Tax rates on payments to non-residents during 2022-2023

Federal Board of Revenue (FBR) has issued latest withholding tax rates on payments to non-residents during the year 2022/2023.

The FBR issued the withholding tax card for tax year 2023 (July 01, 2022 to June 30, 2023) after amending the Income Tax Ordinance, 2001 through changes brought through Finance Act, 2022.

Following is the text of Section 152 related to Payments to non-residents and rates of withholding tax:

152. Payments to non-residents.—

Sub-section (1) Every person paying an amount of royalty or fees for technical services to a non-resident person that is chargeable to tax under section 6 shall deduct tax from the gross amount paid at the rate specified in Division IV of Part I of the First Schedule.

The withholding tax rate shall be 15 per cent under Sub-section (1).

(1A) Every person making a payment in full or part (including a payment by way of advance) to a non-resident person on the execution of –

(a) a contract or sub-contract under a construction, assembly or installation project in Pakistan, including a contract for the supply of supervisory activities in relation to such project; or

(b) any other contract for construction or services rendered relating thereto; or

shall deduct tax from the gross amount payable under the contract at the rate specified in Division II of Part III of the First Schedule.

The rate of withholding tax shall be 7 per cent under sub-section (1A).

(1AA) Every person making a payment of insurance premium or re-insurance premium to a non-resident person shall deduct tax from the gross amount paid at the rate specified in Division II of Part III of the First Schedule.

The rate of withholding tax shall be 5 per cent under sub-section (1AA).

(1AAA)Every person making a payment for advertisement services to a non-resident media person relaying from outside Pakistan shall deduct tax from the gross amount paid at the rate specified in Division II of Part III of the First Schedule.

The rate of withholding tax shall be 10 per cent under sub-section (1AAA).

(1B) The tax deductible under sub-sections (1A), (1AA) and (1AAA) shall be a minimum tax on the income of the non-resident persons in respect of payments mentioned therein.

(1BA) Every person responsible for making payment directly or through an agent or intermediary to a non-resident person for foreign produced commercial for advertisement on any television channel or any other media, shall deduct tax at the rate of twenty percent from the gross amount paid. The tax deductible under this sub-section shall be final tax on the income of non-resident person arising out of such payment.

The rate of withholding tax shall be 20 per cent under sub-section (1BA).

(1C) Every banking company or a financial institution remitting outside Pakistan an amount of fee for offshore digital services, chargeable to tax under section 6, to a non-resident person on behalf of any resident or a permanent establishment of a non-resident in Pakistan shall deduct tax from the gross amount paid at the rate specified in Division IV of Part I of the First Schedule.

The rate of withholding tax shall be 10 per cent under sub-section (1C).

(1D) Every banking company or a financial institution maintaining special convertible rupee account (SCRA) of a non-resident company having no permanent establishment in Pakistan shall deduct tax from capital gain arising on the disposal of debt instruments and Government securities including treasury bills and Pakistan investment bonds invested through SCRA at the rate specified in Division II of Part III of the First Schedule.

The rate of withholding tax shall be 10 per cent under sub-section (1D).

(1DA) Every banking company maintaining a Foreign Currency Value Account (FCVA) or a non-resident Pakistani Rupee Value Account (NRVA) of a non-resident individual holding Pakistan Origin Card (POC) or National ID Card for Overseas Pakistanis (NICOP) or Computerized National ID Card (CNIC) shall deduct tax from capital gain arising on the disposal of debt instruments and government securities and certificates (including Shariah compliant variant) invested through aforesaid accounts at the rate specified in Division II of Part III of the First Schedule.

The rate of withholding tax shall be 10 per cent under sub-section (1DA).

(1DB) Every special purpose vehicle or a company, at the time of making payment of a return on investment in sukuks to a non-resident sukuk holder shall deduct tax from the gross amount of return on investment at the rate specified in Division IB of Part III of the First Schedule.

The rates of withholding tax under sub-section (1DB) are:

a. 25 per cent in case the sukuk holder is a company

b. 12.5 per cent in case the sukuk holder is an individual or an association of person. If the return on investment is more than one million.

c. 10 per cent in case the sukuk holder is an individual and an association, if the return on investment is less than one million.

(1DC) Every exchange company licensed by the State Bank of Pakistan shall deduct tax at the time of making payment of service charges or commission or fee, by whatever name called, to the global money transfer operators, international money transfer operators or such other persons engaged in international money transfers or cross-border remittances for facilitating outward remittances, at the rates given in Division IV, Part I of the First Schedule:

Provided that where such person retains service charges or commission or fee, by whatever name called from the amount payable to the exchange company on any account, the exchange company shall be deemed to have paid the service charges or commission or fee, by whatever name called and the exchange company shall collect the tax accordingly.

(1DD) Every banking company while making payment to card network company or payment gateway or any other person, of any transaction fee or licensing fee or service charges or commission or fee by whatever name called or interbank financial telecommunication services, shall deduct tax at the rates given in Division IV, Part I of the First Schedule:

Provided that where card network company or payment gateway or any other person retains money in relation to aforementioned services from the amount payable to the banking company on any account, the banking company shall be deemed to have paid the amount and the banking company shall collect the tax accordingly.

(1E) The tax deductible under sub-sections (1D), (1DA) (IDB), (1DC) and (IDD) shall be a final tax in respect of persons and income mentioned therein.

(2) Subject to sub-section (3), every person paying an amount to a non-resident person (other than an amount to which sub-section (1) or sub-section (1A), (1AA), (1AAA), (1C) or (2A) applies) shall deduct tax from the gross amount paid at the rate specified in Division II of Part III of the First Schedule.

(2A) Every prescribed person making a payment in full or part including a payment by way of advance to a permanent establishment in Pakistan of a non-resident person—

(a) for the sale of goods except where the sale is made by the importer of the goods and tax under section 148 in respect of such goods has been paid and the goods are sold in the same condition as they were when imported;

The rate of withholding tax is 4 per cent for filer of income tax returns and 8 per cent for persons not on Active Taxpayers List (ATL) in case of company under Section 152(2A)(a). Other than company the withholding tax rate is 4.5 per cent for income tax return filers and 9 per cent for persons not on the Active Taxpayers List (ATL).

(b) for the rendering of or providing services; and

The withholding tax rates under Section 152 (2A)(b) are:

Persons rending or providing of certain services, the tax rate is 3 per cent for return filers and 6 per cent for persons not on the ATL.

In case of company the tax rate is 8 per cent in case of income tax return filer and 16 per cent in case of not on the ATL.

Other than company cases, the tax rate is 10 per cent in case of income tax return filer and 20 per cent for persons not on the ATL.

(c) on the execution of a contract, other than a contract for the sale of goods or the rendering of or providing services, shall, at the time of making the payment, deduct tax from the gross amount payable (including sales tax, if any) at the rate specified in Division II of Part III of the First Schedule.

The withholding tax rates under Section 152(2A)(c) are:

The tax rate of sports person is 10 per cent in case of income tax return filer and 20 per cent in case of not on the ATL.

Other than sports persons, the tax rate shall be 7 per cent and 14 per cent in case not on the ATL.

(2AA) sub-section (1AA) shall not apply to an amount, with the written approval of the Commissioner, hat is taxable to a permanent establishment in Pakistan of the non-resident person.

(2B) the tax deductible under sub-section (2A) shall be minimum tax:

Provided that tax deductible under clause (a) of sub-section (2A) shall not be minimum tax where payments are received for sale of goods by a company being a manufacturer of such goods.

(3) Sub-section (2) does not apply to an amount —

(a) that is subject to deduction of tax under section 149, 150, 156 or 233;

(b) with the written approval of the Commissioner, that is taxable to a permanent establishment in Pakistan of the non-resident person;

(c) that is payable by a person who is liable to pay tax on the amount as representative of the non-resident person under sub-section (3) of section 172; or

(d) where the non-resident person is not chargeable to tax in respect of the amount.

(4) Where a person claims to be a representative of a non-resident person for the purposes of clause (c) of sub-section (3), the person shall file a declaration to that effect with the Commissioner prior to making any payment to the non-resident person.

(4A) The Commissioner may, on application made in the prescribed form by the recipient of payment referred to in sub-section (1A) having permanent establishment in Pakistan, or by a recipient of payment referred to in sub-section (2A), as the case may be, and after making such inquiry as the Commissioner thinks fit, allow by order in writing, in cases where the tax deductable under sub-section (1) or sub-section (2A) is not minimum tax, any person to make the payment without deduction of tax or deduction of tax at a reduced rate.”

(4B) The Commissioner may, in case of payment that constitutes part of an overall arrangement of a cohesive business operation as referred to in paragraph (ii) of sub-clause (g) of clause (41) of section 2, on application made by the person making payment and after making such inquiry, as the Commissioner thinks fit, allow by order in writing, the person to make payment after deduction of tax equal to twenty percent of the tax chargeable on such payment under sub-section (1A):

Provided that the credit of the tax so deducted shall be available to the permanent establishment of the non-resident accounting for overall profits arising on the overall cohesive business operation.

(5) Where a person intends to make a payment to a non-resident person without deduction of tax under this section, other than payments liable to reduced rate under relevant agreement for avoidance of double taxation, the person shall, before making the payment, furnish to the Commissioner a notice in writing setting out —

(a) the name and address of the non-resident person;

(b) the nature and amount of the payment ;and

(5A) The Commissioner on receipt of notice shall, within thirty days, pass an order accepting the contention or making the order under sub-section (6).

(6) Where a person has notified the Commissioner of a payment under sub-section (5) and the Commissioner has reasonable grounds to believe that the non-resident person is chargeable to tax under this Ordinance in respect of the payment, the Commissioner may, by order in writing, direct the person making the payment to deduct tax from the payment in accordance with sub-section (2).

(7) Sub-section (5) shall not apply to a payment on account of –

(a) an import of goods where title to the goods passes outside Pakistan and is supported by import documents, except where —

(i) the supply is made in connection with the overall arrangement for the supply of goods, installation, construction, assembly, commission, guarantees or supervisory activities and all or principal activities are undertaken or performed either by the associates of the person supplying the goods or its permanent establishment, whether or not the title passes outside Pakistan and whether or not the goods are imported in the name of the associate or any other person; or

(ii) the supply is made by a resident person or a Pakistan permanent establishment of a non-resident person in connection with the overall arrangement as referred to in sub-clause (i); or”

(b) educational and medical expenses remitted in accordance with the regulations of the State Bank of Pakistan.

(8) In this section “prescribed person” means a prescribed person as defined in sub-section (7) of section 153.