In Pakistan, partnerships are governed under the Partnership Act, 1932 and taxed under the Income Tax Ordinance, 2001. For taxation purposes, all partnerships—whether registered or unregistered—are classified as Associations of Persons (AOPs). The taxation of AOPs depends on the nature of income, total taxable income, and compliance status with the Federal Board of Revenue (FBR).
Types of Partnerships in Pakistan
General Partnership
This is the most common form of partnership in Pakistan, where all partners are personally liable for business obligations. Each partner shares in the profits and losses of the firm either equally or according to an agreed ratio.
Limited Partnership
This structure includes both general and limited partners. Limited partners contribute capital and share profits but are not involved in daily operations and are only liable up to their capital investment.
Taxation Structure for Partnerships (AOPs)
Income from Business or Profession
AOPs are taxed on their net business income as per the progressive tax slabs notified by FBR each year. For Tax Year 2025, the latest income slabs are:
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Up to PKR 400,000 – 0%
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PKR 400,001 to 600,000 – 5% of the amount exceeding PKR 400,000
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PKR 600,001 to 1,200,000 – PKR 10,000 + 10% of the amount exceeding PKR 600,000
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PKR 1,200,001 to 2,400,000 – PKR 70,000 + 15% of the amount exceeding PKR 1,200,000
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PKR 2,400,001 to 3,000,000 – PKR 250,000 + 20% of the amount exceeding PKR 2,400,000
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PKR 3,000,001 to 4,000,000 – PKR 370,000 + 25% of the amount exceeding PKR 3,000,000
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Above PKR 4,000,000 – PKR 620,000 + 30% of the amount exceeding PKR 4,000,000
Capital Gains
Short-term capital gains on securities (held less than one year) are taxed at 15% to 20%
Long-term gains (held more than one year) are taxed at 0% to 15% depending on holding period
Capital gains on immovable property may also be taxed under separate slabs defined by FBR
Rental Income
Rental income earned by AOPs is taxed separately at progressive slab rates ranging from 15% to 30%, based on total rental income in a tax year
Dividend Income
Dividend income received by the partnership is taxed at 15% for ATL (Active Taxpayers) and 30% for non-ATL members
Profit on Debt
Income from profit on bank deposits and debt instruments is taxed at 15% (ATL) or 30% (non-ATL)
Other Applicable Taxes on Partnerships
Sales Tax
If the partnership is involved in the sale of goods or taxable services, it must be registered for sales tax. The general sales tax rate is 18% under the Sales Tax Act, 1990
Federal Excise Duty (FED)
Applicable only if the partnership is engaged in manufacturing or providing excisable goods or services
Withholding Tax (WHT)
AOPs are required to deduct and deposit withholding tax under various sections such as payments to contractors, rent, and salaries
Advance Tax Under Section 147
All AOPs with taxable income must pay advance tax on a quarterly basis
Minimum Tax Under Section 113
If an AOP reports a loss or low taxable income, a minimum tax of 1.25% of turnover is applied (subject to exceptions and thresholds)
Partnership Registration and Tax Compliance
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Choose a business name and check availability with the Registrar of Firms
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Draft a Partnership Deed detailing profit-sharing ratios, roles, and capital contributions
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Register the firm with the Registrar of Firms under the applicable provincial law
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Obtain National Tax Numbers (NTNs) for both the firm and its partners from FBR
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Register for Sales Tax if applicable
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File annual income tax return and wealth statement through IRIS system
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Register with Social Security (PESSI) and Employees’ Old-Age Benefits Institution (EOBI) if employing staff
