Pakistan-related matters

READOUR ADVICE ON SELLING PROPERTY IN PAKISTAN

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In our experience, many Norwegian-Pakistanis own property in Pakistan that has not been reported to the Norwegian tax authorities because they are afraid of being taxed. However, there is no reason to be afraid of reporting your property in Pakistan to the tax authorities. It is a myth that you will be heavily taxed for assets abroad. Nor is there an automatic tax liability for property you own in Pakistan.

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This article provides information and specific advice on how to proceed if you want to transfer money from Pakistan to Norway after selling a property.

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Should property I own in Pakistan be reported to Norwegian tax authorities?

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Yes, absolutely all property you own in Pakistan must be reported to the tax authorities. The reporting is done through your tax return. The reporting obligation applies to those who are considered resident in Norway for tax purposes. The fact that you report your property in Pakistan to the tax authorities does not necessarily mean that you are liable to pay tax.

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I have received the property in connection with an inheritance settlement. Am I still obliged to report the property?

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You are obliged to report on the property, regardless of whether you have purchased, inherited or otherwise become the owner of the property. Whether you should pay tax on the property in Norway must be assessed on a case-by-case basis. If you have inherited the property, the date of inheritance is used as the basis for when you became the owner. If there is an ongoing inheritance dispute, your assets will only be equal to your share of the estate until the inheritance settlement is final.

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What value for the property should be determined in the tax return?

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For properties that have not previously had an asset value determined according to Norwegian rules, the asset value is set at a maximum of 30 percent of the market value abroad. Ask a real estate agent in the area to provide you with a valuation of the property, to the extent possible. Insa advokater can put you in touch with the right people in Pakistan if you wish.

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What do I have to pay if I report to the Norwegian tax authorities?

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In 1986, Norway and Pakistan entered into a tax treaty that aims to avoid double taxation. This means that if, for example, you have paid tax on the rental of the property in Pakistan, you will not pay tax on it in Norway. The same applies if you have paid tax on gains from the sale of the property in Pakistan. However, the value of the property will be included in the calculation of your wealth in Norway. You must pay wealth tax on this if your wealth is large enough.

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What happens if the property is reported in Norway?

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If it turns out that you should have paid wealth tax in Norway or paid more wealth tax than you already do, you can request a voluntary correction (so-called tax amnesty). In 2023, spouses with assets of less than NOK 20 million will only pay 1% wealth tax on net assets above NOK 3.4 million. Single people with assets of less than NOK 20 million will pay 1% on net assets above NOK 1.7 million. 1.7 million.  

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Whether your property in Pakistan results in increased wealth tax must be assessed on a case-by-case basis. If you apply for voluntary correction, you risk paying late payment interest and wealth tax for the period you should have paid tax.

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What documents and information do I need if the property is to be reported in Norway?

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Conditions that are important to clarify: How long have you owned the property? Is the property rented out? Is tax paid on any rental income? What is the value of the property?

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Is there tax on the sale of property in Pakistan?

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According to the tax treaty between Norway and Pakistan, if you have paid tax on the gain from the sale of property in Pakistan, you will not pay tax on it in Norway. If you have sold your holiday home in Pakistan and the sale has triggered capital gains tax in Pakistan, you will not pay tax on the property in Norway.

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If no tax has been paid on the gain of a holiday home abroad, the sale is tax-free in Norway if you have:

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• owned the property for at least five years, and
• you have used the property as your own holiday home for at least five of the last eight years prior to the sale.

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I want to transfer the money to Norway. Can I do that?

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Yes, it is completely unproblematic to transfer money from Pakistan to Norway. Make sure that your tax situation in Norway is in order before you transfer the money here.

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Read more about Norwegian-Pakistanis' obligation to report their assets in Norway here.

Despite the political unrest, there are major investment opportunities in Pakistan. With a population of over 220 million people, there are large markets for various business activities such as retail, restaurants and hotels, real estate, education and healthcare, etc.

Investors from abroad, such as Norway, may face various challenges when starting a business in Pakistan.

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Firstly, the business must normally be run through an enterprise. There are several different company forms to choose from. The most common is the Private Limited Company. This form of company is the closest thing to a Norwegian limited company. The company must be registered in accordance with Pakistani law and it is required to prepare and submit a Memorandum of Association and Articles of Association. In addition, the company is required to have two "Directors". Once the company is registered, bank accounts are established and an accountant must be engaged.

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The necessary public permits must then be obtained for the business in question. For example, if you want to start a private school, you must apply for registration with the Ministry of Education. This requires the following:

- Approved map of the school building

- An attested Affidavit showing name of school, level, owner's name

- Copy of Rent deed / Ownership deed

- Printed Prospectus and Admission Form

- Teachers Appointment order and their Testimonials

- Building Fitness Certificate from registered engineer or registered architect

- Hygienic Condition Certificate from DHO, Health Department

- Rules & Regulations of the Institution

- Memorandum of the Association in case of Registered Body

- Registration Certificate in case of NGO / Association / Body / Registered by Authority Joint Stock / Social Welfare Department

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Similarly, it may be necessary to register other types of businesses.

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Insa advokater assists clients in registering companies, applying for the necessary permits, registering businesses and obtaining the necessary documentation and certificates. In addition, we assist investors with tax matters and marketing.

Insa lawyers have recently assisted Norwegian-Pakistanis who want to sell their properties in Pakistan and bring the money back to Norway.

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In this context, we have assisted clients with the following:

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• Sale of property
• Drafting of agreements and execution of settlements
• Transfer of money to Norway
• Reporting assets to the tax authorities/applying for tax amnesty

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For those who have spent large parts of their lives in Norway, this type of process in Pakistan can appear very complicated and difficult. Therefore, it may be desirable for many to hand over responsibility for the entire process to a professional player based in Oslo. We can assist with everything from marketing and selling the property until the money is in your account in Norway.

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When drawing up sales agreements and deeds, it is important to remember that the money is to be transferred to Norway. When transferring the money, it will be necessary to document where the money comes from and why it is to be sent out of the country.

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In connection with the settlement, it is convenient to receive the money in an account in Pakistan. When transferring money to Norway, you will normally encounter a number of challenges. In our experience, the local banks normally reject a request to transfer money abroad, saying that this is only possible in connection with studies or for treatment of illness. Although there are severe restrictions on money transactions abroad, it is still possible to legally transfer money abroad. It is required that an application be submitted to the State bank to apply for permission to transfer the money first. Such an application must be submitted via a bank or foreign exchange company.

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When choosing a foreign exchange company, we focus on how much money we can transfer, how quickly the transfer can be made and how much the foreign exchange company charges. Our clients have been satisfied with the company we use.

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Some of the people who have assets in Pakistan have not reported them to the tax authorities. They can still do so without risking sanctions if the conditions for tax amnesty are met.

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Do you have questions or need help in connection with the transfer of assets from Pakistan to Norway? Contact us and we'll figure out the way forward together.