# Is freelance income from foreign clients taxable in Pakistan, or is it exempt?

Source: https://qanoondigest.com/faq/freelancers-it-exporters/is-foreign-freelance-income-taxable-pakistan
Law current to: 30 June 2026. Reviewed: 2026-09-25. Checked line by line against the law: not yet.

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## Short answer

It is taxable. Section 11(5) taxes a resident on Pakistan-source and foreign-source income, and section 101(2) treats business income from a business carried on in Pakistan as Pakistan-source. The IT export exemption in clause (133) of the Second Schedule has been omitted. Section 154A now deducts 0.25% or 1% from the foreign proceeds.

**Applies to:** Individuals living in Pakistan who work for foreign clients as freelancers and receive payment from abroad.

Freelance income from foreign clients is not exempt for someone who lives and works in Pakistan. The Income Tax Ordinance taxes a resident on income from all sources, treats a business carried on in Pakistan as Pakistan-source, and no longer contains the IT export exemption many people still remember. What makes freelance income different is how the tax is collected: a deduction by the bank under section 154A.

## What does the law say?

**Residence.** Section 82 makes an individual resident for a tax year if, among other tests, they are present in Pakistan for 183 days or more in the year. Clause (d) also covers a citizen of Pakistan who "is not present in any other country for more than one hundred and eighty-two days during the tax year or who is not a resident taxpayer of any other country." A freelancer who lives in Karachi or Peshawar and works from home will normally meet at least one of these tests.

**Residents are taxed on everything.** Section 11(5) says a resident's income under each head is computed "by taking into account amounts that are Pakistan-source income and amounts that are foreign-source income." Non-residents, by contrast, are taxed only on Pakistan-source income under section 11(6).

**Where the work is done decides the source.** Section 101(2) says business income of a resident "shall be Pakistan-source income to the extent to which the income is derived from any business carried on in Pakistan." The client's location is not the test. A developer in Multan writing code for a client in Germany is carrying on the business in Multan.

**The exemption is gone.** Part I of the Second Schedule once had clause (133), which exempted income from exports of computer software, IT services or IT-enabled services. The text amended to 30 June 2026 shows clause (133) as omitted. Its footnote records the old wording, including the condition that 80% of export proceeds be brought into Pakistan through normal banking channels. The footnote's amendment history is compressed and hard to follow, but the operative point is clear: there is no clause (133) exemption in the current text.

**What replaced it.** Section 154A requires the bank to deduct tax when it realises foreign exchange proceeds from, among others, exports of software, IT and IT-enabled services by PSEB-registered exporters (clause (a)) and "services or technical services rendered outside Pakistan or exported from Pakistan" (clause (b)).

## How does it work in practice?

When your foreign payment is converted by an authorised dealer in foreign exchange, the dealer deducts tax at the rate in Division IVA of Part III of the First Schedule. For tax year 2027 that is 0.25% of proceeds for PSEB-registered exporters of software, IT or IT-enabled services, and 1% in any other case.

Under section 154A(2), that deduction becomes a final tax on the income if you file your return, file any withholding statements the Ordinance requires of you, and, unless you are a PSEB-registered exporter, file any sales tax returns required under federal or provincial law. Section 154A(3) removes the final-tax treatment if the conditions are not met or if you opt out when filing.

## Worked example (illustrative figures)

Usman lives in Rawalpindi all year and builds websites for clients in Canada. In tax year 2027 his bank realises Rs. 2,000,000 of foreign proceeds. He is not registered with PSEB.

1. Residence: present in Pakistan all year, so resident under section 82.
2. Source: the business is carried on in Rawalpindi, so Pakistan-source under section 101(2).
3. Exemption: none, clause (133) is omitted.
4. Deduction at the bank: Rs. 2,000,000 x 1% = Rs. 20,000.
5. If he files his return and meets the section 154A(2) conditions, Rs. 20,000 is his final income tax on these receipts.

Had he been registered with and certified by PSEB, the deduction would have been Rs. 2,000,000 x 0.25% = Rs. 5,000.

## What if ...?

**What if I live abroad for most of the year?** Residence is decided year by year under section 82. A non-resident is taxed only on Pakistan-source income under section 11(6). Whether a particular pattern of travel makes you non-resident depends on the day counts and clause (d), and is not settled here.

**What if the money comes as a gift from a relative instead of from the client?** The label on the transfer does not change what the income is. Payments routed in unusual ways are covered on a separate page.

## Common mistakes

- **"Foreign remittances are tax free."** The Ordinance has no general exemption for income simply because it arrives from abroad. For a resident, section 11(5) brings foreign-source income in as well.
- **Relying on clause (133).** It is omitted. Articles written before the omission describe a regime that no longer exists.
- **Thinking the 1% is optional.** The bank's duty to deduct comes from section 154A(1). What you can choose, under section 154A(3), is whether to be taxed under the final-tax regime.

## What to check in the official text

Read sections 11, 82 and 101(2) for residence and source, and section 154A for the collection mechanism. Check the footnotes to clause (133) in Part I of the Second Schedule for the old exemption's wording. Division IVA of Part III of the First Schedule holds the current rates. Board notifications under section 154A(1)(e) and (6), which can add or exclude services, are not held in this corpus.

## Frequently asked

### Was freelance IT income ever exempt?

Clause (133) of Part I of the Second Schedule once exempted income from exports of computer software, IT services and IT-enabled services, subject to conditions such as bringing 80% of proceeds into Pakistan. The clause is shown as omitted in the Ordinance amended to 30 June 2026, so it gives no exemption now.

### Does it matter that my client is abroad?

Not for residents. Section 101(2) looks at where the business is carried on, and section 11(5) taxes a resident's foreign-source income too. The foreign client decides that section 154A applies to the proceeds, not whether the income is taxable.

### How is the tax actually collected?

The bank deducts it when the foreign exchange is realised, under section 154A, at the Division IVA rate: 0.25% for PSEB-registered IT exporters, 1% in any other case, for tax year 2027.

## Citations

- [Income Tax Ordinance, 2001, section 82 (Resident individual)](https://qanoondigest.com/ordinances/income-tax-ordinance-2001/income-tax-ordinance-2001-2026-06-30#82-resident-individual), as amended to 2026-06-30: "being a citizen of Pakistan is not present in any other country for more than one hundred and eighty-two days during the tax year or who is not a resident taxpayer of any other country." Official source: https://download1.fbr.gov.pk/Docs/2026724177725705IncomeTaxOrdinanace2001.pdf
- [Income Tax Ordinance, 2001, section 11 (Heads of income)](https://qanoondigest.com/ordinances/income-tax-ordinance-2001/income-tax-ordinance-2001-2026-06-30#11-heads-of-income), as amended to 2026-06-30: "(5) The income of a resident person under a head of income shall be computed by taking into account amounts that are Pakistan-source income and amounts that are foreign-source income." Official source: https://download1.fbr.gov.pk/Docs/2026724177725705IncomeTaxOrdinanace2001.pdf
- [Income Tax Ordinance, 2001, section 101 (Geographical source of income)](https://qanoondigest.com/ordinances/income-tax-ordinance-2001/income-tax-ordinance-2001-2026-06-30#101-geographical-source-of-income), as amended to 2026-06-30: "(2) Business income of a resident person shall be Pakistan-source income to the extent to which the income is derived from any business carried on in Pakistan." Official source: https://download1.fbr.gov.pk/Docs/2026724177725705IncomeTaxOrdinanace2001.pdf
- [Income Tax Ordinance, 2001, section 154A (Export of Services)](https://qanoondigest.com/ordinances/income-tax-ordinance-2001/income-tax-ordinance-2001-2026-06-30#154a-export-of-services), as amended to 2026-06-30: "(b) services or technical services rendered outside Pakistan or" Official source: https://download1.fbr.gov.pk/Docs/2026724177725705IncomeTaxOrdinanace2001.pdf
- [Income Tax Ordinance, 2001, Second Schedule, Part I, clause (133) (omitted)](https://qanoondigest.com/ordinances/income-tax-ordinance-2001/income-tax-ordinance-2001-2026-06-30), as amended to 2026-06-30 Official source: https://download1.fbr.gov.pk/Docs/2026724177725705IncomeTaxOrdinanace2001.pdf