franchise.

ii. A maximum of 5% remittance of net sales excluding 15% sales tax) in the food sector may be allowed as Franchise Fee only for those items which are core items of the franchise and are the specialties of the trade name. The payment of such fees be allowed on monthly basis. No item will be eligible for twice payment of Royalty/Franchise Fee. In other words, the payment of Royalty Franchise Fee shall not be admissible for those items whose franchise is not held by the food chains and/or which are sold under some other brand name e.g. soft drinks etc.

iii. Percentage/amount of fees etc for other non-manufacturing Projects may also be upto the maximum of 5% of not sales (excluding 15% sales tax).

iv. Initial period for which fees be allowed to projects in non-manufacturing sectors including international food chains should not exceed 5 years. Subsequent extension in time period will be considered and allowed by the Government/State Bank of Pakistan provided these projects also make investment in allied upstream projects"

D. The words "as under Para 10(a)(I) or operating in the non manufacturing sectors as under Para 10(a)(II) above may be added after the words "engaged in manufacturing" in the 2nd & 3rd line of the renumbered Para 10(a)(III).

E. The words "Royalty/Technical /Fee" or Royalty and Technical Fee" wherever appearing in the renumbered Para 10(a)(III), 10(a)(IV) 10(b), Appendix V-58 and Annexure "A" to F,E,Circular No.20 of 1996 may be replaced with the words "Royalty/Franchise and Technical Fees"

Yours faithfully,
(M. R. MEHKARI)
Director