Minimum tax to apply on non-resident PE companies

Minimum tax to apply on non-resident PE companies

KARACHI: The minimum tax on turnover has been proposed to impose on non-resident companies having permanent establishment (PE) in Pakistan.

The amendment in Section 113 of the Income Tax Ordinance, 2001 has been proposed through Finance Bill, 2020.

According to EY Ford Rhodes Chartered Accountants the Section 113 of the Ordinance levies minimum tax on a person based on his turnover where such person is not liable to pay tax due to various reasons listed therein.

However, the levy of minimum tax in case of corporate taxpayers, is only applicable on resident companies.

This means that foreign companies having a permanent establishment in Pakistan (including a branch) are not subject to minimum tax.

The Finance Bill 2020 has now proposed to include non-resident companies having a permanent establishment in Pakistan under the domain of minimum tax on turnover.

Consequently, such companies would be required to compute minimum tax under Section 113 of the Ordinance for determination of their ultimate tax liability.

It may be noted that in the matter of levy of tax on non-resident persons, as per Section 107 of the Ordinance, the provisions of the Avoidance of Double Tax Agreement between Pakistan and the respective country would prevail over the provisions of the Ordinance.

It needs to be appreciated that in most of the agreements Pakistan has signed with other countries, a permanent establishment of a non-resident in Pakistan would be taxable only on net income basis.

“Therefore, the applicability of minimum tax in case of a non-resident person having a permanent establishment in Pakistan may be put to a question where a avoidance of double taxation treaty prevails,” they said.

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