(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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By Yasser Latif Hamdani and Binish Zafar Razi

This opinion covers the benefits and legal requirements of establishing a charitable foundation. 

 

In general, a charity is an organization established for humanitarian purposes.  It may make a profit but all profits should be applied in furthering the charitable purpose of the organization.  The owners, members, trustees or other private persons who may control or influence the organization may not use the profit of the charitable organization for their personal gain.

 

  1. Benefits

 

The benefits of establishing and registering a charitable foundation/Non-Profit Organization under Pakistani law, are three fold:

 

(a)    Tax Exemption for all activities under Income Tax Ordinance 2001 and Income Tax Rules 2002.

(b)   Tax Exemption for the donors vis a vis donations made to such a foundation/NPO.
  

(c)    Some of the various laws that deal with the issue confer the status of artificial legal person to the organization and hence the assets owned by such an organization shall be held in perpetuity and recognition as a bona fide foundation.

 

These are in addition to the benefits gained from Corporate Social Responsibility (e.g. good public relations, competitive edge, good reputation, employee participation and retainership).

 

  1. Process and order

 

In order to gain all the benefits outlined in section 3 above, the setting up of the charitable foundation should be taken as a two-stage process.

 

First a charity/foundation is registered under any of the relevant laws detailed in section 5 below.  

 

Second the same charity/foundation applies on a separate application form for approval as a non profit organization and tax exemption under the relevant Income Tax laws detailed in section 6 below.

 

An erroneous assumption is that once a charitable foundation is registered, it is automatically registered with the CBR. This is wrong and requires careful consideration.

 

  1. Legal requirements/relevant laws

 

The various laws that deal with charitable foundations/non-profit organizations may be broadly classified into these categories:

 

Those that require registration and are relevant to us are as follows:

 

(a)    Companies Ordinance 1984 – In the purview of Section 42, the Ordinance allows a company to be incorporated for objectives such as Charity, Commerce, Sport, Religion, Education, Culture, Arts and any other socially useful purpose.

 

(b)   Trusts Act 1882 Public Charitable Trusts may be set up under this by executing a trust deed, registerable under Trust Act 1908.

 

(c)    Societies registration Act 1860 i.e. Societies, Associations, Clubs etc are all registered under this. Fine Arts, Science, Museums, Libraries, educational endeavors, think tanks etc may all be registered under these.

 

(d)   Voluntary Social Welfare Organizations Ordinance 1961 covers the welfare of the disadvantaged members of society women, children, oppressed religious and ethnic minorities and other backward classes of people , delinquents, handicapped people, beggars, destitute and poor, senior citizens, socially handicapped people or for parents education, social welfare in general etc.

 

Others that – mostly irrelevant to our particular situation- recognize certain kinds of

 

(e)    Charitable and Religious Trusts Act 1920

(f)    Musalman Wakf  Act and the two  Musalman Wakf Validating Acts 1923, 1913 and 1930 respectively

(g)   Charitable Endowments Act

 

Nonprofit Organizations in Pakistan may be registered or incorporated by adopting any one of four forms, namely, society, trust, nonprofit company with limited liability, and social welfare agencies.

 

A.    Societies Registration Act 1860

 

A society may be established under the Societies Registration Act, 1860, if seven or more persons join together of whom at least three must be the members of the Managing Committee.  To establish a society a Memorandum and Rules and Regulations of Association must be printed. These documents must contain clauses which not only state the objectives for which the society is being established, but also how it will operate. This is considered to be one of the more lenient Acts with respect to registration requirements and to accounting and audit regulations.

 

The Memorandum of Association must include the following:

 

  • The name and registered address of the society.
  • The names, addresses and occupation of each present member of the Managing Committee.
  • Rules and Regulations of the society or Articles of Association duly signed by all office bearers.
  • In the case of an educational society, the academic certificates of all the subscribers must be produced.
  • Copies of the National Identity Cards of the office bearers.
  • Rent agreement of the office premises.

 

In addition to the Memorandum of Association, the Rules and Regulations for governing the society must be set out and filed with the Registrar of Societies. The Rules and Regulations, certified by not less than 3 members of the Managing Committee, must contain obligatory clauses relating to:

 

  • Membership
  • General Body and Managing Committee
  • Meetings and quorum
  • Notices for meetings
  • The manner of elections and removal of officers
  • Procedures relating to accounting and audit
  • Dissolution

 

B.     Trusts Act 1882

 

A trust is a ‘gift’ of property to a person or institution providing benefit to both parties. In order to create a trust it is necessary that there should be a creator or author of the trust, a person in whom confidence is reposed, i.e. the trustee, and a person for whose benefit the trust is created i.e. the beneficiary. Beneficiaries cannot be specific individuals, but must be society generally or a particular section or class of society.

 

A trust is established under the Trusts Act, 1882. For this type of trust, the three conditions of a creator, trustee and beneficiary being present, are unconditional requirements. A public charitable trust is a trust which is established for the benefit of the society or at least a certain section of society. There are no particular laws relating to public trusts. However, the rules in the Trust Act of 1882 can be applied to the public and charitable trusts. In the case of public charitable trusts, the conditions governing private trusts are equally important. However, if the objectives are not clear, unlike the private trusts, these trusts would be sustained as long as there is an intention of charity.

 

  • There must be some trust property, whether in cash or capital assets (land or buildings)
  • The objectives of the trust must be charitable or for the benefit of society

 

The application for the registration of trust requires the following:

 

  • Particulars of documents creating the trust.
  • Particulars of the trustees and the beneficiaries.
  • Details of what the trust property is going to be. There is no minimum value of property for starting a trust. If the property is an immovable property then the transfer deed shall be on a stamp paper on the value of the property and it shall be registered.
  • Preparation of the trust deed, that is, i.e. declaration of having created a public charitable trust.

 

C.    Companies Ordinance 1984

 

A nonprofit company is registered under Section 42 of the Companies Ordinance, 1984 as a public company with limited liability provided it meets the following criteria:

 

  • It directs, or it intends to direct its profits, if any, or any other form of income from the business carried out, in advancing its objectives.
  • It disallows the payment of any return to its members.

 

Registration is done through the SECP.

 

5.      Approval of a Non-Profit Organisation

 

This section examines the income tax benefits of setting up a non-profit organisation.  The references to the “Ordinance” and the “Rules” in this section shall mean the Income Tax Ordinance 2001 and the Income Tax Rules 2002 respectively.

 

The definition of “non-profit organization” is contained in Clause 36 of Section 2 of the Ordinance:

 

“2(36) “non profit organization” means any person

 

a) established for religious, charitable or educational purposes or for the promotion of amateur sport;

b) which is registered under any law as a nonprofit organization and in respect of which the Commissioner has issued a ruling certifying that the person is a nonprofit organization for the purposes of this Ordinance; and

c) none of the income or assets of the person confers, or may confer a private benefit on any other person.”

 

A.    Tax Benefits

 

Charities approved by the Commissioner of Income Tax are exempt from the levy of minimum tax of 0.50% of their turnover.

 

Charitable donations, both in cash or in kind, entitle the donor to a tax credit (tax rebate) against its tax liability (subject to certain conditions).

 

The following heads of income are exempt from tax for any trust or charitable organisation established under any legal obligation (e.g. Muslim Waqf, Societies Registration Act 1860, Charitable Endowments Act 1890, the Social Welfare Agencies (Registration and Control) Ordinance 1961 or the Companies Ordinance 1984).  The exemptions are applicable to the extent the monies are actually applied or set apart for application to the religious or charitable purposes of such organisation in Pakistan:

 

(a)        Voluntary contributions including donations and subscriptions.

 

(b)        Grants received from Federal, Provincial or District Governments.

 

(c)        Foreign grants.

 

(d)       Income from property.

 

(e)        Profits on investments in the securities of the Federal Government.

 

(f)        Profit on debt from scheduled banks.

 

B.     Registration as a Non-Profit Organisation

 

In order to get approval from the Commissioner of Income Tax pursuant to the Ordinance an application must be made in the prescribed form (detailed in Rule 211) and the application form must be signed by the President or Secretary of the organisation.

 

The documents required to be submitted along with the application form are as follows:

 

(a)        a duly attested copy of the constitution, memorandum and articles of association, rules and regulations or bye-laws;

 

(b)        a certified copy of the registered trust deed, in case of a Trust;

 

(c)        a certified copy of certificate of registration of welfare organisation;

 

(d)       duly attested copies of the balance sheet and of revenue accounts of the organisation as audited by a qualified accountant for the year immediately preceding the year in which the application is made;

 

(e)        the names and addresses of the promoters, directors, trustees, president, secretary, treasurer, manager and other office bearers, as the case may be, of the organisation, and indicating clearly their family relationships, if any, with each other;

 

 (f)       an evaluated and certified report with regard to the performance of the organisation for achieving its aims and objects during the preceding financial year preceding the date on which application is made.  This can be done by the Philanthropy Centre of Pakistan or the concerned Commissioner of Income Tax.

 

In addition, the constitution, memorandum and articles of association, trust deed, rules and regulations or bye-laws, as the case may be, must conform(s) to the provisions of sub-rule (1) of rule 213. This requires the following:

 

(a)        for the audit of the annual accounts of the organisation every year by a qualified accountant;

 

(b)        for welfare organisations other than Trusts for the quorum of a meeting of the members of the body to be not less than four or one-third of the total number of the members of such body, whichever is greater;

 

(c)        where the organisation is a Trust as defined in the Trust Act, 1882, for the quorum of a meeting of the members to be not less than three or one-third of the total number of the members of such a body, whichever is greater;

 

(d)       for the transfer of its assets, in the event of its dissolution, after meeting all liabilities, if any, to another organisation which is an approved non-profit organisation, within three months of the dissolution under intimation to the Commissioner;

 

(e)        for the utilisation of its money, property or income or any part thereof solely for promoting its objects;

 

(f)        for prohibiting any portion of its money, property or income being paid or transferred directly by way of dividend, bonus or profit to any of its members or the relative or relatives of a member or members;

 

(g)        for the maintenance of accounts of the organisation being kept in a scheduled bank or in a post office or national savings organisation, National Bank of Pakistan or nationalised commercial banks;

 

(h)        for prohibiting the making of any changes in the constitution, memorandum and articles of association, trust deed, rules and regulations or bye-laws, as the case may be, without the prior approval of the Commissioner; and

 

(i)         for restricting the surpluses or monies validly set apart, excluding restricted funds, upto twenty-five per cent of the total income of the year:

 

Provided that such surpluses or monies set apart are invested in Government securities, NIT units, a collective investment scheme authorized or registered under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003, mutual fund, a real estate investment trust approved and authorized under the Real Estate Investment Trust Rules, 2006,   or scheduled banks:

 

Explanation: For the purposes of the Rules, “restricted funds” mean any fund received by the organization but could not be spent and treated as revenue during year due to any obligation placed by the donor.

 

On receipt of the application, the Commissioner may make such inquiries or call for such further information as the Commissioner may deem necessary and after completion of formalities may approve the organization for the purpose of clause (36) of section 2 of the Ordinance.

 

The Commissioner may refuse to approve the organisation if the Commissioner is satisfied that the organisation –

 

(a)        has been or is being used for personal gain of any particular person or a group of persons;

 

(b)        has been propagating the view of a particular political party or a religious sect;

 

(c)        has been or is being managed in a manner calculated to personally benefit its members or their families; or

 

(d)       has not been or will not be able to achieve its declared aims and objects in view of its set up, administration or otherwise as evaluated and certified by an independent certification agency.

 

The Commissioner of Income Tax will finalise applications within two months of receipt of the application.

 

C.    On-going obligations of Non-Profit Organisations

 

(a)                To file a Return of Income with specified attachments;

 

(b)               To collect, deduct, withhold tax at source;

 

(c)                After every three years to provide an evaluation and certified report on its performance and achieving its aims and objects during the three preceding financial years;