Karachi, December 4, 2023 – The Federal Board of Revenue (FBR) has shed light on the fee for technical services during the tax year 2024, updating the Income Tax Rules, 2002.
The clarification comes as part of the ongoing efforts by the revenue body to streamline taxation processes and enhance transparency.
According to the FBR, the income of a non-resident person derived from a fee for technical services received from a resident person or a permanent establishment in Pakistan of a non-resident person is subject to specific regulations. The guidelines are outlined as follows:
(1) Fee Received Before March 8, 1980:
(a) In the case of a fee received in pursuance of an agreement made before the 8th day of March, 1980, or an agreement made on or after the said date but proposed before that date and approved by the Government, the gross amount of the fee is considered, less the deductions allowed under section 40.
(2) Fee Received Between March 8, 1980, and May 4, 1981:
(b) For fees received in pursuance of an agreement made on or after March 8, 1980, but before May 4, 1981, the gross amount of the fee is considered, less deductions allowed under section 40, with a maximum total deduction equal to twenty percent of the gross amount of such fee.
(3) Other Cases:
(c) In cases not covered by the above, the gross amount of the fee for technical services is considered, less the following perquisites:
(i) Any expenditure incurred in Pakistan to earn such fee, wherever paid.
(ii) Any expenditure incurred outside Pakistan in pursuance of such an agreement, not exceeding ten percent of the gross amount of the fee for technical services.
It is important to note that a non-resident has the option to choose taxation under section 6 of the Income Tax Ordinance, 2001, by filing a written declaration within 15 days of the commencement of the contract. This option remains in effect until the completion of the contract. However, clause (c) does not apply if the fee for technical services falls under the provisions of section 169.
Additionally, the FBR highlighted that the Certificate of Residence plays a crucial role in facilitating tax matters for individuals resident in Pakistan. For those seeking a certificate from the Competent Authority of Pakistan to present before the tax authorities of another country with which Pakistan has signed an Agreement for the Avoidance of Double Taxation and Fiscal Evasion, the FBR has outlined a straightforward application process.
Individuals seeking tax credit or fiscal relief in accordance with international agreements can submit an application for a Certificate of Residence. This step aims to ensure transparency and facilitate compliance with double taxation avoidance agreements.
The FBR’s clarification on the fee for technical services in tax year 2024 provides much-needed guidance for both residents and non-residents, promoting clarity and adherence to the updated regulations. The outlined provisions aim to strike a balance between facilitating cross-border transactions and ensuring a fair and transparent taxation framework.
