Chapter 1: Tax Year and Residential Status

---
Cfiapter 1

TAX YEAR AND RESIDENTIAL STATUS

T xYear-section74
~;x yea~ is of 3 types; Normal tax year, Special tax year and Transitional tax year.
Normal Tax Year:
1.1. riod of 12 months from 1 J_uly to 30 June denoted by the calendar year in which the normal
Ape rends For the year ending 30.6.2019 the tax year shall be 2019
~~ . . . .
special Tax Year: · . ·
~2· ;ncome year ending other than .30 ?une is s~cial tax year and denoted by the ·calendar
th

Y relevant to the normal tax year 1n which the closing date of the special tax year falls
~ar ·
ial year 1.1.2016 to 31.12.2016 - this year end falls in the normal tax year 1.7.2016 to
~. 201 7 and therefore tax year relevant to the normal tax year i.e. TAX YEAR 2017 shall be the
tax year for this special year as well.
special tax year 1.10.2016 to 30.9.2017 - tax year shall be 2018
The FBR has authority to presc~ibe any _special tax year in respect of any particular class of
taxpayers. Few examples of specified special tax year are as under:
Specified
Special year end
Sugar mills 30th September
Insurance companies 31 st December
Banks 31 st December
If the tax year is not specified by the FBR and a taxpayer wants to have any special tax year then
he is required to make an application to the FBR specifying the reasons for the purpose.

1.3. Transitional Tax Year:

If a normal tax year or special tax year changes then the period from the day next following the
last full tax year to the date of commencement of new tax year shall be treated as transitional
tax year.
Normal tax year 1.7.2015 to 30.6.2016 i.e. Tax year 2016 changes to special year 1.1.2017 to
31.12.2017 i.e. Tax year 2018. In this case, period from 1.7.2016 to 31.12.2016 shall be treated
as a transitional tax year i.e. Transitional tax year 2017.

Change in the Tax Year:

(a) A person using normal tax year may apply to the Commissioner to allow him to use any
special t.ax year.
(b) A person using special tax year may apply to the Commissioner to allow him to use any other
special t.ax year or normal tax year.

1
 I

~ ~ a pter .I: Tax Year and Res idential Sta tus ~ h c ommission ~
rnay . , ' ,rss,oner sh !I . as t e
. impose only if th a grant permission subject to conditions, 1f anY,
(d) If the C . . e person has shown a compelling need for the change. . ;ssion ea rlie r
allowed ornm,ss,oner . . d w h1S perrn rd in the
Ord , he shall pr . ~ants to reJect the application or to with ra d shall reco a fi l
er the reasons ~ ov,cte an opportunity of being heard to the person anse w.e person m Y e
a rev ,or such · • h. ca u'
iew app lication t re3ectIon or withdrawal of permission . In t 15
~ 0 th
e FBR and the decision of the FBR sha ll be final. - - - - -
~ One
Q.2(b) Se :-::-- :-=--- -
of y Pt ~007 ICAP CAF -- - - - - - - - -
- - - - --
. accounting year
fr our clients is . . . chJnge ,ts oecernber
:1.
orn June 30 to D a subs1d1ary of a foreign company wan ts to anY ends on
Advise the clieecember 31 as the income year of its parent corn~inance, 2001 r~ 3)
change in tax ye nt about the requirements of the Income Tax Or (Mar s
arding

ar from normal to specia l.

Q.4 (a) March 2 ber ·
I nspired Pakist 013 ICA P CAF 30 June to 31 oecern
as t he income a; ltd ~IPL) wants to change its accounting year trorner I
Y ar of its parent company in USA ends on 31 oecemb · d.
R 1 regar ,ng
0
equirecJ • Ad . ordinance, 200 3)
the chang~ of ~ se IPL about the requirements of the Income Tax (Marks
x year from normal to special.

~~~~~)t~:d ( b)_Ma rch 20 16 ICAP CAF - 1 tax year and /

Marks 6 ' _J'
T .. provisions of the Income Tax Ordinance, 2001 explain spec1a
rans,t,onal tax ea r

2
· . Residential Status of an Individual - section 8 2 · ·1
Residen tial status for tax purpose has no relationship with nationality or dom1c1 e.

Residential status of an individual is based on number of days he is physically present in Pa kista n

during a tax year.

Therefore, a foreigner can also be a resident person for Pakistan tax purpose. On the other hand,
a Pakistan national may become non-resident for tax purpose.

A person may be a resident person in one tax year and may be a non -resident person in other
tax year.
An individual would be a resident person if one of the following criteria is fulfilled :

[Physical stay in ~ tax year in Pakist.an

183 or more days 1n a tax year
120 or more days in a tax year and 365 or more days in the p ecr
L--- -----:----:--:--:-----:-:--.
, A overnment employee posted abroad in the t.ax yea r is
rec ing 4 tax years
.d . - __ _
/
/ ph~sical stay in Pakistan res1 ent irrespective ofhis)
- -- I
_j
 C hnp tc-i- I : Tax y cnr nnd Rcsid . ,
--,-i4 of the Income Tax Rules 20 02 . · · . cn_~~~.:~_•:~t~•_s _ __
RLJI eto count days an individual Present in. Pak·1st b . .- - - .
RUe P k. t R I an ecomes vital h
visits to or from . a is an . u e 14 of the Income Tax Rules prescrib w en a person has fn2q11v111
of days as under. es the procedure for count,1111

Part of a day that an individual is present in p k' t

o a 1s an counts as h I
a w o e day includ1n~r
✓ A day of arrival in Pakistan
✓ A day of departure from Pakistan
✓ A public holiday
✓ A day of leave
✓ A day that the individual's activity in Pakistan is interrupt db , .·
out or delay in receipt of supplies e ecause of a st, 1kc, lock
✓ A holiday spent in Pakistan before, during or after any activity in Pakistan

A day in Pakistan solely by reason of being in transit does not count as a day present in Pakistan .

3 . Residential Status of a company- section 83

3.1 A company incorporated in Pakistan, provincial government and local government are
resident without any condition .

3.2 Other company (i.e. a company incorporated outside Pakistan) is resident if control and
management of the affairs is situated wholly in Pakistan in the year.

3.3 Definition of company - section 80(2)(b)

"company" means -
(i) a company as defined in the Companies Act 2017 including a small company;
(ii) a body corporate formed by or under any law in force in Pakistan ;
(iii) a modaraba;
(iv) a body incorporated under the law of a country outside Pakistan relating to
incorporation of companies;
(v) a co-operative society, a finance society or any other society;
(vi) a non-profit organisation;
(vii) a trust, an entity or a body of persons established or constituted by or under any law
for the time being in force;
(viii) a foreign association, whether incorporated or not, which the Board has, by general or
special order, declared to be a company for the purposes of this Ordinance; or
(ix) a Provincial Government or a Local Government in Pakistan .

"banking company" means a banking company as defined in the Banking Companies

Ordinance and includes any body corporate which transacts the business of banking in Pa kistan -
section 2(7).
3
 , 1 1" \ ' ntr ,111,l Jt,:~idt nti.a! <.;t.ati.;o
l 1 mp 1"'1 1, . -- - • - - - -- - - - - - - - ~-

_. "••"'.,"""' ~'"'"• ,,r A••o• talion of Person9 ( AOP ) - sect.ion_8.4

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1 111.. ,1._., ., ., 1, ,
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l, v- \\\l hl\~ 111 .~ 11111 , . •, 1lh11h1 1111dlv11h·d l,11rnly, t1ny ;., rrific1;; t Juridic.a t DPJSU- 3:'C a-- .- :c,:: , :/
'"''" 1 , ._ h\1\ nt"\ I ' ''"''' ' ,111,,,~1un lnw, 11111 <lot~•. not. inc lud,; a r,.r,rnpan'/ - '":R:ctY :r &)( 2)' :: ,-

·----- - -- - -- -- ------
, \),1\•) """l llHl U.AP CAI' :
\,\~\\\ ""'' \'" w1,1,,n~ nt \hr~ \1\<.rnnt~ lf\'J( Ordimmc:e, 2001 with rega rds tc ~ reS(!·e·:~
.a s::a:-~s ~::
1,,,\Iv~ \q" \',, ~,"I , , '"'\ \.11\lt-\-. {Marks 5)

ij ..\(4') Ma,t·h 10\.\ \C.AP C.Af ~

~I\~
,. -., ,\.:\ \,\ \ \ \
'\\~\ti \\\(" \'nw\~\nl\~ nt \h,, \nl mn,• 1 i\)( O,dinantc, 2001 for determining
1
,' l"o1\\\•, .
~ resider.tia? 9:a:,-,.;3
(Marks 2)
:::"'

~- lncon,e w\lh reference to Resident and Non-Resident

{\.e. Scope ot Totnl / Taxable Income)

\ ,\ f\ ,~s,,1~nt \'lt'lsnn Is tiixab\c for his worldover income subject to age-eerier : fo~ :r-e
..\V,)\\1,,nu~ c,f t\oublt' t,,x1,tlon n·,,x
"Treaty). A non-resident per50f1 is ~xab€ or.ty fOf 'n :s Pak.~~a:- .
:--\ )llh.'t' lm\,nw ~ub\t'C\ \n lax "Treaty. {~ction 11(5)(6)}

r.-.. Tr-oaty: s«tlon 1 o7

' n'\ tlt',,ty shull .,pply In l.as.: ot any contradictioo between local laws and tax treaty e.g . if 2 ':ax
. tt e-.1ty p1\w\d('~ exemption to a partlcu\ar income say dividend income then the kx:a ia•.-.,s
1t'l:.\art1 1n9 t,,xablllt'y ot dividend would have no effect.

Nore for students:

T,,x trt.'tlty shall be considered for :

Foreign source income of a resident person; and

Pakistan source Income of a non-resident person.

Foreign source income of a non-resident person is not taxable in Pakistan irr .

tre~ty ~nd i tl~!ax ~ea has nothin to do with Pakistan source income of a r e : v e of tax
' f'SO n. I

5.2 Foreign source income of a short term resident- Section 50

An individual shall be exempt in respect of his foreign-source ncome wn· .
received in Pakistan if _he is resident only by reason of his employment tch 15 ~t brought /
Pakistan for not exceeding 3 years. ar.d he IS present in
Th is section does not apply on business established in Pakistan by an .... "' . .
"I\JIVldua\ foreigner .

4
 Chapter .I: Tax Year and R .
• es1denn 1
foreign source mcome of a returnin
~.3 n individual citizen of Pakistan (returning
1
:x:r~tr,a~e -
. a . Status
Section
51
a non-resident in the 4 preceding tax years his :iat~) 15 resident in the
was d · th ~ . , ,ore1gn-sour . current ta
nt tax year an ,n e ,o 11owing tax year. ce income sh II x Year b
curre a be exern t . ut
P tn the
S.4 Foreign source salary_ of r~;~~nt individual
Foreign source salary by a res,de_
nt individual is exempt in Paki .
taX on foreign sou~ce salary or h1_s employer has deducted tax :an if he has Pdid foreign in
the revenue authortty of that foreign country - Section 102 source from sa lary and pa~~
5alary eamed outside Pakistan shall be exempt if a citizen f P k'
tax year and remains abroad during that tax year_ Section ~l(;) 1stan leaves Pakistan during a

Taxation MCQs: . . .
(Hore than one answers may be correct]

1. The tax year relevant to the period between the last full ta
commencement of new full tax year in case of change of tax yeatJ~a~ to th e. d~te of
the tax department shall be: e perm1ss1on of

(A) Special Tax Year

(B) Tax Year as determined by the tax department
(C) Transitional Tax Year
(D) None of the above

2. A company incorporated on 31 .10.20X7 and started its operations from 1.2.20X8. The
directors of the company decided to opt for ~e ~ormal tax year, close the company's
accounts on 30.6.20XB and want to file an appl1cat1on to get the permission from the tax
department. The required action in th is case:

(A) They should make an application before 30.6.20XB

(B) They should file an application at the time of filing of first return of income [due
date for filing of return is 31.12.20X8]
(C) They are not supposed to make any application
(D) None of the above

3. An application for the change of tax year has been rejected by the Commissioner. The
company can file a review application to the :

(A) Chief Commissioner

(B) Commissioner (Appeals)
(C) FBR
(D) The decision of the Commissioner is final and no application can be filed

5
~
l'

·1
j; Chapter l: Tnx Ycar and RcsidcnHnl Stnfu~
4. Which of the following is not a company as defined in th~~
In~;;11~i-- li:J xCJ~dinarirc•·
1I
I (A) A welfare trust
I
! (B) Government of Sindh
i
(C) Sindhi Muslim Co-operative Housing Society
(D) Each of the above is a company

5. A company is resident if:

(A) it is incorporated in Pakistan

(B) Whole of its control is in Pakistan
(C) Majority of its directors are resident in Pakistan
(D) All of its directors are resident in Pakistan

6. A company is incorporated on 31.10.20X7 and the directors want to close the company's
first accounts on 31.12.20X7. The relevant tax year in this case would be:

(A) Normal tax year 20X8

(B) Transitional tax year 20X8
(C) Special tax year 20X7
(D) None of the above

7. Resident company is a company which is:

(A) Controlled / managed wholly from outside Pakistan but incorporated in Pakistan
(B) Controlled / managed partly in Pakistan in that year but incorporated outside
Pakistan
(C) Quoted on stock exchange in New York Stock Exchange
(D) None of the above

8. Seven doctors having nationality gf Australia have decided to start their medical practice
in the rural areas of Punjab, Pakistan and for this purpose they set up a joint venture in
Pakistan . Two of them will _b~ stationed in Pakistan on permanent basis. The remain ing
doctors will have frequent vIsIts but not expected to stay more than 100 days in Pakistan.
Around so Pakistani d~ctors will be_ employe_d by the joint venture. The joint venture will
be considered as a resident tax entity on which of the following grounds:

(A) Most of the employee d~tors are resident and the joint venture will also be
resident without any cond1t1on
(B) If none of the meetings is held outside Pakistan .
(C) If permission is granted by the Commissioner to consider th ..
•d
res1 en t . . e Joint venture as
(D) If few or all of the meetings are held in Karachi

6
I .
 Ch11pter 1: Tax \ ear an d R esidential Status
-----=--;~na is a cit izen of USA and w ants ~o se: up a business in Karac . -
~ w. a,a reernent with a local supplier . After two years t ime the agreement . hi on a two
.~rs ag h. b . . . . Pa . is re newable if
ides to continue ts us1ness act ivity in ol<1stan . However, due to his b . .
• 1 .... -
he d~ork he will not be able to stay in Karachi on permanent basis . His
Ne~
expect~:r::s
.5 190 days in the current ta x yea r . He wants to know as to whethe r h . Y 1n
~n

i as a short te rm resident on any of the follow ing bases :

Paki~d nred e will be
cons, e
(A) His stay in Pakistan i~ not ~pected t~ be mor:e ~ha~ 3 yea rs
He will not receive his foregn sou rce income tn Pakistan
(B) Permission is granted by the Commissioner to declare him as short term resident
~g~ None of the above
Foreign source sa lary of a resident ind ividual 1s exempt in Pakistan on the following
10.
grounds:

(A) Tax treaty

(B) Salary is exempt in the foreign cou ntry
(C) Tax paid in the foreign country
(D) All of the above

ll. Mr. Mungo Machi is a citizen of ~ngland and visits Pa~istan frequently . He intends to set
up a business in Lahor~ and he 1s concerned about his tax status. He ~ants to k~ow as
to which of the following days sha ll be counted for the purpose of his tax residential
status:
(A) Days he spends in England but busy in the planning of business set up in Lahore
(B) Days in Karachi for meeting with the prospective customers before the start of
business
(C) A day in transit in Karachi while he was going to Dubai from London
(D) Few days in Pakistan without any business activity due to religious holidays

12. Mr. A is a Pakistani national who has been residing in USA for the past 8 years and never
visited Pakistan during this period . He arrived in Pakistan on 27.3 .20X8 and received his
salary for the period up to February 20X8 from USA employer in Pakistan . For the year
ended 30.6.20X8, his salary from USA employer will be :

(A) Taxable under the head salary

(B) Exempt as foreign source salary of resident individual
(C) Exempt as foreign source salary of returning expatriate
(D) None of the above is correct

7----------------------
 Chap ter 1: Ta x Year and Residential Status
13. In the tax year 20X8, Mr. Bihari Lal w~s pre~nt in Pakistan for 85 da
posted abroad by his empl~yer _on official ass_1gnment for a perioct of Ys before he w
2
the following cases will B1han Lal be considered as resident in ac Years. In Which as
rd
Pakistani Tax Laws for the tax year 20X8: co ance With t~!

(A) He is an employee of a company which is incorporated and listed . .

(8) He has a permanent residential address in Pakistan Which h in Pakistan
provided to the tax department as aiready been
(C) He has never been a non-resident person in the past
(D) He is an employee of the Ministry of Environmental Protectio G
Paki~an n, overnrnent of

14 . What is the minimum number of days for which an individual has t0

Pakistan during a tax year to be treated as resident for that tax year? be present in
I

(A) 120 days continuously or in different periods during a tax year and days
during the preceding 4 tax years 360
(8) 120 days continuously during a tax year
(C) 183 days c<;mtinuously or in different periods during a tax year
(D) 182 days .continuously or in different periods during a tax year

15. Chin Chu Chi ltd (CCCL) is a company incorporated under the Companies Ordinance
1984. The control and management of the affairs of CCCL was situated partly in China
where most of the directors reside . CCCL is:

(A) Resident company

(B) Non-resident company
( C) Short term resident company
(D) None of the above

Questions ICAP CAF

Q•6 Sept 2000: Briefly de~ribe the provisions related to the scope of total income. lO)

\ (Ma~s

Q.2(ii) March 2000: State the basis of taxation regarding residents and non res~~~~s S)

\
!
\ Q.6(a) Sept 2003 : Under what circumstances a resident individ~al
exemption from tax on his foreign source salary, and when is the foreign tax
been paid?
.
1s

(
nI led to claim
tre::~~s
en having
4)

*Q 4(b) March 2006 : Mr. A, a Pakistani Citizen, returned to Pakistan in Nove~bg (~~
\
h
in UAE where there was no tax on salaries. Mr. A is in Pakistan since then an
0
~~:;
co~pleting his employment contract in United Arab Emirates (UAE) . He _worked till ~ has been

h
8
.
~-
.
 --
- . Chapte r 1 .· T
. ax Year and Residential Status
employed by a local company. Explain the tax irn lie - , .
Pakistan, for the tax year 20X8 . P at,on on Mr. As income, earned in UAE and
(Marks 4)
* Q.2(b) March 2009 : Bri~fly discuss the residentia l st .
Income Tax Ordinance, 2001 for the tax year 2 oxs: atus of the following persons under the
(i) Asif is an employee of Balochistan Government who h . .
official assignment on 1.12.20X6 for two years. ' as been sent to United Kingdom for an
(ii) Messrs. Ak~tar & Co. is a partnership firm, doing busine 0
J .
as well as United Arab Emirates (UAE). The managem t ss financial co~sultan~ in Pakistan
pa rtly in UAE and partly in Pakistan .
. .

en an control of its affa irs is situated

(Marks 4)
*Q.4(a) Sept 2011 : Briefly discuss the residential status of th ~O11 ·
year 20X8 under the Income Tax Ordinance, 2001 : e owing persons for the tax

(i) Mr. Shah has been working as an_ Information Analyst ·n1 the M'm1·st ry of ForeIgn
· Affairs.
- On
1. 11 .2ox 7, he was posted to Pakistan Embassy in Canada for three years.
(ii ) AS _Leaming Center is a_ part~ership concern, providing rr train ing to professionals in
Pak~stan, UA~ and Saud, A~ab,a . _Up to 31.7.20X7, the management and control of its
affairs was situated partly 1n Pak,~an . However, with effect from l.8 .20X7, the entire
management and control of the affairs of the partnership was shifted to Duba i.
(iii) Mr. LT was sent to_ Pakistan on a special assignment by his UK-based company on
1.3.20X8 . He left Pakistan on 9.9.20X8 . He visited Pakistan for a period of 15 days during
the last 4 tax years.
(iv) F Trading LLC was incorporated as a limited liabmty company in UAE . The management
and control of its affairs are situated wholly in Pakistan. (8 marks)

*Q.3(b) Sept 2012: Margaret, a German national was employed as a Techn ical Manager of F
Chemicals Ltd, a resident company, on 1.10.20X6 for a term of two years. Under the terms of
employment, she was allowed to deliver lectures at various professional organizations. During tax
year 20X8, she conducted three workshop sessions, the details of which a_re as follows:
- Workshop Session in Lahore: A fee of US$ 15,000 in equivalent Pak Rupees was received
from a local event manager. The fee was credited to her bank account maintained in
Karach i.
- Workshop Session in Munich: A fee of US$ 25,000 was received in Germany in her Munich
bank account.
- Workshop Session in Dubai: A fee of US$ 20,000 was remitted to her bank account in
Karach i.
Required: Discuss the taxability of the amounts received by Margaret for conducting the
workshop sessions during tax year 20X8. (Marks )
6

.. ord· 2001 and Rules made

*Q.4(b) Sept 2013: In view of the provIsIons of Income Tax 1nance, .
2 3
thereunder, determine the residential status of the following persons for the tax year ox .
 Chapter l : Tax Year and Residential Status
(i) Mr. R proceeded to Saudi Arabia on 24 .12.20X2 to assume responsibiliti~ --.-- - . __
0
He visited Karachi from 20.6.20X3 to 24 .6.20X3 for presenting a paper . ~ h,s new fob·-
. in a sern·1 .
due to unavoidable circumstances, th e seminar was cancelled . nar but
(ii ) Mr. K, an officer working at Ministry of Foreign Affairs, since last three year
the Pakistan's mission in Geneva from 1.8.20X2 to 30 .6.20X3 . S, Was Posted to

(iii) AA Associates is a partnership firm and provides consultancy services in Pak' ta

United Kingdom (UK). The management and control of it s affairs is sit{.Jat~~ n as "'~ell as
and partly in Pakistan . · " Partly tn UK
(iv) Mr. S, a Nigerian football coach, came to Pakistan for the first time on 28 .2 . -~
20
the country on 31.8.20X3 . (Marks .J) . left

Q.6(a) March 2014: State the provisions of Income Tax Ordinance, 200 1 relating t f .
0
source salary of resident individuals. ore1gn
(Marks 3)
*Q.2(a) Sept 2017: Under the provisions of Income Tax Ordina nce, 2001 and ru le
thereunder, discuss the residential status for tax year 20X7 in each of the following situati~n;ade
(i) On 21.9.20X6 Asif proceeded to Dubai to join his new job. Due to certain professional . •
with his employer in Dubai, he resigned on 1.5.20X7 and came back to Pakista~ss~s
16.5.20X7 he got a new job in Pakistan which he continued till 30 .6.20X7. (Marks 2) · n
(ii) Sarni Associates is an association of persons and provides accounting services in Dubai. On
2.1.20X7, the entire management and control of its affairs was shifted from Karachi to Duba i.
(Marks 2)

*Q.2(b) Sept 2017: Explain the treatment of foreign source income for tax year 20X7 under
each of the following independent situations:
(i) Joseph, a South African cricket coach is working in Pakistan under a two years' employmen
contract since 20X6. During the tax year 20X7, he earned foreign ~urce income from hi ·
business established .in South Africa and brought 25% of the income q) Pakistan.
(Marks 4)

(ii) On 15.l.20X6 Farhan returned to Pakistan from London after 10 years and has been living i
Pakistan since then . During the tax year 20X7, he received GBP 5,000 as return from hi
investment in London . {Marks 2)

*Q.3(c) March 2018:

On l.12.20X7 Bruce Lee was appointed by a Chinese company as a Technical Director for
Pakistan . He has provided you the following details:

Arrival in Pakistan 15.12.20X7

Joined office in Pakistan 20 .12.20X7
Visit to Dubai on an official trip 21 -30 March 20X8
Visit to South Korea for vacations 12-21 April 20X8
Visit to northern areas of Pakistan for personal trip 4-9 June 20X8

10

◄
 C hapter 1: Tax Year and Residential S_ta l~ --
• ew ;rti·~e provisions of the Income tax Ordinance, 200 1 and related Rules thereunder,
In vi eit on ttie residential sta tus of Bruce Lee for th e tax yea , 20X8. (Marks 3)
corr1rn 1 ·
(b) March 2019: ~1ohsin, _a citizen of USA, has been working at the head office of Lewis
2
~~nsulting, Inc. (LCI) situated 1n Ne~ York, USA. On 1.1.~0XS, LCl had establish~d its branch
•i n Pakistan and had sent Mohsin for two years as Country Manager for looking after the
Offi cc . ·
Pakistan operations.

During the tax year 20X9, apart from salary income Mohsin earned/received the following
arnoun ts :

• On 15 .12.20X8, he conducted a seminar in USA for a fee of USD 18,000. On his

request, the event manager transferred the amount (net of tax) directly to his
personal ban k account in Islamabad on 10.1.20X9

• On 31.S .20X9, he earned income from his business establish ed in USA and brought
40% of the income to Pakistan .

Required : Under the Income Tax Ordinance, 2001 :

(i) state the residential status of Mohsin for the tax year 20X8. (Marks 1)
(ii) discuss the taxability of his fore ign source incomes for the tax year 20X9 . (Marks 4)

Answers ICAP CAF

Answer to Q.4(b) March 2006:
Mr. A is a resident person during the year for tax purpose as he was in Pakistan during November
to 30th June i.e . for more than 182 days.
His Pakistan source salary is taxable in Pakistan~
Foreign source salary income of a resident person is exempt in Pakistan inter alia if a resident
person is a returning expatriate . If an individual citizen of Pakistan is resident in the current tax
year but was non -resident in at least 4 preceding tax years, his foreign -source ·1ncome \1~~!uc1n'J
for~ign source salary shall be exempt in the current tax year and in the following tax year.

Answer to Q.2(b) March 2009

(i) A government employee posted abrnad in the tax yea r is resident irrespective of his physical
stay in Pakistan and therefore Mr. Asif is a resident person for ta x purpose .

(ii) An Association of Persons (AOP) shall be considered as resident if control and management
of the affairs is situated wholly or partly in Pakistan in the year . Therefore, Akhter & Co.
being an AOP having management and control of its affairs partly in Pakistan is a resident
person .

1I
 Chapter 1: Tax Yl'ar and Rrsick!ttinLStatus __ · ~
Answer to Q.4(a) Sept 2011 -------------------
(i) Being an employee of Federal Government Mr. Shah would be t reated as a resid
I irrespective of number of days he stays in Pakistan . ent

\
I
(ii) AS learning Centre (ALC), being a partnership firm , i~ an A?P ·_ ~A?P shall be a resident
person for a tax year if the control and management of its affairs 15 situated wholly or Par-ti
in Pakistan at any time in the yea r. y
Since ALC's management and control of affairs were present partly in Pakistan du ring the tax
year, it shall be considered as a resident person .
i

\ (iii) The stay of Mr . LT during the relevant tax year is 122 days (31 +30 + 3 1+ 30) .

Since his stay in Pakistan is less than 183 days, he is a non resident fo r tax purposes.
\I Moreover, his stay during the last 4 years is not 365 days or more .
(iv) Since the management and control of affairs of F Trading LLC was whol ly situated 1n Pakistan
\ during the relevant tax year, it is a resident company irrespective of the fact that it was
incorporated in UAE .

Answer to Q.3(b) Sept 2012

The foreign-source income of a short term resident individual is exempt if he/she is:
(i) a resident individual solely by reason of the individual's employment; and
(ii) present in Pakistan for a period or periods not exceeding three years
Ms. Margaret is a short term resident person having fulfilled the above conditions.
However, exemption is not available to any income derived from a business of the person
established in Pakistan; or any foreign-source income brought into or received in Pakistan .
Taxability of her activities is as under:
(i) Receipt of US$ 15,000 in equivalent Pak Rupees for conducting the workshop session at
Lahore is Pakistan source income and taxable wherever received .
(ii) Receipt of US$ 25,000 for conducting the workshop session at Munich is foreign source
income and shall not be taxable as it has neither been received In nor brought into Pakistan .
(iii) Receipt of US$ 20,000 for conducting the workshop session at Dubai is foreign source income
and shall be taxable as it has been brought into Pakistan .

Answer to Q.4{b) Sept 2013

(i) Total number of days Mr. R Is present in Pakistan during the tax year 20X3 is as under :
1.7 .20X2 to 24 .12.20X2 177
20 .6 .20X3 to 24 .6.20X3 _..s.
Days physica lly present in Pakistan l.62.
T ta! stay in tax year 20X3 is less than 183 days and therefore Mr R .
0
However if his stay during the preceding 4 years was 365 days is a non -resident
person . , . .h ta 20X3 or more th h
would be treated as resident ,n t e x year . en e
t Employee posted abroad is considered as a resident perso .
( ii ) A Go~ernmen_ P kistan Therefore , Mr . K is a resident person for the tax n irrespective of his

12
physical stay 1n a ·

------
Year 20X3 .
 t hnph..- I : r!~~_)1 rar and R~Jidcu tial Stains
ill) /\tH1 !11111 11 lw l u11•,hk•1~ ·d " ~. resident if control and management ~f t~,;~-ffair~ i~ sit~atc-d
( wliPl ly 01 pl11Ily In l), ll, l',l,111 111 tl1 e ye,1r. Therefore, AA Associates, being a n AOP, 15 residC:nt
,wr~ni\ ;,•, II•, w 11t111 I ,11HI n1c111t1fJ(•1ncnt partly exists in Pakistan.
(iv) IOlill 1111 ,niw, nl ddy•; Mi S 1s Ptl 'SP11t in Pakistan during the tax year 20X3 is as under:
)H } J!I Xl to 'l tl (, .'O>-.J 123

1pf.ii 1,t,1y 111 1,1x Yl't11· , OX3 is less than 183 days and therefore Mr. s is a non-resident
p('l (~()II Pl 1yslcdl i,ldY in )lily rlllU August 20X3 will be considered in the tax year 20X4,

Answer to Q.2('9) ~opt 2017 : .

(i) /\Slf ls t1 non 1t's1cle11t ,Person dunng the tax year 20X7 as his physical stay in Pakistan is 144
dtlyS, l ' , Iv<.:,'. , I h;m 183 days as under:

Days
July 20X6 31
/\ugust 20X6 31
1.9.20X6 to 21.9.20X6 21
May 2 0)(7 31
June 20X7 30
144

However, if 11is stay during the preced ing 4 years was 365 days or more then he would be
treated as resident in the tax year 20X7 .

(ii ) An AOP is.treated as a resident person if the management and control of its affairs is situated
partly or wholly in Pakistan during the year. Therefore, Sarni Associates would be considered a
resident person irrespective of the fact that its entire management and ~ontrol of affairs was
subsequently shifted from Karachi to Dubai.

Answer to Q.2{b) Sept 2017:

(I) Joseph Is considered as a short term resident in Pakistan for income tax purpose as:
- his stay In Pakistan is solely by reason of his employment; ~rnd
- he is present in Pakistan for not exceeding 3 years
Foreign source income of a short term resident is exempt in Pakistan if it is not brought /
received in Pakistan . Therefore, 25% of his foreign source income which he brought into Pakistan
Is taxable whereas 75% of his foreign sou,·ce income which he kept outside Pakistan is exempt.
(ii) If an individual citizen of Pakistan (returning expatriate) is resident in the cu rrent tax year but
was non -re·sident in the 4 preced ing ta x years, his foreign ~source income shall be exempt in the
current tax year and in the following tax year.
Therefore, fore ign source income of Mr Farhan ls exempt.

13
 Chapter 1: Tax Year and Residential Status
Answer to Q.3(c) March 2018: ------
Bruce Lee is a non-resident person during the tax year 20X8 as his physica l stay in Pakistan ,~
182 days i.e. less than 183 days as under· -
oavs
15 .12.20X7 to 31.12 .20X7 including days in 17
Pakistan before ioin ing the iob --
31
Janua rv 20X8
Februa ry 20X8
28
.J .3.20X8 to 21 .3.20X8
21
-
2
J0.]_20X~_to 31.3 .20X8
-l.4.20X
-- 8 to 12.4.20X8
- 12
2t .4.20X8 to 30.4 .20X8 10
~ay 20X8 31
June 20X8 30
Total days 182

Note: The days are required to be counted for the purpose of residential status :

- Days before joining the job;

- Days of vacation spent in Pakistan;
- Day of arrival in Pakistan ; and
- Day of departure from Pakistan .

Moreover, he was not present 365 days or more in Pakistan during 4 preceding tax years.

Answer to Q.l(b} March 2019

(i) Mohsin is not a resident individual as he spent 181 days in Pakistan during the tax year 20X8
i.e . from 1.1.20X8 to 30 .6.20X8 .

(ii) Mohsin is considered as a short term resident in Pakistan for income tax purpose as:
his stay in Pakistan is solely by reason of his employment; and
he is present in Pakistan for not exceeding 3 years
Foreign source_ income of a short term resident is exempt in Pakistan if it is not brought /
received in Pakistan .
Keep ing in view the above provisions:
• Rece ipt of US$ 18,000 in . equivalent Pak Rupees for conducting the seminar . .
USA shall be taxable as it has been received in Pakistan . However he se~~ion in
foreign tax cred it of the amount paid as income tax in USA. ' can c 1m the

• % of his foreign sourc~ income ~hich he broug~t into Pakistan is taxa

40 , of his foreign source income which he kept outside Pakistan is e"'e ble whereas
60 0, o · .... mpt from tax.

.
l ·i
.

jJ •
 Chapter 1: Tax Year and Rrsidr ntial Stotus
-·- - . -·
Questions ICAP CFAP
Q.2(a) oec 2002_ICAP CFAP_ .
How does an individual person Is said to have met the residency test. (Mark s 2)

*Q.2(b) Dec 2002 IC~P CFAP [portion ?nly]

Mr. William De Niro signed a contract with PTV to assist in making a fl lm on ti ll' wild Ilk'
sanctuaries in Pakistan . Under the terms of the contract Mr. Niro was to stay 111 F\-1klst.rn 1·0 1 , 1
period of 1 year 3 months _and 21 days. H~ landed in Pakistan on 29.8.20X7. Acc~11clin9 to the
terms of employment Mr. Niro was to be pa id the following emoluments:
• Basic Salary of Rs.150,000 per month
• Accommodation.
• company maintained car (cost of the car Rs. 1 million)
• PTV spends Rs.15,000 per month for providing security to Mr. Niro
• Mr. Niro was entitled fo r utility allowance of Rs.40,000 per month .
• Besides above PTV also pays US $ 2,500 per month in his home country 1·01 lumily
subsistence. Mr. Niro is a US national.
Mr. Niro was also responsible as part of his deal to provide training to PTV staff abroad and was
responsible to finalize training course in Italy & France. Boarding and lodging, finalization of
travelling schedule is also his responsibility:
PTV crew left for offshore training on 15.12.20X7 and the training started from 20.12..?0X?. Mr.
Niro returned to Pakistan with his crew on 14.4.20XB.
Mr. Niro also has other income in his home country.
= Rent from apartment in New York amounting to US $ 15,000 per an num out of which he
received US $ 3,000 in Pakistan during the income year ending on 30.6.20XS. The balance
amount was retained in his bank account abroad .
= Mr. Niro has a partnership in a production house with his wife in New Jersey. During the year
he earned a profit of US$ 50,000 which remained in US in his bank account.
Exchange rate Rs.60 =US$ 1

Required:
(i) What is the tax status of Mr. Niro for Pakistan tax purpose in the tax year 20X8?
(ii) Note on foreign source income

*Q.2 Dec 2007 ICAP CfAP

Mr. Kashif, a Pakistani National, left the Pakistani subsidiary of a multinational company and was
employed in the role of Director Middle East for the Group company with effect from 1.l .20X8.
Due to certain visa issues, he could not travel immediately and remained in Pakistan till
2B.2.20XB. While in Pakistan, he continued to work for the Middle East reg ion and received
payment from the Group company. _
Mr. Kashif is required to return to Pakistan for sorting out certain is.sues on behalf of the group
company and will be staying in Pakistan for about two months. On his retu rn to Pakistan he will

15
 l 'hnph'r l l 11, \ rar and lfr~idl'ntial Status
(\."t~tm L;_~ h 1 lx- _,'tnphJH'\ l ,md \\;11d l)y tht' l ~tl1llp comp~~y-. _T_h_e _G_r_o_u_p _c_o_m_p_a_n_y_d_e_d_u;;;~~~
ta, dt ~\\H\\' IH\Jn ttw q\\ \~,•- ,;_:,l"IY --- tl1t:

\ A.ssutnJ>tions~ N(\ t. 1\ 1n ll1\L l\(..l t.:r-< ltct1ty, income tax deduct ion is only for Pakist
l ~t~ll l_,'t.'
I ~) I,) I ) - QI) l
. . --- --•-· - - ~ i
Required: t311('t ly t'\ pl,1 111 tht' l\1\-.b l,in tr'1x implicution s to Mr. Kashif for the ta x years 20X8 and
::.ox9 in ~SPt,'\.:t t) I th(' h 1\k \\\l l!)q .
(a) Si\kH\' t'{H 11t\.i whil~' hL' w~,s prc~nt in Paki stan from l.l.20X8 to 28 .2.20X8 .
tb) lf h-.:- t-c t'tlln~ h.' 1i;1klstdn lJL,fOl'C J0 .6.20XS .
(c) 1f he ''-~tums to l\1!-Jst-111 after 30.G.20X8 . (Marks 10)

*Q.4(a)( ii) June 2010 ICAP CFAP

Mr . B, a Pakistan\ 11ation,1I, w n~ workin~1 dS a clcming agent in Ta iwan for the past six years. He
came back to Pa kistan in July 10X6 anci joined a clearing house of his brother Ikram . In March
20X8 he received Rs. l million as commission from the discontinued business in Taiwan .

Briefly explain the taxa bility of the above situat ion (Marks 3)
*Q.5 Dec 20 10 ICAP CFAP
I n view of the provisions of rn corne Tax Ordinance and the stated rules, determine the resid ential
status of the follow ing persons for the tax year 20X 8 under the given circumstances :
(1) Mr . Mub~n CiJrnc to Pakistan for the first time on a special assignment from his
company on 1.4.20X7 and left the country on 30 .9.20X7.
(2 ) Mr . Rana, who had never travelled abroad in his life, got a job in Canada . He wen t to
Canada on 29 .12.20X7 to assu me his responsibilities as a CFO . In June 20X8 his
company sent him to India on a training workshop . On 30.6.20X8 on his way back to
Canada he had to stay in Karachi for a whole day in transit.
(3) Mr . Baber, a Federal Government Employee was posted to the Pakistan mission in
Geneva from l.7 .20X 7 to 30 .6.20X8.
(4) Mr . Francis, a sugar deale r in Brazil, came to Pakistan for the first time on 31.7 .20X7.
During his visit he stayed in Lahore for 60 days and spent the rest of the days in
Karachi . He left the country on 31.1.20X8 . Assume that the Commissioner has
granted him permission to use calendar yea r as a special tax year . (Marks 6)

Q.S(c) June 2011 ICAP CFAP . .

Who may be regard ed as short-term resident individual under t~e Income Tax ?rd_1n_ ance, 2001 1.
Discuss the provisions relating to the taxability of foreign source income of such 1nd1v1duals.
(Marks 4)

16
 Chapte · l · T ,1
-----=~--=--~~.:__'~ ·--=-=a.::.
x_~ c~a•~·,~ind lksiclc nlial Status
Answers ICAP CFAP .
Answer to Q.2(b) PJec 2002 ICAP CFAP
(i) Mr. Niro is a resident person in Pakistan for t.ax . .
year in Pakistan is for: purpose as his physical stay during the t.ax
From To Days
29 .08.20X7 15.12.20X7 109
14.04.20X8 30.06.20X8 78
187

(ii) Mr. Niro is a resident person for Pakistan t.ax purpos H

his stay in Pakistan is only for the purpose of emplo e.
years.
t v~\
0 2
ymen an
.
he is a s~ort term resident as
or a period not exceeding 3

For a short term resident, foreign source income is exempt wh · h · .

. Th f fi . . 1c 1s not received or brought into
Pa kIstan. ere ore, oreIgn source income of Mr. Niro is exempt t .
3,000 which amount was received in Pakistan . excep property income of US $

Foreign source property income is taxable in Pakistan subiect to t.ax treaty p k. t

· d . . J . a Is an government
~as alrea dy s1gne tax treaty wit~ USA. Ho~ever, If the said amount is taxable in Pakistan then it
Is taxable as a separate block of income subJect to foreign tax credit.

Answer to Q.2 Dec 2007 ICAP CFAP

Mr. Kashif is a resident person in the tax year 20X8 and he would be a non -resident person in the
tax year 20X9.

(a) Pakistan source salary for both the tax years is taxable in Pakistan under normal tax
structure.
(b & c) Foreign source salary in the tax year 20X9 shall not be t.axable being a non -resident
person .
Foreign source salary in the tax year 20XB:
Salary earned outside Pakistan shall be exempt if a citizen of Pakistan leaves Pakistan during a
tax year and remains abroad during that tax year.
Therefore, foreign source salary in the tax year 20X8 shall be taxable if Mr. Kash if returns to
Pakistan before 30.6.20X8 while the same shall be exempt if he returns to Pakistan after
30.6.20X8.

Answer to Q.4(a)(ii) June 2010 ICAP CFAP

If an individual citizen of Pakistan (returning expatriate) is resident in the current tax ye~r but
was non-resident in the 4 preceding tax years, his foreign -source income shall be exempt 1n the
current tax year and in the following tax year.
Mr. B became a resident in tax year 20X7 (as a returning expatriate) and therefore his foreign
source income derived in the tax year 20X8 would be exempt from tax.

17

I
J
 C ha pter 1: Tax Year and Residential Status
Answer~ Q .5 Dec 2010 ICAP C~AP . . . . --~
(1) An individual is resident for Pak1st~n tax _purpose tf his stay in a ~ax year is 183 days or
st
Physical stay of Mr. Mu been in Pak1sta_n in the ta~ year 20X8 1s 92 days (1 July t :att.~.
September) and therefore he is a non-resident person in the tax year 20X8 . 3Qt1i

(i) A day in Pakistan solely by reason of being in transit does not count as a day Present .
1
Pakistan . 1'\

Physical stay in Pakistan of Mr. Rana in the tax year 20X8 excluding a day in transit is 182 d
(1 st July to 29 th Dec) and therefore he is a non-resident person in the tax year 2OX8 on :s
1
ground but he would be a resident pers0n on the other ground as under : s
- his physical stay in Pakistan during the tax year 2OX8 is 120 days or more ; and
- his physical stay in Pakistan during the preceding 4 tax years is 365 days or more .
(3) A government employee posted abroad in the tax year is resident irrespective of his ph ysic
stay in Pakistan . Therefore, Mr . Baber is a resident person in the tax year 20X8 for Pakista n ~1
purpose. x
{4) Physical stay of Mr. Francis in Pakistan in the tax year ended 31.12 .2OX7 (special tax year
granted by the Commissioner) is 154 days i.e . 31 st July to 3 1st December and therefore he is a
non -resident for Pakistan tax purpose .

Answers to MCQs

1. (C)
2. (C)
3. (C)
4. (D)
5. (A) and (B)
6. (D) correct answer is Special Tax Year 2OX8
7 . (A)
8 . (D)
9 . (D) An individual foreigner doing business in Pakistan can not be a short term resident
10. (A) and (C)
11 . (B) and (D)
12 . (D) Foreign source salary is exempt on account of being non-resident
13 . (D)
14 . (C)
15 . (A)

18