ITO Section 101

Geographical source of income. 

(1) Salary shall be Pakistan-source income to the extent to which the salary 

• (a) is received from any employment exercised in Pakistan, wherever paid; or
• (b) is paid by, or on behalf of, the Federal Government, a Provincial Government, or a  [Local Government] in Pakistan, wherever the employment is exercised.

(2) Business income of a resident person shall be Pakistan-source income to the extent to which the income is derived from any business carried on in Pakistan.

(3) Business income of a non-resident person shall be Pakistan-source income to the extent to which it is directly or indirectly attributable to –

• (a) a permanent establishment of the non-resident person in Pakistan;
• (b) sales in Pakistan of goods merchandise of the same or similar kind as those sold by the person through a permanent establishment in Pakistan; 
• (c) other business activities carried on in Pakistan of the same or similar kind as those effected by the non-resident through a permanent establishment in Pakistan  [or] 
• [(d) any business connection in Pakistan  [or]
• [(e) import of goods, whether or not the title to the goods passes outside Pakistan, if the import is part of an overall arrangement for the supply of goods, installation, construction, assembly, commission, guarantees or supervisory activities and all or principal activities are undertaken or performed either by the associates of the person supplying the goods or its permanent establishment, whether or not the goods are imported in the name of the person, associate of the person or any other person.

Explanation.

For the removal of doubt, it is clarified that where the income is subject to taxation under sections 5A, 5AA, 6, 7 and 7A, the income shall not be chargeable to tax under the head income from business.”] 

[(3A) For the purposes of clause (d) of sub-section (3), business connection in Pakistan shall include “significant economic presence in Pakistan” of a nonresident.

(3B) significant economic presence in Pakistan shall mean –

• (a) transaction in respect of any goods, services or property carried out by a non-resident with any person in Pakistan including provision of download of data or software in Pakistan, if the aggregate of payments arising from such transaction or transactions during the tax year exceeds such amount as may be prescribed; and
• (b) systematic and continuous soliciting of business activities or engaging in interaction through digital means with such number of users in Pakistan as may be prescribed, irrespective of whether or not :

(i) the agreement for such transactions or activities is signed in Pakistan;

(ii) the non-resident has a residence or place of business in Pakistan; or

(iii) the non-resident renders services in Pakistan:

Provided that only so much of income as is attributable to the transactions or activities referred to in clause (a) or clause (b) shall be deemed to accrue or arise from a business connection in Pakistan.

[(4) Where the business of a non-resident person comprises the rendering of independent services (including professional services and the services of entertainers and sports persons), the Pakistan-source business income of the person shall include [in addition to any amounts treated as Pakistan-source income under sub-section (3)] any remuneration derived by the person where the remuneration is paid by a resident person or borne by a permanent establishment in Pakistan of a non-resident person.]

(5) Any gain from the disposal of any asset or property used in deriving any business income referred to in sub-section (2), (3) or (4) shall be Pakistansource income.

(6) A dividend shall be Pakistan-source income if it is  [—]

• [( a) paid by a resident company; or]
• [(b) dividend as per provisions of sub-clause (f) of clause (19) of section 2.]

(7) Profit on debt shall be Pakistan-source income if it is :

• (a) paid by a resident person, except where the profit is payable in respect of any debt used for the purposes of a business carried on by the resident outside Pakistan through a permanent establishment; or
• (b) borne by a permanent establishment in Pakistan of a nonresident person.

(8) A royalty shall be Pakistan-source income if it is :

• (a) paid by a resident person, except where the royalty is payable in respect of any right, property, or information used, or services utilised for the purposes of a business carried on by the resident outside Pakistan through a permanent establishment; or
• (b) borne by a permanent establishment in Pakistan of a nonresident person.

(9) Rental income shall be Pakistan-source income if it is derived from the lease of immovable property in Pakistan whether improved or not, or from any other interest in or over immovable property, including a right to explore for, or exploit, natural resources in Pakistan.

(10) Any gain from the alienation of any property or right referred to in subsection (9) or from the alienation of any share in a company the assets of which consist wholly or principally, directly or indirectly, of property or rights referred to in sub-section (9) shall be Pakistan-source income.

(11) A pension or annuity shall be Pakistan-source income if it is paid by a resident or borne by a permanent establishment in Pakistan of a non-resident person.

(12) A technical fee shall be Pakistan-source income if it is –

• (a) paid by a resident person, except where the fee is payable in respect of services utilised in a business carried on by the resident outside Pakistan through a permanent establishment; or
• (b) borne by a permanent establishment in Pakistan of a nonresident person.

[(12A) A fee for offshore digital services shall be Pakistan- source income, if it is:

• (a) paid by a resident person, except where the fee is payable in respect of services utilised in a business carried on by the resident outside Pakistan through a permanent establishment; or
• (b) borne by a permanent establishment in Pakistan of a nonresident person.]

(13) Any gain arising on the disposal of shares in a resident company shall be Pakistan-source income. 

[(13A).Any amount paid on account of insurance or re-insurance premium by an insurance company to an overseas insurance or re-insurance company shall be deemed to be Pakistan source income.]

(14) Any amount not mentioned in the preceding sub-sections shall be Pakistan-source income if it is paid by a resident person or borne by a permanent establishment in Pakistan of a non-resident person.

(15) Where an amount may be dealt with under sub-section (3) and under another sub-section (other than sub-section (14)), this section shall apply:

• (a) by first determining whether the amount is Pakistan-source income under that other sub-section; and
• (b) if the amount is not Pakistan-source income under that subsection, then determining whether it is Pakistan-source income under sub-section (3).

(16) An amount shall be foreign-source income to the extent to which it is not Pakistan-source income.