Real Estate / Property Registration and Taxation Implications in Pakistan

WHAT IS PROPERTY/REAL ESTATE LAW?

Property law is the area of law that governs the various form of ownership in real property (land as distinct from personal or movable possessions) and in personal property, within the common law legal system. In the civil law system, there is a division between movable and immovable property. Movable property roughly corresponds to personal property, while immovable property corresponds to real estate or real property, and the associated rights and obligations thereon.

 LAW AND LEGISLATION REGULATING PROPERTY/REAL ESTATE IN PAKISTAN

Real Estate/Property Law is regulated under various statutes in Pakistan. Laws for individual businesses and taxation of different lands may vary, for example, Capital gain Tax is levied under Income Tax Ordinance, 2001, Capital Value Tax is levied under CVT ordinance, and so forth. However specific law for property/real estate acquisition and sale include the following :e

• The Transfer of Property Act, 1882
• Land Revenue Act, 1967
• Stamp Act 1899
• Registration Act 1908

 Establishment of Real Estate Investment Trust in Pakistan

 The concept of Real Estate Investment Trust has recently been introduced in Pakistan as an incentive for real estate investment in Pakistan. Any income of such trust is exempted from tax, subject to the condition that not less than 90 percent of its profit of the year is distributed amongst the unit holders.

TAXATION OF GAINS FROM REAL ESTATE IN PAKISTAN

The Constitution excludes legislation on taxation of capital gains from the purview of the federal government. The income tax law has also been harmonized with these constitutional provisions by excluding the immovable property from the definition of capital asset, whose gain is liable to tax.

Despite this, profits on some transactions concerning immovable property is taxable under the income tax law e.g. disposal of property acquired as a stock in trade or with commercial intent to make profit. However, gains realized on disposal of immovable property transferred as a consequence of family inheritance, gifts or without commercial motives, or the property held as a business capital asset are exempt.

TAXATION BY THE LOCAL AUTHORITIES/PROVINCIAL GOVERNMENTS IN PAKISTAN

In Pakistan Property Tax/Real estate tax is also imposed by the provincial governments as this was the practice prepartition.

 CAPITAL VALUE TAX ON REAL ESTATE RELATED TRANSACTIONS IN PAKISTAN

 A Capital value tax at the rate of 2 percent of recorded value has been levied vide Finance Act, 2006, which was subsequently increased vide finance act, 2009 to 4%. This is applicable in urban areas for residential property exceeding an area of one kanal and in case of commercial properties without any threshold of land area or size of the property. All transfers falling under the scope of purchase, gift, exchange, surrender, power of attorney and relinquishing the rights have been subjected to the capital value tax.

However, transactions between spouses, parents, grand parents, brothers and sisters through gift and inheritance have been excluded from its purview.

Real Estate/Property Law and Taxation implications for the Landlord in Pakistan

Landlord must ensure that lease of an immovable property is executed in writing under the specified ordinance. Lease of immovable property for a period of less than a year does not require compulsory registration. However, lease of immovable property for a period of more than a year must be registered. Land lord should ensure proper tax deductions are done by the lessee and in case the same is not done he (individual /or company) may be required to deposit the tax with the treasury in due time.

If the tenant refuses to pay rent, or for any other reason as stated in the lease agreement and allowed under the law, the landlord may terminate the lease. If the tenant refuses to vacate the premises the landlord may file an ejectment petition before the relevant rent controller.

Real Estate/Property Law and Taxation implications for the Tenant in Pakistan

Tenant must ensure that he makes payment of the rent either through a crossed cheque, or where payment is made through some other mode, then a receipt must be obtained from the landlord. In case the landlord unlawfully or unjustifiably attempts to evict the tenant, the tenant may file a petition before rent controller in addition to availing other legal remedies as advised by his counsel.

If Lessee is a prescribed person under tax law he should ensure proper tax deductions on payment of rent.

ACQUISITION OR PURCHASE OF REAL ESTATE/PROPERTY  IN PAKISTAN

Purchasing a real estate in Pakistan can be a tricky process due to lack of a standardised system in Pakistan, therefore, a complete and thorough search in respect of title of the seller to the real estate must be carried out. A general practice is to investigate title of the current vendor and any previous owner(s) for the last 20 years. Original title document in favour of the vendor must be obtained alongwith other relevant documents including mutation in favour of the vendor, a fresh copy of fard, aks shajra and NOC/NEC as the case may be.

If the transferee is selling the property in the capacity of an attorney of the owner then it must be ensured that the power of attorney is affixed with appropriate stamp duty and it has been duly registered with the relevant sub-registrar. If possible, contact should be made with the owner(s) of the property and authenticity of the power of attorney must be confirmed. A holder of a forged and fabricated power of attorney may not be able to transfer a valid title in an immovable property to a third party.

• Can Overseas Pakistanis and/or Foreigners invest in Pakistan Real Estate Industry

Non-resident Pakistanis, overseas Pakistanis and foreigners may also purchase immovable property in Pakistan. Their presence in Pakistan at the time of execution of the title document is not necessary.

SALE OF REAL ESTATE/PROPERTY  IN PAKISTAN

Sale of real estate in Pakistan normally takes place through a title document known as a Sale Deed, except in certain cases e.g. purchase of real estate in Defence Housing Authority (DHA) or in a housing society where sale deed is not executed for transfer of title in real estate and an allotment letter/transfer letter from the authority or the society, as the case may be, is deemed to be the title document. Some people, before execution of the sale deed, may opt to execute an agreement to sell. However, such agreement to sell does not transfer title to a property in favour of the vendee. It, nevertheless, does create a right in favour of the vendee, in case the vendor refuses to honour the terms and conditions of the agreement, to seek specific enforcement of the agreement to sell. Title in an immovable property is only deemed to transfer once such Sale Deed or title document has been executed. A sale deed must be affixed with requisite stamp duty and it must be registered with the relevant sub-registrar. After registration of the Sale Deed with the sub-registrar it must be ensured that a mutation of such sale is entered in the register of mutations kept and maintained by the patwari.

WHAT CAN MASOOD AND MASOOD OFFER YOU IN THIS BEHALF?

Masood and Masood is involved in providing services and assistance to our valued clients in buying and selling of both movable and immovable properties & real estate in Pakistan. We also provide our services to facilitate the required permissions, etc. for setting up various industries, factories, commercial complexes, industrial and residential estates, etc. across Pakistan. We also provide specialist advice on Capital Value Tax, Excise Duties and Registration Fees. T o be specific our expert lawyers/Attorneys offer the following:

• Obtain a fresh copy of Fard (???) from relevant sub-registrar
• Obtain a certified copy of Aks-Shajra (map)
• Obtain a certified copy of Tatima/Supplementary Map of the property

• Investigate & verify title documents of the property

• Investigate & verify mutation in favor of the vendor
• Demarcation details
• Drafting of the documents
• Registration of conveyance deed
• Transfer of title
• Entries in relevant government record
• Obtain a NOC, if necessary
• Verification of the Power of Attorney of the vendor, if any
• Verification of other documents e.g lease deeds, mortgage deeds, gift deeds etc., if any

 

Do CONTACT US now for a complete advisory package on procedure for sale/purchase of real estate in Pakistan, Gift of real estate in Pakistan, lease of real estate in Pakistan, mortgage of real estate in Pakistan and taxation of gains from real estate in Pakistan, taxation of real estate in Pakistan and set up of real estate investment trusts in Pakistan.