ZAFAR & ASSOCIATES - LLP | Construction Company Setup - Pakistan
Construction Company is a type of business, company, enterprise or organization created to construct a variety of buildings, apartments, infrastructure, developments, properties, facilities, housing, path, pavement, roads, motorway and other types of construction projects.
Construction is a general term meaning thereby the art and science to form objects, structures, systems or organizations, and comes from Latin constructio and Old French construction. To construct is the verb: the act of building, and the noun is construction: how something is built, the nature of its structure.
In most widely used context, construction covers the procedures involved in delivering buildings, infrastructure and industrial facilities, and associated activities through the end of their life. It usually commences with planning, financing, and design, and continues until the asset is built and ready for use; construction also covers repairs and maintenance work, any works to expand, extend and improve the asset, and its eventual demolition, dismantling or decommissioning.
Construction Law & Company Setup in Pakistan
A Construction Company is a business enterprise concerned with construction of buildings, bridges etc. Generally, there are eight types of construction companies, these being:
Small Renovation Contractors: Concerned with jobs requiring small amounts of capital and does not require a large construction company;
General Contractors: Companies which are often experts in new buildings or alterations work;
Owner Builder: Company that constructs buildings for its own ownership, either to sell on completion, or to rent and operate;
Real Estate Developer: A type of owner-builder who in addition to building for personal ownership, and may also build to sell before or after completion of the project.
Professional Construction Manager: Performs the functions required in building a project as the agent of an owner, but do so as if the job was being performed with the owner’s own employees;
Programme Manager: It expands its services to include project management such as demolition of existing building, providing financial analysis and may even provide design professionals;
Package Builders: Take on a contract for design of a building along with the construction and are able to show prospective client’s prototypes of similar buildings completed by them for previous owners;
Sponsor Builder: Involved in government-aided building projects and also directs the design stages along with government processing.
In 2020, the government announced an Amnesty Scheme for the construction investors to promote and boost construction and housings in the country, by introducing a fixed tax regime for the construction sector till Dec 31, 2021 for projects to be completed in 2023. Such fixed tax regime is applicable to developers and builders who register their projects with the Federal Board of Revenue. The Amnesty Scheme included:
Exemptions from withholding tax on purchase of building material except cement and steel;
Exemptions from withholding tax on acquisition of services relating to construction except those from companies;
Lowered fixed tax liability for low-cost housing;
Builder or Developer company dividends shall not be liable to tax and no withholding will be liable on the payment of these dividends;
Allowing incorporation of ten times of fixed tax paid as income;
Exemptions from Section 111 of the Income Tax Ordinance 2001 (‘ITO’) for Individuals, Companies, Associations of Persons;
Exemptions from Section 111 of ITO for plots purchased before December 31, 2021 and where construction on the same is completed before 2023.
Eligibility for Incorporation & Registration
For the incorporation and registration of a construction company in Pakistan, three agencies are engaged for this purpose, namely:
Securities & Exchange Commission of Pakistan (SECP)
Federal Board of Revenue (FBR)
Pakistan Engineering Council (PEC)
Associations of Builders and Developers of Pakistan (ABAD)
Registration with SECP
The SECP is a regulator, granted with the mandate to regulate the corporate sector and thereby specifically handles the object of incorporation of all public and private companies. The incorporation procedure is divided into three steps:
Reservation of Name
The first step towards the incorporation of a company is to reserve a suitable name subject to Section 10 of the Companies Act 2017. Three proposed names which fulfill the criteria provided are to be specified for approval. Such reservation can either be made by a separate application or the same can be made alongside the application for incorporation. No extra fee is chargeable for reserving a name alongside the application for incorporation of company. However, for a separate application, a fee of rupees 200/- is chargeable for an e-application and for a physical application a fee of rupees 500/- is chargeable. After the submission of the application and due fees, the registrar will examine the names provided, and if they fulfill the criteria provided, will issue a certificate for reservation of name for up to 60 days, within which the application for incorporation of company is to be made.
Application for Incorporation
As previously stated, an application for incorporation of company can either be separate or alongside application for reservation of name. Fee for incorporation is in accordance to the type, capital and size of the company, in accordance to Seventh Schedule of the Companies Act 2017.
Such application is to be accompanied by the following documents:
Memorandum of Association duly signed by the subscribers. In case of physical submission, it shall be duly stamped under Stamp Act 1877.
Articles of Association duly signed by the subscribers.
Copies of CNIC / NICOP of the subscribers / directors / chief executive officers.
Copy of CNIC of witness in case of physical filing of application.
Duly stamped authority letter of subscriber or intermediary authorising him to file documents for incorporation for a physical submission.
Original paid bank challan in case of physical submission.
For an online application, all relevant documents are to be scanned and uploaded except for the memorandum and articles which will be generated online.
Issuance of Certificate of Incorporation
Once all the relevant documents have been submitted to the registrar, he shall examine the same and determine if all relevant documents are complete and all requirements have been complied with. Once the registrar is satisfied, he shall register the memorandum and other documents, and will issue a certificate for incorporation of company under his signatures and authenticated by his official seal.
The facility of online application for incorporation of company is here.
Registration with FBR
Previously a separate application had to be made to the FBR for issuance of BNTN number, however the SECP has introduced a one window facility, whereby which the data collected by the SECP is sent to the FBR for registration of NTN number.
Registration with Pakistan Engineering Council
In most cases, the incorporation of a company is completed with registration with the FBR and issuance of NTN. However, for construction companies, registration with the PEC is a necessary procedure. PEC is the regulatory body responsible for the maintenance of registration of constructors and operators in Pakistan.
The PEC categorizes constructors into eight classes, namely C-A, C-B, C-1, C-2, C-3, C-4, C-5 and C-6. Enrollment Committees are responsible for processing and approval of applications. The Regional Enrollment Committees (REC) approves new applications for constructors of C-6 and C-5 category whereas the Enrolment Committee deals with new registration applications for constructors of categories C-4 and above.
The documents required for new registration of constructors are as following:
Copy of identity card of owner/shareholder/partner;
Fee payment voucher;
Bank statement for one last year/Accounting record/ Audited financial statement;
Relevant documents of newly employed engineers including appointment letter, detailed CV, copy of PEC renewal card, supervisory certificate and NTN of engineer;
Relevant documents for existing engineers including copy of valid PEC Renewal card, supervisory certificate and NTN of engineer;
Relevant documents of engineer who is owner/partner/ shareholder including undertaking by engineer, detailed CV, copy of valid PEC Renewal card and NTN of engineer;
Undertaking from engineers;
Affidavit from CEO/Chairman/Managing Partner or Director;
List of running/ workable machinery and equipment owned by the company duly signed;
Organizational chart of the firm showing chain of command;
Ownership documents including affidavit of sole proprietor duly notarized, copy of partnership deed, certificate of incorporation, article of association, memorandum of association; and
xii. Copy of certificate of NTN.
The fee applicable for new registration to the PEC varies as to the category of the constructor, where for C-6 it is rupees 15,000/- and increases up to rupees 400,000/- for C-A category.
After the submission of all relevant documents, the committee will issue a certificate for registration and a license. The certificate will be in force till the 31st of December of the year in which it is issued and will have to be renewed every three years.
Registration with ABAD
Registration with ABAD, though is not recommended, but is encouraged for big developers and builders. ABAD is a national level representative organization of builders and developers to unify and organize private sector construction activities.
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