Pakistan - Individual - Foreign tax relief and tax treaties (2024)

Foreign tax relief

Any foreign-source salary received by a resident individual is exempt from tax in Pakistan if the individual has paid foreign income tax in respect of that salary.

Where a resident taxpayer derives foreign-source income chargeable to tax in Pakistan, in respect of which the taxpayer has paid foreign tax, the taxpayer is allowed a credit of an amount equal to the lesser of the foreign income tax paid or the Pakistan tax payable in respect of the income.

Foreign-source income of a resident who is not a citizen of Pakistan is exempt if the individual is resident only by virtue of employment and one’s presence in Pakistan does not exceed three years. This exemption does not apply in the case of income from a business established in Pakistan and foreign-source income that is brought into or received in Pakistan.

Tax treaties

Pakistan has executed tax treaties with more than 66 countries (see theWithholding taxessection in the Corporate tax summary for a list of countries with which Pakistan has a tax treaty). These conventions aim to eliminate double taxation of income or gains arising in one territory and paid to residents of another territory. The provisions of the tax treaties take precedence over the tax laws applicable in Pakistan with respect to taxation of Pakistan-source income of a non-resident person (subject to certain restrictions now introduced in law; for detail, please refer to theOther issues section in the Corporate tax summary). Most of the treaties are based on the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention.

Pakistan - Individual - Foreign tax relief and tax treaties (2024)


Is there a tax treaty between the US and Pakistan? ›

The convention with Pakistan follows in general the pattern of income-tax conventions presently in force between the United States and a number of foreign countries, namely, Australia, Belgium, Canada, Denmark, Finland, France, the Federal Republic of Germany, Greece, Honduras, Ireland, Italy, Japan, the Netherlands, ...

What foreign income is exempt from tax in Pakistan? ›

(1) Any foreign- source income derived by a citizen of Pakistan in a tax year who was not a resident individual in any of the four tax years preceding the tax year in which the individual became a resident shall be exempt from tax under this Ordinance in the tax year in which the individual became a resident individual ...

Do tax treaties apply to individuals? ›

Tax treaties generally reduce the U.S. taxes of residents of foreign countries as determined under the applicable treaties. With certain exceptions, they do not reduce the U.S. taxes of U.S. citizens or U.S. treaty residents.

How much foreign remittance is tax free in Pakistan? ›

Source must be explained: Remittances exceeding Rs5m not added to taxable income: FBR. Foreign remittances exceeding Rs 5 million do not attract any addition to income chargeable to tax, but if the source of foreign remittance is not explainable, such amount will be added to income chargeable to tax.

Does Pakistan tax foreign income? ›

Pakistan levies tax on its residents on their worldwide income. A non-resident individual is taxed only on Pakistan-source income, including income received or deemed to be received in Pakistan or deemed to accrue or arise in Pakistan.

What is the foreign tax credit in Pakistan? ›

A foreign tax credit is a credit given for taxes paid on income earned outside Pakistan. This credit is given to avoid double taxation on the same income. To claim a foreign tax credit, you must provide evidence of taxes paid outside Pakistan.

How much foreign income is tax free? ›

For the tax year 2022 (the tax return filed in 2023), you may be eligible to exclude up to $112,000 of your foreign-earned income from your U.S. income taxes. For the tax year 2023 (the tax return filed in 2024), this amount increases to $120,000.

How much foreign remittance is allowed in Pakistan? ›

He stated that under the Finance Bill 2023, the government has enhanced the monetary limit of foreign remittance remitted from outside Pakistan from five million rupees to rupee equivalent of US$100,000 for the purpose of section 111(4) which places a bar on asking nature and source of unexplained income/assets.

What foreign income is exempt from tax? ›

If you're an expat and you qualify for a Foreign Earned Income Exclusion from your U.S. taxes, you can exclude up to $112,000 or even more if you incurred housing costs in 2022. (Exclusion is adjusted annually for inflation). For your 2023 tax filing, the maximum exclusion is $120,000 of foreign earned income.

What is the $5000 tax treaty? ›

A tax treaty that covers wages will either exempt a specific amount of wages received in the calendar year (for example, the first $5,000 in wages received after the tax treaty is signed) or all wages received in a specific period of time (for example, all wages earned in the first three years from the date the ...

How to avoid double taxation on foreign income? ›

Foreign Earned Income Exclusion

Expats can use the Foreign Earned Income Exclusion (FEIE) to exclude a certain amount of foreign income from US taxation. The maximum exclusion amount changes each year. For the 2023 tax year, the FEIE exclusion limit is $120,000 and will increase to $126,500 for the 2024 tax year.

How to claim tax treaty exemption? ›

Treaties are only applicable to Non-Resident Aliens for tax purposes. To claim a tax treaty exemption, you must submit IRS Form 8233 to your employer prior to starting your employment and at the beginning of each new tax year.

How much money can you take to Pakistan without declaring? ›

Any incoming passengers when in possession of foreign currency exceeding US$10,000 or equivalent is also required to file declaration. Moreover, Pakistani currency can be taken out with a maximum limit of Rs 10,000.

What is exempt from withholding tax in Pakistan? ›

There is exemption from deduction of income tax at source from services rendered, of specified food items (fresh milk, fish from fish farming, live chicken from poultry farming, live cattle from cattle farming and unpackaged meat).

What is foreign remittance in Pakistan? ›

Remittance is acceptable which has been made to a Pakistan Rupee Account or which has been converted into Pakistan Rupee from a Foreign Currency Account through bank.

What countries do not have a tax treaty with the US? ›

Some notable examples of countries for which the U.S. does not currently have an income tax treaty include Brazil, Argentina, Chile, Vietnam and Singapore.

What is the trade agreement between US and Pakistan? ›

Pakistan and the United States signed a Trade and Investment Framework Agreement (TIFA) in 2003, which provides a forum for discussion of bilateral trade issues. The most recent TIFA intercessional meeting was held in Islamabad in May 2019. Pakistan has free trade agreements with Sri Lanka, China, and Malaysia.

Who qualifies for US tax treaty? ›

In general, in order to be eligible for a tax treaty in the US, a person must meet the following criteria: 1) be a resident of a country that has a tax treaty with the US, 2) be a Non-Resident Alien for Tax Purposes in the United States, 3) currently be earning qualifying income in the United States, and 4) have a US ...

Does the US have a tax treaty? ›

The United States has tax treaties with a number of foreign countries. Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate, or are exempt from U.S. taxes on certain items of income they receive from sources within the United States.

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