Foreign tax relief
Any foreign-source salary received by a resident individual is exempt from tax in Pakistan if the individual has paid foreign income tax in respect of that salary.
Where a resident taxpayer derives foreign-source income chargeable to tax in Pakistan, in respect of which the taxpayer has paid foreign tax, the taxpayer is allowed a credit of an amount equal to the lesser of the foreign income tax paid or the Pakistan tax payable in respect of the income.
Foreign-source income of a resident who is not a citizen of Pakistan is exempt if the individual is resident only by virtue of employment and one’s presence in Pakistan does not exceed three years. This exemption does not apply in the case of income from a business established in Pakistan and foreign-source income that is brought into or received in Pakistan.
Pakistan has executed tax treaties with over 70 countries (see the Withholding taxes section in the Corporate summary for a list of countries with which Pakistan has a tax treaty). These conventions aim to eliminate double taxation of income or gains arising in one territory and paid to residents of another territory. The provisions of the tax treaties takes precedence over the tax laws in Pakistan to provide relief from tax payable in terms of Pakistan tax laws, the determination of Pakistan-source income of a non-resident, the determination of income attributable to the Pakistan operation of a non-resident, and the exchange of information for the prevention of fiscal evasion or avoidance of taxes on income. Most of the treaties are based on the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention.