FBR confirms preferential tax treatment for qualifying foreign investments under the Foreign Investment (Promotion and Protection) Act, 2022.
ISLAMABAD: Pakistan has retained broad income tax exemptions and preferential tax treatment for qualifying foreign investments for Tax Year 2027 under the Foreign Investment (Promotion and Protection) Act, 2022.
The Federal Board of Revenue (FBR), in the Income Tax Ordinance, 2001 updated up to June 30, 2026, has outlined the tax treatment of qualified investments under Section 44A.
Tax relief for qualified investments
Under Section 44A, income taxes, including capital gains tax, advance tax, withholding taxes, minimum tax and final taxes, are exempt or subject to the rates and procedures specified under the Foreign Investment (Promotion and Protection) Act, 2022.
The exemption or preferential treatment applies for the period and to the extent provided in the Second and Third Schedules of the Act.
The provision applies to qualified investments specified in the First Schedule of the Foreign Investment (Promotion and Protection) Act, as well as investors covered by the legislation.
Investors and shareholders covered
The tax treatment also extends to all investors and shareholders of qualified investments, their associates and specified companies covered under the Second and Third Schedules of the Act.
Third-party lenders are also covered in respect of loans, with exemptions or specified tax treatment applying according to the period and extent provided under the relevant schedules.
Anti-avoidance provisions excluded
Section 44A further provides that certain anti-avoidance provisions of the Income Tax Ordinance will not apply to the persons and amounts covered by the exemption.
These include Sections 106, 106A, 108, 109 and 109A, to the extent and for the period specified under the Foreign Investment (Promotion and Protection) Act, 2022.
Depreciation and investment allowances
The provision also preserves certain rates applicable to depreciation, initial allowance and pre-commencement expenditure.
Rates under Sections 22, 23 and 25 that were applicable on March 20, 2022, will continue to apply for 30 years, as provided in the Third Schedule to the Foreign Investment (Promotion and Protection) Act.
The treatment applies to persons covered under Section 44A and remains subject to the conditions set out in the relevant legislation.
Definitions under foreign investment law
For the purposes of Section 44A, terms defined in the Second and Third Schedules of the Foreign Investment (Promotion and Protection) Act, 2022 will apply to the Income Tax Ordinance, with necessary modifications.
The FBR’s updated Income Tax Ordinance therefore maintains the tax framework provided under Pakistan’s foreign investment law for qualifying investments during Tax Year 2027.
The provisions cover a range of tax obligations and provide specified exemptions or preferential treatment to eligible investors, shareholders, associates, companies and certain third-party lenders, subject to the applicable conditions and periods.