ByTax Residency Status:
Your tax residency status determines your tax obligations in Pakistan. You’re considered a resident for tax purposes if you:
- Stay in Pakistan for 183 days (or more) in a tax year (July 1st – June 30th).
Tax Rates:
- Income Tax: Pakistan has a flat income tax rate of 29% for all residents, regardless of income source.
- Sales Tax: A standard sales tax of 18% is applied to most goods and services. However, specific exemptions and reduced rates might apply.
Taxable Income for Expatriates:
As an expatriate, your taxable income in Pakistan generally includes:
- Salary earned in Pakistan
- Allowances received (housing, education, etc.)
- Benefits in kind (company car, utilities)
- Any other income generated within Pakistan
Tax Obligations for Expatriates:
- Tax Return Filing: Resident expatriates must file an annual income tax return by September 30th of the following tax year.
- Tax Withholding: Your employer might withhold income tax at source under the PAYE (Pay As You Earn) scheme.
- Double Taxation Agreements: Pakistan has Double Taxation Agreements (DTAs) with many countries. These agreements can help avoid paying tax on the same income in both your home country and Pakistan.
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Benefits for Returning Expatriates:
Good news for returning Pakistani expats! The Income Tax Ordinance offers a tax exemption on foreign-source income for returning citizens under specific conditions:
- Exemption Period: If you haven’t been a resident of Pakistan in the four tax years preceding your return, any foreign-source income you earn in the year you become a resident and the following year is exempt from Pakistani income tax.
Example: Let’s say you were working abroad for the past five years and haven’t been considered a resident taxpayer in Pakistan during that time. Upon returning to Pakistan and becoming a resident again, your foreign-source income for that year and the following year will be exempt from Pakistani income tax.
Here are some additional points to consider depending on your specific situation:
- Short-Term Work Assignments: If you’re in Pakistan for a short-term work assignment (less than 183 days), you might not be considered a resident for tax purposes. However, it’s crucial to consult with a tax professional to confirm your residency status and any potential tax liabilities.
