Tax on foreign income in Pakistan

Before you start

This page gives general information, not tax advice. Pakistani tax rules, rates and thresholds change through the Finance Act and FBR circulars. The withholding rates quoted below come from the FBR withholding tax rate card; the date we checked it is in the source list at the bottom of the page. The Income Tax Ordinance itself prevails over the card, so confirm your case on the official FBR website or with a registered tax practitioner before you file a return.

Some terms used below:

• Foreign-source income is income earned outside Pakistan, such as payment from a foreign client, interest from a foreign bank or profit from a foreign platform.
• Tax residence is your status under the Income Tax Ordinance. It decides whether Pakistan taxes only your Pakistan-source income or your worldwide income.
• Wealth statement is the form filed with your return that lists your assets and liabilities and explains how your wealth changed during the year.

Residence decides what is taxable

In general, a Pakistani tax resident is taxed on income from all sources, both inside and outside Pakistan. A non-resident is generally taxed only on Pakistan-source income. The tests for residence are set in the Income Tax Ordinance. They depend on things like days spent in Pakistan and government service abroad. Read the current FBR guidance to confirm which category you fall into for the tax year.

If you are a resident and you earn money abroad, the default assumption is that it belongs in your return. Some categories of foreign income have their own treatment or exemptions. Check what applies to yours rather than assuming it is tax-free.

Freelancer tax in Pakistan

Freelancers who are paid by foreign clients for IT, design, writing or similar services earn foreign-source income for services. Pakistani law has at various times given export of services, and IT exports in particular, a separate regime. Under such a regime, tax may be collected on the proceeds when they arrive through a bank. Whether a separate regime applies, and on what conditions, depends on the current Finance Act. Check FBR guidance for the present position.

Practical points that matter regardless of the rate:

• Receive payments through regulated banking channels so that each inflow has a bank record. See Payment methods and Raast payments for local channels.
• Keep invoices, contracts and platform statements that link each payment to the work done.
• Declare the income in your return under the head the FBR specifies, and show the resulting cash or bank balances in your wealth statement.

Foreign remittance tax

Money sent from abroad by family members, known as home remittances, is treated differently from income you earn. A gift or transfer received through the banking system is not the same as payment for your services or trading profit. You still need to be able to show where it came from. Keep the bank advice for each remittance.

If the FBR asks how your wealth increased, those bank records are your evidence. A large unexplained increase in assets can lead to questions even if the money itself was not income.

Tax on trading profit in Pakistan

How trading profit is taxed depends on what you trade and where.

On the regulatory side, the SECP is the Securities and Exchange Commission of Pakistan (SECP), with trading in listed securities and commodities only via SECP-licensed securities and futures brokers. For offshore platforms the official position is clear:

• On remittances, per the SBP, remitting foreign exchange to overseas forex/margin/CFD platforms is not allowed through any payment channel (FERA s.5(1)).
• On purchases, per the SBP, the purchase of offshore forex/margin/CFD products by Pakistani residents violates section 4(1) of FERA 1947.
• On status, per the SECP, offshore forex/CFD platforms operate without regulatory approval in Pakistan.
• On protection, per the SECP, offshore platforms have no Pakistani licence or oversight and offer no legal protection or recourse.

Declaring income for tax does not make the activity itself permitted. The tax question and the foreign exchange question are separate. If you have gains or losses from such platforms, discuss with a tax practitioner how they should be reported. Read Law and regulators for the wider legal picture.

Leveraged forex and CFD trading can lose money fast. A tax plan built on expected profit does not reduce that risk. See Risk management.

Converting foreign amounts to rupees

Your return is filed in rupees, so foreign currency amounts must be converted. The FBR may specify which rate to use, for example the rate on the date of receipt. Confirm the rule before converting. For official rupee rates published by the central bank, see SBP exchange rates. Record the date and rate you used next to each amount.

Foreign assets in the wealth statement

The wealth statement should include assets held abroad as well as in Pakistan, for example:

• foreign bank accounts and their closing balances;
• balances held with foreign payment services or platforms;
• foreign property, shares or other investments;
• liabilities owed abroad.

The statement also reconciles your wealth: opening wealth, plus income and receipts, minus expenses, should match closing wealth. Foreign income that is left out of the return but shows up as a bank balance makes the reconciliation fail.

Withholding on bank profit and dividends

Banks and companies in Pakistan deduct tax at source before they pay you. The rate depends on whether you are on the Active Taxpayer List (ATL), the FBR list of people who file returns.

How to read the table:

• The rate applies to the profit or dividend paid to you. The bank shows the deduction on your account statement or withholding certificate.
• The rate card lists other dividend cases with their own rates, for example power producers and mutual funds. The general case is the one shown here.
• A person who is not on the ATL has a higher rate deducted on the same profit.

To see what a deposit earns after the deduction, use the Savings interest calculator with the rate for your status.

The rate card covers payments made by banks and companies in Pakistan. For income from abroad, see the sections above.

Filer status

Being on the Active Taxpayer List affects the withholding rates applied to many banking and property transactions, as the table above shows. Filing a correct return, including foreign income, is how you get on and stay on that list. See Filer status (ATL).

Records to keep

• Bank statements showing every foreign inflow
• Invoices, contracts and platform payout reports
• Exchange rate used for each conversion, with its date
• Statements for any foreign account or platform balance
• Copies of filed returns and wealth statements

For related topics, see Payments, tax, Islamic banking.

Frequent questions

Is foreign income taxable in Pakistan?

For a tax resident it is generally taxable as part of worldwide income, subject to any specific exemptions. Confirm your residence status and the current rules with FBR guidance.

Do freelancers pay tax on Upwork or Fiverr earnings?

Freelance earnings are income and should be declared. A special regime for export of services may apply, depending on the current Finance Act. Check the FBR position for the tax year.

Is money sent by family abroad taxed as income?

A home remittance is usually not income for services. Keep bank records showing its source, because it still affects your wealth statement.

How is forex income taxed in Pakistan?

It depends on the activity and platform. Note that per the SBP and SECP, using offshore forex and CFD platforms raises legal issues separate from tax. Speak to a tax practitioner.

How much tax does a bank deduct from profit on a deposit?

Per the FBR rate card, 20% for a person on the Active Taxpayer List and 40% for a person who is not.

Which exchange rate should I use?

Use the rate the FBR specifies. Official SBP rates are covered on our SBP exchange rates page.

Do I list a foreign bank account in my wealth statement?

Yes, assets held abroad belong in the wealth statement along with assets in Pakistan.