Written by Akhter Syed in Taxation Income Tax Rule 15 clarifies which foreign taxes qualify for relief against double taxation, including withholding taxes on dividends, salaries and other income. ISLAMABAD: The Federal Board of Revenue (FBR) has explained the rules governing foreign income tax and relief against international double taxation for Pakistan’s Tax Year 2027, covering July 1, 2026 to June 30, 2027. The FBR issued the Income Tax Rules, 2002, updated up to September 15, 2026, explaining Rule 15, which applies to Sections 102 and 103 of the Income Tax Ordinance, 2001. Under Rule 15, a foreign levy qualifies as foreign income tax if it is legally imposed as a tax by a foreign country and is substantially equivalent to income tax under Pakistan’s Income Tax Ordinance. The rules specify that compulsory payments imposed under the authority of a foreign government can qualify as taxes. However, penalties, fines, interest and similar obligations are excluded. A foreign levy will also not qualify as income tax to the extent that the person paying it receives or is entitled to receive a specific economic benefit in exchange. Conditions for foreign tax recognition Rule 15 further explains that foreign taxes must generally apply to transactions or events that generate income, gains or profits under Pakistan’s tax law. The taxable amount should also be calculated after allowing significant expenses and depreciation or…