07-14-2011, 04:11 PM
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by Star</i>
<br />We may request to the Foreign Company to deduct income tax at source and to deposit it foreign country. In this case, FC may provide us the evidence of income tax deduction at source & deposit in foreign courntry and such profit on debt received will be tax free.
What you say?
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<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
s.103 of ITO 2001 and Rules 15 & 16 of IT Rules 2002 will help you in this regard.
According to sub-rule 3 of Rule 15 payment is recognized as tax if it must be a compulsory payment under the authority of foreign government.
So you must make sure that the company paying you the tax is required by law to deduct tax.
Now coming to section 103, foreign tax credit allowable is the lesser of
i. tax paid to foreign authority
ii. tax payable in Pakistan on such income
tax payable in Pakistan is calculated by applying person's average rate of Pakistani income tax for that year
It is further provided in Rule 16, that application for allowance of foreign tax credit shall be made with the return in the prescribed form (Part I of First Schedule to the Rules). It is to be supported by evidence as mentioned in Rule 16.
I am also not clear on calculation of tax payable in Pakistan. Normally, if one has paid tax on foreign income, he will add foreign income to local income, work out the tax rate, apply that tax rate on foreign income to check the tax payable on that income in Pakistan. thereafter he will claim credit lesser of tax payable in Pakistan or paid in foreign country.
But a complex question is that suppose on dividend income tax deducted by foreign company is 10%.
Should we take this income as separate block of income and 10% deduction as final tax or should we add dividend income to local income and work out the rate of tax for that year, then to claim tax credit equivalent to actually paid or equivalent toour rate of tax on dividend income, whichever is less. Apparently, s.103 supports the latter. However, further opinion is invited in this regard.
Last of all,I could not understand, what benefit you will get if the foreign company starts deducting tax. Your foreign tax credit cannot exceed the tax payable in Pakistan. Then, whether you pay that amount here or in the foreign country, according to me, it does not make any difference
<br />We may request to the Foreign Company to deduct income tax at source and to deposit it foreign country. In this case, FC may provide us the evidence of income tax deduction at source & deposit in foreign courntry and such profit on debt received will be tax free.
What you say?
*
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
s.103 of ITO 2001 and Rules 15 & 16 of IT Rules 2002 will help you in this regard.
According to sub-rule 3 of Rule 15 payment is recognized as tax if it must be a compulsory payment under the authority of foreign government.
So you must make sure that the company paying you the tax is required by law to deduct tax.
Now coming to section 103, foreign tax credit allowable is the lesser of
i. tax paid to foreign authority
ii. tax payable in Pakistan on such income
tax payable in Pakistan is calculated by applying person's average rate of Pakistani income tax for that year
It is further provided in Rule 16, that application for allowance of foreign tax credit shall be made with the return in the prescribed form (Part I of First Schedule to the Rules). It is to be supported by evidence as mentioned in Rule 16.
I am also not clear on calculation of tax payable in Pakistan. Normally, if one has paid tax on foreign income, he will add foreign income to local income, work out the tax rate, apply that tax rate on foreign income to check the tax payable on that income in Pakistan. thereafter he will claim credit lesser of tax payable in Pakistan or paid in foreign country.
But a complex question is that suppose on dividend income tax deducted by foreign company is 10%.
Should we take this income as separate block of income and 10% deduction as final tax or should we add dividend income to local income and work out the rate of tax for that year, then to claim tax credit equivalent to actually paid or equivalent toour rate of tax on dividend income, whichever is less. Apparently, s.103 supports the latter. However, further opinion is invited in this regard.
Last of all,I could not understand, what benefit you will get if the foreign company starts deducting tax. Your foreign tax credit cannot exceed the tax payable in Pakistan. Then, whether you pay that amount here or in the foreign country, according to me, it does not make any difference
