Pakistan has a well-structured tax system that includes taxation of both resident and non-resident individuals and entities. As a resident or non-resident taxpayer in Pakistan, it is important to understand the taxation laws and requirements to avoid any legal issues. In this article, we will discuss the difference between resident and non-resident taxpayers and their tax obligations.
Resident vs Non-Resident
A resident person in Pakistan can be a company that is incorporated in Pakistan, a company that is managed and controlled in Pakistan, or a permanent establishment of a company. A person whose physical stay in Pakistan during a tax year (from July 01 to June 30) is more than one hundred and eighty-three days (183) or more is also considered a resident. Additionally, an employee of the Federal or Provincial government who is posted abroad and an association of persons where the whole or partial affairs of the association is operated and managed in Pakistan is also considered a resident.
On the other hand, a non-resident person is a taxpayer who does not meet the above criteria of a resident person in Pakistan.
Tax Obligations for Residents and Non-Residents
A resident person in Pakistan is required to pay tax on their global earned income and declare all their assets, whether in Pakistan or anywhere else in the world. The tax return for residents includes the declaration of income from all sources, including foreign sources, and assets held in Pakistan or abroad. The wealth statement is also required to be filed by the resident taxpayer.
Non-resident taxpayers, on the other hand, are only required to declare their Pakistani source income and pay taxes on that income only. They are not required to file the wealth statement. The non-resident taxpayer can file a simplified form called the Filing of Tax Return for Non-Resident, which is available on the Federal Board of Revenue portal. Alternatively, the non-resident taxpayer can also file the normal form, in which case they would have to select the status as ‘non-resident’ from the ‘attribute’ tab in the return form.
Tax Rates for Non-Residents
The tax rates for non-residents are the same as those for filers when buying property in Pakistan, provided that all income used to purchase the property is brought into Pakistan through banking channels. It is important to note that maintaining active taxpayer status is crucial for both resident and non-resident taxpayers. This status is maintained by annually filing the income tax return before its due date, which is September 30th each year, or the further date allowed by the Board of Revenue.
In conclusion, as a resident or non-resident taxpayer in Pakistan, it is important to understand the taxation laws and requirements to avoid any legal issues. Resident taxpayers must declare all their global income and assets, while non-resident taxpayers only need to declare their Pakistani source income. By fulfilling their tax obligations, both resident and non-resident taxpayers can avoid penalties and maintain their active taxpayer status.