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hussain114
Community Member

Question Tax Exemption for Pakistani Freelancers

Hi there,

 

I've a question about tax exemption in Pakistan for Pakistani freelancers offering IT services.

 

I visited my tax consultant recently to file my tax returns for tax year 2019.

IT services are definitely 100% exempted from tax till year 2025, but to my surprise my tax consultant said that any income generated through IT services is fully taxable in Pakistan 'UNLESS' membership is acquired from Pakistan Software Export Board (PSEB).

 

I consulted PSEB, they said they don't offer membership to invididual freelancers, but if an individual freelancer can form a sole proprietorship company, then PSEB membership can be acquired easily.

And then you've to open a new business bank account and report all earnings to PSEB with Form-R and few other supporting documents.

 

And this is how an individual freelancer offering IT services in Pakistan can avail 100% tax exemption. This all sounds fine, but my concern is that the same tax consultant never gave me the same information earlier and now he's saying that all previous earnings are fully taxable just because I didn't had PSEB membership, which no one ever communicated to me, not even the same tax consultant ever told me before. And in fact not even 'Income Tax Ordinance 2001 - 2019 Amendment' states this in article 133 where it talks about income tax exemption on IT services.

 

I need input from other fellow pakistani freelancers on this.

Also please tell me did you know about above information before & if you've formed a company to avail tax exemption or are you still working without a company?

 

(I'll probably add more thoughts to this post as I consult with few more people).

Thanks

243 REPLIES 243

AOA bro.
Any chance you can share the PRC format of HBL & Faysal bank? Of coruse you can hide your personal details. Since HBL has been really disappointing, so I will probably switch to any other better bank soon, and Faysal bank is also on the list.


Please also share your so far experience with Faysal bank?
Any hurdles since your last message?
And are you still receiving PRCs with the correct purpose code, from the branch?

 

I'm going to call HBL's head of complaint dept to see if they can sort out my issues anytime soon.

Many Thanks

Yes, I'm still receiving PRC

I shared in my last post but it got deleted due to community guidelines.

I have 3 PRCs from HBL, FBL & MMBL

Right Ok. In HBL to put on the PRC, do you normally give them the purpose code 9185? Or do they get it from the swift message?

I'm transferring from Payoneer to my local bank account (by sending in USD to local bank account directly). In trasaction detail, it shows trasfer from Ali Asif to Ali Asif so they put default code of 9471 which is for remitance from Pakistanis working abroad. I requested them to change it to 9185 which they did for 4 PRCs but on my latest PRC they refused to change it. 

Now I'm doing transfer from Payoneer to my local bank account (by sending in PKR to local account). This includes MMBL When I received transfer my HBL bank just send request to MMBL & within a week I receive PRC with 9186 code.

I'm not aware of 9186 code, I haven't seen it in PSEB purpose code that.

 

BTW you can also talk to Payoneer support to have their bank update your purpose code to 9184 or 9185 in their record for future withdrawals, if you're offering services in these categories, so the swift message from Payoneer to your bank will carry the correct purpose code.

I emailed PSEB Director, Operations and Administration named Syed Ali Abbas Hasani about PRC & Tax issues he sent me SBP Circular Number DS.ITSD/GEN/2018-026966 which has purpose code 9186 - Freelance of computer and information services - Remittances received by resident individuals/households from reputed overseas IT firms and online platforms on account of freelance of computer and information systems services.

 

In the message which appears in trasaction, it only shows "Withdrawal To Bank" I talked about it they said we can't do any thing about message or code as it is processed by a third party bank partner.

AOA Ali,

Why they updated purpose code from 9471 to 9186 on 4 PRCs & why they refused to do it for latest PRCs?

UPDATE: I finally got some PRCs from HBL.  I had requested PRCs of 1 year, they missed 2/3rd already, so I'm going to ask them to send the many they've missed. And most of the PRCs they sent me have the purpose code 9186, which I guess is fine, while some of them got 9471 (the incorrect purpose code). I'll ask them to send revised.

Atleast you got some. Things will get streamlined as you ping them more hopefully. Best of luck with the rest of PRCs. 

AOA bro,

 

After forming a sole proprietor, opening business bank account and sending wire transfers to your banks, does any of your banks charge any service charges to credit funds to your account?

I got my first wire transfer credited & HBL charged Rs. 1160 on it.

I never got any service charged before on wire transfers before though. Is it normal for business accounts?

 

Thanks

I haven't faced any charges for any of the transactions in my account.

 

When you say wire transfer, you do mean electronics transfer of funds? or is it specific to some transaction I am not aware of?

I think its part of HBL's schedule of charges, they charge a flat PKR 1K and FED for crediting every single wire transfer. Not very ideal tbh, sort of a rip off. Payoneer transfers are credited automatically and are free, but the wire transfers in the business account are charged. Never got charged for crediting wire transfers in my personal bank account though.

 

In the statement it shows this under particulars:
-  Service Charges Against Adv. Payment (SND&KPK)

I'm from Punjab, so not sure what's that.
Also not sure what do they mean by 'Adv. Payment'?
Any ideas what that might be?

 

BTW on the plus side, they sent me PRC for the wire transfer remittance the next day with the right purpose code.

Congrats on getting the PRC the very next day and with right purpose code. 🙂

 

I haven't seen any charges in my account and hence have no knowledge about it.

 

Seems like things are streamlining for you as well. 

W Salam

When I requested them first for code revision they emailed SBP to change category they did it 4 times but now the person who requests it can't take this matter with SBP every month. Actually it is coming from Payoneer they don't put code 9186 in swift message. That's why there is the issue.

 

On swift message it shows payment coming from Ali Asif to Ali Asif, it is other reason for the code 9471

 

Right Ok.

 

Have you ever tried Faysal Bank for direct Wire transfer or know anyone who did? I need to know if Faysal bank can receive wire transfers directly without an intermediary bank or not.

 

I once had a pretty bad experience with Meezan on the same, where a small wire amount sent to Meezan bank landed in HBL first. HBL intimated Meezan bank local branch staff, but the lazy staff probaby ignored it & kept telling me they never received any wire for me. And they also kept telling me they always get wire transfers directly & no other bank is ever involved, such a lie.

Eventually after 1 month HBL called me (bcoz I had an account with them as well so they had my info) and told me there is a wire pending, shall we credit it to your HBL account, and I agreed.

You see the banking efficiency here, a wire that was meant to be credited to a Meezan bank acconut, never got there, instead it landed in another bank's account & even got credited & Meezan bank never followed up. This is 1 big reason I never trust Meezan bank for wire transfers. But they're fine for Payoneer.

 

So I know Faysal Bank is Payoneer partner & will probably be fast & reliable for any Payoneer payments, but not sure if FBL can be trusted with the wire transfers.

Yes, FBL is good with wire tranfers. I tried 2 methods for receiveing my funds in FBL:

1. Direct Wire Tranfer of USD from Payoneer to FBL it cost 3% of the amount, landed the next day in my account. Operation Manager called me & I told him to print PRC with 9185. When he applied code amount credited in my account.

2. Local funds tranfer its very fast. Sent PKR from Payoneer to FBL & within 5 minutes received funds. Requested Operation Manager that I want detail of this transaction to ask MMBL for PRC, received it with code 9186 within a week.

Right Ok, but still I'd like to see how FBL handles wire transfers when its not from Payoneer and is from any other foreign bank

Use poyneer to JazzCash they will you PCR which is needed for tax purposes. Otherwise you will have to pay tax

I get money poyneer to JazzCash
It is right way to take money?

Assalamualaikum Ali Bhai 

Mai Payoneer se bank Al Habib USD account me dollar transfer krna chsh Raha hon  , 2 dafa krchuka , $980( from $1000 , Payoneer deduct fee $20) aik dafa Payoneer se Al Habib me transfer kiye to pore $980 hi aai , 

Likn branch manager ne kaha ye shi nh ,

Kiyuon k hamare pas computer service Wala code of purpose show horaha hai.

Aap agli dafa code change Karin.

I reed your comment, can your guide me easily...

Me ye chahat hon bagair Kisi madla k legal way se smoothly USD from Payoneer to local usd account transfer complete ho , mujhe yaha Pakistan me usd chahiys , pkr nh ..

So I have to change code of purpose?

What is best code of purpose for this?

How I avoid taxes......if they are not true....?

Thanks 

is this information also valid for forex trading business ???

Brother, I had trouble finding answers to the same questions until I found your post here. I appreciate you on this great help that you are doing for others who don't know anything about this related topic. 

 

I have one more question regarding taxation.

 

We are a group of friends and I have an account on a freelancing website, the payment comes to my bank and I send others amount to their bank via interbank transfer.

 

Is this going to be tax-exempt as well or they have to pay tax for their income?

 

AOA,

If you're a filer, and file your tax returns, and acquire PRCs from the bank for the foreign earnings, you'll be fine. Your friends on the other hand may be asked questions by tax authorities about their income since they're getting it from you and not from outside the country.

abdulm1014
Community Member

Hi, one of the clause to Register a Sole Proprietorship is:

 

 

(2) Make a letterhead, stamp, and business card with business name, logo, phone number and physical office address on it. Please note you will require a rent agreement of your office and electricity bill.

 

So my question is, that as a freelancer do we have to rent an office and create a letterhead and stamp etc?

If so then the cost of all this is going be very high???

Any suggestions?

Thanks.

 

So my question is, that as a freelancer do we have to rent an office and create a letterhead and stamp etc?

(For Sole Proprietorship)

You can give your home address as an office address. You don't have to rent an office. 

Yes you need to create letterhead and stamp. This is needed for openning the business bank account. It will cost less than 1000 rs.

 

Same what Syed said.
You can register a sole proprietor with FBR using your home address. They just want to cross verify your address. So you can either upload a rent agreement or a document for the ownership of the given address (dependong on your case). A paid bill copy is also required.

You can have a printer/designer make a logo & letter for really cheap. Just ask him to make letterheader in computer/USB & print a few copies for immediate use and everytime you need a letterhead, just get a color print of it. (Make sure you've the source letterheader file to use in future). Stamp will cost around PKR 250 and banks require stamp on EVERY document you give them, so make sure to keep it with you whenever you visit the bank.

 

After you submit all these to FBR, it will add sole proprietor to your profile right away automatically. You can then print the draft and take it to the bank, or really they can see it online as well on FBR website.

 

Hope it helps

Hello everyone, can someone please guide me regarding Taxation Benefits for Freelancers in Pakistan?

 

I already have an NTN but no sole properieter registered company or PSEB registration. I will be filing my tax return for the first time this year.

I receive all my earnings in my bank from Payoneer. My annual earning are approximately 7 millions PKR. I have PRCs for all of my remittances with purpose code 9186.

 

Now my question is, what I have to do to avail tax exemptions and other benefits for Freelancers/Foreign Income Holders?

 

Are these PRCs enough to be exempted from income tax or PSEB registration is compulsory?

 

Looking forward to your helping answers.

 

Thanks.

I recommned you to watch this PSEB seminar 

 

and then go through the thread. You will get all your answers. There is no definite answer. But if earning is greater $5000 per month than probably should go for sole properieter bussiness.

 

Hope this helps. If anything not discussed previously (I doubt), hopefully we will in future.

If you've PRCs for all your remittances, that is enough. You can hire a tex expert for PKR 4/5k to file your tax returns for the firs time. I don't think sole proprietor is necessary (even I feel it wasn't necessary for my own case but I still did it to streamline things & for my own satisfaction)

 

FBR only have 2 conditions as mentioned earlier in this thread to get tax exemption.
1. All foreign earnings must come through a banking channel
2. 80% of them must be encashed as PKR

Thanks a lot for a direct and clear answer Hussain. I really appreciate the help. Jazaak ALLAH.

Foreign remittance tax is exempted if your total earning of one year is 0.5 million mentioned in tax act 2019
And no one can ask questions about this income. But use poyneer to local banks and get PRCs and monthly basis.


Muhammad M wrote:
Foreign remittance tax is exempted if your total earning of one year is 0.5 million mentioned in tax act 2019
And no one can ask questions about this income. But use poyneer to local banks and get PRCs and monthly basis.

FYI, the amount in 2019 act was 5 million PKR in a year, not 0.5 million PKR. Moreover, in 2020 act, this limitation has been eliminated. The freelancers and all foreign income earners can now earn any amount of money in a year till 2025.

Good my question is that.
Iam earning other than the up work or freelancer.com. I'm earning on telegram channel and yearly 2 million. I saved the screen shot of payments and client take conversations. Can a tax officer harassment on us to give tip tax😂

Hi hussain,

Pardon me, I didn't read the whole thread since it kind of got confusing in the middle.

However, I would be filing my tax returns soon, I just wanted to know, I provide architectural services via computer softwares, how can I get the tax emeptions?

I encash my earnings.

Regards

Earning from abroad less than 5 million is tax free if you have PRC and withdraw money in pkr.

Hi,
I have received a Notice from FBR 182(2) to impose penalty for failure to
furnish return.

Whereas I had filed my returns in December 2019? Any idea why i am
receiving this?

Not idea, I guess best to consult with a tax expert so they can guide you properly.

Pay the plenty and submit your return.... One of the bad department in pakistan

When you have NTN registered you have to filled a return always in September. This is for life time. Other wise face the plenty......my bad time was started when I had a ntn but time to time I understand the law. Allah will help you inshallah

Well the last date to submit the returns was 8th December 2020.

 

Which was quite surprising that there haven't been any circular or news on social media or any text message unlike last year!

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