Islamabad, September 16, 2025 – The Federal Board of Revenue (FBR) has clarified the rules for taxation of foreign-source income earned by individuals who qualify as short-term residents in Pakistan during the tax year 2025-26.
The guidance has been issued through the updated Income Tax Ordinance, 2001.
According to Section 50 of the Ordinance, certain categories of foreign-source income will not be subject to Pakistani taxation if specific conditions are met. The law states that where a person becomes a resident of Pakistan solely because of employment, and their stay does not exceed three years, the foreign-source income of such individuals will generally remain exempt from local taxation.
However, the FBR also highlighted important exceptions to this exemption. The relief will not apply if the individual derives income from a business that is established within Pakistan. Additionally, any foreign earnings that are physically brought into or received in Pakistan will also not qualify for the exemption and will be subject to normal tax rules.
The clarification is aimed at providing certainty to expatriates and professionals who are temporarily employed in Pakistan. It ensures that genuine foreign-source income earned abroad is not taxed unfairly, while also safeguarding the government’s right to tax earnings linked to domestic business operations or funds remitted into the country.
Tax experts believe this provision will help attract skilled foreign workers and professionals by offering clarity and protection from double taxation, thus supporting both foreign investment and knowledge transfer.
(This article is for informational purposes only and does not constitute legal or tax advice. Readers are advised to consult a qualified tax professional for specific guidance.)