00:00If you are a freelancer in Pakistan earning from foreign clients, your income tax can
00:05be as low as 1% of what you receive, and with one extra registration, it drops to just 0
00:12.25%.
00:15Yet many freelancers overpay out of confusion or avoid filing out of fear.
00:21In this video from Earshot & Company, we explain how freelancer tax really works.
00:27There are two regimes.
00:29The first is the IT Export Final Tax under Section 154A of the Income Tax Ordinance.
00:38If you export IT or IT-enabled services and payment comes from abroad through a bank, the
00:45tax is 1% of gross receipts or 0.25% if you are registered with PSEB, the Pakistan Software
00:56Export Board.
00:57The second is the normal regime.
01:00Income from local clients is taxed at the regular slab rates on your net income, and those rates
01:08climb steeply as income grows.
01:11So, who qualifies for the low rate?
01:145 conditions.
01:151.
01:17You provide IT or IT-enabled services.
01:21That covers software and web development, mobile apps, graphic design, content writing, digital
01:28marketing, SEO, video editing, data entry and IT consulting.
01:352.
01:37Your client is outside Pakistan.
01:413.
01:42The money arrives through the banking channel, such as a bank transfer, Payoneer or Wise into
01:49your own Pakistani bank account.
01:524.
01:53You hold an NTN and are registered with FBR.
01:595.
02:00For the lowest rate, you are registered with PSEB.
02:05Is PSEB registration mandatory?
02:08No.
02:09Without it, you still get the 1% rate.
02:12With it, the rate falls to 0.25%.
02:16It also puts your status as an IT exporter on government record, and strengthens your position
02:23if FBR ever audits you.
02:26Registration is done online and usually takes about two weeks.
02:30Let us put numbers on it.
02:33Assad earns $2,000 a month on Upwork.
02:36That is roughly ₹6.72 million a year.
02:42At 1%, his tax is ₹67,200.
02:48With PSEB registration, it is only ₹16,800.
02:54Under normal slab rates, the same income could cost him well over ₹1,000 more.
03:00And you do not pay this tax separately.
03:04When a foreign remittance lands in your account, the bank deducts it at source.
03:10That deduction is your final tax on that income.
03:13But final tax does not mean no return.
03:17You must still file your income tax return every year, declare your total foreign remittances
03:23as IT exports, show any local income separately, claim the tax your bank deducted, and complete
03:31your wealth statement.
03:34Filing keeps you on the active taxpayers list, and filer status means lower withholding tax
03:41on your other transactions all year.
03:44Now, four mistakes that cost freelancers money.
03:48Mistake 1.
03:50Receiving payments through informal channels.
03:53Money that comes through a friend's account, as cash or as crypto without bank documentation,
03:59loses the export rate.
04:02Mistake 2.
04:04Not filing because the tax looks small.
04:07Skip the return, and you lose your filer status.
04:11Mistake 3.
04:13Confusing income tax with sales tax.
04:17They are separate taxes with separate rules.
04:20Mistake 4.
04:22Not keeping records.
04:24FBR can ask you to prove that your income came from a foreign client through a bank.
04:30Keep your bank statements, Payoneer or WISE statements, contracts and invoices for at least
04:36six years.
04:38To sum up, receive through the bank, register with PSEB, and file every year.
04:45If you want your freelance income filed correctly, Earshad and Company can help.
04:52WhatsApp us on 0334 408 4149 or visit earshadandco.com.
05:01Be wise and take our advice.
05:04You
