A restaurant operator in Karachi signs an agreement with an international food chain. The foreign company permits the Pakistani business to use its brand and operating system. In return, it asks for an upfront fee and a share of future sales. The contract may be commercially sound. But can the Pakistani bank remit the money? The answer depends on Paragraph 12 of Chapter 14 of the State Bank of Pakistan’s Foreign Exchange Manual. A signed commercial contract alone does not authorise a foreign-exchange remittance.

What are royalty, franchise and technical-service fees?

A royalty usually pays for the right to use intellectual property, such as a trademark or manufacturing process. A franchise agreement may go further and grant the right to use an established brand and operating system. A technical-service fee pays for expertise supplied under an agreement. The distinction matters: an ordinary consultancy contract may instead fall under Paragraph 11 of Chapter 14. Banks must examine what the overseas recipient actually provides.

Which Paragraph 12 rule applies to your business?

Start by identifying the sector and what the foreign company is being paid for. A restaurant franchise, a manufacturer licensing technology and a business buying a one-off consulting service may follow different provisions. The December 2025 amendment concerns specified non-manufacturing arrangements under Paragraph 12(ii)(b); do not apply its fee percentages or upfront-payment provisions to every royalty contract. A stand-alone service purchase may instead fall under Paragraph 11. For the overall classification of commercial remittances, consult the Chapter 14 guide.

What changed in December 2025?

On 19 December 2025, the SBP revised Paragraph 12(ii)(b) for specified agriculture, social, infrastructure and service-sector projects, including international food chains, excluding the financial sector. The framework permits eligible recurring royalty, franchise and technical-service payments of up to 8% of net local sales, after deducting sales taxes and the cost of imported items. For eligible new operations, it also allows an initial lump-sum fee of up to USD 250,000. The upfront fee is not an additional allowance: it must be adjusted against recurring payments over the agreement’s term once operations begin. The revised framework specifies agreements of up to ten years, with renewal possible. Requests above the upfront threshold are referred to the Board of Investment. These concessions are not a blanket approval for every business. Consult the SBP December 2025 amendment circular and the applicable current instructions.

How is the 8% limit calculated?

Consider a hypothetical restaurant franchise with PKR 100 million in local sales. Assume sales taxes of PKR 12 million and imported items costing PKR 8 million. The illustrative net local sales base is PKR 80 million. Eight percent equals PKR 6.4 million. This is a ceiling before other applicable contractual and regulatory adjustments, not a guarantee that the full sum may be remitted. An agreement may specify a lower rate; any upfront fee must also be accounted for. The bank needs supporting sales and cost records.

Why upfront franchise fees need special attention

Suppose a foreign brand asks for USD 200,000 before a Karachi outlet opens. The revised provision allows an upfront fee within the ceiling for eligible new operations, but it must be adjusted against recurring fees after business begins. The franchise agreement should clearly describe that adjustment. Otherwise the business risks claiming more than the amount permitted under the applicable arrangement. An existing franchise should not assume the amendment entitles it to another upfront fee.

Does the rule cover manufacturers?

Not automatically. Paragraph 12 contains separate manufacturing-sector provisions. The December 2025 change specifically concerns Paragraph 12(ii)(b); it cannot be applied indiscriminately to every foreign licensing or technology agreement. A Karachi factory must identify the relevant manufacturing provision and evaluate the terms of its agreement with its Authorized Dealer.

Can a bank remit the fee without separate SBP approval?

SBP has delegated review and acknowledgement of qualifying agreements to Authorized Dealers under the applicable framework. The bank must check whether a specific agreement meets the conditions of that delegated authority or needs another regulatory route. The SBP’s 2021 instructions provide earlier context. Bank acknowledgement does not dispense with later invoice checks or other applicable payment controls.

What documents should a franchise operator prepare?

Start with the executed agreement and an intelligible payment schedule. Be ready to explain what the overseas counterparty provides and how each amount is calculated. Banks may require sales evidence, imported-cost records, tax information and prescribed declarations under the applicable instructions. Ask the Authorized Dealer for its transaction-specific checklist. An invoice saying only ‘franchise charges’ may not establish the basis for a payment. If a different group company receives the fee, the records should demonstrate its entitlement.

Why the bank should review the contract before signing

A franchisor might demand 10% of sales, but a transaction governed by the revised 8% ceiling cannot simply be remitted at 10% because both parties signed the agreement. The Pakistani business may need to renegotiate or explore the lawful regulatory route, where available. Ask the Authorized Dealer to assess the structure before accepting binding overseas-payment commitments. For a broader introduction, see our guide to Chapter 14 commercial remittances.

What happens after the bank approves the payment?

Regulatory approval and international payment execution are different. A bank must satisfy its own compliance requirements and may need clarification of the beneficiary or agreement. Correspondent banks can also request information. SWIFT messages carry instructions; they do not themselves grant permission or guarantee that the foreign creditor has been paid. Our guide to business remittance documents and bank checks explains preparation of the payment file.

What businesses should remember

The December 2025 amendment offers eligible businesses more room to negotiate international franchise arrangements. It does not remove the bank’s duty to examine each transaction. Establish which Paragraph 12 provision applies, check how the fee is calculated and ensure any initial payment is properly adjusted. A payment schedule that the Authorized Dealer can reconcile with the applicable SBP rules is worth securing before a foreign agreement is signed.

Sources and regulatory note

Primary reference: SBP, December 2025 circular amending Chapter 14, Paragraph 12 (consult its annex for detailed limits). Background: SBP FE Circular No. 7 of 2021. This article offers general regulatory information, not transaction-specific legal or banking advice. Check any subsequent amendment with your Authorized Dealer.