Tue. Feb 27th, 2024

26 thoughts on “Tax Exemptions for Startups in Pakistan

  1. The Bank Al Habib automatically generated the ePRCs for the transactions that I have received from foreign banks (Wise, Payonner) with the ITRS purpose code 9471. However, PSEB requires the purpose code as 9186. How this can be made possible?

  2. Assalam o aliqum Mr. Rizwan
    I am have started a retail business outlet sanitary ware 6 months ago.
    Previously I used to do import business and but due to govt policy, I have closed that business. I have added my new business name with FBR on my NTN. Retail business don’t fall under tier1 criteria for sales tax registration, but I am approached by FBR team , who asked me to install POS machine at my new shop. Either their act is legal or I have any remedy to such improper act.
    I am from Hyderabad Sindh
    Please advise

    1. POS 1 requirement is for Tier 1 retailers. Please note that a retailer can be a Tier 1 retailer. If you mention more details about the business, maybe I can guide you better. [Business nature, retail shop area, shop location, etc.]

  3. I have an NTN since 2000 and ran an IT services business for 15 years, due to health issues I have not done any business for past 5 years and currently employed as an IT Manager. I would like to restart my business and confused about a few items.

    1) Can I qualify as a Startup if I use my old business name xxxx Systems?
    1a) If yes then what is the proceedure.
    1b) If no then can I qaulify if I change business to xxxx Technologies but use the same NTN number by adding the new business name to it?

    2) Can businesses who qualify as Startup do business locally? Or are the tax benifits only for IT exports?

    1. 1) To qualify as a startup, you will need to add a new business in the NTN (NTN of sole proprietor remains the same). Procedure is simple. Just add the new business in NTN, and open a new business bank account.
      2) Benefit of 0.25% tax is only for IT exports. Local businesses, if they do qualify as startup, can avail 100% tax credit for up to three years.

      1. I could not understand, what does it mean by 100% tax credit for start up? Plz elaborate it in non technical way….

        1. I will explain it in a simple way. Say, the annual tax liability of a startup works out to Rs.20,000. When the tax liability is finalized, any tax credits (or say rebates) available are deducted from the tax liability. If the startup has a 100% tax credit available, Rs.20,000 will be deducted from Rs.20,000 tax liability. The net tax liability will become zero.

  4. Dear Rizwan,

    I’m running a private limited software house in Pakistan. We have software products which we sell and we also develop software on demand. I’m not clear about two things:
    1. What will be the tax if I sell software in local market (in Pakistan)?
    2. What will be the tax if I sell it in foreign countries?

    Thanking you in advance.

    1. Thank you Jalal for the comments. Before answering your question, I would need to know your Province and whether your question relates to income tax or sales tax. Thanks

  5. I have found this article the clearest and most straightforward and it has cleared many of my doubts. Can you please add some details about the sales tax for the companies which don’t reside in the ISB region?
    1) Companies which export their software produtcs/services abroad
    2) Companies which sells software products/services with in Pakistan (other than ISB area)

    Will be helpful for many people I guess. Thanks in Advance.

    1. When you talk about outside ISB area, you need to specify the province. Because each province has its own sales tax on services law. For example, in Punjab, if export of IT services is your only source of income, then the company is required to register as a withholding agent. However, if the company is providing local IT services as well, normal sales tax registration with Punjab Revenue Authority (PRA) is required.

  6. Hi,
    we already have a software company which was incorporated 15 years ago was registered with PSEB at that time but we didnt renew and it was dormant, for tax exemption for three years do we need to create a new company?

  7. As you know, the banks have stated deducted WHT at source on the time of Foreign Payment being made to a software house? Is there any exemption allowed to IT sector which relieves it from the deduction of 1% WHT at the time foreign payment is credited in bank account?

    Also can you list all the exemptions a Pvt Ltd Software company which is incorporated after 01.07.2012 and is duly registered with PSEB can avail.

    Thanks

    1. Yes, the exemption from deduction of 1% income tax deducted by the banks is available to exporters of IT services. You have to provide an exemption certificate to the bank. Application for exemption certificate can be submitted through IRIS portal of FBR.

      1) Its income from provision of local IT services shall be eligible for 100% tax credit (for three years max) including minimum tax and final taxes.
      2) Its income from export of IT services shall also be eligible for 100% tax credit including minimum tax and final taxes up to Tax Year 2025.

  8. very helpful! i am thinking to open a company in pakistan that will provide the commissioning service to foreigner companies during the startup/commissioning of their project.
    To offer this service the employee (of pakistan based company) will travel to that country to be present there and modify the plc softwares and to do other commissioning activies.
    Is this type of service can be considered as IT Extended services or startup company to avail the tax relief.
    As physically nothing is being saled from pakistan but only the services that have major part as software modifications (development in some cases).
    it would be great if you guide regarding this.
    Thanks

    1. Thank you Abdullah. Please note the service should be technology driven. If it actually involves software development, and if it can be confirmed from the agreement with the client and invoice raised, then yes, it will qualify as a startup company. Neverthless, it would be export of services, where there will be final tax of 1%. Plus, export of services is exempt from applicablity of sales tax.

    1. Dear Shahid Aslam, thank you for the comments. Focus of the definition is “technology driven product or service”, and I believe “Digitalsofts” can also be a startup. You would only need registration with PSEB for 3-year tax exemption of Pakistan source income. Exports obviously will be exempt from tax if at least 80% proceeds are brought into Pakistan.

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