If you are a citizen of Pakistan residing in a foreign country, you might have some questions regarding filing your tax returns. Or maybe you want to know if you can become a tax filer. While the prospect of dealing with taxes may seem overwhelming to some, the process through which overseas Pakistanis become tax filers is quite simple.
Before going into a detailed discussion about the topic, it is vital to apprehend the concept of overseas Pakistani.
As per FBR, overseas Pakistani are;
”A person shall be a non-resident individual for a tax year if the individual is living outside Pakistan for 120 days or more in the tax year and, in the last four years, he has been outside Pakistan for a period not less than 365 days. This means that a person must remain in a foreign country for at least 08 months to claim overseas Pakistani status or a non-resident status for the tax year.’WHO IS OVERSEAS PAKISTANI AS PER THE FBR?
Overseas Pakistani as Tax filler:
- Overseas Pakistanis can become filers and can file their Income Tax Return in Pakistan.
- A Non-Resident person being a citizen of Pakistan with no Pakistan source income, generally does not owe any Income Tax to the government. However, he can still file Income Tax Return to avail the status of Tax Filer in Pakistan.
Foreign Pakistani or a non-resident Pakistan who is earning money in Pakistan or, in other words, is making taxable income in Pakistan are required to pay Income Tax on their income generated in Pakistan
- Pakistan-sourced income means income earned in Pakistan, which is taxable irrespective of where you receive it. Even if Pakistani ex-patriates residing in a foreign country are getting remuneration from an employer in Pakistan, they are liable to deduct their income tax from their salary at the source.
- Another essential thing to mention here is that your employer deducts income tax from your salary does not mean you are automatically a tax filer. You need to file your return to the Federal Board of Revenue’s Active Taxpayers List to become a filer in Pakistan.
- Furthermore, suppose ex-patriates have movable or immovable assets in Pakistan, such as vehicles or houses purchased solely from foreign income. In that case, they need to prove that the funds were sent from outside the country. You may also have to provide evidence that the transaction is made through proper channels allowed by the State Bank of Pakistan. In 2018, the Federal Board of Revenue decided to waive off the withholding tax on the withdrawal of remittances (funds sent home by non-resident Pakistanis.)
As per the Pakistan tax law, FBR and concerned authorities can open an inquiry into any taxpayer’s assets and ask them to explain the source, if needed.
HOW CAN OVERSEAS PAKISTANIS FILE TAX RETURNS IN PAKISTAN?
To file a Tax Return, foreign Pakistanis must register themselves with FBR and get their NTN (National Tax Number). You can get your NTN number online at the IRIS portal.
Registration for NTN
Foreign Pakistanis, who have not filed their taxes before, should first register themselves on the FBR website. Before initiating the registration process, one must check its registration status with FBR online. This can be done by verifying the CNIC on the FBR website. If on record is found, travel to the IRIS portal and fill in the details by clicking on “e-enrollment for registered persons,” If you have no NTN, then click on “Registration for the un-registered person” and follow the procedure by filling in the details required.
Before starting online registration, the Taxpayer must have:
- Read User Guide;
- A computer, scanner, and internet connection;
- A registered Cell Number.
- A CNIC or NICOP (National Identity Card for Overseas Pakistanis);
- A personal email address belonging to them;
- Scanned pdf files of:
- Evidence of tenancy/ownership of business premises, if having a business;
- Paid utility bill of business premises not older than three months if having a business.
- Online registration is available at Iris.
After you have processed
- You will receive pins on your mobile and email.
- Verify the pins without delay as, after some time, the session expires, and the whole process has to be initiated afresh.
- After pins are verified, a password is sent on both email and mobile numbers already provided by you.
- Use your CNIC and password to log in to the IRIS Portal, complete the ‘Registration Form’ available in the draft folder, and submit it to get your NTN.
Filing a tax return for overseas Pakistanis
You will have to file a tax return to become a tax filer; mere NTN registration does not make you a tax filer. Furthermore, if you are not filing the tax return on the due date, this will also not make you a tax filer unless you pay a penalty of Rs. 1,000/- for Individuals and Associations of Persons (AOP) and Rs. 25,000/- in the case of a company.
You can file a Tax Return in the following way;
- Tax Returns can be filed by login into the IRIS portal.
- After you have logged in, first of all, click the ‘Declaration’ showing on top of the screen.
- Open form 114(1) (Return of Income filed voluntarily by Non-Resident Pakistan-origin person having no Pakistan-source income) in case if you do not have any source of income from Pakistan, but if you have a source of income from Pakistan or in other words, you are making taxable income in Pakistan, then you have to file standard Income Tax Return form of section 114.
- Depending on how many months you’ve spent in Pakistan during the fiscal year, select your status as ‘resident’ or ‘non-resident’ accordingly in the ‘Attributes’ section and enter relevant information in the draft.
- Moreover, because you are making taxable income in Pakistan in addition to your foreign income, you will have to declare the Pakistani source of income you made in a tax year in the relevant head of income.
- On the other hand, the foreign income will be required to be declared in the “Foreign Income” section. Important to know that Non-Resident Pakistani or Overseas Pakistani are also not required to file a Wealth statement and Return to enjoy Filer status unless you have a property in your name in Pakistan.
Why should overseas Pakistanis become tax filers in Pakistan?
There are several benefits of being a filer in Pakistan. For instance, if overseas Pakistanis become tax filers,
- They can avail the privilege of paying lower taxes on financial transactions. Becoming a tax filer is highly beneficial for non-resident Pakistanis who want to invest in the real estate sector, stock exchange, mutual funds, saving schemes, and even prize bonds.
- Previously, non-filer overseas Pakistanis were barred from buying property in the country. Although the current government has eased that restriction, a non-filer cannot purchase a property exceeding PKR 50 lakh. Meanwhile, there is no particular limit set for filers.
- In addition to that, compared to non-filers, active taxpayers are only required to pay half of the withholding tax. If overseas Pakistanis become tax filers, they have to pay up to 50% less tax on the purchase of vehicles.
- Furthermore, tax filers in Pakistan only pay 15% tax on winning prize money through
Prize bond, whereas non-filers pay 25% tax.
- There are several benefits of being a filer in Pakistan. For instance, if overseas Pakistanis become a Tax Filer, he can benefit from paying lower taxes on somewhat 100+ instances, including a tax on banking transactions, registration of the vehicle, transfer of immovable property, etc.
- Becoming a tax filer is highly beneficial for non-resident Pakistani who want to invest in the real estate sector, stock exchange, mutual funds, saving schemes and
even prize bonds.
- It is essential to know for overseas Pakistanis that if they are planning to buy movable or immovable assets in Pakistan, such as a vehicle or a house purchased solely from foreign income, they can save a lot of money in the shape of withholding taxes by just declaring themselves a filer.
- Furthermore, this can also help declare the total assets acquired from a foreign course and are not taxable in Pakistan. In this way, overseas Pakistani can also avoid the hassle of an audit by Tax Authorities in Pakistan and are thus fully secured per the Pakistani Laws.