Accounting and tax

Pakistan corporate tax information

  1. Corporate tax is levied at the rate of 32% on all net income in Pakistan. 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. Branches pay corporate tax at the rate of 32%, plus an additional 10% withholding tax on remittances of after-tax profits. Branches of non-resident petroleum production and exploration companies are however exempt from the additional tax;
  3. The standard VAT rate levied on the import and supply of goods and on provision of specified services in Pakistan is at the rate of 16%. Federal Excise Duty (FED). 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;
  4. Capital gains are treated as ordinary income and taxed at the standard corporate tax rate of 33%. 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;
  5. 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;
  6. 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;
  7. 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;
  8. 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. Losses incurred from the sale of specific securities including listed shares and securities may be offset against the relevant gains of the same year;
  9. Minimum tax is levied at the rate of 0.5% where taxpayers suffer losses or the tax yield on income is less than 0.5% of the turnover;
  10. 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 more 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;
  11. Pakistan has concluded withholding tax treaties with 57 countries including Austria, Belgium, Canada, France, Germany, Japan, China, Switzerland, United Kingdom and Sweden;
  12. Healy Consultants Compliance Department will assist our Clients with i) documenting and implementing accounting procedures ii) implementing financial accounting software iii) preparation of financial accounting records and iv) preparing forecasts, budget and sensitivity analysis.
  13. For an active trading company, Healy Consultants’ fee to efficiently and effectively discharge our Client’s annual company accounting, auditing and tax obligations will be US$2,300. Following receipt of a set of draft accounting numbers from your company, Healy Consultants will more accurately advise accounting and tax fees. For a dormant company, Healy Consultants’ fees are only US$950;
  14. It is important our Clients’ are aware of their personal and corporate tax obligations in their country of residence and domicile; and they will fulfill those obligations annually. Let us know if you need Healy Consultants’ help to clarify your annual reporting obligations.

Legal and compliance

  1. Private limited companies in Pakistan require US$1,000 of share capital. There must be at least two shareholders and two directors for a resident business setup;
  2. The legal framework of Pakistan business setup is a dual acting system which comprises of mainly Islamic Sharia and aspects of Conventional law. Foreign investors interested in incorporating a Pakistan company setup should be aware of the Sharia law practices;
  3. All Pakistan businesses must submit annual audited financial statements by March 31st of each year;
  4. A company secretary is required when setting up in Pakistan. Healy Consultants can assist our Client in appointing one to ensure compliance with the corporation act to support Pakistan business setup engagement;
  5. Following Pakistan business setup, companies need to notify the respective registrar when any appointment change in the board of directors, or shareholders occurs;
  6. Annual general meetings have to be held once a year for all Pakistan business setup. The first AGM must be held with 18 months from the date of company incorporation. Directors are required to display the company audited balance sheet, and profit / lost accounts;
  7. Public companies are required to file a list of Directors and Chief executive with the registrar concerned;
  8. Every listed company setup is required to file three copies of the audited balance sheet to the stock exchange;
  9. Foreign companies looking to invest in activities such as infrastructure projects, education, training, land development, hospitals, and medical services require an equity investment of at least US$ 0.3million;
  10. 100% foreign owned businesses are permitted in several sectors of the economy. However, foreign investments are restricted in the energy, transportation, and tourism industries;
  11. A foreign company can register a branch in Pakistan to invoice customers, sign local sales contracts, and receive income from local customers;
  12. If properly structured, a foreign owned business setup in Pakistan suffers minimal tax and company incorporation can be relatively straightforward;
  13. 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;
  14. 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.

Contact us

For additional information on our accounting and legal services in Pakistan, please email us at Alternatively please contact our in-house country expert, Mr. Paavan Chhabra, directly:
client relationship officer - Paavan
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