12/12/2020
"Taxation of Permanent Establishment in Pakistan of a Non-Resident"
The following principles shall be applied to determining the income of permanent establishment in Pakistan of a Non-resident person chargeable to tax under the head “Income from Business” specifically;
The profit of permanent establishment shall be computed as its separate block of income engaged in a similar scope of work or business under the same condition with a Non-resident of which it is a PE.
The expenses are allowed as a deduction for the purpose of business activities of PE including management and administrative expenses incurred whether in Pakistan or outside Pakistan.
The reimbursement of PE expenses shall be allowed on behalf of PE by the Non-resident to any of the vendor and third party such as Royalty, Technical Fee, and Management Fee for the use of Assets by its PE in Pakistan. However, the deduction shall be disallowed for any expense paid or payable to its head office by its PE in Pakistan.
Further, no account shall be taken in the determination of income of a PE, any amount charged by the PE to its head office or to some other PE of Non-resident excluding reimbursement of actual expenses incurred by PE to the third party in the head office such as;
Royalty or Technical Fee for the use of Assets. Management fee preform by PE. Profit on Debt on the monies lent by the PE except in the connection with banking business.
Head Office Expense means any expense incurred by its head office such as management expenses, general administrative expenses, rent, local taxes, repair, and insurance against the risk of damage of destruction outside Pakistan excluding foreign Income.
Salaries for the employees employed by the head office outside Pakistan.
Traveling expense of such employees and any other expense may prescribed.
Further, no deduction shall be allowed in computing the income of a PE in Pakistan of Non-resident person such as; profit on debt paid or payable by the Non-resident on debt to finance the operation of PE.
An insurance premium paid or payable to a Non-resident with respect to such debt only.
Your queries shall be appreciated.
About author;
Kashif is founding member and a Director of Mian & Company. Currently, he heads Direct Tax Practices of the Firm. He holds a degree of Master in Business Administration & Master in Economics. He also holds a certification Law and Entrepreneurship from Northwestern University Chicago, USA.
Kashif does have vast and divergent experience in Tax Practice spanning over 15 years. Prior to establishing his company, he served at a senior position in Moore Stephens Pakistan (Shekha & M***i, Chartered Accountants, Karachi). He had also been associated with Murad & Company, Chartered Accountants, Karachi and some other service industries as well. His experience in Tax Practice encompasses Advisory, Planning, and Litigation at various levels with Federal & Provincial Tax Authorities across the country.
Kashif has played a vital role in the resolution of complicated tax matters especially at FBR Islamabad and field formations across the country.
Kashif also has a rich experience in conducting Tax Workshops. He has conducted numerous Open house & In house Tax Workshops on varied topics in relation to Income Tax Laws in Pakistan.
Last but not the least, Kashif is very well known as a tax professional in reputed multinational and national industries. He does have high credentials with filed formations of FBR across the country.
Kashif is a registered tax practitioner of the Federal Board of Revenue Pakistan.
Kashif has vast exposure to taxation in various industries. Some of them are as follows:
§ Power, Oil, Gas & related services.
§ Media & communications
§ Airlines-branch operations
§ Shipping & logistics
§ Textile
§ Software houses
§ Leather industry
§ Telecommunications (Internet service providers)
§ Education & trainings
Thanks for reading
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