Over the past few years, thousands of Pakistani entrepreneurs have looked beyond borders to expand their ventures. Many now sell to global markets through UK-registered companies – from tech startups and digital marketing agencies to Amazon FBA sellers and freelancers offering digital services.
But with this global expansion comes a common fear: “Will I have to pay tax in both the U.K. and Pakistan?”
That question isn’t just about saving money – it’s about staying compliant, building credibility, and protecting your hard-earned profits. This is where the U.K.–Pakistan Double Taxation Treaty (DTT) becomes crucial.
In this guide, we’ll break down how the treaty actually works, who benefits from it, and how Xpezia Pakistan helps business owners set up and manage cross-border operations without falling into the trap of paying tax twice.
Understanding the U.K.–Pakistan Double Taxation Treaty
To put it simply, double taxation happens when the same income is taxed in two countries. For example, a Pakistani resident who earns income from a U.K.-registered company could end up paying taxes to both HMRC (UK) and FBR (Pakistan) – unless a tax treaty applies.
The U.K.–Pakistan Double Taxation Treaty, signed in 1986, was created to prevent that overlap. It ensures that individuals and companies who operate between both countries are not unfairly taxed twice on the same income.
This treaty covers:
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- → Business profits
- → Dividends, interest, and royalties
- → Independent services (freelancing, consulting, etc.)
- → Employment and property income
The goal? To determine which country has the right to tax which type of income, depending on where the business is managed, where the service is performed, and where profits are earned.
When Double Taxation Affects Pakistani Founders
If you’re a Pakistani entrepreneur running a UK company, it’s not just a theoretical issue – it’s your reality. Here are the most common cases where the treaty applies:
Running a UK company from Pakistan
If your company is registered in the UK but managed from Pakistan, HMRC may still consider your business to have a “permanent establishment” in the UK if it earns income there.
Selling to UK customers from Pakistan
E-commerce sellers, digital agencies, and consultants often serve UK clients remotely. Even if you never visit the UK, your income may be considered “UK-sourced.”
Pakistani directors of UK companies
If you receive a director’s salary or dividends from your UK company, both HMRC and FBR might want to tax that income. That’s where the treaty relief becomes essential.
Key Reliefs and Provisions Explained Simply
Let’s look at some of the most relevant articles in the treaty and what they mean in plain English:
Business Profits
Your business profits are taxed only in the country where the business is effectively managed, unless you have a permanent establishment (office, branch, or warehouse) in the other country.
Example:
If you manage your UK-registered company entirely from Karachi and have no physical presence in the UK, Pakistan has primary taxation rights.
Dividends
Dividends paid from a UK company to a Pakistani resident can be taxed in both countries, but the UK’s withholding tax is capped at 15% under the treaty.
Independent Personal Services
If you provide consulting, design, or digital services, your income is taxed where your work is performed.
Example:
A Pakistani consultant working remotely for a UK firm pays tax in Pakistan, not the UK – unless you have a fixed base in the UK.
Elimination of Double Taxation
This article allows you to claim a tax credit in one country for taxes paid in the other. So, if you paid corporate tax in the UK, you can deduct that amount when filing taxes in Pakistan.
Common Tax Mistakes Pakistani Entrepreneurs Make
Even with a treaty in place, many founders still fall into traps that cost them money and compliance issues.
Registering a UK company without understanding residency rules
HMRC checks where your company is “controlled and managed.” If that’s Pakistan, you may still owe tax there.
Ignoring VAT and import obligations
If you sell physical products to UK customers, you might need to register for VAT – even if you’re based in Pakistan.
Not claiming double-taxation relief properly
You must file for treaty relief using proper documentation. Many business owners simply pay both taxes out of confusion.
No record of taxes paid abroad
Without receipts, invoices, and tax certificates, you can’t claim foreign tax credits. Proper bookkeeping is crucial.
Using personal accounts for business income
Mixing funds can trigger unnecessary tax scrutiny from both HMRC and FBR.
How Xpezia Pakistan Helps You Stay Compliant
At Xpezia Pakistan, we work with founders who want to think globally but operate smartly. Whether you’re forming a new UK entity or already running one, we ensure your tax strategy aligns with the treaty from day one.
UK Company Formation with Tax Planning
We don’t just form your company – we structure it correctly based on your goals.
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- → Selecting the right company type (Limited Company, Non-resident setup, etc.)
- → Registering with Companies House and HMRC
- → Helping you open UK business banking (Wise, Revolut, etc.)
- → Building your compliance calendar (tax returns, annual filing, etc.)
Double Taxation Guidance & Residency Analysis
We perform a tax residency and source analysis to determine:
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- → Where your income will be taxed
- → How to legally minimize your exposure in both jurisdictions
- → How to claim treaty benefits under Article 23
Ongoing Tax & Compliance Support
Our specialists work with UK-based partner accountants to:
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- → File Corporation Tax and VAT returns
- → Manage payroll (if you pay UK employees)
- → Apply for Foreign Tax Credit certificates in Pakistan
- → Handle FBR coordination for overseas income declarations
- → File Corporation Tax and VAT returns
The result: your setup stays compliant, optimized, and audit-ready in both countries.
Pakistani eCommerce Seller with a UK Company
Scenario:
Sara, an eCommerce entrepreneur from Lahore, sells home décor products on Amazon UK. She registers a UK LTD company through Xpezia.
Here’s how the double taxation treaty helps her:
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- → Sara’s company pays 19% Corporation Tax in the UK on its profits.
- → When she repatriates income to Pakistan, she declares it under FBR and claims a foreign tax credit for the tax already paid to HMRC.
- → Her effective tax burden remains balanced – she avoids double taxation.
Without treaty planning, Sara might have paid up to 30–40% more in combined taxes.
Why Proper Treaty Planning Matters
Ignoring the treaty doesn’t just mean overpaying taxes – it could lead to compliance red flags.
Benefits of correct setup:
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- → Prevents legal disputes and double charges
- → Builds investor trust (clear international tax documentation)
- → Simplifies profit repatriation to Pakistan
- → Opens doors for UK banking, grants, and business loans
- → Prevents legal disputes and double charges
Get Expert Help Before You File
Setting up a company abroad is exciting – but tax mistakes can drain your profits fast. Whether you’re a freelancer, agency owner, or eCommerce founder, your setup deserves clarity and compliance from day one.
Xpezia Pakistan offers a specialized consultation for Pakistani entrepreneurs planning UK company setups or managing cross-border income.
Book your UK Tax Consultation today and learn how to:
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- → Avoid double taxation legally
- → Optimize your UK–Pakistan business structure
- → Protect your profits with professional planning
- → Avoid double taxation legally
Visit xpezia.com or contact our Karachi team to schedule your session.
Frequently Asked Questions
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Can I form a U.K. company if I live in Pakistan?Yes, absolutely. Pakistani residents can legally form a U.K. Limited Company even if they are not physically present in the U.K. You’ll only need a registered U.K. address (which Xpezia can provide) and basic director/shareholder details. The process is fully digital and usually completed within 24–48 hours through Companies House. After registration, you must handle essential filings like Corporation Tax registration with HMRC and annual reports. With Xpezia’s help, you’ll receive step-by-step guidance - from choosing the right structure (LTD or non-resident entity) to managing all compliance documents smoothly.
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Will I need to pay tax in both countries?Not necessarily. Thanks to the U.K.–Pakistan Double Taxation Treaty, you won’t have to pay tax twice on the same income. The treaty allows you to claim “foreign tax credit” - meaning any tax you pay in the U.K. can be adjusted against your Pakistan tax liability. The key is proper filing and documentation to prove where the income was earned. Xpezia helps you identify tax residency, apply the treaty benefits correctly, and avoid double payments. With professional guidance, you can stay compliant in both countries while maximizing tax efficiency.
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Do I need a U.K. address or bank account?Yes, a registered U.K. address is mandatory for forming a company because it’s required for Companies House and HMRC correspondence. However, you don’t need to physically rent an office - Xpezia offers virtual office and mailing address solutions for non-resident founders. A U.K. bank account is optional but highly recommended, especially for receiving client payments or managing VAT refunds. Many founders now use fintech options like Wise Business, Payoneer, or Revolut, which are accepted by HMRC. Xpezia guides you in setting up the right banking and address solutions from Pakistan.
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What taxes do I need to file in the U.K.?Once your U.K. company is registered, you’ll need to file Corporation Tax returns, annual Company Accounts, and a Confirmation Statement each year. Depending on your business model, you may also register for VAT (if annual turnover exceeds £90,000) or PAYE if you hire employees. Failing to file these on time can result in penalties from HMRC. Xpezia’s consultants create a personalized tax calendar and handle filings on your behalf, ensuring compliance and peace of mind. With timely reminders and documentation support, you’ll never miss a deadline.
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Can you help me if I already formed a U.K. company?Yes - Xpezia can take over your existing setup and provide a complete compliance review. Many Pakistani founders register U.K. companies but later struggle with HMRC filings, VAT returns, or understanding residency rules. Our experts review your structure, correct any past errors, and align your tax filings with the U.K.–Pakistan treaty. We also handle backdated returns and guide you on claiming reliefs for taxes already paid. Whether you need one-time advisory or ongoing support, Xpezia ensures your company remains legally sound and financially optimized.
