Doing Business in Pakistan

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Empowering International Businesses in Pakistan

Globalization has led to significant cross-border movements of foreign direct investment (FDI) and the establishment of multinational company operations. Developing nations, including Pakistan, are actively pursuing policies to attract Foreign Direct Investment (FDI) to fuel economic growth and improve the ease of doing business. Pakistan is committed to creating an attractive business environment by allowing 100% foreign ownership, establishing Economic Zones, and aligning trade, industrial, and monetary policies. Two significant steps have been taken to enhance investor confidence: the Inter-Governmental Commercial Transactions Act, 2022, and the Special Investment Facilitation Council (SIFC). The SIFC serves as a one-stop solution for foreign investors, with membership from provincial chief ministers and the Prime Minister. The Inter-Governmental Commercial Transactions Act, 2022 empowers Pakistan to enter Government-to-Government Agreements, offering an alternative to privatization under existing regulations.

Taxation in Pakistan falls into two categories: Direct and Indirect Taxes. Income Tax, a federal subject, is administered by the Federal Board of Revenue under the Income Tax Ordinance, 2001. Indirect taxes, such as Sales Tax on Goods and Services, Excise Duty, and Customs Duty, are also federally regulated. Sales tax on services is a provincial matter, with each province enacting its own legislation. In Islamabad Capital Territory, the Federal Government manages sales tax on services through the Islamabad Capital Territory (Tax on Service) Ordinance, 2001.

Foreign Direct Investment (FDI) is governed by various regulations, including the Foreign Exchange Regulations Act, 1947, and the Foreign Exchange Manual, 2002, issued by the State Bank of Pakistan. The Protection of Economic Reforms Act, 1992, investment treaties, and policies by the Board of Investment (BOI) play a crucial role in attracting investment. BOI’s policies align with Pakistan’s transformation into a regional trade hub, driven by initiatives like the China-Pakistan Economic Corridor (CPEC), political stability, and economic growth.

For corporate sector investments, the Companies Act 2017 is of paramount importance, along with regulations by the SECP (Securities and Exchange Commission of Pakistan).

    Taxes In Pakistan

    In Pakistan, the taxation framework encompasses two distinct categories of duties and taxes, each playing a crucial role in the fiscal landscape. These categories are outlined below: 

    1. Direct Taxation 

    Direct taxation is levied on the profits earned by individuals, corporations, and various other entities. This taxation category constitutes a pivotal component of the country’s revenue generation system.

    1.1. Federal Taxation

    Under the umbrella of federal taxation, the Income Tax regime takes precedence. This multifaceted tax structure is categorized into five distinct heads of income:

    Salary: Pertaining to income earned through employment or professional services.

    Income from Property: Involving revenue generated from property ownership and real estate ventures.

    Capital Gains: Encompassing gains derived from the sale of assets, such as stocks or real estate.

    Income from Business: Covering income accrued through commercial and business activities.

    Income from Other Sources: Incorporating diverse sources of income beyond the aforementioned categories.

    1.2.  Provincial Taxation

    In addition to federal taxation, provinces impose specific levies, including but not limited to the Agriculture Tax and Professional Tax, as part of their revenue generation strategy.

    2. Indirect Taxation 

    Indirect taxation operates on a different paradigm, as it involves taxing the final consumers at the point of purchase of goods and services. This approach ensures a more widespread contribution to the tax pool.

    2.1. Federal Taxation

    The federal domain of indirect taxation encompasses various components, such as:

    Sales Tax on Goods: Imposed on the sale of tangible goods at the federal level.

    Federal Excise Duty (FED) on Goods and Services: A duty applied to selected goods and services, contributing to federal revenue.

    Customs Duty: Levied on imported goods, regulating cross-border trade and bolstering federal finances. 

    2.2. Provincial Taxation

     Provincial governments also partake in indirect taxation, notably through:

    Sales Tax on Services: Encompassing services offered and consumed within the respective provinces.

      Income Tax

      Income Tax

      The taxation landscape in Pakistan operates under the ambit of the Income Tax Ordinance, 2001 (ITO 2001), overseen by the Federal Government. This comprehensive framework encompasses individuals, companies, firms, associations of persons, and other legal entities.

      Sales Tax (VAT) on Goods

      Sales Tax (VAT) on Goods

      Sales tax in Pakistan follows a Value Added Tax (VAT) system. It is an indirect tax applicable to the consumption of goods across the entire supply chain, including importers, manufacturers, wholesalers, and retailers, with certain exceptions.

      Sales Tax (VAT) on Services

      Sales Tax (VAT) on Services

      In the realm of taxation, the Provincial Sales Tax on services (STS) occupies a distinct position, operating as a levy by the provinces on services, in contrast to the federal government’s sales tax which primarily applies to goods.

      Federal Excise Duty

      Federal Excise Duty

      In accordance with Section 3 of the Federal Excise Act, specified goods and services are subject to the Federal Excise Duty (FED) at a general rate of 15%. This rate applies to goods and services not specified in the First Schedule

      Custom Duties

      Taxation on the Businesses Owned by the Foreign Entites

      Pakistan's current Taxation system is defined by Income Tax Ordinance 2001 (for direct taxes) and Sales Tax Act 1990 (for indirect taxes) and administrated by Federal Board of Revenue (FBR).

      Tax incentives for Investors

      Tax incentives for Investors

      Investing in Pakistan’s economic landscape offers lucrative opportunities, and the government has introduced a range of tax incentives to attract investors.

      Corporate & Investments 

      Investment Policies in Pakistan

      Investment Policies in Pakistan

      The Investment Policy 2023 has been formulated to facilitate and invigorate investment, both domestic and foreign, within Pakistan. Its purpose is to establish a comprehensive framework that fosters a favorable business climate, encouraging investments in the nation’s economy.

      Investment Vehicles for Foreign Investors

      Investment Vehicles for Foreign Investors

      Foreign entities seeking to establish a presence in Pakistan may open a Liason Office, Branch Office, Subsidary Company or Permanent Establishment

      Corporate & Business Environment

      Corporate & Business Environment

      In Pakistan, various business activities can be conducted through different legal structures, including companies, modarabas, branches, partnerships, and sole proprietorships

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      Why Choose Us?

      • Expertise: With years of experience in the field, we have developed a strong expertise in various domains, including accounting, taxation, auditing, and corporate advisory. 
      • Client-Centric Approach: We believe in building long-term relationships with our clients based on trust, integrity, and transparency. 

      • Comprehensive Services: Whether you are a small business owner, an established corporation, or an individual seeking tax advice, we offer a wide range of services to cater to your needs. From tax planning, audit,corporate adviosry and compliance to financial statement preparation, our holistic approach ensures that all aspects of your financial well-being are taken care of.

      • Local Market Knowledge: Being a local firm, we have an in-depth understanding of the Pakistani market dynamics, regulations, and cultural nuances. This local expertise allows us to offer valuable insights and guidance that can give your business a competitive edge.

      About Us

      Usman Rasheed & Co Chartered Accountants is a leading financial advisory and audit firm in Pakistan, having offices in Islamabad, Quetta, Lahore, Karachi, Peshawar & Gilgit. The firm is providing Audit, Tax, Corporate, Financial, Business, Legal & Secretarial Advisory services and other related assistance to local and foreign private, public and other organizations working in Pakistan

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      +92 334 459 0610

      Head Office: 7th Floor EOBI House G 10/4 Islamabad
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