Our guide to Payroll in Pakistan

Doing Business in the Pakistan

Created during the partition of Sub-continent India in 1947, Pakistan is strategically located to become Asia’s premier trade, energy and transport corridor. It is also the gateway to the energy rich Central Asian States, the financially liquid Gulf States and the economically advanced Far Eastern tigers. This strategic advantage alone makes Pakistan a marketplace teaming with possibilities. Pakistan has a strong middle class. A large part of the workforce is proficient in English, hardworking and intelligent. Pakistan possesses a large pool of trained and experienced engineers, bankers, lawyers and other professionals with many having substantial international experience.

The consumer market in Pakistan is growing at a very fast pace as reflected by teledensity which has now reached more than 192.32 million. Interestingly amid the global dismal financial situation, Pakistan’s economy has shown resilience to the shocks and has maintained global and regional patterns and has performed better than some of the neighboring countries. International Reports of repute have shown that Pakistan ranks ahead of regional countries.

Geography

Located in South Asia, Pakistan shares an eastern border with India and a northeastern border with China. Iran makes up the country's south- west border and Afghanistan runs along its western and northern edge. The Arabian Sea is Pakistan's southern boundary with 1,064 km of coastline.

Population

As per the 7th Population and Housing Census conducted by Government of Pakistan in August 2023, the population has reached 241.29 million.

Political System

The Politics of Pakistan ( )سیاسیاِت پاکستانtakes place within the framework established by the constitution. The country is a federal parliamentary republic in which provincial governments enjoy a high degree of autonomy and residuary powers. Executive power is vested with the national cabinet which is headed by Prime Minister of Pakistan (Shahbaz Sharif since March 2024), who works with the bicameral parliament and the judiciary. Stipulations set by the constitution provide a delicate check and balance of sharing powers between executive, legislative, and judicial branches of the government.

The head of state is the president who is elected by the electoral college for a five-year term. Asif Ali Zardari is currently the president of Pakistan (March 2024 - Present). The president was a significant authority until the 18th amendment, passed in 2010, stripped the presidency of its major powers. Since then, Pakistan has been shifted from a Semi-presidential system to a purely parliamentary government. Since the amendment, the president's powers include the grant to pardon, and the ability to suspend or moderate any sentence passed by any court or authority.

The Government consists of three branches: executive, legislative and judicial. The Executive branch consists of the Cabinet and is led by the Prime Minister. It is totally independent of the legislative branch that consists of a bicameral parliament. The Upper House is the Senate whilst the National Assembly is the lower house. The Judicial branch forms with the composition of the Supreme Court as an apex court, alongside the high courts and other inferior courts. The judiciary's function is to interpret the Constitution and federal laws and regulations.

Climate

Pakistan has a continental type of climate, characterized by extreme variations in temperature, both seasonally and daily, because it is located on a great landmass north of the Tropic of Cancer (between latitudes 25° and 36° N).

Very high altitudes modify the climate in the cold, snow-covered northern mountains; temperatures on the Baluchistan plateau are somewhat higher. Along the coastal strip, the climate is modified by sea breeze. In the rest of the country, temperatures reach great heights in the summer; the mean temperature during June is 38 °C (100°F) in the plains, the highest temperatures can exceed 47 °C (117 °F). During summer, hot winds called Loo blow across the plains during the day. Trees shed their leaves to avoid loss of moisture. Pakistan recorded one of the highest temperatures in the world, 53.7 °C (128.66 °F) on 28 May 2017, the hottest temperature ever recorded in Pakistan and also the second hottest measured temperature ever recorded in Asia.

The dry, hot weather is broken occasionally by dust storms and thunderstorms that temporarily lower the temperature. Evenings are cool; the daily variation in temperature may be as much as 11 °C to 17 °C. Winters are cold, with minimum mean temperatures in Punjab of about 4 °C (39 °F) in January, and sub-zero temperatures in the far north and Baluchistan.

Economy (reference Pakistan Economic Survey (2023 – 2024))

Pakistan is a developing country, with a semi-industrial economy. Primary export commodities include textiles, leather goods, sports goods, surgical instruments, chemicals and carpets/rugs.

The economy of Pakistan embarked on a stabilization phase in FY 2024. Government’s dedicated efforts to complete 2023 Stand-By Arrangement (SBA) have yielded significant progress in reinstating economic stability. The economy has experienced a resurgence in moderate growth and a reduction in external pressures. Although inflation remains high, it is now on a downward trend. Moving forward, the newly elected government is putting efforts to leverage this stability by maintaining robust macroeconomic policies and implementing structural reforms to achieve stronger, more inclusive, and sustainable growth. The performance of the government in revenue collection and disciplined federal expenditure control facilitated the generation of a substantial primary surplus in first three quarters of FY 2024.The State Bank of Pakistan adopted tight monetary policy stance to bring inflation to moderate levels.

These measures along with recent trends in most macroeconomic variables suggest that the disciplined implementation of the macroeconomic stabilization programme has started paying dividends in the current fiscal year. The efforts contributed to containing the fiscal deficit at 3.7 percent of GDP during the first three-quarters of FY 2024. Likewise, in July-March FY 2024, the primary balance achieved a surplus of Rs 1,615.4 billion (1.5 percent of GDP), against the surplus of Rs 503.8 billion (0.6 percent of GDP) experienced last year, attributed to a slowdown in the growth of non-markup expenditures. The current account balance posted a surplus of US $ 434 million in March 2024 and US $ 491 million in April 2024 marking that the efforts of the government are yielding fruitful results. The current account deficit is likely to decelerate from as high as US $ 17.5 billion in FY 2022 to around US $ 0.5 billion (0.1 percent of GDP) by the end of the out-going fiscal year.

Investment in Pakistan

The Pakistan Vision 2025 “One Vision One Nation” lays down a foundation for the country to transform into one of the top ten economies in the world by 2047. The country envisions to become an upper middle-income country with balanced development. Furthermore, both the Pakistan Vision 2025 and the Strategic Trade Policy Framework (STPF) 2020-2025 identify foreign direct investment (FDI) as one of the key elements to support the development of Pakistan’s economy, especially in facing a more challenging international environment due to health, food, energy and geo-political crises. Pakistan has largely managed to put the challenge of the pandemic behind it, where according to World Bank data, private consumption and investment have recovered to pre-pandemic levels.

Why Invest in Pakistan

Pakistan, like most countries around the world is determined to continue with attractive investment policies and measures. Pakistan benefits from a strategic location, abundant natural resources, a large and skilled work force and maintains a liberal investment regime. As outlined in Pakistan Vision 2025 and the STPF 2020- 2025, Pakistan intends to attract high-quality, export oriented, import substituting and efficiency seeking FDI in order to bring the country’s economy forward, through increased integration with global value chains (GVC), with the objective of becoming an upper-middle income country.

Objectives of PIP 2023

PIP 2023 looks to achieve the following objectives:

• To address and adjust economic priorities in the face of changing global and regional economic challenges, to address economic imbalances and accelerate economic growth.
• To assist Pakistan to achieve sustainable and inclusive economic growth, industry innovation and infrastructure development, as committed by Pakistan under the Sustainable Development Goals (SDGs) of the United Nations. Investors are also encouraged to bridge the gender gap and adopt the principles of inclusive and responsible business and investment.
• To enhance high-quality, export-oriented and import substituting FDI that brings in more investment in the economy, improving the balance of payments, 5 providing high quality jobs, reducing income gaps within the society and balancing development between various regions and provinces in the country. PIP 2023 will be instrumental in achieving a progressive increase in net FDI inflows and to enhance the investment to GDP ratio from the average level of 15% to the level of 20%.
• To attract sustainable FDI, Pakistan envisions implementing an innovative and aggressive investment policy. World Bank TC data360 forecasts that the Pakistan’s investment to GDP ratio will drop from 15% in 2020 and 13.3 percent in 2024. Hence, PIP 2023 will work towards transforming the business environment by providing efficient, convenient, transparent and integrated services and protection to investors.
• The Economic Complexity Index shows that Pakistan’s economy is becoming less complex. In 2020, Pakistan was ranked 93 in the Economic Complexity Index, an improvement from 2019, when Pakistan was ranked 100 of 146 economies, but a drop from 89th position 20 years earlier. Increased FDI will improve Pakistan’s economic complexity, by diversifying products and services for export and will assist the country in gaining higher export earnings through higher value-added activities.

Investment Entry

Foreign investment is welcome in the country. Pakistan has established and maintained an open investment regime, which serves as a strong advantage compared to regional competitors. Pakistan has an open-admission policy for investment in the majority of sectors that does not require pre-screening and approval for entrants. Entry and admission of foreign investment is through enterprise registration, where foreign investors are required to fulfil the conditions of corporate registration under the Companies Act 2017. Foreign investors operating through foreign companies may open branch or liaison offices in Pakistan.

Investment Facilitation and Retention

Pakistan offers the following support to investors:

• A One Window facility to facilitate investors in operating their businesses smoothly and efficiently.
• Branch / Liaison Management Information System (BLMIS), which has been launched by integrating the Government departments through Electronic Exchange of Data. Companies may apply and track their applications online along-with an online payment feature to improve the transparency and efficiency.
• Special Economic Zones Management Information System, which has been developed for facilitation of investors in SEZs. All SEZ related registration is now carried out through this online portal.
• A Business Matchmaking module is now available on the website of BOI. The module provides a comprehensive database of the local and foreign companies.
• An online portal and helpdesk, which has been setup by BOI for grievance redressal and facilitation of investors.
• Faster registration of companies. It is now possible to set up a company completely online. SECP has established a business center for swift processing company incorporation and to respond to investors' queries. SECP has made significant reforms to facilitate the registration of companies by fully digitizing the registration process, along with company registration. Designated facilitation desks for company registration have been established at its company registration offices in Karachi, Lahore and Islamabad.
• The implementation of Pakistan Regulatory Modernization Initiative (PRMI) is sanctioned by the Prime Minister’s Office. The PRMI National Steering Committee will drive the implementation of PRMI to achieve these core objectives. Major activities under this initiative include:

1. Legal framework, guidelines, and instruments to map and implement a comprehensive mandatory review of existing registrations/licenses/certificates and other permits (RLCO), requirements, and conditions. Moreover, to filter the flow of proposed regulations through impact assessment.
2. A unified set of principles and methodology to eliminate all unnecessary, unjustified, outdated, and duplicate RLCOs to improve regulatory quality and coherence.
3. Setting up appropriate structures (working groups, Project
   Implementation Units and network of focal persons) to support the comprehensive and fast-tracked regulatory reform process proposed under PRMI.
4. Capacity building of structures mentioned above to implement PRMI.
5. Developing the Pakistan Business Portal (PBP) as single online platform for compliance and administration of all RLCOs. All other one stop services including Federal and Provincial to be integrated in PBP.
6. Institutionalizing the regulatory reform process through the National Regulatory Delivery Office to maintain the reform activities’ momentum and ensure attention to risk-based reform of business regulations.
7. The main laws regulating acquisition and investments by foreign nationals and investors are as follows:

• Protection of Economic Reforms Act 1992;
• Foreign Exchange Manual (the FE Manual);
• Companies Act 2017 (CA 2017);
• Competition Act 2010 (CA 2010);
• Securities Act 2015 (SA 2015);
• Banking Companies Ordinance 1962 (BCO);
• Public Private Partnership Act 2017;
• Special Economic Zones Act 2012;
• Foreign Private Investment (Protection and Promotion) Act 1976 (FIPPA 1976);
• Foreign Exchange Regulation Act 1947 (FERA 1947);
• Listed Companies (Substantial Acquisition of Voting Shares and Takeovers)Regulations 2017; and
• Competition (Merger Control) Regulations 2016 (the Merger Control Regulations).

Registrations and Establishing an Entity

Pakistan is very welcoming towards foreign investors. Foreign investors can establish their business / company through Securities & Exchange Commission of Pakistan (SECP), which is responsible for registration of companies in Pakistan. Registering a company has been automated and it can now be registered in one day with SECP and Federal Board of Revenue (FBR). 

Types of Legal Entities in Pakistan

The following types of legal entities exist in Pakistan.

Private Limited Company

Foreign investors can set up fully foreign-owned Private Limited Companies (PLCs) in Pakistan. The minimum number of shareholders needed in order to register this kind of company is two (02). The minimum capital requirement in case of PLCs is PKR 100,000 (US$ 600). Another requirement is that the registered address of the company’s office must be in Pakistan. The incorporation time of a Limited Liability Company in Pakistan with SECP & FBR is one day.

Single Member Company

Foreign investors can set up a single member company in Pakistan with only one shareholder with a minimum capital of PKR 100,000 (US$ 600)*. The incorporation time is one day and registered address of the company should be in Pakistan. Subject to the present exchange rate of dollar

Public Limited Company

A Public Limited Company has their shares offered to the general public. Those shares are with limited liability. Anyone can acquire the shares. It may be through a public offering or through trading in the stock market. There are two types of public limited companies in Pakistan, unlisted and listed.

Alternatives to Register Company

Branch Office

A branch office is an alternative to company registration if your company wants to have a presence in Pakistan without setting up a separate legal entity. Branches carrying out a contract in Pakistan can be established. A branch office, however, cannot take part in any commercial or trading activities of whatever nature. Therefore, your activities depend on the contract you signed. The contract restricts your activities. The parent company owns 100% of the branch office in the country of origin. It does
not require any minimum capital. Process time for the registration takes up to seven weeks. The permit can be valid for 1 to 5 years if it has an approval from the BOI.

Liaison Office

If you want to promote your products in Pakistan, you can set up a 100% foreign owned liaison office here. Besides product promotion, you can also provide technical advice and assistance, explore the various possibilities of joint collaboration, and export promotion in Pakistan. However, this type of office cannot engage in commercial or trading activities and it is not subjected to any minimum capital. The standard time for establishing a liaison office in Pakistan is seven (7) weeks. Therefore, once granted your permit will have a validity period of 1 to 5 years. The Board of Investment (BOI) needs to approve it.

Banking

In Pakistan, the general banking hours for conducting in-branch transactions are typically as follows:

Monday to Thursday: 9:00 AM to 5:30 PM

Friday: 9:00 AM to 6:00 PM

Most banks are closed on Saturdays and Sundays1. However, some branches in major cities or business centers may open on Saturdays

Working Week

In Pakistan, the standard working days are from Monday to Friday. Federal government institutions typically observe a two-day weekend (Saturday and Sunday), while some provincial governments may have a one-day weekend on Sunday with a half working day on Friday.

Employment Law

Labour Legislation

Pakistan’s labour laws trace their origination to legislation inherited from India at the time of partition of the Indo-Pak subcontinent. The laws have evolved through a continuous process of trial to meet the socio-economic conditions, state of industrial development, population and labour force explosion, growth of trade unions, level of literacy, Government’s commitment to development and social welfare. To meet the above-named objectives, the government of the Islamic Republic of Pakistan has introduced a number of labour policies, since its independence to mirror the shifts in governance from martial law to democratic governance.

Under the Constitution labour is regarded as a ‘concurrent subject’, which means that it is the responsibility of both the Federal and Provincial Governments. However, for the sake of uniformity, laws are enacted by the Federal Government, stipulating that Provincial Governments may make rules and regulations of their own according to the conditions prevailing in or for the specific requirements of the provinces. The total labour force of Pakistan is comprised of approximately 71.76 million people ((48.5 million rural and 23.2 million urban, with 37.40% within the agriculture sector, 25.4% in the industry and remaining 37.20% in services sector. Pakistan Bureau of Statistics(PBS) is responsible for conducting Labour Force Surveys (LFS) since 1963. However, LFS for 2022-23 could not be undertaken due to the engagement of PBS with the 7^th Population & Housing Census. However, work on LFS 2024-25 is under process. Stats mentioned above are on the basis of LFS 2020-2021. The total labor force in Pakistan is forecasted to 82.66m in 2024.

Contract of Employment

While Article 18 of the Constitution affords every citizen with the rights to enter upon any lawful profession or occupation and to conduct a lawful trade or business, the Industrial and Commercial Employment (Standing Orders) Ordinance was enacted in 1968 to address the relationship between employer and employee and the contract of employment. The Ordinance applies to all industrial and commercial establishments throughout the country employing 20 or more workers and provides security of employment. In the case of workers in other establishments domestic servants, farm workers or casual labour engaged by contractors, their labour contracts are generally unwritten and can be enforced through the courts on the basis of oral evidence or past practice.

Every employer in an industrial or commercial establishment is required to issue a formal appointment letter at the time of employment of each worker. The obligatory contents of each labour contract, if written, are confined to the main terms and conditions of employment, namely nature and tenure of appointment, pay allowances and other fringe benefits admissible, terms and conditions of appointment.

Termination of the Contract

The services of a permanent worker cannot be terminated for any reason other than misconduct unless one month’s notice or wages in lieu thereof has been furnished by the employer or by the worker if he or she so chooses to leave his or her service. One month’s wages are calculated on the basis of the average wage earned during the last three months of service. Other categories of workers are not entitled to notice or pay in lieu of notice.

Working hours

Under the Factories Act, 1934 no adult employee, defined as a worker who has completed his or her 18th year of age, can be required or permitted to work in any establishment in excess of nine hours a day and 48 hours a week. Similarly, no young person, under the age of 18, can be required or permitted to work in excess of seven hours a day and 42 hours a week. The Factories Act, which governs the conditions of work of industrial labour, applies to factories, employing ten or more workers. The Provincial Governments are further empowered to extend the provisions of the Act, to even five workers. Further information, on the web, is provided by Labour Laws Pakistan www.pakistancode.gov.pk

Tax

The regulatory body for taxes in Pakistan is the Federal Board of Revenue, a
department of the Ministry of Finance in Pakistan. Companies are subject to corporate income tax and sales tax.

In Pakistan, the Sales Tax is a form of the Value-Added Tax. The Sales Tax Act, 1990 regulates sales tax on goods. In addition, Provincial tax laws also govern the sales tax.

The Income Tax Ordinance, 2001 governs the income tax in Pakistan. Income tax differs for types of legal entities and individuals and is amended each year.

Tax year in Pakistan

The Normal Tax Year in Pakistan is from 1 July to 30 June. Any income year ending other than on 30 June is considered a Special Tax Year and needs permission from the Federal Board of Revenue beforehand. The due date for filing of an income tax return for the Normal Tax Year is 31st of December for Companies whereas for individuals and AOP its September 30. If your tax year ends between 1 July and 31 December, the due date for filing a tax return for the preceding tax year is 30 September.

Personal Income Tax

Personal Income Tax rates are progressive in Pakistan, varying based on the annual income of the individual.

The employer acts as the withholding agent, and deducts the tax from the salary. The FBR requires submission of income taxes every month. As for the employee, he/she needs to report the withheld tax to the FBR annually.

Salaried Individuals – Tax Rates (2026)

Non-Salaried Individuals & AOPs (Business / Profession)

The employer acts as the withholding agent, and deducts the tax from the salary. The FBR requires submission of income taxes every month. As for the employee, he/she needs to report the withheld tax to the FBR annually.

Payroll

Reports

Payroll Reports are considered as an important document within the accounting and bookkeeping records of any Company. As per our understanding, no specific law exists related to retention of Payroll Records, however, since being part of the accounting and bookkeeping records of any organization, the Corporate and taxation laws prevalent in Pakistan guides us.

Payslip Example

New Employees

• Must be registered with tax and social security authorities
• Must receive a formal employment contract
• Personal and banking data required
• Employers must start pension contributions after 3 or 6 months

Leavers

• Must be paid for accrued unused vacation
• Final payment based on current salary

Employee benefits in Pakistan

This is Pakistan’s national pension system for private‑sector employees.

Coverage

Mandatory for:

• Industrial, commercial, and service establishments
• Generally applies where 5 or more employees are employed
• Applies to non‑managerial and managerial staff, unless exempt

Contributions (2026)

• Employer: 5% of minimum wage
• Employee: 1% of minimum wage
• Contributions are not based on actual salary, but on the notified minimum wage

Benefits

• Old‑age pension (after retirement age)
• Invalidity pension
• Survivors’ pension (widow/children)
• Old‑age grant (lump sum if pension conditions not met)

Retirement Age

60 years (men)

55 years (women)

EOBI is federal and applies uniformly across Pakistan.

Social Security

The employee and his dependent (spouse and children) are entitled to this benefit. It covers the following areas in:

• Health
• Maternity
• Injury
• Death

Other related issues of the employees

This benefit is paid entirely by the employer and is calculated as 6% on the net salary of the employees. However, there is an upper cap which is PKR 37,000. For employees with an income of PKR 37,000 or above, the Social Security will be the same.

Gratuity or Provident Fund

These are two separate schemes, and the employer must choose at least one. The employer can also opt for both if he wants but the minimum requirement is one. This is more like a severance package and here’s how to calculate:

Gratuity

The employer deposits one salary for each year worked by the employee. The latest salary is the basis for this.
For example, if the employee started with PKR 50,000 salary, worked for seven years with that employer and has accumulated higher salary of PKR 100,000 over the time, he will receive a gratuity of PKR 700,000. (100,000 X 7 years = PKR 700,000).

Provident Fund

In this scheme, the employer contributes 8.33% of the employee’s salary or whatever is decided by the management of the fund and the same percentage is deducted from the employee’s salary and at the time of leaving of the job, the employee will receive whole of the accumulated money.

Bonus

By law, the employer gives the employee a bonus once a year if the company has been profitable in the last year. Any employee whose employment period is more than 90 days can receive the profit bonus.
Here’s the calculation of a bonus according to the law:

• if profit is less than the total monthly wage of all employees, 15% of the profit is distributed to the qualified employees
• if profit is equal to the total monthly wage of all employees, 30% of the profit is distributed to the qualified employees
• if profit is greater than the total monthly wage of all employees, at most 30% of the profit is distributed to the qualified employees
• Also, take note that foreign employees do not qualify to receive Employees Old-Age Benefit nor Social Security

Visas & Work Permits

The Government of Pakistan grants different Work visas to eligible applicants. The companies employing expatriates are required to submit their work visa application on the E-Visa portal i.e. https://visa.nadra.gov.pk/work-general-visa/.

You can apply for two types of visas online:

• Entry: You can apply for a new visa if you do not possess a valid Pakistan visa.
• Extension: You can apply for a visa extension if you possess a valid Pakistan visa and you are residing in Pakistan.

Eligibility:
Citizens of foreign countries who have a valid job offer and meet the requirements are eligible to apply for this visa. The government also offers Business Visa:

• A Business Visa may be granted for up to 5 years.
• A Business Visa is valid for Multiple Entries into Pakistan

Entry for Business Visa List countries can be processed within 24 Hours (Working Hours) whereas Entry for Non-Business Visa List countries requires 4 Weeks (Working days); Extension visa can be obtained within 4 Weeks (Working days)

• Pakistan has a dual legal and governance system—federal and provincial
• Labour laws vary significantly between provinces
• Business registration and filings can now be completed online
• The SECP and FBR operate digital portals for compliance
• National language: Urdu; English is widely used in legal and business contexts
• Currency: Pakistani Rupee (PKR)
• Major Cities: Karachi, Lahore, Islamabad
• Climate: Extremes in summer and winter
• Tax and social contributions must be remitted monthly
• Business hours typically run Monday to Friday
• Provincial governments may operate with single or two-day weekends
• Pakistan Standard Time (UTC +5)
  
  

Further Information

For more information, or assistance with Pakistan Tax inquiries please contact: gi@activpayroll.com

About This Payroll and Tax Overview

Please note that this document gives general guidance only and should not be regarded as an authoritative or complete statement of the law, regulations or tax position in any country. This document should not be relied upon as professional advice and activpayroll accepts no liability for reliance on its contents.