Karachi, July 31, 2024 – Pakistan has introduced stricter tax rules for non-residents with substantial business activities within the country. This initiative, driven by the Federal Board of Revenue (FBR), aims to capture a larger share of revenue from global entities benefiting from the Pakistani market. The FBR issued Circular No. 1 of 2024-25 to elaborate on the recent amendments to the Income Tax Ordinance, 2001. The most notable change pertains to Section 101, which specifies the geographical source of income. This revision is crucial in determining the tax liabilities of non-residents operating in Pakistan. Under the new rules, the FBR clarified that the income of a non-resident will be computed based on amounts sourced from Pakistan. Specifically, Section 101(3) now stipulates that business income of a non-resident is considered Pakistan-source if it is linked directly or indirectly to any business connection in the country. This includes any form of economic activity that generates revenue within Pakistan’s borders. To provide further clarity, new definitions have been added to Section 101 through sub-sections (3A) and (3B). These amendments define “business connection in Pakistan” to include significant economic presence. This term encompasses transactions involving goods, services, or property with any individual or entity in Pakistan. For instance, the provision of data or software downloads to users in Pakistan now falls under this category. If the total payments from such…