Startups Exempt From Income Tax in Pakistan

Purpose of this Blog Post

You are thinking “I am a startup, what does exemption from tax mean”. Here at Tax Dosti, we have the exact answer to your question(s). Lets start…

What is the Tax Law in Pakistan called ?

The Tax Law in Pakistan is called the Income Tax Ordinance 2001. It defines who, how and when any person/business has to pay income tax on his/her sales/profits.

How do Businesses do their taxes in Pakistan ?

They do their taxes this way:

  1. They register with FBR at the beginning.
  2. They account for all their transactions.
  3. They file their monthly tax statements.
  4. At the end of each year, they file their annual tax return.
  5. They pay their taxes or claim their refunds.
  6. Then the process starts all over again for next year.

Are Startups Defined in the Tax Law ?

Before 1st July 2017, there was no definition of startups in the law, which meant that they were treated like all other businesses (manufacturing, retail, service-providers) and did their taxes like them.

After 1st July, 2017

The tax law defines startups as businesses having the following features:

  1. A business of a resident individual, AOP or a company that commenced on or after first day of July, 2012 and
  2. The person is engaged in or intends to offer technology driven products or services to any sector of the economy
  3. Provided that the person is registered with and duly certified by the Pakistan Software Export Board (PSEB) and
  4. Has turnover of less than one hundred million in each of the last five tax years;

So now how will Startups do their taxes in Pakistan ?

They will do their taxes this way:

  1. They will register with FBR at the beginning.
  2. They will account for all transactions.
  3. They will file their monthly tax statements.
  4. At the end of each year, they will file annual tax return.
  5. They will have to pay zero (0) taxes & just claim refunds.
  6. And then start the process all over again for the next two year (three years exemption).

But Are Startups Really Exempt From Income Tax

Yes, the law clearly states the following conditions for claiming the exemption:

Profit and gains derived by a start–up as defined in the tax law for the tax year in which the start- up is certified by the Pakistan Software Export Board and the following two tax years.

Congrats to all the #Pakistani #Startups, You are a transforming force…

Feel free to write to our tax expert, ceo@taxdosti.com

Join the Tax Dosti Network to chat with our experts on messenger

Join our Website for regular Pakistani tax updates through our blog

Join our live event for Q&A session on this topics and more tax topics