Remittances From Overseas Residents, Taxable Situations and Common Mistakes

Remittances from overseas residents, taxable situations and common mistakes: If you want to know what is foreign income, what is remittance, do you have to pay tax on foreign income, when to pay tax on remittance, is there any tax on the money that overseas people send to Pakistan? In which cases will they be taxable? And what are the mistakes that can bring us to the notice of the FBR and we may have to pay tax while filing the return?

As you all know that the return filing process for the next year, which is 2025, has started. The last date to submit the return for income from July 1, 2024 to June 30, 2025 is September 30. In today’s blogpost, we will study all these concepts.

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what is foreign income and what is remittance:

Often overseas Pakistanis have these two questions, whether they have to pay tax on foreign income, and when they send their salary or business or rent income to Pakistan, is there tax on it too? For example, an overseas person is sitting in Dubai and is receiving salary from there. Now when he sends this money to Pakistan, will it be taxed? Similarly, if he has a property there, is receiving rent or is doing business, will tax be applicable on the income in Pakistan? We will look at these questions one by one.

Foreign Remittances:

Remittance is the amount that you send from abroad to any bank account in Pakistan. It can go to your account, your wife’s or a close relative’s account, or the account of a related person. But this will be a remittance only if the amount comes through regular banking channels. Any amount coming through hundi or informal channels is not called remittance.

Foreign Remittances – Exemption:

In this regard, the State Bank had issued a circular in 2022 in which three conditions were laid down for the remittance exemption

is coming from a country outside Pakistan.
should be sent in foreign currency and the local bank should convert it into PKR upon arrival in Pakistan.
The actual rate of the currency should be applied in Pakistan, that is, it should not be converted from abroad before being sent.

The reason is that when foreign currency comes into the country, the value of the currency strengthens. Therefore, it is mandatory that only foreign currency should be sent from abroad and converted after arriving in Pakistan.

Sending Foreign Remittances to Various Accounts or Persons

Own Pak Account:

Now if you send this money to your own account, it will be a remittance, there will be no tax on it. Even if you later use the same money anywhere: transfer it to someone, buy property, or take any other asset, all this will be legal and white money.

Wife Bank Account:

But if you send money to your wife’s account and she is a non-filer, then you take the property in your name, then sometimes questions may arise. However, the practice is that you show her remittance in your return, because the wife is a close family member. If you want, you can make all this easier by making the wife a filer.

Friend Bank Account:

But the big mistake is when people send money to the account of their friend or a third person, and then buy a property or a car through it. In this case, that friend will show remittance in his return, you cannot. FBR can also consider it as gift income, which is taxable. That is why this is the biggest mistake and FBR issues notices on this basis.

Dealer/Party Bank Account:

Similarly, another mistake is that you send money directly from abroad to the account of the agent or showroom dealer of the property or car. In this case too, that money does not come into your account, and you cannot prove it as remittance. As a result, if you do not have a PRC (Proceeded Realization Certificate), the FBR can impose a heavy tax on you, which can sometimes be up to 45%.

Foreign Income:

If a resident Pakistani who has spent 183 days or more in Pakistan in a year earns from abroad. For example, if that person is sitting in Pakistan and providing online services to Europe or America, or has a property abroad from which rent is coming in, or has a business, then all this will be called foreign income. Since he is a resident, his worldwide income will be taxable in Pakistan and he will have to pay tax on it.

However, if a person is a non-resident (i.e. has stayed in the country for less than 183 days in a year), then his earnings from abroad will not be taxable in Pakistan, it will only be considered as remittance.