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Taxation Managment

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Taxation Management ­ FIN 623
VU
MODULE 5
LESSON 5.18
RESIDENTIAL STATUS & TAXATION
Taxation of Foreign-Source Income of Residents:
Foreign Source Salary of Resident Individuals Sec. 102
(1) Any foreign-source salary received by a resident individual shall be exempt from tax if the individual has
paid foreign income tax in respect of the salary.
(2) A resident individual shall be treated as having paid foreign income tax in respect of foreign-source
salary if tax has been withheld from the salary by the individual's employer and paid to the revenue
authority of the foreign country in which the employment was exercised.
Foreign losses Sec.104: Deductible expenditures incurred by a person in deriving foreign-
source income chargeable to tax under a head of income shall be deductible only against that
income.
Taxation of Non-Residents
Taxation of a permanent establishment in Pakistan of a non-resident person Sec. 105:
(1) The following principles shall apply in determining the income of a permanent establishment in
Pakistan of a non-resident person chargeable to tax under the head "Income from Business",
namely:
 The profit of the permanent establishment shall be computed on the basis that it is a distinct and
separate person engaged in the same or similar activities under the same or similar conditions and
dealing wholly independently with the non-resident person of which it is a permanent
establishment;
Taxation of Non-Residents-Deductions
Subject to this Ordinance, there shall be allowed as deductions any expenses incurred for the
purposes of the business activities of the permanent establishment including executive and
administrative expenses so incurred, whether in Pakistan or elsewhere;
No deduction shall be allowed for amounts paid or payable by the permanent establishment to
its head office or to another permanent establishment of the non-resident person (other than
towards reimbursement of actual expenses incurred by the
non-resident person to third
parties) by way of:
Royalties, fees or other similar payments for the use of any tangible or intangible asset by the
permanent establishment
 Compensation for any services including management services performed for the
permanent establishment; or
 Profit on debt on moneys lent to the permanent establishment, except in connection
with a banking business; and
Taxation of Non-Residents Deductions
 Compensation for any services including management services performed by the permanent
establishment; or
 Profit on debt on moneys lent by the permanent establishment, except in connection with a
banking business.
No account  shall be taken in the determination of the income of a permanent establishment of
amounts charged by the permanent establishment to the head office or to another permanent
establishment of the non-resident person (other than towards reimbursement of actual expenses
incurred by the permanent establishment to third parties) by way of:
Royalties, fee or other similar payments for the use of any tangible or intangible asset;
(2) No deduction shall be allowed in computing the income of a permanent establishment in Pakistan
of a non-resident person chargeable to tax under the head "income from Business" for a tax year
for head office expenditure in excess of the amount as bears to the turnover of the permanent
establishment in Pakistan the same proportion as the non-resident's total head office expenditure
bears to its worldwide turnover.
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Taxation Management ­ FIN 623
VU
(3) In this section: head office expenditure: means any executive or general administration expenditure
incurred by the non-resident person outside Pakistan for the purposes of the business of the
Pakistan permanent establishment of the person, including
(4) No deduction shall be allowed in computing the income of a permanent establishment in Pakistan
of a non-resident person chargeable under the head "Income from Business" for-
 Any profit paid or payable by the non-resident person on debt to finance the operations of the
permanent establishment; or
 Any insurance premium paid or payable by the non-resident person in respect of such debt.
 Any rent, local rates and taxes excluding any foreign income tax, current repairs, or insurance
against risks of damage or destruction outside Pakistan;
 Any salary paid to an employee employed by the head office outside Pakistan;
 Any traveling expenditures of such employee; and
 Any other expenditure which may be prescribed.
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Table of Contents:
  1. AN OVERVIEW OF TAXATION
  2. What is Fiscal Policy, Canons of Taxation
  3. Type of Taxes, Taxation Management
  4. BASIC FEATURES OF INCOME TAX
  5. STATUTORY DEFINITIONS
  6. IMPORTANT DEFINITIONS
  7. DETERMINATION OF LEGAL STATUS OF A PERSON
  8. HEADS OF INCOME
  9. Rules to Prevent Double Derivation of Income and Double Deductions
  10. Agricultural Income
  11. Computation of Income, partly Agricultural,
  12. Foreign Government Officials
  13. Exemptions and Tax Concessions
  14. RESIDENTIAL STATUS & TAXATION 1
  15. RESIDENTIAL STATUS & TAXATION 2
  16. Important Points Regarding Income
  17. Geographical Source of Income
  18. Taxation of Foreign-Source Income of Residents
  19. Exercises on Determination of Income 1
  20. Exercises on Determination of Income 2
  21. SALARY AND ITS COMPUTATION
  22. Definition of Salary
  23. Significant points regarding Salary
  24. Tax credits on Charitable Donations
  25. Investment in Shares
  26. SALARY AND ITS COMPUTATION EXERCISES 1
  27. SALARY AND ITS COMPUTATION EXERCISES 2
  28. SALARY AND ITS COMPUTATION EXERCISES 3
  29. Tax treatment of Gratuity
  30. Gratuity Exercise
  31. PROVIDENT FUND
  32. Exemptions on Business income, Treatment of Speculation Business
  33. Deductions Allowed & Not Allowed
  34. Deductions: Special Provisions, Depreciation
  35. Methods of Accounting
  36. Taxation of Resident Company
  37. Taxation of Companies: Exercises
  38. Computation of Capital Gain
  39. Disposals Not Chargeable To Tax
  40. TAX RETURNS & ASSESSMENT OF INCOME UNIVERSAL SELF ASSESSMENT SCHEME
  41. Normal Assessment, USAS, Provisional Assessment, Best Judgment Assessment
  42. ADVANCE TAX COLLECTION & RECOVERY OF TAX PENALTIES & PROSECUTION
  43. What is Value Added Tax (VAT)?
  44. SALES TAX
  45. SALES TAX RETURNS