Sole Proprietorship in Pakistan

Introduction:

A sole proprietorship is a type of business that is owned and run by one individual and in which there is no legal distinction between the owner and the business.

The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. Every asset of the business is owned by the proprietor and all debts of the business are the proprietor’s. A sole proprietor may use a trade name or business name other than his or her legal name.

Advantages:
  • You are a boss.
  • It is easy to organize and may be started with small amount of money.
  • It permits a high degree of flexibility to the owner since he/she is the boss of the business establishment.
  • Due to the owner’s unlimited liability, some creditors are more willing to extend credit.
  • The owner receives all the profit of the business.
  • No risk of fraud by a partner.
  • Quick decision making
Disadvantages:

The enterprise may be crippled or terminated if the owner becomes ill and in his/her absence no proper mechanism exists to manage and run the business. Since the business has the same legal entity as the proprietor, it may ceases to exist upon the proprietor’s death, and also if no one from the family is available to take over the business legitimately. Because the enterprise rests exclusively on one person, it often has difficulty in raising long-term capital.

  • Has limited resources. Banks are reluctant to grant loans to proprietorship considering its small assets and high mortality rate.
  • Unlimited liability for business debts. The single owner is responsible for paying all debts and damages of their business.
  • If the firm fails, creditors may force the sale of the proprietor’s personal property as well as their business property to satisfy their claim.
  • When the owner dies, the continuation of the business is difficult, because a new owner must typically accept all liabilities of the business.
  • bear risk and loss alone.

Registration Procedure for Proprietors


For running a proprietary business legitimately, NTN is required to be obtained on business name to fulfill statuary compliance as per Tax Laws.


Obtaining National Tax Number – NTN:

Taxpayer Registration means, obtaining National Tax Number (NTN) from the Federal Board of Revenue (FBR) for making taxable transactions. NTN can be obtained by any of the following two ways:

  1. Apply online at FBR Portal by visiting https://e.fbr.gov.pk
  2. Apply on paper at any of the Taxpayer Facilitation Centre (TFC Centers’ list given below)

Online Income Tax Registration Procedure for Business Individuals:


You can apply online for new registration by performing following steps:

Step 1:
  • Visit the FBR Portal at https://e.fbr.gov.pk
  • Select “New e-registration” from the dropdown of “e-Registration menu”
Step 2:
  • Select the taxpayer type (Individual)
  • Enter the data in front of following captions appearing on the screen:
  • Enter the CNIC/NTN/Reg.Inc, according to the selected taxpayer type
  • Enter Name of taxpayer
  • Enter “Image character”
  • Click “Ok”
Step 3:

On next screen complete all the particulars appearing on the form. You may save the form with available information and resume at alter stage if so required. With other details following information is required to complete form:-

  • Bank account detail on business name is must for all business concerns.
  • Proof of premises providing nature, detail of owner, utility reference numbers is required.
Step 4:

After completion of the online registration form, verify the form by clicking the “Verify” button

Step 5:

After successful verification, submit the form by Clicking “Submit” button. System will assign a Token Number which should be noted for checking the status of the application either online or by calling at 24-Hrs help line at 051-111-772-772.

Step 6:

Once the taxpayer registration application is approved, the system will send an e-mail to you. Approx. time for verification is 3-working days.

Step 7:

The NTN Certificate can be obtained by visiting any of Taxpayer Facilitation Centers and submitting a duly signed copy of the online application along with required documents (Copy of CNIC, Last Paid Electricity Bill, and Letter Head).

Note: There is no fee for getting NTN certificate.
Filing Annual Income Tax Return:
It is mandatory for a taxpayer to file Income Tax Returns annually.
  • Accounting Period: July 1- June 30
  • Filing Period: Annual Income Tax Returns are normally filed in September. However dates can be extended as per Government directives.
  • Every proprietor business individual has to file  Income Tax Return irrespective of date of starting a business.

Focal Contacts:

Further details can be obtained from the following departments.


NTN Cells Address in Pakistan

Mr. Naveed Akhtar, IIR
T.F KIOSK-1, I-8,
Habibi Restaurant Parking,
Islamabad, Pakistan
M: +92-300-5337628
Mr. Javed Iqbal, IIR
T.F KIOSK-2, G-8,
(Islamabad Chamber of Commerce & Industry),
Islamabad, Pakistan
M: +92-333-5137652

Note:

In order to avail various electronic services (e-Services) offered by FBR such as Changing the Registration Particulars, e-Filing of Returns (Sales Tax and Income Tax), e-Filing of Withholding tax Statements, e-Payments, etc.; you may apply for e-Enrollment (enrollment from the menu)and user-id, password and PIN.