Real Estate Investment In Pakistan
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Buying property is a difficult decision making process
more so in other country. The tax and legal systems which apply to property
transactions differ in each fiscal jurisdiction and therefore, any foreign
investor need to understand the local tax implications existing in the
proposed territory. Grant Thornton Pakistan is experienced in dealing
with such issues and will be able to assist a prospective investor in
structuring its investments, identifying opportunities and provide compliance
services. The information detailed below should not be taken as a substitute
for a specific advice.
Who can invest?
There are generally minimal restrictions imposed for purchase property
in Pakistan. Non-resident individuals and companies can also invest
in property in Pakistan subject to approval of Ministry of Interior.
Tax implications
The Federal government has imposed 2% capital value tax on the purchase
of an urban property through Finance Act 2006. Moreover, Provincial
Governments also imposes property taxes on the ownership of property
located in their respective jurisdiction. However, gains or losses arising
on the disposal of real estate are not taxable unless the sale / purchase
are carried out as a business activity of the seller. .
The provincial governments also impose tax at the time of registration
of properties which ranges between 4-6% of the value assessed by the
Deputy Collector in the form of stamp duty. The local governments also
impose tax at the time of purchase which ranges from 1% to 3% on the
value in the respective provinces. Federal Excise Duty is payable at
the following services of the property developers:
| Services | Rate Of Duty |
| Development of purchases/leased land for conversion into residential / commercial plots | PKR 100/Square yard |
| Construction of residential / commercial units | Rs.50/ Square Foot of covered area. |
Income from Property
Rental income from property is subject to tax under the income tax laws in Pakistan. The income from property is taxed at a graduated scale as under.
Rent in PKR |
Rate of Tax |
| a. Non-Corporate Persons | |
0-150,000 |
0% |
150-001-400,000 |
5% of amount exceeding PKR 150,000 |
400,001-1,000,0000 |
PKR 12,500+7.5% of amount exceeding PKR 400,000 |
1,000,001 and excess |
PKR 57,500+10% of amount exceeding PKR 1,000,000 |
b. Corporate
Persons |
|
0-400,000 |
0% |
400,001-1,000,000 |
PKR 20,000+7.5% of amount exceeding PKR 400,000 |
1,000,001 and excess |
PKR 65,000+10% of amount exceeding PKR 1,000,000 |
The corporate persons paying the rent are required to withhold tax from such payment made to another person according to the above slabs.
Capital gain on sale of property
Any gain which arises from the sale of property is currently not liable to income tax,
unless the person selling is undertaking an adventure in the nature of trade.
Tax Exemption
Income of a Real Estate Investment Trust is exempt from income tax provided that at least 90 % of its income
is distributed to the unit holders of the trust. The capital requirement of the above company is around Rs.5
billion and other various conditions apply to undertake the above tax exempt business.
Inheritance tax
There is no income tax on the deceased estate by way of inheritance tax.
Tax reporting obligations
Investors in real estate located in Pakistan are required to file a tax return of their income.
Practical considerations
In order to secure better returns on investment, following needs to be considered while investing in real estate.
• Location of property
• Sponsors of the project
Tax planning
There is, at the moment no federal tax, on the disposal of real estate property unless such disposal is the business
activity of the alienator. Rental income is assessed by applying a fixed rate of tax on gross rental income.
Income from development projects is taxed as business income on net income basis @35% of net profits in the case of a corporate person.
