Doing Business In... 2021 Comparisons

Last Updated July 13, 2021

Contributed By RIAA Barker Gillette

Law and Practice


RIAA Barker Gillette offers the full range of corporate, commercial and dispute resolution legal services from offices in Pakistan’s major cities: Karachi, Lahore, Islamabad and Peshawar. With ten partners and over 50 associates, the firm is amongst the country’s largest practices. Its clients include multinational corporations, financial institutions, non-profit organisations, Pakistani conglomerates, private clients and government agencies. RIAA Barker Gillette is also the primary Pakistan contact for many major international law firms. It has extensive experience of complex, cross-border work, and on advising across a number of industry and regulatory sectors. The firm is routinely called on to act in projects, M&A, private equity, corporate restructuring and tax advisory mandates, and on commercial disputes. In addition to the support and access to the resources of its offices in London, New York, Dubai, Beijing, and Kabul, RIAA Barker Gillette is the exclusive member firm in Pakistan for Lex Mundi, the world’s leading network of independent law firms with members in over 100 countries.

Pakistan is a common law jurisdiction, though its laws are largely codified. The laws relating to companies, contract and property are based on principles of English common law. Certain provisions of criminal law are based on principles of Islamic law. Subjects such as marriage and inheritance of property are matters of personal law, and thus the applicable law will depend on the religion of the individual concerned.

Pakistan has an independent judiciary comprising a hierarchy of courts. Courts follow an adversarial system and precedent is binding. Judgements of lower courts are appealable to higher courts. There is no jury system, thus all issues of fact and law are decided by judges.

In general, courts of civil judges for civil matters, and courts of magistrates in criminal matters, serve as the courts of first instance. Courts of district judges generally exercise appellate jurisdiction. However, they also serve as courts of first instance for certain types of cases, such as defamation and, in Islamabad, in respect of civil claims valued at PKR50 million and above. One important exception to the aforesaid is in the district of Karachi, where the original jurisdiction to hear civil claims valued at more than PKR15 million is with the High Court of Sindh.

In addition to the ordinary civil courts, Pakistan has set up various specialised courts and tribunals that exercise jurisdiction over certain types of civil disputes, such as banking courts, rent courts, consumer courts and intellectual property tribunals. Furthermore, there may also be an administrative division of cases among the various benches of a court.

Each of the four provinces (ie, Sindh, Punjab, Balochistan and Khyber Pakhtunkhwa) as well as the Islamabad Capital Territory have a High Court. While the High Courts generally exercise appellate jurisdiction, they are conferred with original civil jurisdiction in certain matters, including company and banking cases, by way of statute. All the courts mentioned above, including all ordinary and specialised courts and tribunals, fall within the supervisory jurisdiction of one of the five High Courts in Pakistan. The High Courts also exercise constitutional jurisdiction under which they can adjudicate challenges to the legality of actions of government authorities. Any party aggrieved by the actions of such authorities may petition the High Court for relief in the nature of the issuance of a writ. Businesses often invoke the constitutional jurisdiction of the High Court to challenge the legality of actions of regulatory authorities, government departments, state-owned enterprises and tax authorities.

The Supreme Court of Pakistan is the highest court of appeal and its judgments are binding on all other courts. The Supreme Court also has original jurisdiction in matters of public importance involving enforcement of fundamental rights guaranteed under the Constitution.

Pakistan has a liberal foreign investment regime. Except arms and ammunitions, consumable alcohol, currency and mint, high explosives, radioactive substances, and security printing, all other sectors of the economy are open to foreign investment. There are upper limits on investment by foreigners in newspapers (up to 25% subject to approval), broadcast media (49%) and airlines (49%) in Pakistan. There is no minimum requirement for the amount of foreign equity investment in any sector. Foreign investments do not require any approval from the authorities and the Foreign Private Investment (Promotion and Protection) Act 1976 requires equal treatment to be given to foreign and domestic private investment.

A number of industries including aviation, banking, electric power, finance, insurance, oil and gas and pharmaceutical drugs are governed by specific statutes which require licences to be obtained prior to engaging in any regulated activity. Both Pakistanis and foreigners require such licences.

Furthermore, depending on the nature and terms of the investment, investors may be required to obtain the approval of the Competition Commission of Pakistan under the provision of the Competition Act, 2010 (the Competition Act) (please refer to 6. Competition Law for further detail). Again, the requirement for such approval is not specific to foreign investment.

Foreign companies require approval from the Board of Investment (BOI) to establish branch or liaison offices in Pakistan. In the case of foreign banks, approval for establishing a branch in Pakistan will be required from the central bank, the State Bank of Pakistan (SBP). Furthermore, foreign shareholders and directors of Pakistani companies are required to obtain security clearance from the Ministry of Interior (MOI). Foreign promoters may proceed with incorporation of companies and foreign directors may assume office while the application MOI clearance is in process. In the case of a refusal of security clearance, the foreign shareholder or director must take immediate steps to transfer shares or resign from office, as the case may be.

As stated in 2.1 Approval of Foreign Investments, there is no general requirement for approval of foreign investments. Licences or approvals are required by persons desirous of engaging in any activity that is regulated by a sector-specific law. The requirement for licences or approvals applies across the board, irrespective of whether the investment is local or foreign.

As regards the procedure for obtaining approval from the Competition Commission of Pakistan, please see 6.1 Merger Control Notification and 6.2 Merger Control Procedure. If approval is not obtained in respect of any transaction for which it is required, the Competition Commission of Pakistan can impose fines and, in appropriate cases, undo the transaction. In most cases the approval of the Competition Commission of Pakistan can be obtained within two months.

As stated in 2.1 Approval of Foreign Investments, foreign investments in open sectors of the economy are not subject to approval.

As stated in 2.1 Approval of Foreign Investments, foreign investments in open sectors of the economy are not subject to approval.

Appeals against orders of the Competition Commission of Pakistan may be filed with Appellate Bench of the Commission within 30 days of the order. Appeals against orders of the Commission made by a bench of two or more members and of orders of the Appellate Bench of the Commission may be made to be Competition Appellate Tribunal within 60 days of the order. Orders of the Competition Appellate Tribunal may be appealed within 60 days before the Supreme Court of Pakistan.

Decisions of the BOI on applications for establishment of liaison or branch offices by foreign companies and, of the MOI on applications for security clearance of foreign shareholders or directors, are not appealable. However, such decisions may be challenged in any of the High Courts of Pakistan by way of judicial review of executive actions.

There are various kinds of corporate vehicles that may be created under Pakistan law, including companies and limited liability partnerships, all of which are regulated by the Securities and Exchange Commission of Pakistan (SECP).

The Companies Act, 2017 (the Companies Act) allows for the creation of single member companies, private limited companies and public companies. Liability of members in each of these types of companies may be unlimited or limited by shares or guarantee. Furthermore, a single member company may be converted to a private company and vice versa and a private company may be converted into a public company and vice versa. All companies have separate legal personality and the right to sue and be sued, own property, and generally create legal relations with third parties.

All companies are required to have directors, though the minimum number varies between single member, private and public companies. Only natural persons can be directors. Every company is required to have a chief executive officer.

Single Member Companies

Single member companies can have only one shareholder, which may be a natural or juristic person. They are required to have at least one director. Compliances with requirements of the Companies Act on matters requiring approval of general meeting of the members or meetings of the board of directors, as the case may be, may be made recording the decision in the relevant minutes signed by the sole member or director(s). A single member company is best suited for situations where 100% shareholding is required to be maintained by a single person.

Private Companies

Private companies are companies which by their articles restrict the right of members to transfer their shares in the company, limit the number of members to fifty (excluding persons who are in the employment of the company) and prohibit any invitation to the public to subscribe for the shares, if any, or debentures or redeemable capital of the company. Private companies must have at least two members and at least two directors. They are required to hold annual general meetings at which the board of directors lays before the members financial statements for adoption. Private companies are the most common form of corporate vehicle in Pakistan. Sale of shares in private companies is subject to a statutory right of first refusal of the other members, which they may exercise in respect of shares proposed to be sold in proportion to their shareholding. These, coupled with any other share transfer restrictions specified in the articles, enable current shareholders the opportunity to retain ownership and control before any new shareholder can be inducted. They are suited to businesses which do not require investment from the public and to persons who wish to maintain control of their businesses. Many joint ventures are incorporated as private companies.

Public Companies

Public companies are defined as companies which are not private companies. There is no maximum limit of shareholders of public companies, which are also entitled to invite the general public to subscribe to their shares. Their shares are not subject to any restrictions on transfer. Public companies may be listed (where their shares are traded on a stock exchange) or unlisted. The minimum number of directors of a listed public company is seven and if unlisted, three. The requirements for holding of annual general meetings and auditing of financial statements are the same as those applicable to private companies. However, listed companies are also required to audit quarterly accounts. Public companies are suitable for large infrastructure and other greenfield projects and for all businesses which require equity investment from the public or by a large number of shareholders. Certain sector-specific laws, such as those governing insurance stipulate that licences may be granted only to public companies.

In terms of statutory compliances, single member and public listed companies fall at opposite ends of the spectrum, with the former having the least onerous and the latter the most.

Limited Liability Partnerships

Limited liability partnerships are regulated by the Limited Liability Partnership Act, 2017. Limited liability partnerships are rarely used as they are viewed as tax inefficient corporate vehicles.

The process for incorporating a company is prescribed under the Companies Act and the Companies (Incorporation) Regulations 2017 and is comprised of mainly the steps set out below.

1) Setting up Online Accounts

Online accounts are required to be set up for each of the initial subscribers and directors of the proposed company.

Accounts are generated automatically on the submission of the requisite information to the SECP. In the case of non-resident persons, setting up of accounts can take up to two days.

2) Name Availability

An application for confirmation of availability of the proposed name of the proposed company must be made to the SECP through the online SECP account of any initial subscriber or proposed director. If the proposed name is available, an email confirmation is issued by the SECP within two working days. The name remains reserved for 60 days.

3) Incorporation

The subscribers apply to the SECP to incorporate the proposed company. Particulars of the proposed subscribers and directors together with constitutional documents are required to be submitted to the SECP online. Companies are usually incorporated within one week of submission of documents to the SECP. A “fast-track” option is available whereby a company may be incorporated within two days on payment of enhanced fees.

4) Security Clearance

If a company is incorporated with foreign shareholders, directors and/or chief executive, security clearance will have to be sought from the MOI. The application for such clearance must be made upon incorporation. The SECP proceeds with incorporation of companies with foreign shareholders, directors and/or chief executive and issues the certificate of incorporation and acknowledgements of filing, except in cases of persons of Afghan or Indian nationality or origin. There is no prescribed timeframe for processing of applications for security clearance. In practice they can take anywhere from six months to two years. 

Companies are subject to various reporting and disclosure obligations. Statutory filings under the Companies Act are required to be made with the Registrar of Companies (RoC) and are publicly accessible. These include the annual return, appointment or change in officers, issuance of new shares, significant transfers of shares, amendments to constitutional documents and all special resolutions passed by shareholders. All companies are required to maintain a register of ultimate beneficial ownership and submit declarations of compliance to the RoC on an ongoing basis.

In terms of financial reporting, all companies, except private companies whose paid up capital is not greater than PKR10 million, are required to file with the RoC copies of annual audited financial statements. Listed companies are required to file quarterly audited accounts, post them on their websites and send them to the stock exchange. Listed companies are also subject to additional disclosure requirements under the Securities Act, 2015 and the rule book of the Pakistan Stock Exchange in respect of price sensitive information.

Companies have a two-tier management structure in Pakistan, with two principal decision-making organs being (i) the shareholders or members in general meeting and (ii) the board of directors.

The shareholders are the ultimate authority having the power to make all major decisions including election of directors, adoption of financial statements, declaration of dividends, appointment of auditors, disposal of the undertaking of the company or a sizeable part thereof or of its subsidiary. Most of the major matters on which a special resolution of the members (75%) is required are listed in 3.3 Ongoing Reporting and Disclosure Obligations.

The board of directors are responsible for day-to-day management, including decisions regarding issuance of shares, borrowing, investment of funds, approval of financial statements, capital expenditure and major acquisitions. The board also appoints the chief executive officer of the company.

Directors' and Officers' Liability

The Companies Act codifies directors’ duties. These include the duty to act in accordance with the company’s articles, to act in good faith to promote the objects of the company for the members as a whole, and in the best interests of the company and various stakeholders. Directors are required to avoid conflicts of interest and to account for any undue gains to the company. Contraventions of such duties, without prejudice to other consequences, constitute an offence liable to a monetary penalty. Furthermore, if a company carries on any business or transaction that is ultra vires, every person acting as an officer who is responsible for such action(s) is guilty of an offence carrying a substantial penalty and is also personally liable for the consequences of such action. The Companies Act also sets out grounds on which a person may be disqualified from acting as a director, including persistent default with filing requirements under the Companies Act and conducting business by a company of which they are a director in a manner that deprives the shareholders of a reasonable return.

The vast majority of the provisions of the Companies Act imposing liability for acts or omissions of a company on its officers do so only towards those officers who are responsible for, authorise or permit them.

The Companies Act protects independent and non-executive directors of listed companies and public sector companies by providing that they shall be liable only in respect of acts or omissions which occurred with their knowledge and consent or where they had not acted diligently.

Shareholders' Liability

As a general rule, the liability of members or shareholders (other than of an unlimited liability company) is limited to the extent of the amount of their shares or guarantee. In certain limited circumstances, courts disregard a company’s separate legal personality and may “pierce the corporate veil” in order to impose liability on shareholders. This is done typically where the shareholders have used the corporate structure to avoid liability for wrongdoing or to defraud creditors. Courts have always been cautious and circumspect in this regard.

Prior to the 18th Amendment to the Constitution in 2010, both Parliament (the federal legislature) and the Provincial Assemblies could enact legislation on labour. Following the amendment, labour became an exclusively provincial subject, meaning that only the various Provincial Assemblies could enact legislation on the subject. In practice, prior to the 18th Amendment, laws concerning labour and employment were mostly enacted by Parliament and thus uniform across the country. Since the 18th Amendment, the various provinces have enacted their own statutes. These are by and large the same statutes previously enacted by Parliament, with some modifications.

Legislation on labour and employment in Pakistan distinguishes between workers (also referred to as “workmen” under some laws) and other employees. An employee performing primarily skilled or unskilled, manual or clerical work who does not work in any managerial or supervisory capacity is treated as a worker. The laws relating to labour and employment afford greater protection to workers and many such laws are applicable only to workers. Federal legislation applies only in the Islamabad Capital Territory and, on subjects such as industrial relations, to trans-provincial establishments, which are employers employing workers in more than one province.


There are no laws specifically regulating employment of non-workers. Their employment relationship is governed largely by their contracts of employment. Some statutes are generally applicable to employment, these include mainly the various provincial Shops and Establishments statutes, which require weekly holidays, working hours, overtime, wage periods, day care, leave and termination of employment. Please refer to 4.3 Working Time for further detail.


There are a number of statutes governing the employment relationship of workers. The contracts of employment of workers cannot be inconsistent with the provisions of such statutes. The main statutes are the following.

  • Shops and Establishment Acts and Ordinances – as above.
  • Standing Orders and Terms of Employment Ordinances and Acts – these govern the classification of workers, require terms and conditions of employment to be given in writing, group incentive schemes, compulsory group insurance, payment of bonus, an employer’s liability for wages in the event of stoppage of work, closure of establishment, termination of employment, misconduct and retrenchment.
  • Factories Acts – these apply to factories and make provision for health and safety, daily and weekly working hours, weekly holidays, overtime, paid leave and employment of adolescents. 
  • Industrial Relations Acts – these provide for the formation of trade unions, determination of collective bargaining agents, entitle workers to apply for redressal of individual grievances, representation of workers and their participation in management, strikes and lock-outs, collective bargaining agreements and settlement of industrial disputes.

In addition, certain terms of the employment relationship of workers may also be contained in Collective Bargaining Agreements, which are agreements negotiated by unions with employers. These usually provide for employment benefits generally applicable to workers employed in the establishment, including bonuses, allowances, enhanced health coverage and holidays.


Contracts for employment of workers, containing job descriptions and terms and conditions, are required to be in writing. Such contracts cannot impose obligations inconsistent with mandatorily applicable statutes. The primary statutes are mentioned in 4.1 Nature of Applicable Regulations.


There are no requirements specifically applicable to employment contracts of non-workers. Such contracts are not required to be in writing. For those employees in supervisory or managerial positions, where required, contracts also provide for non-disclosure, non-compete and non-solicitation provisions.


In practice, most contracts of employment are written. These cover the roles and responsibilities of the employee, duration of employment, remuneration and benefits, obligation to abide by the HR policies framed by the employer and termination provisions.

There are no minimum working hours for salaried employees. The limits on daily and weekly regular and overtime working hours and for adults and adolescents vary between different parts of Pakistan, and are set out in the applicable Shops and Establishments/Terms of Employment legislation, which applies to non-managerial employees of commercial and industrial establishments, and Factories Acts which apply to workers employed by factories.

Shops and Establishments/Terms of Employment Legislation

Working hours

Adults: nine hours per day (except in Khyber Pakhtunkhwa, where this is eight hours) and 48 hours per week.

Adolescents and young persons: seven hours per day and 42 hours per week.

In Sindh and Khyber Pakhtunkhwa, adolescents are defined as persons between the ages of 14 and 18.

In Punjab, Balochistan and Islamabad Capital Territory, young persons are defined as persons between the ages of 14 and 17. 


In Khyber Pakhtunkhwa: limit of 24 hours per week for adults. Adolescents cannot work overtime.

In Sindh: Annual limit of 150 hours of overtime work for adults and 100 hours for adolescents.

In Punjab, Balochistan and Islamabad Capital Territory: Annual limit of 624 hours of overtime work for adults and 468 hours for young persons.

Time of day restrictions

Under the Shops and Establishments/Terms of Employment legislation applicable across various parts of Pakistan, establishments (which do not include factories) must be closed at 9pm in Khyber Pakhtunkhwa and 8pm in the rest of Pakistan.


Employers are required to maintain registers of employment and remuneration, for recording, inter alia, the number of hours of regular and overtime work. The legislation has not kept pace with the practice of remote work, which became common in the corporate sector during Pakistan's COVID-19 lockdowns.

Factories Acts

Working hours

Regular hours for adult workers throughout Pakistan:

  • nine hours per day (including breaks) in non-seasonal factories and ten hours in seasonal factories;
  • 48 hours per week in non-seasonal factories, 50 hours per week in seasonal factories; and
  • 56 hours per week where a worker is engaged in work which must, for technical reasons, be continuous throughout the day.


There are no limits on overtime work in factories.


Employers are required to maintain registers of employment and remuneration, for recording, inter alia, the number of hours of regular and overtime work.



Under the Standing Orders/Terms of Employment legislation, which applies to workers employed by commercial and industrial establishments other than factories, the employment of workers may be terminated only by notice in writing stating the reason for such termination. Workers are entitled to challenge their termination (for any reason) as an individual grievance, depending on the part of Pakistan in which they are employed, either before the National Industrial Relations Commission or the Labour Court. Where any worker is to be retrenched due to redundancy, the employer is required to first retrench the workman who is the last person employed in that category of workmen. With respect to collective redundancy, employers are required to seek the permission of the government (in Sindh) or the Labour Court (in the rest of Pakistan) before closing down an establishment or terminating the employment of more than 50% of the workers.


If the employment of a permanent worker (defined as a worker who has been employed for at least nine months) is terminated by the employer for any reason other than misconduct, the employer is required under the Standing Orders legislation to give one month’s notice or payment in lieu, payment in lieu of accumulated un-availed leave and contribute to either a gratuity or a provident fund, as explained below.


The employer is required to pay a gratuity, equivalent to one month’s salary for every year of service or part thereof exceeding six months. Gratuity is calculated on the basis of the salary paid to the worker in the last month of service.

Provident Fund

If the employer has established a provident fund to which the employer and worker make matching contributions, the employer is not required to pay a gratuity to that workman for the period during which the provident fund has been in existence. In Sindh and Khyber Pakhtunkhwa, the amount distributed from the provident fund must not be less than the amount of gratuity that would have been paid to the worker had there been no provident fund.


Any worker terminated for misconduct which is proven in accordance with law, after a proper inquiry at which the worker is given a right of hearing, is not entitled to gratuity and any provident fund payment except such amount that corresponds to the employee’s contribution.

Practical aspects

It is common practice for waiver and release from liability to be obtained by employers from workers whose employment is terminated at the time of payment of benefits.


The termination of employment of non-workers is regulated by the terms of their contracts of employment. Such contracts typically provide a mutual right to employers and employees to terminate at will by giving one to three months' notice in writing or payment in lieu thereof. The decision of an employer to terminate the employment of a non-workman cannot be challenged.

In practice, employers obtain waiver and release of liability and standard indemnities from non-workers whose employment is terminated. In appropriate cases, where the contract of employment does not otherwise so provide, employers also obtain non-compete, non-disclosure and non-solicitation undertakings from employees on termination.

The law requires representation of workers and their consultation by management. There is no corresponding requirement in relation to employees who are not workers.

The applicable legislation is the Industrial Relations Act, which has separately been enacted by every province and by the federal Parliament. The latter applies to workers employed in the Islamabad Capital Territory and by any employer that carries on business in more than one province or territory of Pakistan.

Unions and Collective Bargaining Agents

All Industrial Relations Acts entitle workers employed in an establishment or an industry to form and join a trade union. The purpose of trade unions is to regulate relations between workers and between workers and employers as well as, in the case of unions in respect of industries, to impose restrictive conditions on the conduct of any trade or business. A trade union whose members comprise at least a specified proportion (varying between 20% and 33%, depending on the Industrial Relations Act that is applicable) of the total workers employed by the establishment is entitled to be registered as a collective bargaining agent (CBA). The CBA’s role is to negotiate with the employer as to the terms and conditions of employment, represent workers in any dispute with the employer, declare strikes and suggest names of workers for representation on the boards of trustees of provident funds and workers' profit participation funds (required by legislation to be established by industrial undertakings that meet certain specified thresholds).

Works Councils

Works councils, comprising representatives of the management and the workers, are required to be established in every establishment employing at least 50 workers. The council is a forum for discussions between management and workers on matters affecting the welfare of workers, such as working conditions, health and safety.

Workers' Participation in Management of Factories

Workers in factories employing 50 persons or more are entitled to nominate (where there is a CBA) or elect representatives to the management committee. Such representatives have the right to participate in meetings of the management committee, except those that discuss commercial or financial transactions. Management is required to seek the advice, in writing, of workers' representatives before taking any decision regarding HR policies, changing physical working conditions, training, recreation and welfare, regulation of working hours and breaks and other matters relating to the conduct of workers at the factory.

Joint Management Board

The Industrial Relations Acts applicable to Khyber Pakhtunkhwa, Balochistan and the Islamabad Capital Territory and employers carrying on business in more than one province or territory of Pakistan require that the management in every factory owned by a company and every other factory in which 50 persons are employed to set up a joint management board with at least 30% worker representation. The workers' representation on the board should not be less than 30%. The board is required to attend to matters relating to improving productivity and efficiency, remuneration methods and providing minimum facilities to workers employed through third-party contractors. The joint management board may call for information about the working of the company from management.

Income Tax

Salary is defined under the Income Tax Ordinance, 2001 (ITO) as any amount received by an employee from employment, whether of a revenue or capital nature. Salary is chargeable to income tax on progressive rates. The highest tax bracket applies to annual salaries of above PKR75 million. Under the ITO, employers are obliged to withhold tax from salaries paid to employees.

Professional Tax

Persons engaged in any profession, trade, calling or employment are required to pay professional tax to the provincial government. Companies are charged professional tax on the basis of their paid-up capital, factories and certain commercial establishments on the basis of the number of their employees. Rates of tax for service providers is fixed. This tax is required to be paid annually.

Social Security Contributions

Employers are required to contribute to the Employees’ Social Security Fund. The prescribed contribution on the part of the employer is 6% of an employee’s one-month salary.

Employees’ Old Age Benefits Contributions

Employers employing at least five employees are required to contribute to the Employees’ Old Age Benefits Fund on behalf of the employees that are employed during the preceding 12 months. The current prescribed rate of contribution of the monthly salary is 5% for employers and 1% for employees.

Companies are subject to a number of taxes, depending on the nature of their business. The major taxes levied are described below.

Income Tax

A company resident in Pakistan is liable to pay the prescribed rate of income tax on its global income. The rate of tax applicable to the taxable income of a company in Pakistan (other than a banking company) is 29%. However, the tax rate applicable to small companies is currently 22% and is set to be reduced to 20% by 2023.

Certain kinds of income of a company, such as dividend and interest income, are taxed separately at lower rates of 15–25%.

In addition, companies are subject to withholding obligations on a number of payments, including payments for goods and services, interest, dividend, royalty to resident persons and payments to non-residents. Companies are also required to pay advance income tax when making a number of different kinds of payment, including for imports and electricity bills. Such taxes are usually adjustable against the tax liability of the person from whose income they are withheld or collected.

General Sales Tax

Sales tax, a value added tax on the sale of goods, is levied under the Sales Tax Act 1990 (the ST Act) at the rate of 17% (unless a different rate of tax is applicable thereto under the 1990 Act) on local supplies and import of goods.

Sales Tax on Services

Sales tax on services is levied under provincial legislation on the provision and receipt of specified services within such province. The standard rates of sales tax on services range from 10–15% of the value of service. instance, in the province of Sindh, the general sales tax on service (other than the telecommunication sector) is chargeable at 15%.

Customs Duty

Customs duty under the Customs Act 1969 on goods that are imported into Pakistan. The rates of custom duty on various goods are set out in the First Schedule of the Customs Act 1969.

Excise Duty

Federal excise duty is levied under the Federal Excise Act 2005 on specified goods produced or manufactured in Pakistan, imported into Pakistan, manufactured in non-tariff areas and brought to tariff areas for consumption and on certain services. The general rate is 15% except where otherwise provided in the Act.

Infrastructure Cess

Each of the four provinces of Pakistan levy infrastructure cess under legislation enacted for that purpose on goods entering or leaving a province. In Punjab, such cess is also levied on goods manufactured, produced or consumed in the province. 

Income Tax Credits and Incentives

The ITO allows a tax credit for foreign income tax not exceeding the amount of local tax payable on such income. Other tax credits are available under the ITO to:

  • manufacturing companies generating employment;
  • persons employing fresh graduates from institutions recognised by the Higher Education Commission of Pakistan;
  • investment for purchase of plant and machinery;
  • enlistment on a stock exchange in Pakistan; and
  • newly established industrial undertakings.

Taxpayers are also allowed tax credits in respect of such withholding or advance taxes as may have been paid by them during the tax year and which are allowed to be adjusted under the terms of the ITO.

Other incentives are available under the ITO enhanced depreciation allowances, including most notably:

  • an initial depreciation allowance of 25% in respect of new plant and machinery, which may be availed in the first year in which a person first uses this for purposes of business or the year in which commercial production is commenced, whichever is later;
  • first year depreciation allowance of 90% in respect of plant machinery and equipment installed by an industrial undertaking set up in specified rural and underdeveloped areas or engaged in manufacturing of cellular phones that is owned and managed by a company; and
  • first year depreciation allowance of 90% in respect of plant, machinery and equipment installed for generation of alternate energy by an industrial undertaking set up anywhere in Pakistan.

In addition, the Second Schedule to the ITO contains numerous specific tax exemptions or incentives which have been introduced over time to meet specific policy objectives of the federal government. For instance, the income of companies establishing power generation projects in accordance with the policies of the federal government is exempt from taxation.

Special Economic Zones

Enterprises set up in special economic zones set up under the Special Economic Zones Act, 2021 are entitled to the following benefits:

  • a one-time exemption from customs duties and taxes on import of plant and equipment (except motor vehicle and their parts) into the zone for installation in the zone, subject to verification by the Board of Investment; and
  • an exemption on all taxes on income for zone enterprises commencing commercial production after 30 June 2020 for a period of five years.

Export Processing Zones

Pakistan has also established export processing zones, The incentives available to businesses established in these zones include duty free import of machinery, equipment and material and exemption of sales tax on input goods including electricity. Under certain conditions, zone enterprises are allowed to sell up to 20% of products manufactured by them to customers within Pakistan.

Under Section 59AA of the ITO, a holding company and any wholly owned subsidiaries thereof (the Group Companies) may, as one fiscal unit, file consolidated tax returns in a tax year subject to finalisation of consolidated accounts in accordance with the provisions of the Companies Act 2017 and computation of combined taxes as may be applicable to the Group Companies. The facility of group taxation may only be exercised by companies that are incorporated in Pakistan.

The rules of thin capitalisation are provided under Section 106 of the ITO which stipulates that, when the foreign debt to foreign equity ratio of a foreign-controlled resident company (at least 50% of the ownership of which is held by any non-resident person(s)), exceeds 3:1 at any time during a tax year, a deduction which would otherwise apply to the profit on debt (ie, interest) paid by the company in that year, would not be allowed on that part of the debt which exceeds the foregoing ratio, and any amount in excess thereof would be included in the taxable income of such company.

The above rule of thin capitalisation applies to all foreign controlled companies incorporated in Pakistan, excluding financial institutions or banking companies or branches of foreign companies in Pakistan.

Section 108 of the ITO read with Chapter 6 of the Income Tax Rules 2002 (the 2002 Rules) sets out the rules in relation to transfer pricing that are applicable to transactions undertaken between associates or related parties in Pakistan. These rules confer on the Commissioner of the Federal Board of Revenue the power to distribute, apportion or allocate income, deductions or tax credits between the associated or related persons as is necessary to reflect the income that the persons would have realised in an arm’s length transaction.

The following methods have been prescribed under the 2002 Rules as ones that may be followed by the Commissioner for the purposes of determination of an arm’s length result:

  • the comparable uncontrolled-price method;
  • the resale price method;
  • the cost-plus method; or
  • the profit split method.

Anti-avoidance or anti-evasion rules are prescribed under the ITO. The term “tax avoidance scheme” has been defined under Section 109 as “any transaction where one of the main purposes of a person in entering into the transaction is the avoidance or reduction of any person’s liability to tax under this Ordinance”.

For the purposes of the above, “reduction in a person’s liability to tax” means a “reduction, avoidance or deferral of tax or increase in a refund of tax and includes a reduction, avoidance or deferral of tax that would have been payable under this Ordinance, but are not payable due to a tax treaty for the avoidance of double taxation.”

Powers of the Commissioner

As part of anti-avoidance rules, the Commissioner may determine a person’s liability to tax by: 

  • recharacterising a transaction or a part thereof that may have been entered into under a tax avoidance scheme; or
  • disregarding a transaction for not having a substantial economic effect; or
  • recharacterising a transaction the form and substance of which contradict each other; or
  • disregarding an entity in Pakistan (for the tax year 2018 onwards) which, inter alia, has been set up as a part of tax avoidance scheme.

Requirement to Obtain Clearance

Section 11(2) of the Competition Act (the Competition Act) requires clearance to be sought from the Competition Commission of Pakistan (CCP) where an undertaking intends to acquire the shares or assets of another undertaking, or two or more undertakings intend to merger the whole or part of their business, and meet the pre-merger thresholds prescribed under the Competition (Merger Control) Regulations, 2016 (the Merger Regulations).

The Competition Act applies to undertaking across the world and to all actions and matters that take place in Pakistan and distort competition in Pakistan. Therefore, clearance is not required to be sought in respect of an acquisition or merger which meets the pre-merger thresholds but to which the Competition Act does not apply.

The merger parties cannot proceed with the merger or acquisition unless clearance is obtained from the CCP.

Relevant Definitions

The term “merger” is defined to mean “the merger, acquisition, amalgamation, combination or joining of two or more undertakings or part thereof into an existing undertaking or to form a new undertaking; and the expression "merge" means to merge, acquire, amalgamate, combine or join, as the context may require.” Furthermore, the term “acquisition” has been defined as “any change of control of any undertaking by way of acquisition of shares, assets or any other means.”

Pre-merger Thresholds

Merger parties, excluding asset management companies, are not required to make an application for clearance from the CCP unless:

(i) the value of gross assets of the undertaking, excluding value of goodwill, is not less than PKR300 million, or the combined value of the undertaking and the undertaking(s) the shares of which are proposed to be acquired or the undertakings being merged, is not less than PKR1 billion; or

(ii) annual turnover of the undertaking in the preceding year is not less than PKR500 million, or the combined turnover of the undertaking and the undertaking(s) the shares of which are proposed to be acquired or the undertakings being merged, is not less than PKR1 billion; and

(iii) the transaction relates to acquisition of shares or assets of the value of PKR100 million rupees or more; or

(iv) in case of acquisition of shares by an undertaking, if an acquirer acquires voting shares, which – taken together with voting shares, if any, held by the acquirer – shall entitle the acquirer to more than 10% of voting shares.

If either of (i) or (ii) and either of (iii) or (iv) of the thresholds listed above are applicable to the respective merger or acquisition, the approval of the CCP will be required to be sought unless the transaction is otherwise exempted under Section 5 of the Competition Act.


Pre-merger applications are required to be filed by the concerned undertakings as soon as they agree in principle or sign a non-binding letter of intent to proceed with the merger.

Forms and Filing Fee

The application is required to be made in the form prescribed by the CCP along with all supporting documents and payment of the requisite fee. The fee is set in a sliding scale in proportion to the turnover of the merger parties. The highest fee slab is PKR2.25 million and applies where the turnover of the merger parties exceeds PKR10 billion.

First Phase Review and Timing

The CCP then conducts a first phase review to make a preliminary assessment of whether the transaction should be allowed. Under the Competition Act, the CCP is required to decide the application within 30 days of receipt by issuing an order allowing the merger or initiating a second phase review, failing which the CCP is deemed not to have any objection to the merger. In practice the CCP treats the 30-day period as commencing only upon receipt of a complete application. As the CCP may request further documentation, thereby rendering the previously submitted application incomplete, parties ordinarily wait for the decision of CCP.

Second Phase Review andTtiming

If the CCP decides to initiate a second review, it may require the merger parties to provide further information. The CCP is required to decide the second review within 90 days of receipt of the requested information, failing which it is deemed that the CCP has no objection to the merger.

Section 4 of the Competition Act applies to anti-competitive agreements and practices. These are defined as agreements or decisions in respect of the production, supply, distribution, acquisition or control of goods or the provision of services which have the object or effect of preventing, restricting or reducing competition within the relevant market. Under Section 4(1), such agreements and practices are prohibited unless exempted by the CCP.

Section 4(2) of the Competition Act provides an illustrative, non-exhaustive list of anti-competitive agreements and practices, which include actions typical of cartels in relation to production, distribution or sale of goods or services such as fixing prices and quantities, imposing other restrictive conditions, dividing markets, limiting technical development or investment and collusive tendering or bidding. Other anti-competitive agreements and practices listed in Section 4(2) include making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

Under Section 9 of the Competition Act, the CCP may exempt anti-competitive agreements and practices which substantially contribute to production or distribution, promoting technical or economic progress while allowing consumers a fair share of the resulting benefit or whose benefits clearly outweigh the adverse effect on competition.

The Competition Act prohibit any undertaking from abusing a dominant position. The “dominant position” of one undertaking or several undertakings in a relevant market is deemed to exist if such undertaking(s) has or have the ability to behave to an appreciable extent independently of competitors, customers, consumers and suppliers and the position of an undertaking will be presumed to be dominant if its share of the relevant marker exceeds 40%. An abuse of dominant position is deemed to have been brought about, maintained or continued if it consists of practices which prevent, restrict, reduce or distort competition in the relevant market.

Section 3(3) of the Competition Act provides the following non-exhaustive list of practices which constitute abuse of a dominant position:

  • limiting production, sales and unreasonable increases in prices or other unfair trading conduct;
  • price discrimination by charging different prices for the same goods or services to different customers in the absence of an objective justification that may justify different prices;
  • tie-ins, where the sale of goods or service is made conditional on the purchase of other goods or services;
  • making conclusions of contracts subject to the acceptance by other parties of supplementary obligations which by their nature or according to commercial usage, have no connection with the subject of the contracts;
  • applying dissimilar conditions to equivalent transactions on other parties, placing them at a competitive disadvantage;
  • predatory pricing driving competitors out of a market, preventing new entry, and monopolising the market;
  • boycotting or excluding any other undertaking from the production, distribution or sale of any goods or the provisions of any service; and
  • refusal to deal.

Patents are regulated under the Patents Ordinance 2000 (the Patents Ordinance). Section 7 of the Patents Ordinance stipulates that "an invention is patentable, if it is new, involves an inventive step and is capable of industrial application."

Length of Protection

The prescribed term in respect of a registered patent is 20 years from the date of filing of the application of registration.

Registration of Patent in Pakistan

An application for registration of an invention for patent may be filed at the Patent Office by submitting the following prescribed forms for convention or regular application and the specifications of the invention. After the application is accepted, it is advertised in the official gazette.

A notice of opposition may be filed by a third party opposing the application Patent Application on the grounds set out under Section 23 of the Patent Ordinance. If no opposition is received, the applicant is required to file a prescribed form, after which the patent is “sealed” and granted to the applicant.

Enforcement and Remedies

A patent holder may initiate proceedings of infringement in the Intellectual Property Tribunal against any person, who unlawfully makes, sells, uses their duly registered patent or counterfeits it. In addition, patents, in certain instances, may also be enforced by the Controller of Patents. In suits involving infringement of patents in Pakistan, the tribunal may grant, inter alia, damages, injunctions or accounts.

Trade marks are governed in Pakistan under the Trade Marks Ordinance 2001 read with the Trade Mark Rules 2004. The term “trade mark” is defined under Section 2 (xlvii) of the aforesaid Ordinance as “any mark capable of being represented graphically which is capable of distinguishing goods or services of one undertaking from those of other undertakings.”

Length of Protection

A trade mark is registered for a period of ten years from the date of application, renewable for further periods of ten years.

Process for Registration of a Trade Mark in Pakistan

An application to register a trade mark of goods or services of a particular class may be filed with the Trade Marks Registry in the prescribed from along with:

  • a cover letter requesting the registration of the proposed mark;
  • representation of the proposed mark;
  • an affidavit containing prescribed undertakings in relation to the proposed mark; and
  • a power of attorney by way of Form TM-48 if the applicant wishes to appoint an authorised agent for the registration of the proposed mark.

The registrar then examines the documents. After acceptance of the application, the proposed mark is advertised in the Trade Marks Journal and subject to any opposition from any person, to which the applicant may respond within a period of up to one month. If any objection is filed, the Registrar at their discretion, after giving both the opponent and the applicant an opportunity of being heard, may either approve or reject the registration. Upon approval of the registration, the applicant is provided with a certificate of registration.        


A proprietor of a registered trade mark may institute proceedings against the infringement of their registered trade mark in the Intellectual Property Tribunal. Furthermore, the proprietor of a trade mark which is a "well-known" trade mark in the terms of the Paris Convention is also entitled to restrain by injunction the use in Pakistan of a mark which is identical or deceptively similar to the well-known trade mark:

  • in relation to identical or similar goods or services, where the use is likely to cause confusion; or
  • where such use causes dilution of the distinctive quality of the well-known trade mark.


In suits involving infringement of trade marks in Pakistan, the tribunal may grant reliefs of, inter alia, damages, injunctions, accounts or otherwise as are available in respect of the infringement of any other proprietary right. In case of well-known trade marks, the holder is entitled only to injunction.

The term “design” has been defined under Section 2(e) of the Registered Designs Ordinance 2000 (Designs Ordinance) as “features of shape, configuration, pattern ornament applied to an article by any industrial process or means, being features which in the finished article appeal to and are judged solely by the eye, but does not include a method or principle of construction or features of shape or configuration which are dictated solely by technical and functional considerations.”

For the purposes of the 2000 Ordinance, the term “article” means “any article of manufacture and includes a part of an article if made and sold separately.”

Length of Protection

The prescribed term in respect of a registered design is ten years from the date of registration thereof. The initial period of protection may be extended for a further two periods, each of ten years.

Procedure for Registration

A regular or Convention application may be made in a prescribed form (the Convention application must be filed within six months of the first application filed in the Convention country) with the Patent Office. Such application must be accompanied by the drawings, photographs or specimen, an affidavit and a separate form if the design is in respect of any set of articles will be made on the requisite form. A copy of the representation or specimen of the design filed in the convention country must be filed with the application or within three months of the application. On acceptance of the application, the applicant is provided by the registrar with a certificate of registration.

Enforcement and Remedies

Any person aggrieved by infringement of their registered design may initiate proceedings against the infringer in the Intellectual Property Tribunal. Relief available to the proprietor of registered designs include injunction and damages.

Copyrights are governed by the Copyright Ordinance 1962 read with the Copyright Rules of 1967. In terms of the foregoing laws, the term "copyright" entails exclusive rights in, inter alia, literary, dramatic or musical, artistic or cinematographic work.

Length of Protection

Copyright in respect of any literary, dramatic, musical or artistic work (other than a photograph) published in the name of and within the lifetime of the author subsists until 50 years starting from the beginning of the calendar year immediately following the year in which the author dies. In all other cases the copyright in the works subsists for a period of 50 years from the beginning of the calendar year in which that work is published.

Steps for Registration of a Copyright in Pakistan

An application for registration of a copyright may be filed with the Registrar by way of a prescribed form. Upon submission, the application is examined by the Registrar. If such application pertains to artistic work, the same is published by the applicant in a newspaper where they reside or carry on business, whereafter the application remains open to any objection by any person on specified grounds for a period of 30 days of the submission of the application. On being satisfied with the particulars of the application, the Registrar registers the work of the applicant in the Register of Copyrights and issues a certificate of registration.

Enforcement and Remedies

Copyrights may be enforced in Pakistan by way of filing a suit before the Intellectual Property Tribunal. Furthermore, a proprietor may also approach the police to seize the infringing material. In suits involving infringement of copyrights in Pakistan, the tribunal may grant reliefs of, inter alia, damages, injunctions, accounts or otherwise as are available in respect of the infringement of any other right.

In addition to the IP rights discussed throughout the rest of 7. Intellectual Property, Pakistan also recognises other intellectual property such as layout designs of integrated circuits (protected under the Registered Layout-Designs of Integrated Circuits Ordinance, 2000) and plant breeders' rights (protected under the Plant Breeders’ Rights Act, 2016).

However, rights in any information of a confidential nature (such as trade secrets) do not have statutory protection in Pakistan. Such rights may, however, be protected by contractually binding the persons to whom such information is disclosed.

Data Protection

Currently there is no generally applicable data protection legislation in Pakistan.

The Prevention of Electronic Crimes Act 2016 (the 2016 Act) regulates various kinds of electronic crimes and mechanisms for investigation, prosecution and adjudication in relation to offences committed electronically.

While the 2016 Act criminalises the unauthorised access, sale, use and transmission of data, it does not specifically regulate the rights and obligations of controllers and processors of data in Pakistan.

Disclosure of Information

Disclosure of personal information which has been obtained by any person as part of a lawful contract or otherwise in accordance with the law is also prohibited under the 2016 Act to the extent that such disclosure is made without the consent of the concerned person; or such data is disclosed with the intent to cause – or knowing that it is likely to cause – harm, wrongful loss or gain to any person or compromise the confidentiality of such data.

The 2016 Act extends to every citizen of Pakistan and to any act committed outside Pakistan by any person provided that such act constitutes an offence in terms of the 2016 Act and affects any person or property located in Pakistan. For instance, a foreign entity that retains personal data of its employees without their prior consent may be in breach of relevant provisions of the 2016 Act and may be subject to penalties specified thereunder.

Pakistan does not currently have any enforcement agency or authority specifically for the purposes of regulation and protection of data. The Federal Investigative Agency (FIA) has been designated by the federal government to investigate the offences prescribed under the 2016 Act. Furthermore, the Pakistan Telecommunication Authority (PTA) has also been conferred limited powers under the 2016 Act.

Development of Unified Tax Return for Sales Tax on Goods and Services

The power to tax is distributed between different governments in Pakistan. Federal taxes include customs duty and excise duty, and taxes on most income and capital gains are federal. Sales tax on services and most property-related taxes are provincial. There are also some municipal taxes. Both sales tax on goods and services are value added taxes whose input liability is inter-adjustable. However, as the taxes are administered by different authorities, each tax has different compliance requirements, including filings. Furthermore, the prescribed forms for the returns do not make provision for entering data regarding adjustable input taxes levied under other law. The federal and provincial governments recognise that there is immense room for improvement in Pakistan’s ranking on taxes in the World Bank’s Ease of Doing Business reports.

In 2020, a committee of the of the National Finance Commission, a constitutional body responsible for determining the criteria for distribution of federal revenues between the federal and provincial governments, and among the latter, established a National Tax Council (NTC) to resolve issues of taxation between the federal and provincial governments. The NTC comprises the Finance Ministers of the federal and provincial governments and its responsibilities include proposing measures to reduce registration requirements for taxpayers. In April 2021, the Federal Board of Revenue, which administers sales tax on goods, and each of the provincial revenue authorities administering sales tax on services signed a Memorandum of Understanding on developing a single portal where taxpayers will be able to file a unified tax return for all sales tax on goods and services. This would greatly simplify the compliance for taxpayers, alleviate the issues described above and thereby improve the ease of doing business.

Data Protection Bill

Though the Prevention of Electronic Crimes Act 2016 criminalises the misuse of personal data (including personal data processed by a third party in its capacity as a service provider) without consent (see 8. Data Protection), there is currently no generally applicable data protection legislation in Pakistan.

The Ministry of Information Technology and Telecommunication is in the process of seeking comments from stakeholders on a consultation draft of a personal data protection bill (PDP Bill) before it is tabled in parliament. The PDP Bill, if and when enacted, shall provide for and regulate the processing of personal data, confer rights on data subjects and restrict data controllers from processing personal data without the consent of the data subject. The PDP Bill proposes the establishment of a Personal Data Protection Authority, having the power to, inter alia, seek information from data controllers in respect of data processing and impose penalties for non-compliance and non-observance of data security practices and order a data controller to take such reasonable measures as it may deem necessary to remedy any failure to implement the provisions of the PDP Bill once promulgated.

RIAA Barker Gillette

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RIAA Barker Gillette offers the full range of corporate, commercial and dispute resolution legal services from offices in Pakistan’s major cities: Karachi, Lahore, Islamabad and Peshawar. With ten partners and over 50 associates, the firm is amongst the country’s largest practices. Its clients include multinational corporations, financial institutions, non-profit organisations, Pakistani conglomerates, private clients and government agencies. RIAA Barker Gillette is also the primary Pakistan contact for many major international law firms. It has extensive experience of complex, cross-border work, and on advising across a number of industry and regulatory sectors. The firm is routinely called on to act in projects, M&A, private equity, corporate restructuring and tax advisory mandates, and on commercial disputes. In addition to the support and access to the resources of its offices in London, New York, Dubai, Beijing, and Kabul, RIAA Barker Gillette is the exclusive member firm in Pakistan for Lex Mundi, the world’s leading network of independent law firms with members in over 100 countries.