Deep-dive into the Roshan Digital Account
There are now approximately 9m Pakistanis living abroad and many of them maintain financial ties with Pakistan. Historically they have struggled to effectively move their money into Pakistan, take their money out of Pakistan, and manage their tax duties.
However, with the introduction of the Roshan Digital Account (“RDA”) a number of these problems have been smoothed over.
In this article we outline how you can invest, buy a home, get car finance, and open a bank account as an overseas Pakistani.
What is the Roshan Digital Account?
The RDA is a government-backed initiative to encourage overseas Pakistanis to deposit and invest their money into Pakistan.
The design of the scheme is such to facilitate money flows into Pakistan and then channel them into long-term investments that mean that the money actually stays in Pakistan.
You can check out the detailed information on the State Bank’s website here.
The scheme looks like it is off to a great start – with $1.9bn invested into Pakistan through ~200,000 RDA accounts.
The RDA is available from the following banks:
- Bank Alfalah
- Habib Bank
- Habib Metro
- Bank of Punjab
- Meezan Bank
- Dubai Islamic Bank
- Samba Bank
- Faysal Bank
- Standard Chartered
Only some of these banks offer the Islamic version of the RDA. Meezan Bank is probably the most prominent Islamic bank in Pakistan today.
Naya Pakistan Certificates
You may have heard of financial products called Naya Pakistan certificates. As part of the RDA programme the government has also issued Naya Pakistan Certificates that offer very attractive annual returns. These are available to RDA account holders.
These certificates are denominated in PKR, GBP, EUR and USD – an attractive proposition for those worries about Pakistani inflation. The rates between the three types vary of course, with the highest the PKR version.
What can you do with a Roshan Digital Account?
You can do a number of pretty useful things with an RDA. Some of the key ones include:
- Buy a house in Pakistan
- Get car finance
- Get a debit card that you can use in Pakistan
- Invest on the Pakistani stock exchange
- Make payments within Pakistan (using your PKR RDA account)
- Invest into various insurance (takaful) and wealth management products
A key caveat to the home purchase option is that the money can only be released directly to the seller. You can then deposit the returns from that house back into your RDA and repatriate it to whichever country you’re now based.
There is also a restriction for the first 3 years of repatriating above the amount you first invested. Again, the thinking is, the government doesn’t want to inadvertently allow a leakage out of Pakistan (at least for the first 3 years).
The other important thing to bear in mind is that you are likely not going to be able to get a different bank’s home financing product via the RDA of a different bank. So if that is your key intention, make sure you scope the market and rates out properly ahead of time.
What can’t you do with a Roshan Digital Account?
You can’t make deposits into your RDA from within Pakistan except those returns that arise out of your investments that you initially made via the RDA.
The thinking here is that the Pakistani government doesn’t want the RDA to become a vehicle through which money leaks out of Pakistan.
Historically, the State Bank of Pakistan needs to approve all transactions going out of Pakistan above circa $10,000. (Hence, all those childhood memories of people carrying large amounts of cash through the airport on the way back to the UK. That, and mangoes.)
Tax and legal implications
Let’s say you make a profit on your property in Pakistan and sell it. You will have to pay Pakistani capital gains tax. Then you will also be due UK capital gains tax once you repatriate it.
However, as there is a double taxation treaty between the two countries (detailed here), any taxes you have already paid in Pakistan will be deducted from the amount due in the UK.
So the net result is that you have to pay tax equivalent to the higher rate between the two countries – but thankfully you don’t have to pay double the tax.
There are also clever ways to repatriate your capital gains from Pakistan into the UK and roll them into an investment that allows you to defer your CGT and avoid any future CGT on those investments.
The RDA is a very welcome addition to the Pakistani financial ecosystem and economically a clever move by the Pakistani government.
At IFG we are very excited about the potential in Pakistan and keen to support its progress.
Over the coming months we will be doing deep-dives into various aspects of investing into Pakistan as an expat. How does one invest in the Pakistani stock exchange, for example, and is it a good idea? What about the Pakistani property market?
To keep in the loop on all these articles – and more – please subscribe below.
If you’d like us to cover any other Pakistan-related personal finance and investing topics – let us know in the comments below!