ILLUSTRATION

1. Mr. Akbar stayed in Pakistan in a rented house for 170 days, then went abroad and came back. He again stayed in a hotel at Karachi for 15 days.

2. For the first time in his life Mr. Ajmal left Pakistan for Iraq on July 5, 2011 and came back on May 15, 2012.

3. Mr. Anthony, a foreigner, came to Pakistan on a pleasure trip and stayed with his friend for nine months.

4. During the last 4 years, his total stay in Pakistan was of 8 months. During this year he came on a long leave to stay with his family for 4 months.

5. Mr. Asad came to Pakistan to attend a marriage ceremony. He fell ill and on medical advice had to stay in Murree for 7 months.

6. Mr. Umar is an employee in foreign ministry. He is posted in Iraq. During the tax year 2012 he did not come to Pakistan.

Required. Determine whether these individuals are resident or non-resident for the tax year 2012.

Solution

1.Resident or Non-Residen

2. Non-Resident His total stay during the tax year is more than 183 days (continuous stay not necessary).

During the tax year 2012 his stay is only for (5+46) 51 days so he is a non-resident.

His total stay during the tax year is for more than

3. Resident Non-Resident 183 days (purpose and place of stay is immaterial). He does not fulfil any one condition.

5. Resident He stayed in Pakistan for more than 183 days

6. Resident  during the year. The employee or official of Federal or Provincial Government posted abroad is treated as resident.

2. Resident Company

A company shall be a resident company for a tax year if it fulfills any one of the following conditions:

(a) It is incorporated or formed by or under any law in Pakistan;

(b) The control and management of the company is situated wholly in Pakistan at any time in the year, or

(c) It is a Provincial Government or local authority in Pakistan.

Explanation

(a) In case a company is incorporated in Pakistan, it will always be a resident in Pakistan.

(b) In case of other companies, they will become resident in Pakistan only if their control and management is wholly situated in Pakistan. Partial control is not sufficient for this purpose.

(c) A major difference in determining the status of an association of persons and company (other than a company incorporated in Pakistan) must be noted. In case of association of persons, even if partial control is in Pakistan it will be a resident of Pakistan for that tax year. But in case of a company (other than a company incorporated in Pakistan) if partial control is in Pakistan, it will be treated as non-resident.

(d) It is necessary to differentiate between the act of doing business and controlling and managing a business. It may be possible that a business is being wholly done in a foreign country but it is being fully managed and controlled from within Pakistan, and vice versa. Distinction should be made between employees, agents, attorneys or managers who are doing business and partners, board of directors, presidents, etc, who are controlling the organization. For the purpose of finding the place of control and management for tax purposes, the whereabouts of the brain behind the business should be found out.

Association of Persons

An association of persons shall be resident for any tax year if the control and management of the affairs of the association is situated wholly or partly in Pakistan at any time in the year.

Explanation

In case of an association of persons even a partial control is sufficient to become a resident for tax purposes. Moreover, it is not necessary that the control should be exercised for the whole year. It means that an association of persons will only not be a resident if its control and management is completely outside Pakistan through the year The residence Dfa Ho of the members of the association of persons is immaterial. The mere fact that members of the association are not residents of Pakistan does not necessarily mean that association is also not a resident