WHTs are applicable on a multitude of payments made to resident taxpayers by withholding agents specified in the local law (commonly known as ‘prescribed persons’) and on payments to non-residents in connection with Pakistan-source income.
Under the local law, for non-residents having no PE in Pakistan, primarily WHTs are applicable on payments such as fees for technical service, royalties, dividends, interests, insurance premiums, fees for offshore digital services, fees for money transfer operations, card network services, payment gateway services and inter-bank financial telecommunication services etc. The applicable WHT rate on such payments ranges from 5% to 20%, subject to any relief available under the DTT. The tax withheld is deemed to be the final tax liability of the non- resident.
Common payments to non-residents, the applicable tax rate under the local law, and any relief available under the respective tax treaty are tabulated below:
|Recipient (1, 2, 3)||WHT (%)|
|Belgium||10 (11)/15||15||15/20 (12)|
|Bosnia and Herzegovina||10||20||15|
|Canada||15 (11)/20 (10)||25||15/20 (12)|
|Czech Republic||5/15 (10)||10||10|
|Finland||12/15/20 (10)||10 (13)/15||10|
|Germany||10/15 (10)||10 (13)/20||10|
|Ireland, Republic of||5 (10)/10||10||10|
|Italy||15/25 (10, 11)||30||30|
|Korea, Republic of||10 (11)/12.5 (10)||12.5||10|
|Malaysia||15 (11)/20 (11)/10||15||15|
|Nepal||10 (10)||10 (19)/15||15|
|Netherlands||10/20 (10)||10 (13)/15/20 (10)||5/15 (16)|
|Philippines||15/25 (10)||15||15 (14)/25|
|Poland||15 (10, 11)||(7)||15/20 (12)|
|Saudi Arabia||5 (15)/10||10||10|
|South Africa||10/15 (10)||10||10|
|Sri Lanka||15 (10)||10||20|
|Thailand||15 (11)/25 (10)||10 (13)/25||10/20 (18)|
|Turkey||10 (11)/15 (10)||10||10|
|United Arab Emirates||10/15 (10)||10||12|
|United Kingdom||10 (11)/15/20 (10)||15||12.5|
- This table is a summary only and does not reproduce all the provisions that may be relevant in determining the application of WHT in each tax treaty.
- Resident and non-resident imply tax status.
- Individuals and companies are required to render annual returns of income and pay tax at the applicable rates. Credit is given for WHT deducted.
- WHT rates for dividend, interest and royalties given to non-resident corporations and individuals of treaty countries vary depending upon terms of relevant tax treaty.
- The following remarks for dividends should be noted:
- The inter-corporate rate of tax on dividends received by a foreign corporation is 15%; corresponding treaty WHT rates in excess of 15% have been specified.
- The rates given in the table for treaty countries relate to recipient corporations. The maximum rate, as stated above, in respect of inter-corporate dividends is 15%.
- Certain treaties provide for tax exemption of interest paid to the government or the central bank of the contracting state and on foreign loans specifically approved by the federal government.
- No concession is provided under the treaty.
- Royalties are exempt from tax, provided the recipient does not have a PE in Pakistan.
- WHT rate depends on percentage of holding in the company.
- This rate applies if the paying company is engaged in the industrial undertaking.
- Consideration for technical know-how or information concerning industrial, commercial, or scientific experience.
- This rate applies if the beneficial owner is a bank.
- This rate applies if the paying company operates in preferred areas.
- This rate applies if the company is owned by the government.
- 5% is applicable for royalties payable for copyright of a literary, artistic, or scientific work, but excluding cinematograph films and tapes for television or broadcasting. All other royalties are taxable at 15%.
- 18% is applicable for royalties payable for patent, trademark, design or model, plan, secret formula, or process of any industrial or scientific equipment, or for information concerning industrial and scientific experience; 15% for copyright of literary, artistic, or scientific work; and 10% for copyright of cinematograph films or tapes for television or radio broadcasting.
- 10% is applicable for royalties payable for copyright of literary, artistic, and scientific work. All other royalties are taxable at 20%.
- The rate applies if the beneficial owner is a financial institution, an insurance company, or investment company.
- 15% applies if the beneficial owner of dividends is a company.
- 0% applicable in case interest is being earned by the government, a company 51% or more shares of which are held by the government, or the loan is guaranteed by the government or any of its institutions.
For resident taxpayers and non-residents having a PE in Pakistan, WHTs are applicable on a number of the transactions, including sale of goods, execution of contracts, and rendering of services. These taxes are generally considered as transaction-based minimum taxes (except for sale of goods by a manufacturer or a company listed on a Pakistani stock exchange) and are adjustable against a person’s annual tax liability.
It should be noted that certain WHTs are enhanced by 100% where a taxpayer does not appear on the ATL.
WHT implications / provisions in the local law on the following transactions have been withdrawn through Finance Act, 2021 (effective from July 1, 2021):
- Payment of royalty to residents.
- Cash withdrawals by those not appearing on the ATL.
- Banking instruments sold/cancelled against cash by those not appearing on the ATL.
- Banking transactions by those not appearing on the ATL.
- Amounts remitted abroad through credit or debit or prepaid cards.
- Domestic air travel.
- International air travel.
- Extraction of minerals.
- Commission earned by member of a stock exchange. The said WHT was otherwise made inapplicable with effect from 1 March 2019. Clarification is required regarding whether such omission would render WHT applicable on the commission earned by members of the stock exchange.
- Margin financing by NCCPL.
- Gas bill of CNG stations.
- Sale of petroleum products to petrol pump operators or distributors not receiving commission or discount.
However, through Finance Act, 2022 (effective from July 1, 2022), advance tax collected on amount remitted abroad through credit or debit cards is reinstated.