Tax 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.
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.
