Foreign Income and Taxation

Tax Planning Process

Tax planning is a process of looking at various tax options in order to determine when,
whether, and how to conduct business and personal transactions so that taxes are
eliminated or reduced.
There are countless tax planning strategies available, particularly if you own a small
business. Some are aimed at your individual tax situation, some at the business itself. But
regardless of how simple or how complex a tax strategy is, it will be based on structuring the
transaction to accomplish one or more of these often overlapping goals:
 Provide last years’ tax return;
 Analyze situation and project tax savings;
 Deliver contract outlining fees;
 Gather additional information;
 Research and analysis; and
 Implement tax saving strategies.
TAX PLANNING SERVICES
 While managing slightly, tax can be one of the most nerve-wracking and possibly
precarious aspects of working. With expert knowledge and careful planning, however,
you can achieve both full compliance and good retention.
Financial Planning for Consultants

Making the most of your personal financial situation and leveraging any benefits provided
for by the local authorities.
Tax Compliance

Surely the most important of any contract overseas is to ensure that you remain fully
compliant in the eyes of your host country.
Expatriate Taxation

Contracting abroad presents a number of advantages from a tax perspective, but care must
Sbe taken to remain compliant both in your host country and at home.
Offshore Taxation Issues

There are many misconceptions and inaccuracies that are often repeated with regard to
offshore tax. Depending on your circumstances, widely divergent laws may apply and
varying advantages may be enjoyed, but detailed local knowledge and stringent attention to
detail is required: There is no “one-size-fits-all” answer to questions such these.
OFFSHORE TAXATION ISSUES AND ADVICE
A great deal has been written over the years about offshore taxation, offshore bank
accounts, offshore trusts, offshore payments and offshore tax havens. It is certainly worth
thinking very carefully before entering into any form of offshore tax planning arrangement
that deals with any of these issues.
To begin with, it is important to clarify that there are very few individuals who are actually
working offshore - and most of them tend to be in the Oil and Gas industry, working on oil
platforms or in similar locations. There are specific regulations within tax law covering these
issues, and it is worthwhile speaking to a specialist if you fit within this category.
In the majority of cases, offshore facilities are used to reduce taxes which on the face of it
are a good thing but the methods used often do not meet the requirements of the relevant
local or international tax compliance rules. For example:
Offshore trusts have been legally used in the past from the UK, for an individual working in
the UK and adhering to all of the relevant UK tax rules for Trusts. If, however, the individual
then moves to a contract in Afghanistan, India, Pakistan, EU Member Country or Middle East
and is working in (and therefore under the jurisdiction of) that country, the same tax rules
for trusts will not apply, and therefore income going into the trust may be viewed as fully
taxable. This will result in an additional tax bill, on top of the cost for the trust.
 The lesson here is that ensuring tax compliance when working abroad (or indeed at home) is
very important - but many off shoring opportunities can work against that compliance when
considered in a wider context.
There are things that you can legally do to ensure that your tax compliance is managed
effectively and that your tax liability is minimized.
Tax Revenues:
For the host country (Pakistan), there is a likelihood that the MNC will have to be subject to the tax regime in
that country. As a result, many MNCs pay large sums in taxes to the government of Pakistan. But in the case of
Pakistan, the problem might be that there is a large amount of corruption and bad governance and as a result
MNCs might not contribute the tax revenue they could and even if they do it might not find its way through to
the government itself.

INTERNATIONAL TAXATION COMPLIANCE

Whether you are working on a contract assignment overseas or in your home country, some
things never change. Tax will be due where money is earned. However, ensuring your
compliance with the relevant tax legislation is a complex process - especially when multiple
countries and tax authorities are involved.
For example, you need to therefore be aware of the issues of tax compliance, including:
 Tax residency and the 180 days rule;
 Local tax legislation in the working country;
 Offshore expat regulations and restrictions;
 Issues of interactions between domicile rules and the length of contract / assignment;
and
 Opportunities to ensure that your international earnings are managed in a tax efficient
way.
INCOME TAX EFFICIENCY STRATEGIES
When working internationally, income tax rules can be very different from what you might
expect in your home country.
Many countries make allowances for foreign contractors, which could mean significant tax
savings during your contract abroad.

Agreements as to Avoidance of Double Taxation

The Government of Pakistan has so far signed agreements to avoid double taxation with 39
countries including almost all the developed countries of the world. These agreements lay
down the ceilings on tax rates applicable to different types of income arising in Pakistan.
They also lay down some basic principles of taxation which cannot be modified unilaterally.
 The list of countries with which Pakistan has concluded tax treaties is given below:

Austria Belgium Bangladesh Canada

China Denmark Egypt France
Finland Germany Greece India
Indonesia Iran Ireland Italy
Japan South Korea Lebanon Libya
Malta Mauritius Saudi Arabia Singapore
Poland Romania Switzerland Thailand
Sri Lanka Sweden Turkmenistan UK
Turkey Tunisia Kazakhstan UAE
USA

Members of the International Tax group have assisted clients in connection with
controversies involving international tax issues before the Central Board of Revenue.
Working with members of the Firm’s Individual Clients Department, lawyers in the
International Tax group regularly assist in estate, family and business planning structures for
expatriates, nonresident aliens and Pakistani citizens with foreign family and business
interests.