New Tax Policies Target Dual Nationals and Tech Companies in Pakistan

The government has broadened the taxation rules for non-residents who earn income in Pakistan through digital means or presence, according to the amended Finance Bill 2024. New tax policies target dual nationals and tech companies in Pakistan.

The tech companies and dual nationals who are tax residents in other countries but earn income in Pakistan, such as rental income. These individuals and companies will now be taxed under the new rules.

If Pakistan signs a double taxation agreement with another country, foreign nationals from that country will only pay tax in one of the two countries. Any business presence in Pakistan will make them liable for tax.

New Tax Policies Target Dual Nationals and Tech Companies in Pakistan

Tola & Tola/Tola Associates explained that the amended Bill proposes adding new sub-sections 3A and 3B to Section 101 of the 2001 Ordinance.

According to Section 101(3) of the 2001 Ordinance, the business income of a non-resident person is considered Pakistan’s source income if it is directly or indirectly connected to any business activity in Pakistan.

The amended Bill proposes to define business connections to include a “significant economic presence in Pakistan.”

The amendment defines significant economic presence as:

• Transactions involving goods, services, or property between a non-resident and a person in Pakistan, including downloading data or software, if the total payments in a tax year exceed a specified amount.
• Systematic and continuous business activities or interactions through digital means with a specified number of users in Pakistan, regardless of whether:
  -They sign the agreement for the transactions in Pakistan;
  – The non-resident has a residence or place of business in Pakistan; or
  – The non-resident provides services in Pakistan.

Moreover, tax authorities will consider only the income related to these transactions or activities as arising from a business connection in Pakistan.

This amendment aims to expand taxation for non-residents earning income in Pakistan through digital means or presence. However, the new rule will take effect only once the government determines the specified amounts and number of users. It is also unclear who will be responsible for setting these specifications.

See Also: Pakistan Government Imposes 25% Tax on Mobile Phones Worth Over $500