Pakistan Payroll & Tax Overview A GUIDE TO DOING BUSINESS IN PAKISTAN 2017

Transcription

1 Pakistan Payroll & Tax Overview A GUIDE TO DOING BUSINESS IN PAKISTAN 2017

2 Contents 1.0 Key Country Facts and Public Holidays Business and Culture in Pakistan Visas and Work Permits Tax and Social Security Compliance Statutory Absence/Payments About This Payroll and Tax Overview The Global Payroll Association, Inc.; All Right Reserved -2-

3 1.0 Key Country Facts and Public Holidays 1.1 Official Language English, Urdu 1.2 Currency Pakistani rupee 1.3 Country Dial code The country dial code is Country abbreviation The country abbreviation is Pak 1.5 Statutory Filing Payment Methods All payments must be remit by the employer to the Government Treasury. 1.6 National Minimum wage There is no national minimum wage however some provinces have a regional minimum wage, please see below: Province Minimum Wage per Month Punjab 14, Days per month specified: 26 Sindh 14, Days per month specified: 26 Khyber Pakhtunkhwa 14, Days per month specified: 26 Balochistan 14, Days per month specified: 26 Islamabad Capital Territory 14, Days per month 1.7 Filing Deadlines Monthly filing Deadline: Employers must file monthly statements within 15 days after the end of each month. Annual filing Deadline: annual statements must be filed by Aug. 31 of every year. 1.8 Fiscal year July 1 and ends June Time Zone Public Holidays of Pakistan 2017 Date Day Holiday 5 Feb Sun Kashmir Day 23 Mar Thu Pakistan Day 1 May Mon Labour Day 26 Jun Mon Eid ul-fitr * 27 Jun Tue Eid ul-fitr * 28 Jun Wed Eid ul-fitr * 14 Aug Mon Independence Day 2 Sep Sat Eid ul-azha 3 Sep Sun Eid ul-azha 30 Sep Sat Ashura 1 Oct Sun Ashura 1 Dec Fri Eid Milad-un-Nabi 25 Dec Mon Quiad-e-Azam Day / Christmas Day 2017 The Global Payroll Association, Inc.; All Right Reserved -3-

4 2.0 Business and Culture in Pakistan 2.1 Establishing as an Employer Pakistan ranks relatively well in starting a business both globally and regionally. Reforms in the early part of the decade cut start-up time by half. Start-up now takes 24 days, 8 days less than the South Asian average (32 days) and less than Bhutan (62 days), Sri Lanka (50 days), Bangladesh (37 days) and India (35 days). The cost is 21% of income per capita, well below the South Asian average of 47%, and compares favourably to all regional averages apart from those of the OECD (5%) and Europe and Central Asia (14%). Like all South Asian countries except for the Maldives, Pakistan does not impose a minimum capital requirement Business Startups in Pakistan require a host of corporate formalities which may vary due to Legal Person Involved: Individual, Partnership, Company or else. Residence status of the legal person: Non-residents may require more registrations and approvals to go through Business Sector: Service Industry, Manufacturing, non-profit and so forth. Complete Legal formalities will differ, however, as a general guideline following will be needed to be done in order to setup a completely legitimate business in Pakistan: 1. Form a company / partnership / sole proprietorship under applicable legislation and individual circumstances. 2. Open Up Bank Account 3. Obtain a National Tax Number 4. Obtain a Sales Tax Number (IF required) 5. Register for the Pakistani Professional Tax with your local tax office 6. Seek Approval from state bank of Pakistan for issue of shares (non-residents mostly) 7. Register any agreements drafted for foreign remittances with the State Bank 8. Register with the Employee Social Security Institution (ESSI 9. Gain membership of local chamber of commerce and or engineering council. 10. Register Trademarks, Copyrights and/or patents 11. Register for old age benefits with the Pakistani Employees Old-Age Benefits Institution (EOBI). 12. Register with the Pakistan Shops and Establishment Ordinance. 2.2 Employment While Article 18 of the Constitution affords every citizen with the right to enter upon any lawful profession or occupation, and to conduct any lawful trade or business, the Industrial and Commercial Employment (Standing Orders) Ordinance was enacted in 1968 to address the relationship between employer and employee and the contract of employment. The Ordinance applies to all industrial and commercial establishments throughout the country employing 20 or more workers and provides for security of employment. In the case of workers in other establishments, domestic servants, farm workers or casual labor engaged by contractors, their labor contracts are generally unwritten and can be enforced through the courts on the basis of oral evidence or past practice. Every employer in an industrial or commercial establishment is required to issue a formal appointment letter at the time of employment of each worker. The obligatory contents of each labor contract, if written, are confined to the main terms and conditions of employment, namely nature and tenure of appointment, pay allowances and other fringe benefits admissible, terms and conditions of appointment The Global Payroll Association, Inc.; All Right Reserved -4-

5 3.0 Visas and Work Permits 3.1 Visas Work visas are usually granted for one year once approved by the Board of investment, these must be renewed and reapproved on an annual basis. Foreign Workers looking to work in Pakistan must obtain their working visa at the Pakistani Consulate in their country of residence. Specific visas are also available such as the Special housemaids visa. A valid passport and business visa are required for travel to Pakistan. Passport Requirements: Original, signed passport valid for 6 months beyond stay in Pakistan, with at least one blank passport page available for Pakistani visa and entry stamp(s). Amendment pages in the back of the passport are not suitable for Pakistani visas. Pakistan Visa Application Form: One Pakistan visa application form. After placing your order, fill out the application form included in your Visa Application Kit. Photo Requirements: Four identical, recent 2 x 2 passport type photographs in colour, front view and with a plain/white background. OR - you can upload a photo when you place your order, instead of providing physical passport photos. Other Forms: Completed application Official Invitation: Letter from Chamber of Commerce and Industry on behalf of sponsoring company in Pakistan. Letter Of Invitation: Letter of invitation from sponsor (host company or individual) in Pakistan explaining the relationship to the applicant and the purpose of travel. The letter must indicate the length of stay, place of stay, and contact information. In Chicago jurisdiction, a copy of the passport, ID or CNIC/NICOP of the inviting sponsor must be included. Business Cover Letter: Letter from employer or sponsoring company in the US, on company letterhead, introducing the applicant, indicating the applicant's employment status/position held in the company, and clearly stating the purpose of visit to Pakistan. The business letter must also indicate who will be financially responsible for the applicant and must provide detailed contact information in Pakistan. The Consulate of Pakistan requires an official business letter to support your application. To generate a Pakistan Business Cover Letter on-line, simply request this service and provide your information using the simple online form in your Visa Application Kit, which you will receive once you place your order. Proof of Travel Arrangements: Computer generated flight itinerary from the airline or a travel agency or copy of airline tickets. Other Requirements: A copy of applicant driver's license. Please enlarge for clarity. Address on driver's license must match address on visa application form. Special Instructions: NGO visas may require clearance from the Ministry of Interior in Pakistan. If clearance has not been obtained in advance, the visa processing time is lengthy. The Consular Office of Pakistan does not refund visa fees if visa request is cancelled or if visa is denied. Non-Government Organizations must submit proof of registration in the US and proof or registration with the government of Pakistan (Ministry of Economic Affairs), and a letter of recommendation/endorsement by the US Embassy in Pakistan. This documentation must include the name of the project in Pakistan and proof of financial responsibility The Global Payroll Association, Inc.; All Right Reserved -5-

6 4.0 Tax and Social Security 4.1 Tax Like other countries of the world, Pakistan has also a proper taxation system that is being regulated in the country according to Income Tax Ordinance, 2001, Sales Tax Act, 1990, Federal Excise Act, 2005, Custom Act, 1969, Capital Value Tax levied through Finance Act, 1989 and few others that are mostly in shape of amendments. Federal Government is the only body who is empowered to levy and collect the tax. After that, the constitution gives the power to the provincial government to legislate on taxes. Income Tax Slabs Salaried Persons Finance Bill 2017 Where the income of an individual chargeable under the head salary exceeds fifty per cent of his taxable income, the rates of tax to be applied are as follows; 4.2 Social Security This Act is applicable to the private sector only while Government has created special systems for public-sector employees (where Civil Pension Rules are applicable); members of the armed forces; police officers; and employees of statutory bodies, local authorities, and railways. Other than these, Government is also managing other social assistance programs for the welfare of destitute and needy citizens. Under the Zakat and Ushr Ordinance, 1980, benefits are provided to the poor Muslim citizens of Pakistan while under the Pakistan Baitul Mal Act, 1992 and Benazir Income Support Program Ordinance, 2010 (program was started in 2008); assistance is being provided to all the citizens of Pakistan irrespective of their religion The Global Payroll Association, Inc.; All Right Reserved -6-

7 Employees Old-Age Benefits Act is applicable on all firms (industrial or commercial, including banks) where 5 or more workers, whether contractual or regular, are employed or were employed during past 12 months. The laws remains applicable even if the number of persons employed is subsequently reduced to less than five. The business with less than five employees can get their employees registered with EOBI on voluntary basis. As for the benefits, it provides following four types of benefits to insured persons or their survivors. Old-Age Pension (or Reduced Pension) Survivors Pension Invalidity Pension Old-Age Grant (if an employee is not eligible for pension) Employees Old-Age Benefits Institution (EOBI) manages implementation and enforcement of this act. EOBI is a semiautonomous institution working under auspices of Ministry of Overseas Pakistanis and Human Resource Development (the erstwhile Ministry of Labor and Manpower). A tripartite corporate Board of Trustees manages working of EOBI where, along with the Government officials, labour and employer representatives are also present. The number of employees registered with EOBI exceeds 3 million while 360,000 of these registered workers are getting pension benefits. EOBI has detected another 3 million cases where contributions on account of employees are not being paid. 5.0 Compliance 5.1 Employer Registration Employers must provide employees with Form IT-3 upon being hired. All companies must register with FBR by filing TRF01 or filing on the FBR website. 5.2 Starters/Registration Post receiving the name availability certificate from SECP, the applicants have to file an application for incorporation. The fees associated with the process can be paid using the relevant bank form at designated branches of The Muslim Commercial Bank (MCB) in Pakistan. Post payment of the fee, SECP then requires the applicant to submit the following documents Declaration of compliance Identification of office s location Particulars of directors, secretary, chief accountant, auditors and other Copies of the Memorandum and Articles of Association with each member s signature, where: Memorandum of Association explains your business sector of the company e.g. Institution, Travel agency, Trading or manufacturing, Supply or chain of stores. To put simply, MOA tells about the relationship of your company with the outside world. Articles of Association lets know about the day-to-day proceedings within the company i.e. what role CEO and directors would play, business concerned meetings and the appointments of employees, in short- how the company will run. 5.3 Leavers/De-registration Employers generally must provide employees one month's notice, except in the case of employee misconduct. Employees may provide employees with one month's pay in lieu of notice. If employers cease all operations they must pay employees 50 percent of their daily wages for 14 days. If after 14 days they have not resumed operations, employers must then provide employees with the required notice or pay in lieu of notice. Any permanent employees who are terminated must be given 30 days pay in addition to the aforementioned notice period. Employers who contribute to provident funds for their employees are exempt from this severance payment The Global Payroll Association, Inc.; All Right Reserved -7-

8 6.0 Statutory Absence/Payments 6.1 Annual leave An employee is entitled to 14 calendar days paid annual leave, after completion of 12 months of continuous service. (section 49-B of Factories Act). This law does not indicate whether paid annual leave increases with longer service/senioirty. A worker is paid his daily wages while he is on annual leave. Factory workers are paid half of the pay due for annual leave before start of the leave. The annual leave has to be consecutive and may not be split however if a worker fails to avail whole leave during the 12 months, it is added to the next year. However, not more than 14 days of leave can be carried forward. Pay on Public Holidays Workers are entitled to paid Festival (public and religious) holidays. Festival holidays are announced by Ministry of Interior, Islamabad and Provincial Government at the start of calendar year (usually 14 in number) (section 49-I of Factories Act) Weekly Rest Days Workers are entitled to 1 day of rest per week (24 consecutive hours). The weekly rest day is usually Sunday. If a worker has to work on holiday; he can t be made to work consecutively for 10 days without being given a compensatory holiday for full one day. (section 35 of Factories Act) 6.2 Sick leave A secured person (for whom at least 90 days of contribution have been paid in the last 6 months) is entitled to receive the sickness benefit throughout the period of sickness. In cases of tuberculosis and cancer, a secured person has to be provided with 100% of the wages (50% of the wages in Khyber Pakhtunkhwa and Balochistan) for 365 days in a period of one year. While if a person is suffering from any other disease, he has to be paid 75% of his wages (50% of the wages in Khyber Pakhtunkhwa and Balochistan) for 121 days only in a period of one year. 6.3 Maternity leave A secured woman (for whom at least 180 days of contribution have been paid in the last 12 months immediately preceding the expected date of her confinement) is entitled to her full remuneration (100% wage replacement) for 12 weeks of maternity leave. At most six of these 12 weeks precede the expected date of confinement. For more information, kindly refer to the section on maternity leave The Global Payroll Association, Inc.; All Right Reserved -8-

9 7.0 About This Payroll and Tax Overview 7.1 Copyright All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher. 7.2 Disclaimer Every effort has been made to ensure that all information in this booklet is correct at the time of publication. This information should be used as reference only and not as a sole source of decision making. 7.3 The Global Payroll Association Global Payroll Association is the first international payroll association of its kind. We are a central hub for all-things payroll. A one-stop-shop supplying comprehensive directories, interactive training and in-depth country resources. We are here to help you with your global payroll needs, no matter how complex, connecting you with the world s leading experts and offering a forum to network with other like-minded global professionals. Global Payroll Association welcomes international payroll, HR and financial professionals of all levels The Global Payroll Association, Inc.; All Right Reserved -9-

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