FBR sets Rs50m capital, 250-employee and Rs250m turnover thresholds for small-company status in Tax Year 2027.
ISLAMABAD: The Income Tax Ordinance, 2001 has set out specific criteria for a “small company” for Tax Year 2027, including limits on paid-up capital and undistributed reserves, employee numbers and annual turnover.
The Federal Board of Revenue (FBR) has issued the updated Income Tax Ordinance, 2001, incorporating amendments up to June 30, 2026, which provides the statutory definition and conditions for companies seeking classification as small companies.
What is a small company?
Under the Income Tax Ordinance, a small company is a company registered on or after July 1, 2005, under the Companies Act, 2017, that fulfils all the prescribed conditions.
The definition sets financial, employment and structural requirements that must be met for a company to qualify.
Paid-up capital and reserves capped at Rs50 million
One of the key conditions is that the company’s paid-up capital plus undistributed reserves must not exceed Rs50 million.
Companies exceeding this combined threshold would not meet the relevant requirement for small-company status.
Employee limit set at 250
The law also imposes an employment threshold.
A qualifying company must have no more than 250 employees at any time during the relevant tax year.
The employee limit is therefore assessed during the year rather than solely on the basis of the workforce at year-end.
Annual turnover cannot exceed Rs250 million
Another important condition relates to annual turnover.
A company must have annual turnover of no more than Rs250 million to satisfy the turnover requirement for small-company classification.
Companies exceeding the prescribed turnover limit would not qualify under the definition.
Company must meet structural conditions
The company must also have been registered on or after July 1, 2005, under the Companies Act, 2017.
In addition, it must not have been formed through the splitting up or reconstitution of an existing company.
This condition is intended to prevent an existing business from restructuring or dividing its operations simply to obtain small-company treatment.
SMEs excluded from definition
The Income Tax Ordinance further provides that a company does not qualify as a small company if it is already classified as a small and medium enterprise (SME) under the relevant provision of the law.
Businesses must therefore consider their classification under both provisions before determining their tax status.
Criteria for small-company status
For Tax Year 2027, a company must meet the following key requirements:
• Registered on or after July 1, 2005, under the Companies Act, 2017.
• Paid-up capital plus undistributed reserves must not exceed Rs50 million.
• The company must have no more than 250 employees at any time during the year.
• Annual turnover must not exceed Rs250 million.
• It must not have been formed through the splitting up or reconstitution of an existing company.
• It must not already qualify as an SME under the relevant provision of the Income Tax Ordinance.
Implications for businesses
The definition provides businesses with specific thresholds against which they can assess their eligibility for small-company classification for Tax Year 2027.
Companies should review their paid-up capital, undistributed reserves, employee strength, annual turnover, registration date and corporate structure to determine whether they fulfil all the statutory conditions.