Pakistan

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, and 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:

Notes

1. 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.
2. Resident and non-resident imply tax status.
3. Individuals and companies are required to render annual returns of income and pay tax at the applicable rates. Credit is given for WHT deducted.
4. WHT rates for dividends, interest, and royalties given to non-resident corporations and individuals of treaty countries vary depending upon the terms of the relevant tax treaty.
5. 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%.
6. 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.
7. No concession is provided under the treaty.
8. Royalties are exempt from tax, provided the recipient does not have a PE in Pakistan.
9. N/A.
10. WHT rate depends on percentage of holding in the company.
11. This rate applies if the paying company is engaged in the industrial undertaking.
12. Consideration for technical know-how or information concerning industrial, commercial, or scientific experience.
13. This rate applies if the beneficial owner is a bank.
14. This rate applies if the paying company operates in preferred areas.
15. This rate applies if the company is owned by the government.
16. 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%.
17. 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.
18. 10% is applicable for royalties payable for copyright of literary, artistic, and scientific work. All other royalties are taxable at 20%.
19. The rate applies if the beneficial owner is a financial institution, an insurance company, or investment company.
20. This rate applies if the beneficial owner of dividends is a company.
21. 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.
22. 10% applies if the interest is received in virtue of a contract of financing or of delay in payment relating to the sale of industrial, commercial, or scientific equipment or to the construction of industrial, commercial, or scientific installations, as well as of public works.

On a general note, where a treaty provides a WHT rate that is over and above the rate provided in the local law, the company may take relief under the local law.

Where a payer is required to remit an amount to a non-resident without deduction of tax, they can apply to the Commissioner for an exemption certificate. The Commissioner is required to pass an order on that application within a period of 30 days. In case the Commissioner fails to pass an order within the stipulated time period of 30 days (excluding the period for which the taxpayer sought adjournment), the certificate shall be automatically processed and issued by FBR IRIS web-portal. The Commissioner is, however, empowered to modify or cancel such automatically issued certificate after recording reasons in writing and providing an opportunity of being heard to the applicant.

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 Active Taxpayers List (ATL).