Corporate Tax Planning in Pakistan for companies, groups and their shareholders

The headline rate is only the starting point

Two companies with the same profit can pay very different amounts of tax depending on their assets, losses, group structure, related-party arrangements, turnover and how they pay their shareholders. Corporate tax planning looks at all of these together.

Companies in Pakistan are taxed on taxable income under the Income Tax Ordinance, 2001, at the corporate rate for their category, together with super tax under section 4C where income exceeds the thresholds. Where profits are low relative to turnover, minimum tax under section 113 may apply instead, with excess carried forward as the law allows. Taxable income itself depends on admissible deductions under section 20, disallowances under section 21, tax depreciation and initial allowances under sections 22 and 23, and the carry-forward of business losses under section 57, generally for up to six tax years.

Groups have additional options. Qualifying holding companies and wholly owned subsidiaries may elect group taxation under section 59AA, and group relief for losses may be available under section 59B, subject to conditions. Transactions with associated persons must be at arm's length under section 108, foreign-controlled companies need to consider thin capitalisation rules under section 106, and arrangements without substance can be recharacterised under section 109. Dividends paid to shareholders are taxed separately, so the plan must cover how profit leaves the company as well as how it is earned.

Corporate tax planning sits alongside our corporate tax advisory, which answers specific company questions. When a plan involves restructuring, our corporate secretarial team handles the SECP side, and our financial modeling team can test the numbers over several years.