Understanding the CFC Regime
How foreign companies operating in Pakistan are regulated
Pakistan has adopted the controlled foreign companies (CFC) regime by inserting section 109A into the Income Tax Ordinance, 2001, (ITO) through Finance Act 2018 so as to prevent base erosion and profit shifting (BEPS). Tax year 2019 is the first year for enforcement of the CFC regime under which income attributable to a CFC will be taxed in the hands of a Pakistani resident person. It is, therefore, essential for the Pakistani resident persons having CFCs to understand the CFC regime as it will help them make timely decisions about business operations in foreign jurisdictions. Existing entities in foreign jurisdictions with little or no substance may be removed. Similarly, business structures may be simplified by restructuring business operations, revaluating supply chain and examining potential risks to ensure better compliance of the CFC regime.
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