Pakistan: Business Environment

Company Tax

29%

Tax Rate For Foreign Companies

A resident entity is taxed on its worldwide income, while non-resident entities operating in Pakistan through a branch are taxed on their Pakistan-source income attributable to the branch, at the same rates applicable to local companies. Branches can claim a deduction for head office expenses, whereas certain amounts paid to the head office or associates of the head office, such as interest, royalties, and technical service fees, are not deductible. However, a 15% tax is levied on the transfer of after-tax profits by a branch to the head office (companies engaged in the oil and gas exploration and production business are exempt).
A company is deemed resident in Pakistan if it is incorporated or formed by or under Pakistani law, or if the control and management of its affairs is situated wholly in Pakistan in that year.

Capital Gains Taxation

Capital gains are generally taxed at the standard rate of corporation tax. Capital gains on the sale of fixed assets held for more than one year are reduced by 25% for the calculation of the tax base (i.e. 75% of capital gains are taxed at 30%). Gains on the sale of listed securities acquired on or after 1 July 2013 are subject to a 15% tax; whereas capital gains on the sale of listed securities acquired before that date are exempt from tax.
Capital gains on the sale of immovable property are subject to tax depending upon the amount of gain and holding period.

Main Allowable Deductions and Tax Credits

Depreciation of property, plant and equipment is tax-deductible at rates ranging from 10% to 100%. The cost of intangible assets (intellectual property, among others) bringing in profit for more than one year is deductible over their useful life (up to ten years). The deduction of goodwill follows these same rules.
Start-up fees can be deducted over a period of five years.
Interest charges and bad debt are generally deductible. Donations to public schools and health centres, universities and non-governmental organisations are eligible for a tax credit of up to 20% of taxable income.
Fines that are not paid for breach of the law are deductible. Taxes on income are not deductible. Sales tax and excise tax are tax deductible where these are to be absorbed by the business and are not passed on to the consumer.
Scientific research expenditures incurred in Pakistan for the purpose of generating taxable income are fully deductible.
Trading losses (except those resulting from speculative business) may be offset against taxable income earned in the same year. Operating losses may be carried forward and set off against the profits of the succeeding six years of the same business (eight years for losses incurred by a resident company engaged in the hotel business in Pakistan relating to a tax year commencing on or after the first day of July 2020). The carryback of losses is not permitted.

Other Corporate Taxes

Capital duty is imposed on capital contributions (variable depending on the amount of capital). A property tax is levied at the provincial level, while property transfer is not subject to tax.
Social security contributions payable by the employer amount to 6% of salary (calculated on wages capped at PKR 600 per day or PKR 22,000 per month).
Stamp duties are levied on the issue and disposal of shares at a rate of 0.5% and 1.5% of the face value of the shares, respectively (with a minimum contribution of PKR 1).

Other Domestic Resources

Federal Board of Revenue (FBR)

Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.

Tax Rate

Allowable Deductions and Tax Credits

Reimbursement of expenses on medical treatment or hospitalisation or both received by an employee is tax-exempt. Furthermore, a medical allowance of up to 10% of basic salary is exempt if the facility of reimbursement of medical expenses is not available to the employee.
Individuals also are allowed deductions on account of interest paid on house loans, payment of insurance premium and tuition fees paid for their children.
A straight deduction is available for Zakat. Donations made to the Supreme Court of Pakistan are eligible for a straight deduction, while a rebate at the average rate of tax is allowed on donations made to any approved non-profit organisation on the lower of donation value or 30% of the taxable income.

Special Expatriate Tax Regime

Residents are taxed on their Pakistan and foreign-source income, while non-resident individuals are taxed only on Pakistan-source income.
A person is considered resident in Pakistan for income tax purposes if present in the country for a period or periods aggregating to 183 days or more in a tax year (1 July-30 June).
A withholding tax rate of 10% is applicable on the payment of profit on debt to non-resident individuals on debt instruments issued by the Federal Government.