Let’s start the discussion on the topic of Resident Company status for different entities, specifically focusing on Resident Companies ain FBR. If you have any specific questions or points you’d like to cover, feel free to let me know, and we can dive deeper into the details of each category.
Table of Contents
Resident Company [S-83]
i. Company Incorporated in Pakistan:
- If a company is incorporated in Pakistan, it is considered a Resident Company by default. The place of incorporation in Pakistan is a sufficient condition for residency.
ii. Provincial Government:
- The Provincial Government is treated as a Resident Entity for tax purposes. No additional conditions are required.
iii. Local Government:
- Similar to the Provincial Government, a Local Government entity is considered a Resident Entity without the need for additional conditions.
iv. Company Incorporated Outside Pakistan:
- For a company incorporated outside Pakistan, it is classified as a Resident Company if the control and management of its affairs are situated wholly in Pakistan at any time in a tax year.
Resident AOP [S-84]:
An AOP is considered a Resident AOP for tax purposes if the control and management of its affairs are situated wholly or partly in Pakistan at any time in a tax year.
In other words:
- If the AOP has its control and management wholly or partly within Pakistan during the tax year, it is treated as a Resident AOP.
This criterion emphasizes that the location of control and management is a decisive factor in determining the residential status of an AOP. If the AOP’s decision-making and operational control are in Pakistan, it is subject to tax regulations as a resident entity.
Understanding this condition is crucial for AOPs to accurately assess their residential status and comply with the relevant tax laws in Pakistan
In summary:
- A company incorporated in Pakistan is a Resident Company by virtue of its place of incorporation.
- Both Provincial and Local Governments are treated as Resident Entities without further conditions.
- A company incorporated outside Pakistan becomes a Resident Company if its control and management are situated wholly in Pakistan at any time in a tax year.
Residential Status Practice
TECH LLC:
- Original Situation:
- Incorporated as a limited liability company in the UK.
- Control and management wholly situated in Pakistan.
In this original situation, TECH LLC is considered a Resident Company in Pakistan because its control and management were wholly in Pakistan at any time in the tax year.
- Change in Situation:
- With effect from 01 November 2017, the entire management and control were shifted to the UK.
After the shift of control and management to the UK, TECH LLC would no longer meet the criteria for being a Resident Company in Pakistan. Therefore, from November 1, 2017, onward, it would be treated as a Non-Resident Company for tax purposes in Pakistan.
JJL:
- Company Profile:
- Non-listed public company incorporated under the Companies Act 2017 in Pakistan.
- All shareholders are individuals.
- Control and management of affairs during the year were outside Pakistan.
Despite being incorporated in Pakistan, JJL is considered a Non-Resident Company because the control and management of its affairs were situated outside Pakistan during the tax year. The residential status is determined by the location of control and management, not just the place of incorporation.
In summary:
- TECH LLC was initially a Resident Company in Pakistan, but after the shift of control and management to the UK, it becomes a Non-Resident Company from November 1, 2017.
- JJL, despite being incorporated in Pakistan, is a Non-Resident Company due to the control and management of its affairs being outside Pakistan during the tax year.
Taxation Implications
In summary, the tax implications for residents and non-residents in Pakistan are clear-cut. A resident taxpayer, be it an individual, company, or AOP, is obligated to pay taxes on both Pakistan source and foreign source income. On the other hand, non-resident taxpayers in Pakistan are only subject to taxation on income derived from within the country, with no tax liabilities on foreign source income. This nuanced distinction highlights the importance of understanding one’s residential status for effective tax planning and compliance, ensuring a transparent and informed approach to financial responsibilities.
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