Tax on Payments to Non-residents

The tax on payments to non-residents: Every person paying to a non-resident person an amount of royalty or fees for technical services that is chargeable to tax under section 6 shall deduct tax from the gross amount paid at @15%. Final Discharge of tax liability.

(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 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
• any other contract for construction or services rendered relating thereto; or
• a contract for advertisement services rendered by T.V. Satellite Channels, shall deduct tax from the gross amount payable under the contract at the rate mentioned below.

Tax on Payments to Non-residents

The rate of tax to be deducted from a payment referred to in subsection (1A) of section 152 shall be 7% of the gross amount payable in case a person is a filer and 13% in case the person is a non-filer. (Final Discharge only if the person opts for FTR)

(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 tax to be deducted from payments referred to in subsection (1AA) of section 152, shall be 5% of the gross amount paid.(Final Discharge of tax liability)

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

The rate of tax to be deducted under sub-section (1AAA) of section152, shall be 10% of the gross amount paid. (Final Discharge of tax liability)

(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) or (2A)  applies shall deduct tax from the gross amount paid at the rate of 20% of the gross amount paid. (Adjustable)

Tax on Payments to Non-residents

PERMANENT ESTABLISHMENT OF A NON-RESIDENT

(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—

• (i) 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.
• (ii) for the rendering of or providing services; and
• (iii) on the execution of a contract, other than a contract for the sale of goods or the rending 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.
  (in case of supports person @ 10% of gross amount, in case of other persons Filer 7% of gross amount and for non Filer 13% of gross amount  and they are adjustable)

The rate of tax on payments to non-residents to be deducted from a payment referred to in clause

• of sub-section (2A) of section 152 shall be—

(i) in case of a company, 4% of the gross amount payable, if the company is a filer and 7% if the company is a non-filer; and (Adjustable)

(ii) in any other case, 4.5% of the gross amount payable, if the person is a filer and 7.75% if the person is a non-filer. (Adjustable)

Tax on Payments to Non-residents

The rate of tax on payments to non-residents to be deducted from a payment referred to in clause (b) of sub-section (2A) of section 152 shall be

• in the case of transport services, 2% of the gross amount payable; or (Adjustable)

in cases other than transport,—

• in case of a company, 8% of the gross amount payable, if the company is a filer and 14% if the company is a non filer; and (Adjustable)
• in any other case, 10% of the gross amount payable, if the person is a filer and 17.5% if the person is a non-filer; (Adjustable)

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

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

• that is subject to deduction of Tax on Payments to Non-residents under section 149, 150, 156 or 233;
• with the written approval of the Commissioner, that is taxable to a permanent establishment in Pakistan of the non-resident person;
• 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
• 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.

Taxation for Payments to Non-residents

PROVISION FOR EXEMPTION CERTIFICATE

(4A) The Commissioner may, on application made 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 subsection (2A) is adjustable, any person to make the payment without deduction of tax or deduction of tax at a reduced rate.

(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—

• the name and address of the non-resident person: and
• the nature and amount of the payment.

(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) (without deduction of tax at source) shall not apply to a payment on account of—

• an import of goods where title to the goods passes outside Pakistan and is supported by import documents, except on the import that is part of an overall arrangement for the supply of goods, their installation, and any commission and guarantees in respect of the supply where—
• (i) the supply is made by the head office outside Pakistan of a person to a permanent establishment of the person in Pakistan;
• (ii) the supply is made by a permanent establishment of the person outside Pakistan to a permanent establishment of the person in Pakistan;
• (iii) the supply is made between associates; or
• (iv) the supply is made by a resident person or a Pakistan permanent establishment of a non-resident person; or
• 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. (This means that the definition of prescribed person as mentioned in 153(7) is also applicable for section 152)

• The FBR has explained amendment made by Finance Act 2016 in Circular No. 7 of 2016 dated 27.7.2016
• FINANCE ACT, 2015 — EXPLANATION REGARDING IMPORTANT AMENDMENTS MADE IN THE INCOME TAX ORDINANCE, 2001.
• FBR has explained amendments in Circular No. 2 of 2012 dated 27.7.2012
• FBR has explained amendments in Circular No. 5 of 2008 dated 5.7.2008
• Circular No. 1 of 2006 dated 1.7.2006 and FBR’s Circular Letter C.No.1(6)WHT/2006 June 27, 2006

Payment for foreign produced commercials

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 on Payments to Non-residents deductable under sub-section (1), shall be final tax on the income of non-resident person arising out of such payment

The FBR has explained amendment made by Finance Act 2016 in Circular No. 7 of 2016 dated 27.7.2016 as under:

PAYMENT FOR FOREIGN PRODUCED COMMERCIALS

A new section 152A has been inserted in the Ordinance through which payment made to a non-resident person for foreign produced commercials has been brought within the ambit of withholding tax.

The payment made directly or through an agent or intermediary for a foreign produced commercial shall he subjected to a final tax 20% in the hands of the non-resident recipient.

It is worth clarifying that this specific provision shall apply under these circumstances notwithstanding a general provision under sub-section (3) of section 152.

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