Understanding Freelancer Taxes in Pakistan: Complete Guide

If you are a freelancer in Pakistan, you are probably uncertain about how to file your taxes. Rest assured, you are not the only one. Freelancing is booming in Pakistan, with a huge number of workers earning an international income. However, these professionals have struggled with understanding tax compliance, NTN registration, and other responsibilities to be on the active taxpayers list. 

The government of Pakistan has played its part by streamlining the process through FBR, providing you with their IRIS system, but other services are coming to your aid to make this a walk in the park. 

In this article, we will talk about everything you need to know about taxation in Pakistan as a freelancer and what additional services you can use to help you. 

Let’s dive in. 

Tax Regimes: Exported Services vs Local Services

As a freelancer, you either export your services or offer them to local clients. In either case, taxes apply differently to you. 

Serving Foreign Clients 

If you are providing services to clients outside of Pakistan and you are bringing the remittance back into the country, your income will be treated under the export regime program. Under this regime, the following tax rates will apply:

• If you are registered with PSEB (Pakistan Software Export Board) as an IT/IT-enabled services exporter/freelancer, a full and final tax of 0.25% of gross export receipts will apply (subject to conditions). 

• If you are not registered with PSEB, the withholding/final tax rate is 1% on export proceeds. 

• The export of services tax deducted under section 154A is considered a final tax (i.e., no further tax on that portion) if you satisfy conditions. 

So, you can benefit from a low tax rate of 0.25% as long as you are meeting the conditions, like being PSEB registered, maintaining proof, bringing in funds via banking channels, etc. 

Serving Local Clients

When it comes to serving local clients, you are taxed under the normal tax regime after deducting allowable business expenses. The tax slabs for this tax regime for the year 2025-26 are given below: 

Your local client can deduct withholding tax depending on their withholding agent status and their filer vs non-filer status. But they must be paying you through proper banking channels. 

Whether your clients are local or international, maintaining records of costs, revenues, and invoices is vital and will come in handy when you’re filing your taxes. 

Importance of Banking Channels and Proceeds Realization Certificate (PRC) 

In order to be eligible for the right tax regime, it is essential that you use approved banking channels. This means using authorized dealers and banks for receiving your funds. Additionally, you need a bank that issues you a Proceeds Realization Certificate (PRC)

What is a PRC?

A Proceeds Realization Certificate (PRC) is an official document issued by a bank or authorized dealer confirming that a foreign currency remittance has been received and realized in Pakistan, and converted into rupees or credited to the recipient’s account. Each PRC carries an export code (or another relevant State Bank of Pakistan (SBP) code) that specifies the nature of the exported services, including IT and IT-enabled services (IT/ITeS).

This certificate serves as proof of legitimate foreign income and is required by institutions such as the Federal Board of Revenue (FBR), auditors, and the Pakistan Software Export Board (PSEB) to verify that the remittance was received through approved banking channels. A PRC is issued once the freelancer completes the remittance formalities and provides the necessary supporting documents to the bank branch or authorized dealer.

The PRC is crucial for freelancers exporting their services, as it substantiates that their foreign income qualifies as export earnings. Without a valid PRC, the FBR may dispute the classification of income, potentially disallowing favorable tax rates and treating the earnings as ordinary business income instead. Furthermore, a PRC is a mandatory requirement for PSEB registration and renewal, making it an essential document for freelancers who wish to maintain tax compliance and access official incentives available to Pakistan’s export sector.

How Elevate Pay and Befiler Simplify Your Freelance Tax Journey

Elevate Pay is providing freelancers in Pakistan with a free US-based USD account. With Elevate Pay, freelancers can receive and save their income in USD. Freelancers can instantly bring money home from the Elevate Pay account, benefitting from a flat fee of $1.50 and the best FX rates in the market. Furthermore, Elevate Pay provides you with the PRC to help you substantiate your foreign income and streamline your taxation. 

You can get started with Elevate Pay on your Android or iOS device in just 3 simple steps. Sign up, complete KYC, send money home. 

Befiler, on the other hand, provides tax consultancy services across Pakistan and simplifies the complications behind becoming an active taxpayer. Befiler has helped hundreds of freelancers manage their tax returns. With Befiler, for just Rs. 3,500, you get a tax expert helping you every step of the way. Sort your taxes and avail all the benefits of being a filer by joining hands with Befiler. 

Staying Eligible for the 0.25% Tax Regime: The 80% Rule

To continue enjoying the low 0.25% or 1% tax rate, you must ensure that at least 80% of your export income is received in Pakistan through approved banks during the tax year. This means most of your freelance earnings should be received through proper banking channels rather than left in platforms or foreign accounts.

If less than 80% of your income is brought in through banks, the FBR may not treat it as export income, and you could lose access to the lower final tax rate. Instead, your income might be taxed under the higher, normal rates that apply to local business income.

To stay compliant, keep things simple: track your invoices, bank statements, and Proceeds Realization Certificates (PRCs). Make sure your records clearly show that at least 80% of your earnings were received in Pakistan through banks. 

How to Register for PSEB and Its Importance 

If you provide IT or IT-enabled services to your overseas clients, registering with PSEB will bring you many benefits. Most importantly, you will be eligible for a 0.25% final tax rate as opposed to the standard 1%

Beyond tax benefits, PSEB registration also helps build your credibility with clients and banks. It can open doors to government programs and other benefits discussed later in this article.

You can get registered with PSEB in a few simple steps:

1. Apply on the PSEB or Tech Destination portal (for freelancers or IT service providers).

2. Submit documents: CNIC, NTN, bank details, proof of freelance work, client invoices, and past remittances.

3. Pay the registration fee (PKR 1,000 for new freelancers, PKR 2,000 for renewal).

4. Wait for approval and get your PSEB Certificate.

Once approved, you will receive a PSEB certificate number that you can share with your bank so they can apply the correct 0.25% tax rate on your export proceeds.

Keep in mind that registration must be renewed each year. When renewing, you may need to provide updated export details, tax returns, and proof of income. Some freelancers have reported that banks continue deducting 1% until the updated certificate is shared again, so it is a good idea to follow up with your bank to ensure your lower rate is applied correctly.

FBR Registration and the Benefits of Being a Filer

Once you start earning as a freelancer, the next important step is to register with the Federal Board of Revenue (FBR) and become a filer. This makes you a compliant taxpayer in Pakistan and allows you to take full advantage of the incentives available to freelancers and IT service providers.

To get started, you need a National Tax Number (NTN). You can apply for it yourself through the FBR’s IRIS portal or use a service like Befiler, which handles the process for you. During registration, you will enter your details such as your CNIC, contact information, bank accounts, and business type, whether you are working as an individual, a sole proprietor, or under a small setup.

Benefits of Being a Filer

Becoming a registered filer comes with many advantages that go beyond just compliance. Here are some of the key benefits:

• Lower tax deductions on bank transactions, payments, and investments compared to non-filers.

• Access to the 0.25% tax rate for PSEB-registered freelancers.

• Reduced withholding taxes when buying property or vehicles.

• Easier access to loans and credit cards, since banks and financial institutions prefer working with active taxpayers.

• Legal protection and peace of mind, avoiding penalties, notices, or complications from FBR.

• Credibility with clients and partners, showing that you operate professionally and transparently.

• Eligibility for government incentives and programs aimed at registered taxpayers and exporters.

By registering with the FBR and staying on the Active Taxpayers List (ATL), you build a strong financial identity while keeping more of what you earn. It also lays the foundation for long-term growth if you decide to expand your freelance business into a registered company later on.

A Freelancer’s Tax Journey: How It All Comes Together

Let’s look at a simple example to see how all these steps work in real life.

Ali is a freelance web developer who works with clients in the United States and Pakistan. To stay compliant and take advantage of lower tax rates, he starts by registering with the Federal Board of Revenue (FBR) and getting his National Tax Number (NTN). He then opens a bank account that can receive international remittances, such as an Elevate Pay account, to make sure his foreign income comes through official banking channels.

Next, Ali applies for PSEB registration as an IT service exporter. He submits his CNIC, bank details, and proof of freelance work through the online portal and receives his PSEB certificate. He shares this certificate with his bank so that when his foreign payments arrive, only 0.25% tax is deducted instead of 1%.

Over the year, Ali earns about $10,000 from international clients. He brings 90% of his total earnings into Pakistan through his bank, which keeps him well above the 80% threshold required for the low tax rate. Each time a payment is received, the bank issues a Proceeds Realization Certificate (PRC) confirming that the money was officially received.

Ali also works with a few local clients and earns PKR 500,000. He keeps records of his invoices, expenses, and payments to report them later in his tax return.

At the end of the tax year, Ali uses Befiler to file his return through the FBR IRIS portal. He reports both his export income and his local income, attaches his PRCs and bank records, and reconciles any tax already deducted. His filings show that he qualifies for the final tax regime, and he remains on the Active Taxpayers List (ATL).

By following these steps, Ali keeps his taxes low, stays compliant, and builds a clean financial record that helps him grow his freelance business with confidence.

Common Mistakes and Practical Tips for Freelancers

Even when you understand the process, it’s easy to make small mistakes that can cause problems later. Here are some of the most common issues freelancers face and how to avoid them:

• Bank applying the wrong tax rate: Some banks may keep deducting 1% even after you get your PSEB certificate. Always share your certificate with your branch and confirm they have updated your status.

• Delays in getting the PRC: Banks sometimes need follow-up before issuing your Proceeds Realization Certificate. Submit all required documents promptly and keep a record of your requests.

• Not bringing enough funds into Pakistan: To qualify for the 0.25% or 1% final tax regime, make sure at least 80% of your foreign income is received through your bank. Avoid leaving too much in digital wallets or foreign accounts.

• Mixing personal and business funds: Use a separate bank account for your freelance work to keep transactions clear and easy to track.

• Forgetting to file your tax return: Even if tax has already been deducted, you must still file your annual return to stay on the Active Taxpayers List (ATL) and enjoy lower rates.

• Ignoring local taxes: If you also serve clients within Pakistan, make sure you understand any applicable provincial taxes.

• Not renewing your PSEB registration: This must be renewed annually to continue receiving the 0.25% rate. Set a reminder before the renewal deadline.

• Relying on outdated information: Tax laws and rates can change every year. Always check the latest Finance Act or consult a tax expert before filing.

By keeping your banking records and filings organized, you can avoid most of these issues. Staying compliant is not only about avoiding penalties — it builds your credibility with clients, banks, and institutions, and allows you to enjoy all the benefits that come with being a registered and responsible freelancer in Pakistan.

Conclusion

Freelancing in Pakistan offers incredible opportunities, and understanding your tax responsibilities is the key to making the most of them. By keeping your payments within approved banking channels, meeting the 80% rule, registering with PSEB, and filing your taxes through FBR, you can enjoy lower tax rates and stay fully compliant.

Tools like Elevate Pay make it easier to receive international payments and get your Proceeds Realization Certificates (PRCs), while platforms like Befiler simplify registration and tax filing. Together, they remove much of the confusion that freelancers often face.

With the right setup, you can focus on growing your freelance business while knowing your taxes are in order. A little effort toward compliance goes a long way in building credibility, financial stability, and peace of mind as a professional freelancer in Pakistan.