For overseas Pakistanis selling property in Pakistan, capital gains tax (CGT) exemption is a major concern. Many believe they are fully exempt, but this is not automatic. It depends on specific conditions. This article explains the rules, requirements, and legal framework.
Understanding Property Taxes in Pakistan
When selling property in Pakistan, you must account for multiple taxes. The key ones are:
Section 236C Tax (Transaction Tax)
- A tax is applied at the time of sale.
- Currently 3% for filers, late filers, and non-filers, including overseas Pakistanis.
- This is considered a minimum tax and is generally non-refundable.
Capital Gains Tax (CGT)
- Applied on the profit from the sale.
- Calculated as the difference between purchase price and sale price.
- The standard rate for local Pakistanis is 15% for properties bought after July 2024, regardless of the holding period.
How Overseas Pakistanis Can Get 100% CGT Exemption
Overseas Pakistanis can potentially pay 0% CGT. However, three conditions must be met:
1. Must Hold NICOP or POC
- You must be a Non-Resident Pakistani (NRP).
- A National Identity Card for Overseas Pakistanis (NICOP) or Pakistan Origin Card (POC) is required to confirm NRP status.
2. Property Purchase Must Be Funded Through Remittances
- The purchase must be made using remitted foreign funds.
- If the property was bought using funds from a regular Pakistani Rupee account, you may not qualify for the exemption.
3. Funds Must Be Transferred via Specific Accounts
The remitted funds must be routed through one of these accounts:
- Foreign Currency Value Account (FCVA)
- Non-Resident Rupee Value Account (NRVA)
- Roshan Digital Account (RDA) (Recognized for foreign remittances)
Why These Conditions Exist
Pakistan encourages formal remittances to strengthen the economy. By using these accounts, you bring foreign currency into Pakistan. In return, the government offers CGT exemption as an incentive.
Example Scenario
You, an overseas Pakistani with NICOP, buy a property in September 2024 for PKR 10 million, using funds transferred to an NRVA account. In 2028, you sell it for PKR 20 million, making a profit of PKR 10 million.
- If you meet all three conditions, you pay 0% CGT on profit.
- You still owe 3% Section 236C tax at the time of sale.
- If purchased using a regular Pakistani Rupee account, you may owe 15% CGT on the profit.
Plan Ahead: Buy with a Tax Strategy
The best time to plan for tax exemption is at the time of purchase. Ensure your funds come through FCVA, NRVA, or RDA to benefit from 0% CGT when selling.
Where to Verify Rules
For the latest legal details, refer to Pakistan’s Income Tax Ordinance, particularly Section 236C. You can check the State Bank of Pakistan and commercial banks for account opening details.
Conclusion
Understanding CGT exemptions helps overseas Pakistanis save on taxes when selling property in Pakistan. Meeting the required conditions ensures you qualify for 100% CGT exemption. Always consult a tax expert and verify legal updates before making property transactions.
If you wish you can learn about FBR Exempts Overseas Pakistanis from Advance Tax on Property. Also if you want to know the method of filing an income tax return as an overseas Pakistani you can enroll in our Income Tax Master course.
