Taxation of Startups

Businesses under the Income Tax Ordinance, 2001

Startup (Section 2(62A)): A startup, as per the Ordinance, is defined as a business operating in Pakistan under the following criteria:

• It must be run by a resident individual, an association of persons (AOP), or a company that commenced operations on or after July 1, 2012.
• The business must provide technology-driven products or services, spanning any sector of the economy.
• The startup must be certified by the Pakistan Software Export Board (PSEB).
• Turnover must not exceed one hundred million PKR in each of the last five tax years.

Alternatively, other businesses may also qualify if specified by the FBR through a notification in the official Gazette.

Tax Credit for Startups (Section 65F (1)(b)): Startups certified by the PSEB are eligible for a 100% tax credit on the tax payable for the following periods:

• The tax year in which the startup is certified.
• The subsequent two tax years following certification.

The startup must comply with the following requirements:

• Timely filing of income tax returns.
• Filing of withholding tax statements if the business acts as a withholding agent.
• Filing of sales tax returns, if applicable under Federal or Provincial laws.