Business income part 2

Question 1

sequence of tax credit application

Answer 1

1. Foreign tax credit u/s 103
2. Tax credit/rebate on donations, investments, POS installations etc
3. Advance tax and tax deducted/collected at source.

Question 2

provisions related to foreign tax credit (section 103 Rule 15 and 16)

Answer 2

• resident taxpayer FSI in respect of which the foreign income tax is paid the taxpayer shall be allowed a tax credit of an amount equal to the lesser of:
• Foreign income tax+FWHT paid withing 2 years or
• pakistan tax payable in respect of income.
• foreign tax credit will be allowed on NTR only no credit on FTR
• pakistan tax payable computed by applying avg rate of pakistan income tax payable

where in a tax year, a taxpayer has foreign income under more than one head of income this section shall apply separately to each head of income

Question 3

Foreign source income of a short term resident person sec 50

Answer 3

FSI of an individual is exempt given that he is resident solely by reason of person’s employment and
present in Pakistan for a period or periods not exceeding 3 years.

exception to exemption
income from business established in Pakistan
or
FSI brought into or received in Pakistan by person.

Question 4

taxation of foreign source income of returning expatriates (Section 51)

Answer 4

FSI by citizen of Pak on was not a resident in any of the four tax years preceding the tax year in which the individual became resident shall be exempt from the tax year in which the individual became a resident individual and in the following tax year.

Where citizen leaves Pak during the tax year and remains abroad during that tax year any income chargeable under the head salary earned by him outside Pakistan during that year shall be exempt from tax.

Question 5

what is CFC?

Answer 5

One resident person holds directly or indirectly more than 40% of capital or voting rights in a non resident company

two or more resdient persons holds directly or indirectly more than 50% of the capital or voting rights in a non resident company

Tax paid in respect of income derived or accrued in a foreign tax year is less than 60% of tax payable on the said income under the income tax ordinance, 2001

Non resident is not listed entity in that jurisdiction/

A non resident company does not derive its income from the active business income

Question 6

What are the exceptions to the income attributable to resident person from CFC?

Answer 6

(i) If capital or voting rights in the CFC is less than the 10% and/or

(ii) Income or a controlled foreign company is less than 10 million Rupees.