Table of Contents
Introduction
Pakistan’s tax system is becoming more transparent about foreign income and assets.
Under Section 116A of the Income Tax Ordinance 2001, certain resident individuals must declare their foreign assets and foreign income each year.
This rule, introduced through the Finance Act 2018, applies from Tax Year 2019 onward and brings Pakistan closer to international tax standards such as BEPS (Base Erosion and Profit Shifting) and exchange-of-information treaties.
The purpose is simple: prevent hiding offshore wealth and ensure fair taxation of income earned worldwide.
Who Must File Under Section 116A?
Not everyone needs to file this statement. It applies only to resident individuals who meet specific conditions.
Residency Requirement
You are considered resident if you stay in Pakistan for 183 days or more during the tax year, or if you are a government employee posted abroad.
Non-residents usually don’t need to file-unless FBR issues a notice.
Income / Asset Thresholds
You must file if either of these apply:
Foreign income ≥ USD 10,000 in a tax year
Foreign assets ≥ USD 100,000 (on the last day of the tax year)
Foreign income covers salary, rent, dividends, capital gains, or business profits earned outside Pakistan.
Foreign assets include property, investments, bank accounts, or shares held abroad.
Commissioner’s Notice
Even if you forget to file, the Commissioner Inland Revenue may issue a written notice directing you to submit the statement within a set time.
What the Statement Must Include
When filing, the statement should contain:
Foreign Assets and Liabilities – all holdings and related loans as of June 30.
Transfers of Assets – any asset sold / transferred during the year, with value or sale price.
Foreign Income and Expenses – complete list of foreign earnings and the expenses used to generate them.
Keep proper documents such as bank statements, contracts, valuations, and tax certificates for verification.
How It Connects With Other Tax Rules
Deductible Expenses
Only expenses wholly and necessarily incurred to earn foreign income are deductible—and only against that income.
Loss Carry Forward
Foreign-source losses can be carried forward for six years but used only to offset future foreign income.
Foreign Tax Credit
If you paid tax abroad, you can claim a credit under Section 103—limited to the lower of foreign tax paid or Pakistani tax payable on that income.
Exemptions & Reliefs
Some salary income earned abroad may be exempt, and returning non-resident citizens may enjoy temporary relief under Section 51.
Penalties and Legal Issues
Penalty Under Section 182(1)(1AAA)
Failure to file on time can lead to a penalty of 2% of the foreign income or asset value for each year of default.
Notice Before Penalty
A written notice under Section 116A(2) must be served before penalties apply.
Judicial Challenges
Courts have sometimes questioned penalties when the prescribed form was missing or the taxpayer had already disclosed similar details elsewhere.
Still, ignoring a notice can create serious legal exposure—so respond promptly.
Practical Steps for Compliance
Check Residency Status – confirm if you qualify as resident.
Assess Thresholds – estimate your foreign income and asset value.
Keep Records – statements, valuations, and proof of tax paid abroad.
Prepare Disclosure – list all assets, liabilities, transfers, and income.
Claim Tax Credit Properly – attach evidence of foreign taxes.
File On Time – usually along with your annual return via FBR IRIS.
Reply to Notices – respond within given time to avoid penalty.
Review Annually – update values and add new assets each year.
Get Professional Help – complex cases need expert advice.
Common Challenges & Future Updates
No Prescribed Format – ongoing debate until FBR fully notifies forms.
Valuation Issues – converting foreign asset values to PKR correctly.
Data Sharing – FBR now receives information from foreign tax authorities.
Litigation Risk – taxpayers challenging notices and penalties.
Threshold Changes – USD 10,000 / 100,000 limits may change in future Finance Acts.
Compliance Cost – can feel heavy for small investors.
Example
Mr. Ahmed, a Pakistani resident, earns USD 12,000 in foreign dividends and owns USD 120,000 worth of real estate abroad (as of June 30 2024).
He meets both thresholds → must file under Section 116A.
He will declare his property, income, and any foreign tax paid.
If he fails to file, he may face a 2% penalty on total value each year.
Legal Synergy Can Help
At Legal Synergy, we assist clients with:
Preparing and filing Section 116A Foreign Income and Assets Statements.
Handling notices and penalties from FBR.
Tax credit and exemption advice to avoid double taxation.
Wealth reconciliation and audit defense.
Our experienced tax lawyers ensure accuracy, confidentiality, and full compliance with FBR rules.
WhatsApp: +92 334 9555252
www.legalsynergy.pk
info@legalsynergy.pk
Conclusion
Section 116A strengthens Pakistan’s tax transparency by requiring residents to disclose foreign income and assets.
It supports global efforts against offshore evasion and ensures fair tax contribution.
For taxpayers, the message is clear:
Stay compliant, maintain records, and file on time.
For peace of mind and expert assistance, Legal Synergy is here to guide you every step of the way.