Non Resident Taxation and Tax Return Filing

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Non Resident Taxation and Tax Return Filing

Non Resident Taxation and Tax Return Filing may be tricky sometimes given many factors like if the non-residents have any Pakistan Source Income or a non-resident was resident during any tax year or non-resident’s income is directly transferred to Pakistan.

Confusion also arises when non-residents become tax filer/s and later on they stop filing their tax returns which leads to exit from Active Taxpayers List of FBR.

KEY MATTERS IN TAXATION OF NON-RESIDENT INDIVIDUALS

Who is required to file a return of (1) income

Individual

  • having taxable income beyond Rs. 400,000; charged to tax in previous two tax years;.
  • owns immovable property above threshold (NRs not required to file return on the basis that they own immoveable property);
  • owns a motor vehicle having engine capacity above 1000 CC; and
  • Registered with any trade to professional body for instance KCCI, ICAP etc.(NRs are excluded from this condition).
  • CIR can ask any person to file the return for:
  • Any of last completed 10 years (if a person has not filed return in any last 5 years). Any tax year if a person has foreign income or own foreign assets.

KEY MATTERS IN TAXATION OF NON-RESIDENT INDIVIDUALS

Wealth statement of assets (including separate statement for foreign assets / income above USD 100,000 / 10,000) Resident individual (CIR can ask NR to file wealth statement)
Penalties (for non-filing) Return

Minimum (Rs. 5,000 to Rs. 40,000)

Maximum (0.1% of tax payable per day up to 50% of taxable income)

Wealth statement

Minimum Rs. 100,000

Maximum 0.1% of income / week and 2% of foreign income / assets for non-filing of foreign assets / wealth statement

Inclusion in Active Taxpayers List (ATL) if return is not filed by due

date

By paying surcharge as under:

(i) Rs. 20,000 in case of Company.

(ii) Rs. 10,000 in case of AOP.

(iii) Rs. 1,000 in case of Individual

ROSHAN DIGITAL ACCOUNT (RDA)

NRPs with Pakistani passport, NICOP, POC or NIC can open RDA digitally with simplified requirements. It can be opened within 2 working days subject to completion of online form and uploading of required documents.

– Following two types of accounts can be opened under RDA:

(a)               Foreign Currency Value Account (FCVA) – For investment in:

  • Foreign currency-denominated debt securities of the GOP, including USD Naya Pakistan Certificates.
  • Foreign-currency deposit products of the bank maintaining the account.

(b)               NRP Rupee Value Account (NRVA) – For investment in:

  • Pakistani rupee-denominated debt securities of GOP including rupee Naya Pakistan Certificates, T-Bills, PIBs etc.
  • listed shares.
  • residential and commercial real estate.
  • Pakistani rupee-denominated deposit products of the bank maintaining the account.

The taxation of income of RDA and Non-RDA is discussed in the following slides.

INTEREST INCOME

 

 

 

 

 

 

 

 

 

Taxability / withholding

Interest / Profit on
 

Bank deposit

Government securities

(conventional/ shariah

compliant)

 

 

Non – RDA

 

 

 

0%

 

 

 

10%

       FCY A/c – 0%

       Rupee A/C (if fed by FCY) – 0%

       National Saving Certificate / Government Securities -15%

       Others – income up to Rs. 5 million – 15%

       Others – income above Rs. 5 million – taxability at slab rate (+30%); withholding

@15%

Return filing requirement No No Yes
NTN requirement No No Yes
Double withholding on

account of being non-filer

No No Yes

CAPITAL GAINS ON IMMOVABLE PROPERTY

 

 

 

 

Taxability /

withholding

RDA Non-RDA
 

          1% at the time of purchase;

&                              Final Tax

          1% at the time of sale

(0% if sold after 4 years)

Adjustable withholding at the time of purchase and

sale @1% respectively.

Tax liability on capital gains is computed in two

steps:

(i)      Gain is reduced by a %, depending upon holding period e.g. if holding period is 2 – 3 years, gain is reduced by 50%. Disposal after 4 years is not taxable;

(ii)     Gains computed in (i) is subject to tax at following rates:

S.

No

Amount of

Gain

Rate of

Tax

1. Not exceeding Rs. 5 million 3.5%
2. Exceeding Rs. 5 million but not Rs. 10 million 7.5%
3. Exceeds Rs. 10 million but not Rs. 15 million 10%
4. Exceeding Rs. 15 million 15%
Return filing requirement No Yes
NTN requirement No Yes
Double withholding on

account of being non-filer

No Yes

CAPITAL GAINS AND DIVIDEND INCOME

 

 

 

 

 

 

 

Taxability / withholding

RDA  

Dividend

 

Non-RDA

Capital gains
Government

securities /

shariah

compliant

 

Listed

shares

 

Mutual

funds

 

 

 

 

 

15%

 

 

 

 

 

Same, except for Government securities where taxability will be @12.5%

 

10%

 

12.5% (7.5% for IPPs)

 

10% –

12.5%

Return Filing requirement No * No No No Yes
NTN Requirement No * No No No Yes
Double withholding on

account of being non-filer

No No No No Yes

TAXATION OF GIFTS

Gifts

Cash

Non-Cash asset

  • If giftor / giftee are *relative, then no tax implication. Giftee will be allowed the cost being FMV of asset at the time of gift; unless giftee dispose of asset within 2 years (of gift) as part of Tax Avoidance Scheme.
  • If giftor / giftee are not relative:
    • Giftor can be taxed on (FMV (Less) Cost upon transfer of property.
    • Giftee can be taxed on FMV of gift received.

* Relative is defined to mean:

  • If giftee is relative and giftor having NTN transfer through banking channel; then no tax implication
  • If any of the above condition is not met, then giftee can be taxed on amount of gift received.

(a) an ancestor, a descendant of any of the grandparents, or an adopted child, of the individual, or of a spouse of the individual; or

(b) a spouse of the individual or of any person specified in clause (a).

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