Tax on payments to Non-Residents

[mhasan]

Salam,

I am confused with the actual tax rate on payment to non-residents (outside Pakistan) against technical fee.

According to Section 6 : tax rate is 15% [Source: First Schedule: Part 1: Division IV]

But as per section 152(1A) : 6% [Source: First Schedule: Part III: Division II]

Kindly tell me the difference of above two sections and what tax rate would be applied on payment to vendor of outside Pakistan against software and licence fee provided to us.

Regards,

Hasan

[Taxman]

The software and lience fee is a royalty under section 152 of the Income Tax Ordinance, 2001 and the applicable rate of tax is 15% of the gross amount. However, Pakistan have agreement for avoidance of double tax treaty with difference countries, you should also review the tax treaty of Pakistan with the vendor's country to re-check if there is any reduce rate of tax.

Further, the rate of 6% as stated in your question is for perminent establishment of a Non-resident while the rate of 15% is for non-resident person not having perminent establishment in Pakistan.

Majid