Incorporating a Company in Pakistan

June 9, 2008

(This is not a legal opinion. Please contact Al Latif Law Corporate Legal Consultants at 92 300 555 2232 for more information)
Step1.

Seek the availability of a name proposed for the company from the Registrar of Companies.

Time to complete:
1 day
Cost to complete:
PKR 200

The company may propose one or more names, in order of preference. The name should not be inappropriate, deceptive, or designed to exploit or offend any religion. It should neither be identical to nor have any close resemblance to any existing company name. The availability of the name can be checked online by searching existing company names. Certain guidelines prohibit the association of the company name with state sponsorship with the national leaders and the like. The official confirmation (or denial) of the name availability is received by email in 24 hours. This confirmation satisfies name search requirements if the name search fee of PKR 200 is paid into the bank account of the regulatory authority.

Step 2.

Pay the fee for procedures 1, 3, and 4, and obtain bank receipt/ copy of treasury challans

Time to complete:
1 day
Cost to complete:
no charge

 The company pays stamp duty to the provincial government. A copy of the original treasury challan in the amount of the registration and filing fee must be deposited with the Habib Bank Ltd. or the State Bank of Pakistan. The amount is payable under the following headings and account numbers at the stated banks: – Account 1200000, Receipts from civil administration and other functions. – Account 1210000, Receipts from general administration. – Account 1213400, Economic regulations (receipts under the companies ordinance). The company picks up the treasury challan forms at the bank counter and completes them for payment purposes, pays the amount due to the official accounts, and obtains a copy of the form. The bank sends another copy to the relevant departments.

Step 3.

Obtain stamp paper on which the Declaration of Compliance will be drafted

Time to complete:
1 day
Cost to complete:
PKR 100

Formerly, the original copy of the memorandum and articles of association had to be stamped according to the Stamp Act of the relevant province of Pakistan in which the company proposed to be registered. Stamp duties vary from province to province. The Stamp Act prescribes the adhesive stamps to be affixed to the first page of the documents before they are executed. The unsigned copy of the memorandum and articles of association is submitted to the Stamp Office of the relevant provincial government agency with the proof of payment to the Treasury bank account. The documents are returned, duly stamped, the same afternoon. The following fees are paid in Sindh: – Memorandum of association without articles of association: PKR 2,000. – Memorandum of association with articles of association: PKR 1,000 if authorized capital is less than PKR 500,000; PKR 2,000 if authorized capital is more than 500,000: Under the Sindh Finance Act, 2006, since July 2006 the rates of stamp duty for the memorandum and articles of association for the Provinces of Punjab, Sindh, Balauchistan, and the Northwest Frontier Provice have been rescinded. However, under the Stamp Act, the fee of PKR 100 for the declaration of compliance on nonjudicial stamp paper still applies.

Step 4.

Register the company at the Registrar of Companies.

Time to complete:
3 days
Cost to complete:
registration fee + PKR 200, filing fee per document, 4 documents + PKR 50 for the Certificate of Registration

The following company incorporation documents are required for a private company: – Form-1, Declaration of compliance. – Form-21, Identifying the location of the office. – Form-29, Particulars of directors, secretary, chief accountant, auditors, and others. Note: Form 1 is to be signed by (a) an advocate entitled to appear before any High Court in Pakistan or the Supreme Court; (b) a qualified chartered accountant (member of ICAP or ICMAP) practicing in Pakistan, or (c) a person named in the articles of association as a director or other officer. Also to be submitted with these documents are the subcriber’s national identity card and four copies of the memorandum and articles of association, with the signature of each member (in presence of a witness) and with a special stamp affixed. It is not mandatory to hire a lawyer or accountant to incorporate a company, but doing so is generally preferred for ease of accomplishment. Any initial subscriber to the memorandum of association has to declare that all the formalities of company incorporation are completed before the certificate of incorporation is issued. The fee of incorporation was reduced recently. Fee schedule for company registration: – Nominal share capital under or at PKR 100,000: fee is PKR 2,500. – Nominal share capital over PKR 100,000: fee is PKR 2,500, along with an additional fee to be determined based on every PKR 100,000, or part thereof, of nominal share capital. The additional fee is PKR 500 for the first PKR 100,000 up to PKR 5,000,000 and PKR 250 after the first PKR 5,000,000. In any case, the total company registration fee must not exceed PKR 10 million.

Step 5.
Make a company seal
Time to complete:
2 days
Cost to complete:
PKR 1000

The company seal is prepared after the certificate of incorporation is obtained. It is affixed on significant documents according to the provisions of the articles of association.

Step6.
Apply for a national tax number (NTN) and register for income tax.
Time to complete:
2 days
Cost to complete:
no charge

Companies can check the status of their national tax number (NTN) within 24 hours of application. Since 2002, NTN are issued with a continuous valid term. Companies no longer need to renew their NTN. Income tax is paid on filing the return, which is due in 6 months from the end of the company’s financial year (usually in June). In addition, the Income Tax Department charges a fee of 2.5% for the workers welfare fund at the time of its income tax assessment. The company is also supposed to act as a tax withholding agent for the state and deduct and deposit tax on most payments made in connection with its business activities. For this purposes, the company must file monthly returns with the tax authorities. Every company must obtain the NTN by providing proof of registration, the memorandum and articles of association, the bank account number, the NTN of its directors, and an attestation of the registered business address. All required documents must be submitted to a station by a Class-I of Gazette Officer or an officer of a bank. A company can start its business activities without first obtaining the NTN, but the number is generally required by all the registering authorities: Chambers of Commerce, the Import-Export Regulatory Authority, the utility authority, and the like. The NTN branch (centralized for the entire country) at Islamabad allots a uniform number. The required form, along with the duly-verified documents must be submitted to the same NTN Center after the company is incorporated. The center quickly processes the application and issues the NTN in a week. The certificate is sent to the applicant’s registered address. If it is not delivered at the postal address, it can be obtained from the NTN center over the phone, and its status is communicated instantly. If undelivered, the NTN certificate can be collected from the specified office of the Central Board of Revenue (distinct from the NTN Center).

Step 7.
Register for sales tax
Time to complete:
12 days
Cost to complete:
no charge

The Central Board of Revenue (CBR) has simplified the registration process for sales tax by providing two methods to file Form ST-1: 1) Complete Form ST-1 and file it by courier with the registration wing of the Sales Tax Directorate. Application forms may be downloaded at http://www.cbr.gov.pk. 2) Complete Form ST-1 at a local registration office. The form is available at all facilitation counters of local registration offices. To ensure that applicants can monitor the process, applications must be sent by mail with acknowledgment of return receipt due. The same procedure must be followed for deregistration (Form ST-3) and for change of registration (Form ST-2). The local registration office sends the completed application forms to the Central Registration Office in the CBR. Note that the forms must be completed in capital letters with black ink. In either case, there is no need to enclose additional documents with the application form. The Central Registration Office, with online access to the NTN database and the National Database and Registration Authority(NADRA) database, must verify the details the application with database. On verification, the Central Registration Office must generate and issue a registration certificate to the applicant. The system was designed so that it can correct minor mistakes automatically without bothering the taxpayers. Registration status may be checked online at www.cbr.gov.pk.

Step 8.
Register for the Professional Tax with the local tax authority
Time to complete:
7 days (simultaneous with the previous procedure)
Cost to complete:
no charge

In practice, taxpayers do not usually register for the tax voluntarily unless the tax authority prompts them to do so. Companies are not charged local taxes except for professional taxes. A manufacturer owning fixed assets might have to pay certain local levies on its fixed assets. There is no registration for the latter. Professional tax is an annual tax and is paid irrespective of paid up capital or turnover in smaller companies. The department generally obtains the list from the Registrar for the issuance of payment challans. Before a challan is issued, a pro forma notice is served to the company, asking for details used for the assessment. There are no registration fees for the professional tax, which is not deducted at the source but rather paid into the bank account of the concerned department after assessment and issuance of the challan.

Step 9.
Register with the Employee Social Security Institution
Time to complete:
11 days (simultaneous with the previous procedure)
Cost to complete:
no charge

Employment tax or social security registration is not mandatory but is subject to notification in the Official Gazette. The Social Security Institute (SSI) is managed by the provincial government and levies employers, whether incorporated or not, at 7% of wages, up to PKR 3,000 per month. According to the Workers’ Children (Education) Ordinance of 1972 if at any one time during a year an employer employs 10 or more employees, it must pay to the provincial government an education cess of PKR 100 per worker per year. The levy is used to provide free education for two children of every worker employed by the company.

Step 10.

Register for old age benefits with Employees Old-Age Benefits Institution (EOBI).
Time to complete:
11 days (simultaneous with the previous procedure)
Cost to complete:
no charge

The provisions of the Employees’ Old-Age Benefits Act, 1976, automatically apply to every industry or company in which 10 or more persons are employed by the employer, directly or through any other person, or were so employed on any day during the preceding 12 months. The act shall continue to apply to every such industry or company even if the number of persons employed by the company is, at any time after the act becomes applicable to it, reduced to fewer than 10. The per-month contribution was increased to PKR 240 for employers and PKR 40 for employees as of July 1, 2006, as announced by the government in Finance Act, 2006. This increase resulted from the increase in the minimum wage from PKR 3,000 to PKR 4,000.

Step 11.
Register with Pakistan Shops and Establishment Ordinance, 1969
Time to complete:
7 days (simultaneous with the previous procedure)
Cost to complete:
PKR 10

 

Registration of establishment and fee for registration: (1) Every establishment, other than a one man shop, and factories employing clerical staff within the factory premises, shall be registered with the Deputy Chief Inspector for the area within which such establishment is situated. For the purposes of this section, a one-man shop means a shop run by an employer or by any member of his family without engaging an employee. (2) An application for the registration of an establishment shall be made by the employer on Form A and shall be accompanied by a Treasury challan under Head [9][XXXVI-Miscellaneous Departments-G-Miscellaneous-(S)-Receipts under the West Pakistan Shops and Establishments Ordinance of1969] for an amount depending on the number of workers. – 1 to 5 workers: fee is PKR 2. – 6 to 10 workers: PKR 3 – 11 to 20 workers: PKR 5. – More than 20 workers: PKR 10. (3) An application for establishment registration shall be made within 3 months of the ordinance coming into force (for establishments existing at the time) and within 2 months of setting up the establishment or the application of the ordinance to it (if an establishment is set up after the ordinance comes into force or if the provisions of the ordinance are subsequently applied to it). (4) On receipt of the application and the fees specified in Subsection 2, the Deputy Chief Inspector shall, on being satisfied about the correctness of the application, register the establishment in the Register of Establishments to be maintained in Form B and shall issue a registration certificate to the employer in Form C. (5) The registration certificate shall be prominently displayed by the employer at the establishment and shall be renewed every 2 years on depositing the fee prescribed in Subsection 2.

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