Individual - Foreign tax relief and tax treaties

Last reviewed - 23 January 2024

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.

Tax treaties

Pakistan has executed tax treaties with more than 66 countries (see the Withholding taxes section in the Corporate tax 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 take precedence over the tax laws applicable in Pakistan with respect to taxation of Pakistan-source income of a non-resident person (subject to certain restrictions now introduced in law; for detail, please refer to the Other issues section in the Corporate tax summary). Most of the treaties are based on the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention.