Pakistan Foreign Tax Credit & PRC Guide (Section 103)
How Section 103 foreign tax credit works in Pakistan - PRC (Proceeds Realization Certificate) requirements, the 154A 0.25% PSEB final tax vs slab rates, and how to claim the credit in IRIS.
What a PRC is
The Proceeds Realization Certificate (PRC) is a document issued by your bank that proves a foreign remittance landed in your Pakistani account through official banking channels. It carries the date, sender, amount in foreign currency, the conversion rate the bank applied, the PKR amount credited, and any deductions. PRCs are the primary evidence FBR accepts for two things: claiming the Section 154A 0.25% final tax for PSEB-registered IT exporters, and claiming Section 103 foreign tax credit against tax paid abroad.
Two regimes for foreign-source income
Section 154A (PSEB-registered IT exporters): platform earnings and direct foreign-client receipts routed through the bank are taxed at a flat 0.25% as final tax. No slabs, no other deductions - the bank deducts it at source on realisation. Section 103 (everyone else): foreign-source income is added to your taxable income and slab rates apply, but you can claim a credit for income tax paid abroad on that same income. The credit is capped at the Pakistani tax attributable to the foreign income, computed as (foreign income / total taxable income) × Pakistani tax. Excess foreign tax cannot be refunded or carried forward.
Which regime is better?
PSEB at 0.25% almost always wins for IT exporters whose income is the bulk of their earnings. Section 103 is the only option for non-PSEB freelancers, foreign-dividend recipients, salaried filers seconded abroad, and anyone whose foreign tax paid abroad is meaningful (e.g. US dividend WHT, EU contractor invoices subject to local TDS). Register with PSEB at pseb.org.pk if you're a software / IT services exporter - the 0.25% saving easily pays the annual fee.
Computing the Section 103 cap (worked example)
Total Pakistani taxable income PKR 5,000,000, foreign income PKR 1,000,000, foreign tax paid PKR 350,000. Pakistani slab tax on 5,000,000 (non-salaried, TY 2025-26) = roughly PKR 920,000. Section 103 cap = 920,000 × (1,000,000 / 5,000,000) = PKR 184,000. Allowable credit = min(350,000, 184,000) = PKR 184,000. The remaining PKR 166,000 of foreign tax is lost (Pakistan does not refund or carry it forward). Use the Foreign Tax Credit calculator to model your own numbers.
What FBR / IRIS expects you to attach
PRCs for every foreign remittance during the tax year, in PDF. A summary statement from your bank for the year is acceptable in place of individual PRCs if the bank's letter lists each transaction. Foreign tax certificates (W-2 / 1099 / equivalent local payslip) showing the tax paid abroad. SBP year-end conversion rate, or the bank's actual exchange rate on each PRC. If you're salaried abroad, attach the employer's annual statement. Without a PRC, the bank's SWIFT advice alone is not enough - FBR has rejected credit claims that relied only on SWIFT confirmations.
Currency conversion - which rate to use
Convert each foreign-currency receipt to PKR at the SBP year-end interbank rate, OR at the bank's actual realisation rate on each PRC. The two approaches give slightly different totals - either is defensible if applied consistently across all receipts in the year. Mixing approaches (year-end rate for one PRC, realisation rate for another) is a red flag at audit. Document your choice in a footnote on the wealth statement.
Pitfalls to avoid
Claiming a Section 103 credit while your foreign income falls under Section 154A (PSEB) - the credit is then nil because the income isn't being slab-taxed at all. Claiming credit on foreign-tax that was actually a sales / VAT-equivalent rather than income tax - only income tax qualifies. Forgetting that the cap is on the Pakistani tax attributable to the foreign income, not your total Pakistani tax. Trying to carry forward excess foreign tax - Pakistan, unlike the US or UK, does not allow it. Missing the bank's PRC fees / charges deduction - the PRC shows the gross PKR credited; you must reconcile it against your bank statement net of fees.
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