Islamabad, December 10, 2025 – The Federal Board of Revenue (FBR) has provided detailed guidance on the tax treatment of gains from disposal of assets outside Pakistan under Section 101A of the Income Tax Ordinance, 2001.
The move aims to clarify how non-resident companies are taxed on assets connected to Pakistan, ensuring transparency and compliance with the law.
Key Highlights of Section 101A
Section 101A focuses on how gains arising from disposal or alienation of assets outside Pakistan are treated for tax purposes. The rules apply primarily to non-resident companies and their investments linked to Pakistan.
1. Gains from Pakistan-Linked Assets
• Gains from the disposal of an asset located in Pakistan by a non-resident company are treated as Pakistan-source income.
• Such gains are chargeable to tax as per the method defined in subsection (10) of Section 101A.
2. Shares or Interests in Non-Resident Companies
A share or interest in a non-resident company is treated as Pakistan-located if:
• Its value derives primarily from assets in Pakistan, and
• 10% or more of the share capital is disposed of.
Additional condition: The Pakistan-linked assets’ value must exceed PKR 100 million and represent at least 50% of the total assets of the non-resident company as of the last day of the preceding tax year.
The fair market value will be determined as prescribed, without deduction of liabilities.
3. Partial Pakistan Assets
• If a non-resident company holds some assets outside Pakistan, the income from disposal of shares or interests is taxed only to the extent attributable to Pakistan-based assets.
4. Resident Company as Intermediary
• If a resident company holds Pakistan-linked assets on behalf of a non-resident, it must submit information to the FBR within 60 days of disposal.
• The FBR may shorten this period via written notice.
5. Tax Collection at Source
Acquirer of the asset:
• Must deduct 10% tax on the fair market value of the asset from the gross payment to the non-resident.
• Payment to FBR is due within 15 days via the government treasury or authorized bank.
Resident company intermediary:
• Must collect advance tax from the non-resident within 30 days.
• Tax already deducted by the acquirer counts as pre-paid for credit purposes.
6. Tax Rate Calculation (Subsection 10)
The tax to be collected is the higher of:
1. 20% of capital gain (fair market value minus acquisition cost), or
2. 10% of the fair market value of the asset.
Once this tax is paid, no further tax is payable under capital gains provisions or Section 22 for the same gain.
7. Cross-Provision Application
• If the gain is taxable under Section 101A and other sections of the Income Tax Ordinance, the gain will also be taxable under the other provision.
Why This Matters for Non-Resident Companies
• Ensures transparency in taxation of Pakistan-linked assets, even if the transaction occurs abroad.
• Covers shares, business interests, and partial asset holdings, including indirect ownership.
• Introduces a clear mechanism for advance tax collection to prevent tax evasion.
Conclusion
The FBR’s Section 101A guidance provides a comprehensive framework for taxing gains on assets outside Pakistan, particularly for non-resident companies with investments linked to the country. Compliance with these provisions is essential to avoid penalties and ensure smooth cross-border transactions.
(Disclaimer: This article is for informational purposes only and does not constitute legal, tax, or financial advice. Non-resident companies should consult a qualified tax professional or the FBR for guidance specific to their circumstances. Rules and rates are subject to change.)