Tax on remittance income?

[helpneeded321]

Hi,

I earn money as freelancer and all my clients are US based. They send me money using banking channel. $ send to my account which is automatically converted to local currency.

Now I have return my tax file and show that earning is foriegn income. Even got certificate from bank about the remittance.

Some say I need to be register for PSEB but when I read Income ordinance 2017,2018,2019 there is no mandatory for such thing.

Can anyone please let me know if you are individual and doing the same and filer what FBR say how much tax will be deducted or it will be exempt?

@nabs bhai I read your post could you please guide me in this.
Thanks.

[mgalaxy3]

It is income from business - exports/services and liable to tax, but for a few years there is exemption.

That home remittance is something else, which means people who work abroad sending money to home for family support, that is a different case and is tax exempt indeed.

IT exports are for now tax exempt .. but you have to show the income in filing.. I hope there are professionals here who can guide the exact method and code for it..

[helpneeded321]

Thank you for reply. In ordinance it's said that if 80% remittance bring in country using banking channel then it will be exempt.

REFERENCE BELOW

As per this Tax Exemptions clause 133 of Income tax ordinance 2001, amended 2017, there is a tax holiday for exports of software or IT services or IT enabled services till 30th June, 2025 as long as 80% of the earnined money comes in via normal banking channels.

Here is the full PDF from FBR. http://download1.fbr.gov.pk/Docs...

Edit: Tax Holiay renewal
———————————-

PM Abbasi announces extension of tax holiday on IT exports for six years - Profit by Pakistan Today

Hope will get reply from professional on this who paid themselves or has client of such category.

Thanks.

[Nabs]

As per section 111(4a) of Income Tax Ordinance. You're exempt from income tax if you have converted foreign currency to rupees in local bank account via foreign remittance and obtained remittance encashment certificate from bank. In case of tax audit you will just have to show those certificates as proof of tax exemption. You will not have to prove your income is IT based this way (remittance under 10 million rs in a tax year), so no need to register with PSEB. Just keep those remittance certificates in safe place and you're good. Also keep bank statements showing those remittances as record.

[pwuser150469741418]

There is a lot of confusion going on at the moment with foreign remittance. I am a freelancer too and my income comes through banking channel. One of my student who just signed up to become a filer is saying that foreign remittances now have 4% tax as well. I am also in the process of becoming a filer but it's really painful, FBR portal sucks, their submission form has a lot of issues. In my case, I am not able to select period for the past 4 days. Can you please shed some light on the procedure?

[Nabs]

In my experience, its hard to prove your income is IT based to avail tax exemption. Registering with PSEB is cumbersome, you will also need to be registered with State Bank and report your earnings and contracts every month. PSEB is not mentioned in Income Tax Ordinance, but it could be mentioned in Finance Act as its generally known that to avail tax exemption you have to be registered with PSEB. There is a lot of confusion and no clear direction from FBR regarding this.

The only thing clear is you have complete exemption from income tax if you encash your foreign remittances in your PKR bank account and get encashment certificate from bank. It is worth mentioning here that payments from services like Payoneer do not fall under this category as they convert foreign currency to rupees themselves and make local bank transfer to your account, therefore your bank can't give you remittance certificate for it.

[pwuser150469741418]

Thank you for the detailed reply brother. I can ditch Payoneer and request payment directly from Upwork to my local bank, they do use transfast though to send payment but in that case it could be considered as tax exempt? I will visit my local bank today and try to ask them if they'd be able to provide a certificate. I do have my income source certificate that Upwork generates which I provided the bank at the time of account opening.

if you encash your foreign remittances in your PKR bank account and get encashment certificate from bank.

That can be achieved by becoming a filer and opening a foreign currency account easily, no?

[mgalaxy3]

It is worth mentioning here that payments from services like Payoneer do not fall under this category as they convert foreign currency to rupees themselves and make local bank transfer to your account

No, check who the intermediary bank is (e . g. HBL ) and get the certificate from them. To your bank, the intermediary bank sends local transfer but it is still a remittance, which is handled by the 2nd bank. Ask your branch about what bank sent the payment

[mgalaxy3]

I will visit my local bank today and try to ask them if they'd be able to provide a certificate

Yes do that - but they might say that it is a local transfer and they cannot provide a certificate. In that case, find which bank sent the transfer and tell us here. You may need to reach out to that bank 's remittance department.

[helpneeded321]

Thank you. Also I can proved my foreign remittance along with all client information who paid. Actually I already did this as bank hold remittance until I gave them prove as State Bank of Pakistan asked for proof.

Here is the full Information from PSEB posted in 2015 but exemption now till 2025 rather than 2020.

Income from exports of computer software or IT services or IT enabled services (ITeS) is tax exempt till the period ending on 30th June, 2016 (ref. Clause 133, Second Schedule, Income Tax Ordinance, 2011). IT Services are stated to include software development, software maintenance, system integration, web design, web development, web hosting, and network design. Whereas IT-enabled services are stated to include inbound or outbound call centers, medical transcription, remote monitoring, graphics design, accounting services, HR services, telemedicine centers, data entry operations, locally produced television programs and insurance claims processing.
Pakistan Software Export Board (PSEB), with the support of the Ministry of Information Technology and Pakistan Software Houses Association (P@SHA) has proposed to the Federal Board of Revenue to extend the IT export income tax exemption till at-least 2020 in order to give Pakistan's emerging IT industry time to mature. It is expected that the Government will positively consider the proposal and extend the tax exemption status till 2020 in the budget announcement for 2016-17.
However, in order to avail the IT/ITeS export income tax exemption, freelancers and IT businesses must properly report their foreign income receipts. This can be done easily. When receiving foreign remittances in your local currency bank account, whether you are an individual tax payer or a company, you need to inform your bank to use one of the following codes assigned by the State Bank of Pakistan (SBP) for IT related services. It is pertinent to mention here that export-oriented IT companies are permitted to retain amounts up to 35% of their export earnings in Special Exporters Foreign Currency accounts opened with the banks, exclusively for payment of commission/discount to the overseas agents/buyers and to use the same to meet other expenses such as promotional publicity, import of Hardware/Software, foreign consultant’s fee, etc.:

S. No. SBP Code Category Description
1 9182 IT/Software Consultancy Services Receipts on account of IT and software development consultancy services provided through any medium (computer, mobile, other) whether onsite, offsite or online, to non-residents
2 9184 Computer Software Receipts on account of export of computer software including software licensing, maintenance and related support through any medium (computer, mobile, other) whether onsite, offsite or online, to non-residents. Also included are customized software development, maintenance and related support services
3 9185 Other Computer Services Receipts on account of other computer services not specified elsewhere, such as non-voice based IT enabled Services (ITeS) and Business Process Outsourcing (BPO) services
4 9102 Call Centers Receipts by PSEB registered call centers on account of voice-based call center services, such as telemarketing, tech support, customer interaction services etc.
5 9181 Hardware Consultancy Services Receipts on account of computer hardware consultancy services provided to non-residents
6 9183 Maintenance and Repair of Computers Receipts on account of maintenance and repair of computers and peripheral equipment abroad to non-residents

By doing so, you can claim export income tax exemption at the time of filing income tax returns by appropriately completing the tax return forms and attaching a letter from the bank listing your foreign receipts against IT services that have been duly reported by the bank to the State Bank of Pakistan during the last year along with copies of R-Forms. It is highly recommended that you engage an accountant familiar with tax laws to prepare and submit your tax returns.
It is also beneficial to get registered with Pakistan Software Export Board (PSEB) whether you are a registered company or a sole proprietorship (an individual whose NTN includes the name of solely-owned company). Registration with PSEB adds to your credibility as an exporter and adds value to your international marketing efforts. Furthermore, PSEB's programs and initiatives provide you space and bandwidth in software parks, international certifications, free interns, linkages with local/international investors, and opportunities to participate in local/international IT exhibitions. For more information, visit PSEB's web site at http://www.pseb.org.pk or email info@pseb.org.pk.
Domestic Department
Pakistan Software Export Board

[nraziz]

I have been through this and can provide help to anyone seeking it. Drop your phone # and I will call you for Allah almighty's sake.

[helpneeded321]

Can you share here please ? as sharing is caring and it will help all the community in Pakistan who are related to this business.

[nraziz]

OK, so if you want to avoid trouble you need to register yourself with PSEB as sole company. 10k per year is the fee which is not a big deal.

Before you do that you must be a filer, so register yourself on FBR website.

OK, now create yourself a business account with a bank of your choice, every time your client wires the money to your bank they(your bank) will call you asking to provide them an invoice and an R-Form. Fill your R-Form and put SBP code as 9182 (code for software development and maintenance)

Keep these R Forms with you and everytime you renew your PSEB certificate(each year) you have to provide them with the R-Forms.

Easy peasy?

[pwuser150469741418]

Just gave a visit. They said it will take near a week to furnish me PRC. So I will just need to attach those while filing my income right? Now in my case, I first have to obtain this from two banks because back in 2017 I was using SCB and now Bank Al Habib.

Btw since I will register now as a filer for which year do I have to declare my income 2018-19 or 2017-18?

[pwuser150469741418]

Necessary to register yourself as sole company?

[helpneeded321]

Okay but 2017-2018 is gone now and I just submitted the tax return for that so If I register with PSEB now will that be fine and will exempt me for 2017-2018 earning and also have you experience this with FBR? that they asked you for PSEB registration for remittance? Thanks.

[nraziz]

Yes it should be fine.. contact PSEB they are pretty coperative unlike other govt crap.

[Exubery]

Be doubly sure of what you do. My understanding (though I am no tax expert) is that "IT exemption from tax" is for exports not for income tax.

Means when you sell a product in Pakistan, you add 17% G.S.T. to it and pay that amount to the govt. In addition, whatever the company earns, the company pays corporate income tax on that. The company gives you your salary and whatever income you made as an individual, you pay YOUR normal income tax since the 17% was sales tax on the value of the product, the corporate tax was on the income/profit of the company, while income tax is on your personal income.

My understanding is that the 17% sales tax is not there. And the corporate tax is not there. However, that doesn't mean you are exempt from your personal income tax from whatever you earned.

[helpneeded321]

Yes exemption is for remittance only but not for local. If any individual providing service within Pakistan to local and getting paid within Pakistan by local that income is taxable.

[pwuser150469741418]

I am not providing services to local clients at all. Would really appreciate if you could shed some light on the right procedure. My clients don't wire transfer money but they escrow it on Upwork from there it comes to my Payoneer account which is in USD and from there I initiate and get in my local PKR account.