New tax card sets different dividend withholding rates based on recipient status, investment vehicle and source of income.
ISLAMABAD: The Federal Board of Revenue (FBR) has notified withholding tax rates on dividend payments for Tax Year 2027, with rates varying according to the nature of the recipient, type of dividend income and taxpayer status.
According to the FBR’s withholding tax card for Tax Year 2027, dividends paid by Independent Power Producers (IPPs) will attract withholding tax at 7.5% for persons on the Active Taxpayers List (ATL), compared with 15% for non-ATL persons.
For Real Estate Investment Trusts (REITs) and dividend payments other than those specifically covered under the relevant provisions of Division-I, Part-III of the First Schedule, the withholding tax rate has been set at 15% for ATL taxpayers and 30% for non-ATL taxpayers.
Mutual fund dividend tax rates
The FBR has prescribed separate withholding tax rates for dividends distributed by mutual funds, with the applicable rate depending on the source of the mutual fund’s income.
For ATL taxpayers, the rate is 25% for income derived from debt securities and 15% for income derived from equities.
Non-ATL taxpayers will face significantly higher rates of 50% on income derived from debt securities and 30% on income derived from equities.
For mutual funds deriving 50% or more of their income from profit on debt, the withholding tax rate has been fixed at 25% for ATL taxpayers and 50% for non-ATL taxpayers.
Zero tax on certain REIT dividends
The tax card provides a zero withholding tax rate on dividends received by a REIT scheme from a Special Purpose Vehicle (SPV).
The applicable rate in such cases is 0% for both ATL and non-ATL taxpayers.
However, dividends received by other persons from an SPV, as defined under the Real Estate Investment Trust Regulations, 2015, will attract substantially higher withholding tax.
The rate has been set at 35% for ATL taxpayers and 70% for non-ATL taxpayers.
Higher rates for companies claiming exemptions or tax credits
The FBR has also prescribed a withholding tax rate of 25% for ATL taxpayers and 50% for non-ATL taxpayers where a company receiving dividend income is not paying tax because of an income exemption, carry-forward of business losses or a claim of tax credits under the relevant provisions of the Income Tax Ordinance, 2001.
The differentiated rates reflect the tax treatment applicable to various investment vehicles and sources of dividend income under the income tax framework.
Tax rates applicable for Tax Year 2027
The rates have been notified under Division-I, Part-III of the First Schedule, read with Rule 1 of the Tenth Schedule, as part of the withholding tax framework applicable for Tax Year 2027.
The tax card shows a substantial difference between the rates applicable to ATL and non-ATL taxpayers. In several categories, non-ATL recipients face double the withholding tax rate applicable to taxpayers maintaining active status.
The latest notification therefore highlights the importance of maintaining ATL status for investors receiving dividend income, while also providing different tax treatment according to the nature and source of the dividend.