Updated on: 2025/08/07 09:55 (UTC)
Overview
The Islamic Republic of Pakistan is located in South Asia, and is bordered by India to the east, Afghanistan to the west and north, Iran to the southwest and China in the far northeast. Pakistan is a federal parliamentary republic with four provinces and three territories. The provinces of Pakistan are Balochistan (Baluchistan), Khyber Pakhtunkhwa (KP; KPK), Punjab, and Sindh. The territories of Pakistan are Azad Jammu & Kashmir, Gilgit-Baltistan, and the Islamabad Capital Territory. In May 2018, the federal government of Pakistan passed a constitutional amendment to merge the Federally Administered Tribal Areas (FATA) with Khyber Pakhtunkhwa.
Pakistan’s currency is the Pakistani rupee.
Employers in Pakistan must withhold and remit income taxes and social taxes from employees and must pay additional social taxes. Income taxes are levied by the federal government, while social taxes are levied by both the federal and provincial governments. Employers also must pay a professional tax in the province of Punjab. Additionally, employers must adhere to the labor laws of each province.
Foreign workers in Pakistan generally are subject to the same taxes as citizens and their employers generally must uphold the same compensation and benefit requirements for them. Foreign workers must obtain the proper visas to work legally.
Pakistani residents working in the United States are covered by U.S. tax law with possible treaty and work status exclusions applying. Work within the U.S. states and territories is covered by various labor laws.
CURRENCY DETAILS
The currency of Pakistan is the Pakistani rupee (PRs.), also known simply in Pakistan as the rupee. The internationally recognized three-letter currency code for the Pakistani rupee is PKR. The plural form of Pakistani rupee is Pakistani rupees.
When an amount of Pakistani rupees is written using the currency symbol PRs., the variant PRs, the variant PRe., or the variant PRe, to distinguish Pakistani rupees from other rupee currencies, the symbol precedes the numerical value with a space, or less commonly no space, between the numerical value and symbol.
The currency symbols Re., Re, Rs., and Rs (and the variants ₨. and ₨ that render “R” and “s” as one Unicode character instead of two) also are commonly used in Pakistan for writing amounts of Pakistani rupees, although these currency symbols in international contexts are used not just for writing amounts of Pakistani rupees but for writing amounts of rupee currencies of some other countries. These currency symbols have the same placement treatment when used for writing amounts of Pakistani rupees as the currency symbol PRs., and among them, the currency symbol ₨ is the one most commonly used for writing amounts of Pakistani rupees.
Numerical values of Pakistani rupees that are designated by the aforementioned currency symbols sometimes also include, following the numerical value with no space, one of two secondary symbols associated with Pakistani rupees, with one formed by a forward slash and equals sign (/=) and the other formed by a forward slash and hyphen (/-). These two secondary symbols occasionally are presented without one of the aforementioned currency symbols that would precede the numerical value.
One hundredth ( 1 ⁄ 100 ) of a Pakistani rupee is referred to as a paisa, and while its standard plural form is paise (alternatively spelled as pice), some Pakistani organizations prefer to use paisa as both the subdivision’s singular form and plural form, although transactions involving Pakistani currency do not typically include amounts other than whole numbers of Pakistani rupees.
When amounts of Pakistani rupees are written in Pakistani dialects of English, the comma that in dialects of American English and British English separates the thousands place from the hundreds place sometimes is not rendered, with the numbers in the thousands place and hundreds place adjacent to each other with no symbol or space between them. Pakistani dialects of English also use terms not used in American English and British English to describe some multiples of 100,000, and when commas are used to separate some digit places from each other, the comma placements for numbers starting with 100,000 as used in Pakistani dialects of English differ from those used in American English and British English. More details on numbers as used in the South Asian numbering system, also known as the Indian numbering system, are available at the end of the overview section of the India payroll primer.
TAXES
The federal government generally enacts laws relating to income tax and social taxes, but the provinces also levy their own social taxes.
The tax year in Pakistan begins on July 1 and ends June 30.
Income Taxes
Coverage: All employers, defined as those who engage and remunerate employees, are responsible for withholding income taxes from their employees.
Employees: Employees are defined as any individual engaged in employment. This includes directors or any other officers involved in the management of a company or in positions entitling the holder to a fixed or ascertainable remuneration. Residents are taxed on their global income and nonresidents only on their Pakistani-sourced income. Residents are defined as those who have resided in Pakistan for 183 days in a given tax year.
Rates and Thresholds: Effective since July, 1, 2019, Pakistan’s set of income tax brackets in effect for individuals regarding withholding at source from employment income differs from Pakistan’s set of income tax brackets generally in effect for individuals who during an applicable tax year acquired at least 25% of their total income outside the context of employment. Effective since July 1, 2019, the tax brackets in effect for withholding at source from employment income paid to individuals are those in effect for individuals who acquired more than 75% of their total tax-year income from employment. Effective until June 30, 2019, individuals who during a tax year acquired at least 50% of their total income outside the context of employment were not subject to the employment income tax brackets for that tax year and individuals who during a tax year acquired more than 50% of their income from employment were subject to the employment income tax brackets for that tax year. From July 1, 2018, to Oct. 3, 2018, Pakistan had one set of income tax brackets for both withholding at source from employment income and income tax generally in effect for individuals, regardless of the degree to which their total income for an applicable tax year consisted of employment income, but this set of brackets was overridden by new sets of brackets that retroactively took effect July 1, 2018.
Income tax rates are levied on a progressive scale for individuals, with rates applicable to employment income ranging, effective starting July 1, 2019, from zero to 35%, and effective from July 1, 2018, to June 30, 2019, from zero to 25%.
Effective since July 1, 2019, Pakistan’s personal income tax rates and minimum and maximum amounts of tax-year income for each tax bracket for individuals who acquired more than 75% of their total income from employment are as follows:| Range of Tax-Year Income (Pakistani Rupees) | Income Tax Rate |
|---|---|
| Up to PRs. 600,000 | Zero |
| More than PRs. 600,000 and up to PRs. 1.2 million | 5% of the amount of salary exceeding PRs. 600,000 |
| More than PRs. 1.2 million and up to PRs. 1.8 million | PRs. 30,000 plus 10% of the amount of salary exceeding PRs. 1.2 million |
| More than PRs. 1.8 million and up to PRs. 2.5 million | PRs. 90,000 plus 15% of the amount of salary exceeding PRs. 1.8 million |
| More than PRs. 2.5 million and up to PRs. 3.5 million | PRs. 195,000 plus 17.5% of the amount of salary exceeding PRs. 2.5 million |
| More than PRs. 3.5 million and up to PRs. 5 million | PRs. 370,000 plus 20%% of the amount of salary exceeding PRs. 3.5 million |
| More than PRs. 5 million and up to PRs. 8 million | PRs. 670,000 plus 22.5% of the amount of salary exceeding PRs. 5 million |
| More than PRs. 8 million and up to PRs. 12 million | PRs. 1,345,000 plus 25% of the amount of salary exceeding PRs. 8 million |
| More than PRs. 12 million and up to PRs. 30 million | PRs. 2,345,000 plus 27.5% of the amount of salary exceeding PRs. 12 million |
| More than PRs. 30 million and up to PRs. 50 million | PRs. 7,295,000 plus 30% of the amount of salary exceeding PRs. 30 million |
| More than PRs. 50 million and up to PRs. 75 million | PRs. 13,295,000 plus 32.5% of the amount of salary exceeding PRs. 50 million |
| More than PRs. 75 million | PRs. 21,420,000 plus 35% of the amount of salary exceeding PRs. 75 million |
| Range of Tax-Year Income (Pakistani Rupees) | Income Tax Rate |
|---|---|
| Up to PRs. 400,000 | Zero |
| More than PRs. 400,000 and up to PRs. 800,000 | Flat amount of PRs. 1,000 |
| More than PRs. 800,000 and up to PRs. 1.2 million | Flat amount of PRs. 2,000 |
| More than PRs. 1.2 million and up to PRs. 2.5 million | 5% of the amount exceeding PRs. 1.2 million |
| More than PRs. 2.5 million and up to PRs. 4 million | PRs. 65,000 plus 15% of the amount exceeding PRs. 2.5 million |
| More than PRs. 4 million and up to PRs. 8 million | PRs. 290,000 plus 20% of the amount exceeding PRs. 4 million |
| More than PRs. 8 million | PRs. 1,090,000 plus 25% of the amount exceeding PRs. 8 million |
Registration: Employees must provide employees with Form IT-3 upon being hired. All companies must register with FBR by filing TRF-0-1 or filing on the FBR website.
Taxable Amounts: Salary is defined as any amount received from any employment including any pay, wages or other remuneration provided to an employee, leave pay, payment in lieu of leave, overtime payments, bonuses, commissions, fees, gratuities, work condition supplements, any perquisites, cost of living subsidies subsistence subsidies, rent subsidies, utilities subsidies, education subsidies, certain entertainment or travel allowances, company profits provided in consideration of the employment relationship, severance payments and employee share schemes.
Taxable amounts are reduced by 40% for full time teachers or researchers employed in nonprofit education or research institutions.
Withholding Methods: Income tax must be withheld from every salary payment at the time of payment and remitted on a weekly basis.
Returns and Remittance: Employers must remit all payments to the Government Treasury, to an authorized branch of the State Bank of Pakistan or to the National Bank of Pakistan within seven days of the end of each week ending on every Sunday.
Employers must make monthly and annual returns for all income tax withheld. Employers must file monthly statements within 15 days after the end of each month. Employers must file annual statements by Aug. 31 of every year.
Employers must issue employees a certificate of collection or deduction of tax within 45 days of the end of the tax year. The certificate must be issued within seven days of terminating an employee.
All individuals earning taxable salary income in Pakistan, regardless of the amount, are required to electronically file income tax returns with FBR.
Employee Share Plans: Shares offered to employees without restriction on the transfer of these shares are taxable on their value at exercise. Shares offered to employee with restrictions on transfer of the shares are taxable on their value when employees gain the right to transfer the shares or when the employee disposes of the shares, whichever occurs first. Share plans are taxed based on the fair market value of the shares as reduced by the amount the employee paid for these shares.
Recordkeeping: Employers must maintain all Form IT-3’s for five years.
Penalties: Employers who fail to withhold income tax or fail to remit income taxes on time are liable for a penalty of PRs. 25,000 or 10% of income taxes outstanding, whichever is greater.
Employers who fail to provide timely returns are liable for a penalty of PRs. 2,500 for each day of delinquency, with a minimum penalty of PRs. 50,000 and a maximum of 25% of taxes outstanding.
Social Taxes
Social taxes in Pakistan are covered by two separate organizational regimes. The Employees’ Old-Age Benefits Institution (EOBI), which is a federal program administered throughout Pakistan, provides employees with an old-age pension, survivor’s pension, invalidity pension, and an old-age grant. The Provincial Employees’ Social Security Institutes (ESSI), which are provincial programs in the Balochistan, Khyber Pakhtunkhwa, Punjab, and Sindh provinces, provide employees with sick leave, maternity leave, funeral grants, medical care, survivors’ benefits, disability benefits, and workers; compensation.
While all of the ESSI schemes are governed by the Provincial Employees’ Social Security Ordinance of 1965, each province has the ability to amend the ordinance and modify rates and thresholds.
Coverage: All employers with at least five employees must participate in the Employees’ Old-Age Benefits Scheme, while those with fewer employees may voluntarily participate.
All employers with workers in provinces with an ESSI generally must register and contribute to the provincial social security scheme.
Rates and Thresholds: Employers and employees are assessed contributions for the Employees’ Old-Age Benefits Institution, while employers, but not employees, are assessed ESSI contributions.
Employees’ Old-Age Benefits Institution (EOBI): The maximum monthly amount of employment income paid to an employee upon which EOBI contribution rates may be assessed on the employee and employer is the monthly minimum wage in effect for the province or territory where the employee works.
The employer contribution rate for the EBOI is 5% and the employee contribution rate for the EBOI is 1%.
Balochistan Employees’ Social Security Institution (BESSI): Employers must pay 7% of payroll with the monthly maximum assessable income paid to each employee capped at PRs. 5,000.
Khyber Pakhtunkhwa Employees’ Social Security Institution (KPESSI): Employers must pay 6% of payroll.
Punjab Employees’ Social Security Institution (PESSI): Employers must contribute 6% of payroll up to a monthly maximum of PRs. 15,000 per month per employee or PRs. 600 per day per employee.
Sindh Employees’ Social Security Institution (SESSI): Employers must contribute 6% of wages capped at PRs. 10,000 per month.
Workplace Safety ESSI Levy: Each province may assess an additional ESSI levy of 5% on employers that are found to be in violation of safe workplace practices.
Registration: Employers must register with the EOBI by filing Form PR-01, Application for Registration Under Employees’ Old-Age Benefit Scheme, and for each employee Form PE-01, Application for Employee’s Registration, within 30 days of beginning operations and provide all employees with a copy of Form PE-01. After an employer registers with the EOBI, the EOBI provides the employer with a Form PI-02, Certificate of Registration, and provide each employee with Form PI-03, Registration Card.
Employers must complete their ESSI registration by filing Form R-1 within 10 days of becoming liable to social security payments. Employers must register every employee who does not present a Registration Card (Form R-5) as proof that he or she has already registered with ESSI. To register employees, employers must file a registration form (Form R-2). Employers must ensure that all employees are already registered or file Form R-2 for all employees who are not yet registered and file Form R-3, Return of Employees Liable to Become Secured Persons, within 15 days of registering as employers.
Taxable Amounts: Wages for the purposes of ESSI contributions are defined as remuneration for service paid or payable in cash or in kind to a secured person, including cost of living allowances and authorized leave payments, up to the capped amount, but does not include overtime pay, any sum paid to the person employed to defray special expenses entailed by the nature of his employment, gratuities or bonuses.
Returns and Remittance: Employers must make monthly EOBI remittances by the 15th day of every month in conjunction with Form PR-03, Contribution Payment Slip. EOBI contributions must be paid to an authorized branch of the National Bank of Pakistan. Employers must file quarterly returns to EOBI by filing Form PR-02 and PR-03 by Jan. 15, April 15, July 15 and Oct. 15 of every year.
ESSI payments are due on the last day of every month for salaries paid in the previous month and monthly returns are due by the 30th of the month. To file monthly returns, employers must file a Declaration of Employer Establishment with the provincial authority.
Recordkeeping: Employers must preserve a record of all employees occupations, wages, attendance, dates of entry and exit and registration numbers, in addition to copies of returns for two years under the EOBI and ESSI schemes.
Penalties: Late EOBI contributions are subject to a fine of 2% of the amount payable assessed for every month, or portion of a month, of delinquency. Fines for late contributions are capped at 50% of amounts payable.
Late ESSI payments will incur a fine of 0.5% of taxes outstanding per day of delinquency for the first 90 days. After 90 days the fine is increased to 50% of taxes outstanding. Additionally the following offenses are punishable by a prison term of up to three months, a fine of up to PRs. 1,000, or both if committed willingly:
- false statements or false representation,
- producing false information,
- failure to pay any contributions,
- deducting employer’s contributions from employee’s paychecks,
- filing false returns,
- obstructing social security officials, or
- other forms of noncompliance.
Other Taxes
Pakistan’s national government does not assess any taxes on employment income other than those covered in the Income Taxes and Social Taxes sections of this primer.
State/Jurisdiction Taxes
The Balochistan, Khyber Pakhtunkhwa, Punjab, and Sindh provinces all levy a professional tax on individuals working in each province, payable by employees themselves. In the Punjab province, the tax also is levied on employers for each worker employed. The tax on individuals ranges from PRs. 50 to PRs. 3,000 per year depending on the province.
Coverage: Employers are charged professional taxes based on the number of workers employed.
Rates and Threshold: Employers in Punjab must pay the following fees per year:
- less than 10 workers: PRs. 1,000;
- more than 10 but less than 25 workers: PRs. 2,000;
- more than 25 workers: PRs. 5,000.
Taxable Wages: All cash remuneration payable to employees are subject to the provision, including allowances, housing or rental subsidies, cost of living allowances, travelling allowances, other allowances, gratuities, and bonuses.
Returns and Remittance: The tax is payable along with Form P.R.T-2 to approved banks or the Punjab Treasury by Aug. 31. Employers must provide the following information when filing annual returns:
- date of opening of the office with documentary evidence;
- photo copy of incorporation certificate if it is an incorporated company;
- paid-up capital of the company with documentary evidence;
- value of import/export with documentary evidence (P-Copy of Income Tax returns);
- value of work done/Services/goods supplied to the federal or provincial or semi-governmental department, or a company, a factory, a commercial establishment, an autonomous or semi autonomous or semi autonomous organization, or any local authority, with documentary evidence;
- number of employees;
- first and last income tax returns, acknowledge by Income Tax Department; and
- professional tax receipts if paid any, during last years.
COMPENSATION AND BENEFITS
Employers in Pakistan must uphold provisions related to the minimum wage, overtime, hours of work, holiday, leave, wage payment, workers’ compensation and termination payments. Retirement plans and workers’ compensation are covered under social taxes.
Labor law in Pakistan generally is administered by the provincial governments. Before the provincial governments became administrators of labor laws with the passage of the 18th constitutional amendment in 2010, the federal government had passed a large set of labor laws. These laws are still followed, but have been amended and are regulated by provincial governments. The main labor laws include the West Pakistan Shops And Establishments Ordinance of 1969, the Factories Ordinance of 1966, and the Workmen’s Compensation Act of 1923.
Minimum Wage
There is no national minimum wage.
Effective since July 1, 2021, the province of Sindh has a monthly minimum wage of PRs. 25,000. Effective from July 1, 2019, to June 30, 2021, Sindh had a monthly minimum wage of PRs. 17,500.
Effective since July 1, 2021, the province of Khyber Pakhtunkwha has a monthly minimum wage of PRs. 21,000. Semi-skilled, skilled, and highly skilled workers must be paid at least 20% more than the minimum wage.
Effective since July 1, 2021, the province of Punjab and the Islamabad Capital Territory have a monthly minimum wage of PRs. 20,000.
Effective since July 1, 2019, the province of Balochistan has a monthly minimum wage of PRs. 17,500.
Overtime
Employers generally must compensate workers with double pay for work above nine hours in a day or 48 hours in a week.
Hours of Work
Workers generally have a maximum workday of eight or nine hours, depending on their profession, and a maximum workweek of 48 hours. Employers generally must provide employees with a day of rest every week, generally Fridays.
Holidays
The Ministry of Interior and Narcotics Control mandates 11 paid public holidays:
- Feb. 5: Kashmir Day
- March 23: Pakistan Day
- May 1: Labor Day
- Aug. 14: Independence Day
- Nov. 9: Iqbal Day
- Dec. 25: Quaid-e-Azam Day/Christmas
- Dec. 26: Day after Christmas (For Christians Only)
- Eid Milad-un-Nabi
- Eid-ul-Fitr
- Eid-ul-Azha
- Ashura
Note: Holidays without a date are based on the Islamic calendar and their dates on the Gregorian calendar change every year.
Leave
Employers generally must provide employees with 14 days of paid annual leave.
Sick leave: The ESSI of every province generally pays 75% of wages for up to 121 days a year, or 365 days at 100% of wages for tuberculosis or cancer patients. Those injured are entitled to 100% of wages for up to 180 days a year.
Maternity leave: Employers generally must provide pregnant employees with paid leave for six weeks before their due date and six weeks after giving birth. Employees must first give notice to employees before taking this leave. After having given notice, employees are prohibited from working until their leave provisions are completely used.
Wage Payment
Workers must be paid at least once a month. Wages must be paid on a working day, within seven days of the end of the previous wage period.
Bonuses and Special Benefits
Profit Sharing: Pakistani employers that have a profit for a year must pay employees a profit-sharing bonus within three months of the end of that year.
If the profit for a year is equivalent to at least the employer’s monthly total payroll, the employer generally must distribute as a profit-sharing bonus 30% of the profit, although the maximum amount of the profit required to be distributable to employees as a bonus this way is equivalent to the employer’s monthly total payroll. If the profit for a year is less than the employer’s monthly total payroll, the employer generally must distribute as a profit-sharing bonus 15% of the profit.
The amount of profit distributable to an employee is a percentage of the employee’s monthly wage, with that percentage equal to the percentage resulting from dividing the total distributable profit-sharing bonus amount by the employer’s total monthly payroll.
Termination Pay
Employers generally must provide employees one month’s notice, except in the case of employee misconduct. Employees may provide employees with one month’s pay in lieu of notice. If employers cease all operations they must pay employees 50% of their daily wages for 14 days. If after 14 days they have not resumed operations, employers must then provide employees with the required notice or pay in lieu of notice.
Any permanent employees who are terminated must be given 30 days pay in addition to the aforementioned notice period. Employers who contribute to a provident funds for their employees are exempt from this severance payment.
Workers’ Compensation
Employers generally are responsible for compensating employees in the case of work related accidents and illnesses.
In Khyber Pakhtunkhwa, employers must purchase private insurance for all permanent workers for workers compensation claims not covered by the Khyber Pakhtunkhwa ESSI.
Recordkeeping
Pakistan’s compensation and benefit recordkeeping laws could not be confirmed.
FOREIGN WORKERS
Foreign workers are entitled to the same rights as Pakistani citizens and are generally covered by the same tax and workplace laws.
Visas: Foreign workers intending to work in Pakistan generally must obtain a work visa at the Pakistani consulate in their country of citizenship. Work visas are granted for one year upon approval by the Board of Investment and are renewable on a yearly basis.
Special housemaid visas are available for domestic workers. To apply, employers must first apply with the Ministry of the Interior. Once the Ministry of the Interior approves the application, the Pakistani consulate may grant the employee a housemaid visa.
Additional requirements apply to citizens of India and Israel.
Taxes: Employers generally are responsible for paying and withholding income taxes and social taxes as they would for Pakistani workers.
Wages/Payments: Salaries paid in Pakistan for work done Pakistan generally must be paid in Pakistani rupees.
WORKING IN THE UNITED STATES
Foreign workers from Pakistan must meet general visa requirements and be certified to be employed in the U.S. General visa requirements for the U.S. are included in the separate
U.S. employers also must check the names of all new-hires and employees against the Specially Designated Nationals and Blocked Persons List, administered by the Treasury Department’s Office of Foreign Assets Control (OFAC). Because OFAC prohibits financial transactions with individuals on the list, employers cannot employ them and may face fines for failing to comply.
For tax purposes, Pakistani citizens are subject to U.S. employment-based taxation on income earned in the U.S. unless they can claim an exemption under certain tax treaty provisions or they work under specific visa types that exempt earnings from taxes.
Pakistan has a tax treaty with the U.S.
State and local taxation of Pakistani workers also can apply, although some states within the U.S. recognize international tax treaties that can eliminate that income tax liability for foreign workers.
The U.S. labor laws apply to all workers employed and providing services in the country.
Work eligibility as an employee is contingent upon Department of Homeland Security and Labor Department approval and the employee receiving a U.S. Social Security number from the Social Security Administration.
Tax Residency: In general, employees working in the U.S. on a temporary basis are considered nonresidents for tax purposes unless they qualify for resident status. Employees can be granted permanent resident status through the so-called green card test or if they meet the substantial presence test under the U.S. tax code. More information on these requirements is in the
Permanent residents are subject to U.S. tax requirements the same as U.S. citizens and are taxed under the U.S. system on their worldwide earnings.
Income Taxes: Generally, nonresidents in the U.S. who are from Pakistan and are working in the U.S. are subject to U.S. taxes based on their U.S.-sourced income. Income is taxed differently based on whether it is categorized as wage income or nonwage income, which includes interest and dividends.
A Form W-4, Employee’s Withholding Certificate, must be filed by each employee with their employer. All nonresidents in the U.S. who are from Pakistan and are working in the U.S. must claim “single” in Step 1c, regardless of marital status; write “Nonresident Alien” or “NRA” in the space under Step 4c of the form; and may not claim “exempt” in the space under Step 4c. Nonresident alien employees may adjust withholding using Step 2b or 2c of the Form W-4; certain employees also may be able to use Steps 3, 4a, or 4b. More information about Form W-4 requirements for nonresident alien employees is available in the
Although the versions of Form W-4 issued in 2020 or later significantly differ from the versions issued in 2019 or earlier, nonresident employees that filed a valid version of Form W-4 from 2019 or earlier with their employer do not need to file another Form W-4 with the employer unless they need to implement a change for their withholding. On Forms W-4 issued in 2019 or earlier, nonresident alien employees were required to check the “single” box on line 3, regardless of marital status; write “Nonresident Alien” or “NRA” above the dotted line on line 6; and were not permitted to claim “exempt” on line 7 of the form.
An additional amount is added to a nonresident alien employee’s wages for calculating federal income tax withholding, with the amount based on pay period frequency and the date of the employee’s most recently filed Form W-4. The table of additional amounts applicable to Forms W-4 from 2020 or later and the table applicable to Forms W-4 issued before 2020 are available in the
Nonwage income and self-employed foreign workers can be subject to income tax withholding at a flat rate of 30%.
Additionally, foreign workers may be taxed differently based on the specific type of visa they hold.
Tax treaties: Pakistan and the U.S. have a tax treaty with provisions addressing host country taxation of the nonresident workers. A summary of those benefits is listed in the ith the employer.
Students, trainees and teachers in particular must include a statement with Form 8233 to claim a tax treaty exemption from withholding of tax on compensation for dependent personal services. This statement affirms that the student, trainee or teacher is temporarily in the U.S. for purposes of studying or has accepted an invitation by the U.S. government (or by a political subdivision or local authority) for the purpose of teaching or engaging in research for a period not expected to exceed two years for teachers and one year for students by a university or other recognized educational institution in the U.S. It also must affirm that the individual will receive compensation for services performed in the U.S. The student exemption is not to exceed $6,000 a year; no limit is placed on the teacher compensation for Pakistani residents.
Examples of the statements necessary to claim a treaty exemption from U.S. taxes are included in Internal Revenue Service Publication 519, U.S. Tax Guide for Aliens.
Social Taxes: Most foreign workers are subject to paying into the U.S. Social Security system. Foreign nationals who are exempt from paying income tax and who do not have the eligibility to receive a social security number may not be required to pay social taxes. Foreign workers contributing to Social Security for a certain time period may be eligible to receive benefits.
Generally, foreign workers in the U.S. that have specific visas as exchange visitors or students or who are temporarily in the U.S. for agricultural work are not subject to social taxes on income that is obtained from the purpose in which they originally entered the U.S.
Totalization Agreements: Pakistan and the U.S. have not entered into a totalization agreement.
Wage Payment: Under certain visas for certain types of employment, employers are required to pay foreign workers the higher of either the prevailing wage or the actual wage that is paid to U.S. workers that have similar skills and qualifications.
There are no particular requirements that employees be paid in U.S. dollars.
TREATY ARRANGEMENTS
Pakistan has entered into more than 60 income tax treaties, including an income tax treaty with the United States .
The countries with which Pakistan has a bilateral income tax treaty in effect are Austria, Azerbaijan, Bahrain, Bangladesh, Belarus, Belgium, Bosnia and Herzegovina, Brunei, Canada, China, Czech Republic, Denmark, Egypt, Finland, France, Germany, Hungary, Indonesia, Iran, Ireland, Italy, Japan, Jordan, Kazakhstan, Kuwait, Kyrgyzstan, Lebanon, Libya, Malaysia, Malta, Mauritius, Morocco, Nepal, Netherlands, Nigeria, Norway, Oman, Philippines, Poland, Portugal, Qatar, Romania, Saudi Arabia, Serbia, Singapore, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Syria, Tajikistan, Thailand, Tunisia, Turkey, Turkmenistan, Ukraine, the United Arab Emirates, the United Kingdom, the United States, Uzbekistan, Vietnam, and Yemen.
A multilateral treaty with limited applicability to tax on employment income, the South Asian Association for Regional Cooperation (SAARC) Limited Multilateral Agreement on Avoidance of Double Taxation and Mutual Administrative Assistance in Tax Matters, is in effect for Pakistan and six other countries: Bangladesh, Bhutan, India, Maldives, Nepal, and Sri Lanka. The treaty contains provisions regarding double taxation avoidance for professors, teachers, research scholars, and students from one SAARC country working in another SAARC country. Although Afghanistan also is a SAARC member, it is not covered by this treaty.
Pakistan also has an income tax treaty in effect with the special administrative region of Hong Kong.
Additionally, Pakistan has a totalization agreement for social tax purposes with Denmark.
RESOURCES
All resources in English unless otherwise noted.
General
U.S. State Department: U.S. Relations With Pakistan
CIA World Factbook: Pakistan
Currency Details
International Organization for Standardization: Currency Codes - ISO 4217
Unicode Consortium: Currency Symbols
United Nations: United Nations Terminology Database: Pakistan
Taxes
Federal Board of Revenue
Employees’ Old-Age Benefits Institution
Pakistan Finance Act 2018-19
Pakistan Finance Amendment (Supplementary) Act, 2018
Excise and Taxation Department of Punjab, Professional Tax
Balochistan Employees Social Security Institution
Khyber Pakhtunkhwa Employees Social Security Institution
Punjab Employees Social Security Institution
Sindh Employees Social Security Institution
Compensation and Benefits
West Pakistan Industrial and Commercial Employment (Standing Orders) Ordinance (1968)
Balochistan Minimum Wage Notification, dated Feb. 21, 2020
Islamabad Capital Territory Minimum Wage Notification, dated Aug. 6, 2021
Khyber Pakhtunkhwa Minimum Wage Notification, dated May 31, 2021
The Punjab Gazette Minimum Wage Increase Notification, dated June 30, 2021
Sindh Minimum Wage Notification, dated Sept. 19, 2019
High Court of Balochistan: Gazetted Holidays
Foreign Workers
Directorate General of Immigration and Passports
Working in the United States
U.S. Department of Labor:
- Foreign Labor Certification
- Hiring Foreign Workers
U.S. Internal Revenue Service:
- IRS Notice 1392, Supplemental Form W-4 Instructions for Nonresident Aliens
- IRS Publication 15, Circular E, Employer’s Tax Guide
- IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities
- IRS Publication 519, U.S. Tax Guide for Aliens
- IRS Publication 901, U.S. Tax Treaties
Treaty Arrangements