Cross-border
Tax on Payments to Foreign Suppliers
Section 6 charges a non-resident on Pakistan-source royalty, fees for technical services, and fees for offshore digital services, and section 152 makes the payer withhold. The rates are 15% on royalty and technical services and 5% on offshore digital services, both on the gross amount. Payments through a permanent establishment in Pakistan are excluded.
We do this for clients:Withholding Tax Statements in PakistanImport Export License in Pakistan
Where these figures come from
- Statutory basis
- Income Tax Ordinance, 2001, as amended by the Finance Act 2026, for tax year 2027 (1 July 2026 to 30 June 2027).
- Last checked against the statute
- by BarrioVibe, which files income tax returns through FBR IRIS.
These figures are an estimate computed from the rates above, not tax advice for your situation. Your return depends on facts a form cannot see, so treat the number as a starting point and speak to us before you file on it.
The rates, and why characterisation is worth arguing about
First Schedule Part I Division IV, applied to the gross amount. The same payment can fall on either side depending on what it is for.
| What the payment is for | Rate on gross |
|---|---|
| Royalty | 15% |
| Fee for technical services | 15% |
| Fee for offshore digital services | 5% |
Gross means gross
Section 6(2) computes the tax by applying the rate to the gross amounts of receipts. There is no deduction for the non-resident supplier's own costs, and no netting.
That matters commercially as well as technically. Most foreign suppliers price on the assumption of receiving the invoiced amount, so a withholding obligation either reduces what they receive or, where the contract grosses up, increases what you pay. Either way it is a term to settle before the first invoice rather than a surprise at the first audit.
The heads section 6 actually covers
Broader than the royalty and technical services pair that most summaries stop at, and two of the additions matter to anyone taking payments online.
- Pakistan-source royalty
- Fee for offshore digital services
- Fee for money transfer operations
- Fee for card network services
- Fee for payment gateway services
- Fee for interbank financial telecommunication services
- Fee for technical services
When section 6 does not apply
Section 6(3). These are the exclusions to check before concluding you must withhold.
- Any royalty where the property or right giving rise to it is effectively connected with a permanent establishment in Pakistan of the non-resident
- Any fee where the services giving rise to it are rendered through a permanent establishment in Pakistan of the non-resident
- Any royalty or fee for technical services that is exempt from tax under the Ordinance
What happens if you should have withheld and did not
Two consequences, and the second is the expensive one. Section 161 can make the payer personally liable for the tax that should have been deducted, so the obligation does not disappear because the supplier has been paid in full.
And the proviso to section 22(1) removes the cost of a capital asset from your depreciation base entirely, in all relevant tax years, where tax deductible under section 152 was not deducted and deposited. So on a capital purchase from a foreign supplier the failure costs the withholding, the exposure under section 161, and the write-off for the life of the asset.
Questions
The questionspeople ask
Do I have to withhold tax when paying a foreign software supplier?
Potentially. Section 6 charges a non-resident on Pakistan-source royalty, fees for technical services and fees for offshore digital services, and section 152 requires the payer to deduct. Whether a specific payment is caught turns on whether the fee is Pakistan-source and on the exclusions in section 6(3).
What is the withholding rate on payments to non-residents?
Under Division IV of Part I, 15% of the gross amount for royalty or a fee for technical services, and 5% of the gross amount for a fee for offshore digital services. The 5% limb was inserted by the Finance Act 2025.
Are hosting and cloud fees offshore digital services?
The section 2(22B) definition expressly includes hosting or maintenance of websites, online computing, and facilities for uploading, storing or distributing digital content, and closes with any other online facility. Whether your particular payment is caught still depends on it being Pakistan-source.
Is tax charged on the gross payment or the supplier's profit?
Gross. Section 6(2) applies the rate to the gross amounts of receipts, with no deduction for the non-resident's own costs.
Are payment gateway fees covered?
Yes, as separate heads. Section 6(1) names fees for money transfer operations, card network services, payment gateway services and interbank financial telecommunication services alongside royalty and technical services.
When do I not have to withhold?
Section 6(3) excludes royalty where the right giving rise to it is effectively connected with the non-resident's permanent establishment in Pakistan, fees where the services are rendered through such a permanent establishment, and royalty or technical fees exempt under the Ordinance.
Can a tax treaty reduce the rate?
It can. Section 107 gives a tax agreement effect notwithstanding other law, and treaty articles on royalties and technical fees often set lower rates. Relief depends on the supplier's residence and the treaty applying, and the risk of getting it wrong sits with the payer.
What happens if I did not withhold?
Section 161 can make you personally liable for the tax that should have been deducted. And on a capital purchase, the proviso to section 22(1) removes that asset's cost from your depreciation base in all relevant tax years, so the write-off is lost for the life of the asset.
Also here
Relatedguides
Freelancer tax
Which rate applies to your export receipts, why domestic clients usually withhold nothing, and the provincial question that catches people in KPK.
Depreciation
Why computer hardware is written off three times faster than general plant, and how failing to withhold can cost you the write-off entirely.
Rather have someone handle it?
We file returns through IRIS every day. If the answer above raises a question about your own case, that is the conversation to have before the deadline rather than after it.