Tax on Foreign Income in Pakistan — Guide for Overseas Pakistanis

Do Overseas Pakistanis Need to Pay Tax in Pakistan?

It depends on your tax residency status. If you are a tax resident of Pakistan, you are taxable on your worldwide income — including foreign salary, business income, rental income, and investment returns earned outside Pakistan. If you are a non-resident, you are only taxable on Pakistan-source income.

This distinction is the single most important factor in determining your tax obligations. Many overseas Pakistanis assume they have no tax liability back home, but this assumption can be costly if they still qualify as tax residents.

Resident vs Non-Resident: How Is It Determined?

Under Section 82 of the Income Tax Ordinance 2001, you are considered a tax resident of Pakistan if:

• You are present in Pakistan for 183 days or more in a tax year (July 1 to June 30), OR
• You are an employee of the federal or provincial government posted abroad, OR
• You are a Pakistani citizen who is not a tax resident of any other country

The third condition is often overlooked. If you are living abroad but have not obtained tax residency in another country (for example, you are on a temporary visa and not filing taxes locally), Pakistan may consider you a tax resident by default.

A non-resident is anyone who does not meet any of the above conditions. Non-residents are only taxed on income that originates from Pakistan — such as rental income from Pakistani property, dividends from Pakistani companies, or business income from a permanent establishment in Pakistan.

Tax Treatment of Foreign Remittances

One of the most common questions from overseas Pakistanis is: "Will I be taxed on money I send back to Pakistan?"

The short answer is generally no, provided the remittance comes from a legitimate foreign source. Under Section 111(4) of the Income Tax Ordinance, any amount received through normal banking channels from outside Pakistan is exempt from tax, and the FBR cannot question its source.

This protection applies to:

• Salary remittances from overseas employment
• Business income earned abroad and remitted to Pakistan
• Gift money sent from abroad
• Savings and investment returns transferred to Pakistani bank accounts

The key requirement is that the funds must enter Pakistan through formal banking channels (bank transfers, telegraphic transfers, or home remittance schemes). Cash carried physically or sent through informal channels (hundi/hawala) does not receive this protection.

Foreign Property Income

If you are a tax resident of Pakistan and own property abroad that generates rental income, that income is taxable in Pakistan. You must report it in your annual tax return and pay tax at the applicable slab rates.

However, if you have already paid tax on the same income in the country where the property is located, you may be eligible for a foreign tax credit under Pakistan's Double Taxation Agreements (DTAs) to avoid being taxed twice on the same income.

Double Taxation Agreements

Pakistan has signed Double Taxation Agreements (DTAs) with over 65 countries, including the UAE, Saudi Arabia, the UK, the USA, Canada, Australia, and most European nations. These agreements determine:

• Which country has the primary right to tax specific types of income
• Maximum withholding tax rates on cross-border payments (dividends, interest, royalties)
• Methods to eliminate double taxation (credit method or exemption method)

Under most DTAs, if you have paid tax on income in the foreign country, Pakistan will either exempt that income or give you a credit for the foreign tax paid against your Pakistani tax liability.

Section 7E — Deemed Income on Assets

Under Section 7E of the Income Tax Ordinance, a deemed income of 5% of the fair market value of certain capital assets is taxed at 20%. This effectively creates a 1% annual tax on the value of immovable property held in Pakistan.

This applies to both residents and non-residents who own immovable property in Pakistan. Exemptions exist for:

• One self-occupied property (up to a specified area)
• Property allotted to government employees under government schemes
• Agricultural land (subject to conditions)
• Property held by certain categories of overseas Pakistanis (specific exemptions have been introduced and modified over successive Finance Acts)

This section is controversial and has been challenged in courts. We recommend consulting with a tax advisor to determine the current applicability to your specific situation.

NTN Requirements for Overseas Pakistanis

If you own property in Pakistan, have bank accounts generating taxable income, or earn any Pakistan-source income, you need a National Tax Number (NTN) and should file annual tax returns. Being on the FBR's Active Taxpayer List (ATL) provides significant benefits:

• Lower withholding tax rates on property transactions, banking, and investments
• Reduced tax on property purchases and sales
• Easier documentation when buying or selling property in Pakistan

Overseas Pakistanis can register for an NTN and file returns through the FBR IRIS portal online, without needing to visit Pakistan.

Practical Steps for Overseas Pakistanis

1. Determine your tax residency status — check if you meet the 183-day rule or any other residency test
2. Always remit through banking channels — this protects your funds under Section 111(4)
3. Register for NTN if you own assets in Pakistan or earn Pakistan-source income
4. File annual returns to stay on the Active Taxpayer List and benefit from lower withholding rates
5. Claim foreign tax credits where applicable under DTAs
6. Keep records of all foreign income, taxes paid abroad, and remittances

Need Professional Guidance?

Tax obligations for overseas Pakistanis can be complex, especially when multiple jurisdictions are involved. Our income tax specialists work with overseas Pakistanis across the Gulf, Europe, and North America to ensure compliance in Pakistan while minimizing double taxation. Contact us for a consultation.