Income Tax Rule 19 specifies how fees received by non-residents for technical services from Pakistani sources will be taxed, including allowable deductions and an option to choose taxation under Section 6.
ISLAMABAD: The Federal Board of Revenue (FBR) has prescribed rules for taxing fees for technical services received by non-resident persons from Pakistan during Tax Year 2027.
The FBR issued the Income Tax Rules, 2002, updated up to September 15, 2026, for Tax Year 2027, covering the period from July 1, 2026, to June 30, 2027.
Under Rule 19, fees for technical services received by a non-resident from a resident person or a permanent establishment in Pakistan of another non-resident are subject to specific deductions and tax calculation procedures.
Tax Treatment of Technical Services Fees
According to Rule 19, the tax treatment depends on the date of the agreement under which the fee is received.
For agreements made before March 8, 1980, or agreements approved by the government before that date, the gross fee will be reduced by deductions allowed under Section 40 of the Income Tax Ordinance, 2001.
For agreements made on or after March 8, 1980, but before May 4, 1981, deductions under Section 40 will be permitted, subject to a maximum limit of 20% of the gross technical services fee.
For other agreements, where Section 6(2) does not apply, the following expenses can be deducted:
• Expenditure incurred in Pakistan to earn technical services fees, regardless of where the payment is made.
• Expenditure incurred outside Pakistan under the agreement, subject to a maximum of 10% of the gross fee.
Option to Choose Taxation Under Section 6
Rule 19 also allows a non-resident person to opt for taxation under Section 6 of the Income Tax Ordinance, 2001.
To exercise this option, the non-resident must submit a written declaration within 15 days of the commencement of the contract.
Once exercised, the option will remain effective until completion of the contract.
The FBR has further clarified that the deduction provisions under clause (c) will not apply where technical services fees are covered by Section 169 of the Income Tax Ordinance, 2001.
These provisions establish the applicable framework for calculating taxable technical services income received by non-residents during Tax Year 2027.