Pakistan International Tax Compliance Rules

 

United States-Pakistan Tax Treaty

Pakistan International Tax Compliance Rules

Quick Summary.  Located in South Asia, Pakistan is bordered by India, China, Afghanistan, Iran, and the Arabian Sea/Gulf of Oman.  The world’s fifth-most populous country and ethnically diverse, Pakistan’s capital is at Islamabad.  

Pakistan gained independence in 1947 when British India was divided into two countries, India and Pakistan.  

Pakistan is a parliamentary federal republic with Islam as its state religion.  The Constitution of Pakistan serves as the governing authority and provides for a Westminster system of government with an executive, legislative and judicial branch.  The legislature is a bicameral parliament consisting of the National Assembly and the Senate.  Pakistan is comprised four provinces and 113 districts.  

U.S.-Pakistan Tax Treaty

Pakistan is a member of the United Nations.  

Pakistan Tax Treaty.  Convention Between the United States of America and Pakistan for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, signed at Washington on July 1, 1957

Currency.  Pakistan rupee (PKR).

Common Legal Entities.  Limited liability company, partnership, and branch of a foreign entity.

Tax AuthoritiesFederal Board of Revenue, Provincial tax authorities.

Tax Treaties.  South Africa is party to more than 69 tax treaties.  It is a signatory to the OECD’s MLI.

Corporate Income Tax Rate.  29% generally.

Individual Tax Rate35%.

Corporate Capital Gains Tax Rate.  Capital gains are generally subject to tax at ordinary tax rates with reducing in gains based upon long-term holding periods.  

Sale of Immovable Property.  5% (gains up to PKR 5 million) / 10% (gains exceeding PKR 5 million and up to PKR 10 million) / 15% (gains exceeding PKR 10 million and up to PKR 15 million) / 20% (gains exceeding PKR 15 million) – 100% taxed (property or plot of land held for up to one year) / 75% taxed (property held from one to four years or plot of land held between one and eight years) / 0% (property held for more than four years or plot of land held for more than eight years).

Sale of Share of Public Companies and Other Specified Securities.  15% (exempt if the shares were acquired before July 1, 2013 and held for more than 24 months).

Individual Capital Gains Tax Rate.  Applicable individual income tax rate.

Residence.  A person is a resident for a tax year if they are present in Pakistan for 183 days or more in the tax year, or if they are present in Pakistan for 120 days or more in the tax year and present in the aggregate for 365 days or more in the four preceding tax years.

Withholding Tax.

Dividends.  7.55 / 15% / 25% (resident company or individual) / 15% (nonresident company or individual).

Interest.  10% / 15% (resident company or individual) / 10% (nonresident company or individual).

          Royalties.  15% (resident and nonresident company or individual).

Transfer Pricing.  Follow arm’s tenth principles.

CFC Rules.  Income from a CFC is attributed to a greater-than-10% shareholder resident in Pakistan.

Hybrid Treatment.  No.

Inheritance/Estate Tax No.

Other.  A Federal Workers Welfare Fund (WWF) assessment equal to 2% of taxable profit is levied on every industrial undertaking, with the exception of industrial undertakings doing business in the province of Sindh.  Sindh WWF is levied under provincial legislation at a rate of 2% of taxable income or accounting profit.

Tax Treaty Network – International Tax Attorneys

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