28/07/2024
Foreign Salary Treatment:
In Pakistan, the Federal Board of Revenue (FBR) governs the taxation of foreign salaries. The treatment of foreign salary depends on the residency status of the individual. Here's a detailed overview:
Residency Status
Resident:
A person is considered a resident for tax purposes in Pakistan if they meet any of the following criteria:
They are present in Pakistan for 183 days or more in a tax year.
They are an employee or official of the Government of Pakistan posted abroad during the tax year.
They maintain a place of abode in Pakistan at any time during the year and are present in Pakistan for an aggregate of 30 days or more during the tax year.
Non-Resident:
An individual who does not meet any of the above criteria is considered a non-resident.
Taxation of Foreign Salary
Residents:
Residents are taxed on their worldwide income, including foreign salaries.
If a resident earns a salary from employment outside Pakistan, it is included in their taxable income.
Foreign tax credits may be available to avoid double taxation, subject to agreements between Pakistan and the country where the salary is earned.
Non-Residents:
Non-residents are only taxed on their Pakistan-sourced income.
Foreign salaries earned by non-residents are not subject to tax in Pakistan.
Key Points to Consider
Double Taxation Agreements (DTAs): Pakistan has DTAs with various countries to prevent double taxation. These agreements can affect the taxation of foreign salaries for residents and may allow for tax credits or exemptions.
Tax Credits: If tax has been paid on foreign income in another country, residents can claim a tax credit to avoid double taxation, as per the provisions of the relevant DTA.
Filing Requirements: Residents must declare their worldwide income, including foreign salaries, in their tax returns. Non-residents only need to declare their Pakistan-sourced income.
Practical Steps
Determine Residency Status: Check your residency status based on the criteria mentioned above.
Declare Foreign Salary: If you are a resident, include your foreign salary in your tax return.
Claim Tax Credits: If applicable, claim tax credits for taxes paid abroad to avoid double taxation.
Consult a Tax Professional: For specific cases, especially those involving DTAs and complex situations, consulting a tax professional is advisable.
