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New Tax Rules for Dual Nationals and Tech Companies Earning in Pakistan

Government Expands Tax Scope in Pakistan for Non-Residents and Tech Companies

The government of Pakistan has extended the taxation framework to include non-residents generating income through digital means in the country under the revised Finance Bill 2024. This amendment affects tech companies and dual nationals who are tax residents elsewhere but earn income in Pakistan, such as rental income.

Impact on Tech Companies and Dual Nationals

Under the new provisions, if Pakistan enters into a double taxation agreement with another country, foreign nationals from that country will pay taxes in one of the two countries. Any business presence will make them liable for taxation in Pakistan.

Details of the Amended Finance Bill 2024

According to Tola & Tola/Tola Associates, the amended Bill proposes new sub-Sections 3A and 3B in Section 101 of the 2001 Ordinance. As per Section 101(3) of the Ordinance, the business income of a non-resident person shall be considered Pakistan-source income if it is attributable to any business connection in Pakistan.

The amendment introduces an inclusive definition of “business connection,” encompassing “significant economic presence in Pakistan.”

Defining Significant Economic Presence

The Amended Bill defines “significant economic presence” as:

  • Transactions involving goods, services, or property between a non-resident and any person in Pakistan, including data or software downloads, if the aggregate payments during the tax year exceed a prescribed amount.
  • Systematic and continuous solicitation of business activities or digital interactions with a prescribed number of users in Pakistan, regardless of whether:
    • The transaction agreements are signed in Pakistan.
    • The non-resident has a physical presence in Pakistan.
    • The non-resident provides services in Pakistan.

Only the income attributable to these transactions or activities will be considered as arising from a business connection in Pakistan.

Scope and Implementation

This amendment aims to broaden the taxation scope for non-residents earning income through digital means or presence in Pakistan. However, the specific amounts and user numbers are yet to be prescribed, and the responsible authority for these prescriptions is not yet clear.

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