Taxation

Acquisition of asset from NRPs: ‘Section 101A’ inserted in IT Ordinance 2001

The person acquiring the asset from non-resident persons shall deduct tax from the gross amount paid as consideration for the asset at the rate of 10 percent of the fair market value of the asset. According to the Finance Act 2018 issued here on Monday, a new ‘section 101A’ (Gain on disposal of assets outside Pakistan) has been introduced in the Income Tax Ordinance 2001.

Any gain from the disposal or alienation outside Pakistan of an asset located in Pakistan of a non-resident company shall be Pakistan-source. The gains shall be chargeable to tax at the rate and in the manner specified. Under the Finance Act 2018, where the asset is any share or interest in a non-resident any, the asset shall be treated to be located in Pakistan, if the share or interest derives, directly or indirectly, its value wholly or principally from the assets located in Pakistan; and shares or interest representing ten per cent or more of the share capital of the non-resident company are disposed or alienated.

The share or interest shall be treated to derive its value principally from the assets located in Pakistan, if on the last day of the tax year preceding the date of transfer of a share or an interest, the value of such assets exceeds Rs 100 million and represents at least fifty per cent of the value of all the assets owned by the non-resident company.

The value as mentioned shall be the fair market value, as may be prescribed, for the purpose of this section without reduction of liabilities. Where the entire assets by the non-resident company are not located in Pakistan, the income of the non-resident company, from disposal or alienation outside Pakistan of a share of, or interest in, such non-resident company shall be treated to be located in Pakistan, to the extent it is reasonably attributable to assets located in Pakistan and determined as may be prescribed.

Where the asset of a non-resident company derives, directly or indirectly, its value wholly or principally from the assets located in Pakistan and the non-resident company holds, directly or indirectly, such assets through a resident company, such resident company shall, for the purposes of determination of gain and tax thereon or, as the case may be, shall furnish to the commissioner within sixty days of the transaction of disposal or alienation of the asset by the non-resident company, the prescribed information or documents, in a statement as may be prescribed: Provided that the Commissioner may, by notice in writing, require the resident company, to furnish information, documents and statement within a period of less than sixty days as specified in the notice.

The Finance Act 2018 said that the person acquiring the asset from the non-resident person shall deduct tax from the gross amount paid as consideration for the asset at the rate of ten percent of the fair market value of the asset and shall be paid to the Commissioner by way of credit to the federal government through remittance to the government treasury or deposit in an authorized branch of the State Bank of Pakistan or the National Bank of Pakistan, within 15 days of the payment to the non-resident.

The resident company shall collect advance tax as computed from the non-resident company within thirty days of the transaction of disposal or alienation of the asset by such non-resident company: Provided that where the tax has been deducted and paid by the person acquiring the asset from the non-resident person, the said tax shall be treated as tax collected and paid under this sub-section and shall be allowed a tax credit for that tax in computing the tax.

Where tax has been paid, no tax shall be payable by the non-resident company in respect of gain under sub-section (8) of section 22 or capital gains under section 37 or 37A.

Where any gain is taxable under this section and also under any other provision of this Ordinance, the said gain shall be taxable under other provision of the Ordinance, the Finance Act added.

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