You often find it hard to understand what this section actually applies to. Well here is the solution. This section applies when any person (resident in Pakistan) makes a payment to a non-resident for services, goods, contracts, rent, or other commercial transactions. Let’s find some details about this below.
What Does It Say?
If you or your business pay any non-resident person for:
- Purchase of goods
- Receiving services
- Executing a contract
- Paying rent, royalty, or technical fee
- Or other similar payments
Then, you are required to deduct tax at source (withholding tax) before making the payment to the non-resident.
When to Deduct Tax?
You can deduct this tax:
- Before making the payment (or at the time of crediting the account of the non-resident)
- Even if the non-resident has no permanent establishment in Pakistan
Withholding Tax Rates (Simplified)
| Type of Payment | WHT Rate (Standard) |
|---|---|
| Goods | 4% (with PE) or as notified |
| Services | 15% (without PE), lower if treaty applies |
| Contracts | 6%–7% |
| Rent of property or equipment | 15% |
| Royalty or Technical Fee | 15% |
| Digital services (Google, Meta etc.) | 5%–15% depending on classification |
These rates can vary based on:
- Whether the non-resident has a Permanent Establishment (PE) in Pakistan
- Whether Double Taxation Treaty (DTT) exists between Pakistan and that country
- If a lower rate certificate is obtained from the Commissioner (Section 152(5))
Who Is Responsible to Deduct?
Any Pakistani resident (individual, company, AOP) making the payment to a non-resident is responsible for:
- Deducting the correct tax
- Depositing it to FBR
- Filing a withholding statement
Practical Examples
Example 1: Software Purchase from US
- You buy a software license from a US company for $5,000
- It’s a royalty payment
- You must deduct 15% withholding tax
- Deposit tax to FBR and pay the rest to the US company
Example 2: Hiring Freelance Services
- You hire a non-resident freelancer for $1,000
- It’s a services payment
- Deduct 15%, deposit to FBR, and send remaining $850
What If You Don’t Deduct?
- The expense may be disallowed in your tax computation
- Penalty and default surcharge may be applied
Adjustability for Non-Resident
The non-resident can claim this withheld tax as a credit in their home country (if tax treaty allows), or in Pakistan if they file a return.
How to Comply (Step-by-Step)
- Identify type of payment and whether recipient is non-resident
- Check if there’s a DTT (Double Tax Treaty)
- Determine the withholding tax rate
- Deduct tax before payment
- Deposit tax to FBR
- File monthly withholding statement (u/s 165)
Summary
| Item | Detail |
|---|---|
| Section | 152(2) |
| Applies To | Payments to non-residents |
| Types of Payments | Goods, services, contracts, rent, royalty, etc. |
| Deduction Time | Before payment or account credit |
| Rates | 4%–15% (depends on nature & DTT) |
| Responsibility | Payer in Pakistan |
| Deposit Due | 7th of next month |
| Filing | Withholding statement under Section 165 |
Now you can learn about how to give gift legally in Pakistan or you can learn complete income tax return filing with our tax return course. If you like this article, share your feedback in the comment section below.
