Pakistan legal and accounting and tax considerations in 2024

• Corporate taxes

  1. Corporate tax is levied at the rate of 29% on all net income earnt in Pakistan. However, branches of foreign companies (except non-resident petroleum production and exploration companies) must pay additional 10% remittance tax on after-tax profits;
  2. Capital gains are also taxed at the standard corporate tax rate. However, a reduced rate of 8% applies on capital gains derived from i) sale of capital assets held for more than a year are reduced by 25% ii) sale of listed securities held for less than 6 months are taxed at a rate of 10% and iii) sale of listed securities held for more than 6 months but less than a year.

• VAT and Withholding taxes

  1. The standard VAT rate levied on provision of services in Pakistan varies between 13% and 16%. For goods, the standard VAT rate is 17%;
  2. In accordance with the Sales Tax Act 1990, a Pakistan manufacturing company is obligated to register for sales tax if annual revenue exceeds US$50,000 while a retail company must register if the value of their supplies exceeds US$50,000 in any calendar year. Healy Consultants will be happy to assist you with VAT registration for a onetime fee of US$850;
  3. A 10% withholding tax is levied on dividends unless the rate is reduced by a tax treaty. However, there are variations from 7.5% to 25% depending on the industry;
  4. Withholding tax on interest is levied at the rate of 10% of the gross amount of interest paid to residents and non-residents without a permanent establishment in Pakistan, while the rate is 20% for non-residents with a permanent establishment in Pakistan.

• Miscellaneous taxes

  1. Real property tax in Pakistan is levied at the provincial level. 5% tax is levied on the gross sales price or transfer of property or goods sold by way of auction;
  2. Business losses may be carried forward for up to 6 years. Losses from speculative businesses and capital losses may be carried forward to the following tax year and may be offset against speculative business income and capital gains for that year;
  3. Employers must remit payroll tax at variable rates ranging between 5% to 20% if the annual employee’s salary is above US$3,900 and an additional 6% for social security. If the employee’s salary is less than US$4 per day or US$ 100 per month, then the employer is not obliged to remit the social security tax on behalf of their employees.

• Tax filings and other information

  1. The standard tax year in Pakistan starts on June the 30th and corporate tax returns must be filed by September the 30th of the following year. Penalty for failure to file tax returns is 0.1% of the amount of tax payable for each day of default;
  2. All Pakistan businesses must submit annual audited financial statements by March 31st of each year;
  3. Pakistan has concluded withholding tax treaties with 57 countries including Austria, Belgium, Canada, France, Germany, Japan, China, Switzerland, United Kingdom and Sweden.

Legal and compliance considerations

• Private companies

  

  1. Private limited companies in Pakistan require US$1,000 of share capital. Additionally, there must be at least two shareholders and two directors for a resident business setup;
  2. A company secretary is required when setting up in Pakistan. Healy Consultants can assist our Client in appointing one to ensure compliance with the Pakistan companies act;
  3. Following Pakistan business setup, companies need to notify the respective registrar when any appointment change in the board of directors, or shareholders occurs;
  4. Annual general meetings must be held once a year for all Pakistan companies. Directors are required to display the company audited balance sheet, and profit / lost accounts. The first AGM must be held with 18 months from the date of company incorporation.

• Listed companies

  1. Public companies are required to file a list of Directors and Chief executive with the registrar concerned;
  2. Every listed company setup is required to file three copies of the audited balance sheet to the stock exchange.

• Foreign Direct Investment

  1. Foreign companies looking to invest in activities such as infrastructure projects, education, training, land development, hospitals, and medical services require an equity investment of at least US$0.3million;
  2. 100% foreign owned businesses are permitted in several sectors of the economy. However, foreign investments are restricted in the energy, transportation, and tourism industries.

• Other business regulations

  1. A foreign company can register a branch in Pakistan to invoice customers, sign local sales contracts, and receive income from local customers;
  2. A foreign company can register a representative office to engage in activities such as i) promoting the business of the parent company and ii) market research. A representative office cannot make direct sales within Pakistan;
  3. Pakistan’s court system is still underdeveloped with property ownership being one of the few widely respected legal rights. The judiciary is highly inefficient and legal actions tend to be lengthy and expensive, with little judicial reprieve.