Sole proprietorship or company in Pakistan: tax comparison
Taxes and contributions for a sole proprietor under each available system and for your own company, for a resident of the chosen country with the same profit.
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Form
Sole proprietor, regular
Sole proprietorSole proprietorship — normal tax regime (Income Tax Ordinance, 2001)
Profit is taxed at the non-salaried rates: 0% up to Rs 600,000, then 15–45%; above Rs 10 million a 10% surcharge on the tax is added. Tax is at least the 4% withheld by clients from receipts.
Conditions
Corporate clients withhold 4% from payments for IT services (s. 153(1)(b)); this is a minimum tax (s. 153(3)): tax cannot be less than 4% of receipts, even at a loss.
If the services count as 'independent professional services' (e.g. a software developer working independently), the withholding rate is 15% (Finance Act 2026), making the minimum tax 15% of receipts. The calculation uses 4% for IT services.
The calculation is for a person on the Active Taxpayers List (ATL); withholding rates are doubled for non-ATL persons.
Sales tax on services is provincial / ICT, with its own rates and registration rules; it is not included in the calculation.
Sole proprietorSole proprietorship — export of IT / IT-enabled services, final tax under section 154A
The bank withholds 0.25% from foreign-currency proceeds for exported IT/ITeS services; for PSEB-registered exporters in tax years 2024–2029 this is the final tax on that income — no slab rates and no expense accounting.
Conditions
Export only: clients abroad, proceeds received through an authorised bank. Registration and certification with the Pakistan Software Export Board (PSEB) is required; without it the rate is 1%.
The tax is final only if the return and withholding statements are filed; no credit for foreign tax is given. One may opt out each year in the return.
Sales tax on services is provincial / ICT, with its own rates and registration rules; it is not included in the calculation.
CompanySingle member company (private limited, Companies Act, 2017)
The company pays 20% of profit as a small company (turnover up to Rs 250 million) or 29%, but not less than the 4% withheld by clients from receipts. Dividends bear a 15% final tax.
Conditions
Small company (20%): registered after 1 July 2005, paid-up capital plus undistributed reserves ≤ Rs 50 million, up to 250 employees, turnover ≤ Rs 250 million, not formed by splitting up an existing business. Otherwise 29%. The calculation checks turnover only.
Corporate clients withhold 4% from payments for IT services (s. 153(1)(b)); this is a minimum tax (s. 153(3)): tax cannot be less than 4% of receipts, even at a loss.
Dividends: 15% final tax; 25% if the company paid no tax because of exemption or losses.
A PSEB-registered company exporting IT services can also use the 0.25% regime of s. 154A.
The calculation is for a person on the Active Taxpayers List (ATL); withholding rates are doubled for non-ATL persons.
Sales tax on services is provincial / ICT, with its own rates and registration rules; it is not included in the calculation.
Business activity: IT and consulting services for business clients
One owner, resident of Pakistan on the Active Taxpayers List, no employees, no other income, no children; full tax year 2027 (1 July 2026 – 30 June 2027).
Regular regime and company: clients are companies in Pakistan that withhold 4% from IT services payments. Export form: all receipts are exports through a bank and the owner is PSEB-registered.
EOBI contributions apply to employees only, so the owner pays none. Sales tax on services is not included.
Company: the owner takes no salary; profit after tax is either fully paid out as dividends or retained.
DoubleTaxation