Incomes / Expenses & Withholdings Flashcards
Mixture RP———-> PSI+FSI (Residence Principle) NRP————————>PSI (Source Principle)
How is N/R taxed
Resident——–Both Non-Resident——-Source basis (as ITO has effect in Pakistan only)
Residency/Source
- Has fixed place of business in Pakistan? Yes PE PE becomes person taxation in S105 PE Income from Business NTR 2. Does not have fixed place of business? No S6 (&S7), S8, S152 Withholding from Income FTR NTR MTR
How is N/R Taxed in Pakistan
Fixed Place means (generally, specifically defined in ITO) Even a hair-dresser on roadside - Chair a PE Service provider - Service based PE
Fixed Place concept
S 44 exemptions under International Treaties S 107 DTT S 6&7 Charging sections S 8 Regime S 152 Withholding S105 PE
N/R Taxation Sections
S6 - FFTS/Royalty 15% S6 - OSDS 5%
Rtaes
- NR has PE & services provided by PE of NR 2. NR has PE & income related property (asset) owned by PE of NR 3. Exmpt under Ordinance 4. Exempt under DTT
S 6 Applicability
NR has PE - S105 NTR NR has no PE - S8 FTR
Royalty/FFTS/FFODS
MTR
What is regime for NRs Constrcuction, Assembly
MTR
What is regime for NRsbelow SERVICESadvertisement onTV
MTR
What is regime for NRsbelow SERVICESadvertisement onTV
MTR
What is regime for NRsbelow SERVICESinsurance premium or re
FTR
What is regime for NRsbelow SERVICESadvertisement services
FFODS & Capital gain (Govt securities through NR Rs A/C) BC/FI
Are there any payments to NR where WHA is not payer&who is W
NTR with 20% rate
What about other transactions (not specifically defined in 1
Exclusions from sub-Sec 2 of S152 (in other words exclusions from Sec 152 as (2) of 152 covers all transactions to NR other than specifically mentioned) -Deductions covered u/other Sections; Salary, dividend, prizes & winnings, commission payments -Amounts taxable to PE (received by NR through PE), with Comm. Approval -Representative (of NR, sec 172) e.g foreign actors/singers’ representative etc -N/R not chargeable to tax e.g under DTT or under ITO Exclusions from sub-Sec 2 of S152 (in other words exclusions from Sec 152 as (2) of 152 covers all transactions to NR other than specifically mentioned) -Deductions covered u/other Sections; Salary, dividend, prizes & winnings, commission payments -Amounts taxable to PE (received by NR through PE), with Comm. Approval -Representative (of NR, sec 172) e.g foreign actors/singers’ representative etc -N/R not chargeable to tax e.g under DTT or under ITO
Are there any exclsuions / exceptions available to N?R
- import of goods where title to the goods passes outside Pakistan and is not part of Cohesive arrangement 2. educational and medical expenses remitted in accordance with the regulations of the State Bank of Pakistan
Payment w/o tax deductions
Payer thinks payment to NR is not subject to tax When supply part of overall arrangement or Supply by local person/PE Import of goods whether or not title passes outside Pakistan;whether or not tilte passes in the name of associate/PE (when part of overall arrangement)
When to apply tax
Where payer wants to make payment without deduction of tax (e.g exclusions from 152 like exempt u/DTT or exempt u/ITO) (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 - (a) the name and address of the non-resident person; (b) the nature and amount of the payment and (c) such other particulars as may be prescribed. The Commissioner on receipt of notice shall, within thirty days, pass an order accepting the contention or making the order under sub-section. 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).
When to give notice (intimate) comissioner in connection wit
Payment related to sub sec 1A i.e. construction assembly installation Supervisery Payment is part of paymnent related to overall cohesive arrangement (NR & PE of NR) PE will take credit of withholding tax, against overall profit of the whole arrangement e.g contract of C,A, I+SS in the name of PE; NR also part of arrangement; part of contract payment is made to NR 20% of withholding tax to be deducted
Reduction in withholding tax amount
Comissioner May, when tax is not MTR, on Application for 1A (C,A,I,SS contract) or 2A (PE, payments) However both are MTR so practically only possible for PE that is a Company & is manufacturer (i.e. tax dedcuted is NTR/not MTR) This will be similar situation as Withholding Exemption (like S153) (where advance tax+tax deducted in last Q > expected tax liability for year)
Withholding Tax Exemption Certificate
Prescribed person will withhold 3 transactions -Sale of goods (except commercial importer) services execution of contracts (goods+services) Exemption -Commercial importer selling in same condition MTR, except Company PE which is manufacturer for sale of goods
What is withholding when making payment to PE Is there withh
as defined in sub-section (7) of section 153.
Who are prescribed persons for withholding when making payme
NR FTR - NR - Royalty, FFTS, FFODS, Capital gain on Govt bonds through PKR A/C MTR - NR - C,A, I, SS, Adv-TV, Adv-general,Insurance Re-insurance, NTR - All other than above PE NTR - Sale of goods by manufacturer PE which is legally a Co. MTR - All Other All MTR
RegimesWhen is Withholding from NRs Payments FTR, MTR, NTR
PoD received by Ind/AoP upto 36m - S7B - FTR All PoD subject to Withholding except exept 2nd sch PIV (like inter Co, SPV for Sukuk, Venture Capital Co.)
What PoD is subject to specific Charging (FTR)andWhat PoD is
Ind/Aop - upto 36m - FTR, if deduction@source u/151 less thanchargeable u/7B. Tax payer himself will pay Ind/Aop above 36m - MTR Company - NTR
What is Nature of PoD Income TaxationInd/Aop - upto 36m
Deposit Accounts Loan by Co Bond/certificate/debenture/security/instrument
Transactions
Withholding - 15% general 10%-Ind/AoP where interest less than 500k Charging Co-NTR Ind/AoP, POD above 36m - Ind/AoP rates Other15%-20%; 5m, 5m-25m,25-36m
Rate
S-94 Main - Dividend paid by (Every means including Foreign Co.) Company - chargeability as per S5 S5 - Chargeability Gross amt x 7.5%;15%;25% where income exmpt due to law tax credits or losses S8 - FTR S150 - Withholding 7.5% & 15% S236S - Dividend in specie (assets instead of cash), WH rates same as S150 rates Section 39 - IFOS, although includes but no dividend u/39 even foreign covered u/s5, 8 so FTR S55 - Exempt income of Co. does not mean dividend exempt
What sections are related to Dividend Taxation
Foreign Dividend taxation same as as per Sec 5 & 8; FTR There is no dividend in IFOS category Recepient will have to pay himslef by applying rate to Gross amount
What is nature of Foreign DividendIFOS?
S236A Same rates as
What is taxation of Dividend in Specie (assets & not in cash