How to set up as an independent contractor in Pakistan

If you’ve decided to go it alone as an independent contractor, then Pakistan is an ideal location.

With a low cost of living, supportive government initiatives, and a rapidly growing tech scene in cities like Lahore and Islamabad, this South Asian republic is a hotbed of business growth and potential client opportunities.

Before you can start living the self-employed dream, though, you’ll need to know how to:

• Register your business in Pakistan

• Avoid misclassification as an employee

• Create compliant contracts that protect you

• Invoice and collect payments from around the world

In this article, we’ll cover all these things and help you navigate your tax responsibilities as a self-employed worker. We’ll also discuss some of the other risks and liabilities you should be aware of.

First, it’s important to clarify how Pakistan defines independent contractors.

What is an independent contractor according to Pakistani law?

Independent contractors are workers who provide paid services (or products) to another party. However, they are classified differently from employees and are usually not entitled to the same benefits, such as paid leave, sick days, and minimum wage. On the flip side, contractors have more freedom and flexibility in the way they work.

As in many countries, Pakistan primarily defines employees as having a contract of service, whereas contractors hold a contract for services.

With this in mind, you are generally considered to be an independent contractor if you:

• Determine your own work schedule and working hours

• Perform work (or are able to) for other companies

• Set your own rates and scope of work

• Provide your own tools or equipment

• Are not integrated into one specific company and its operations (i.e., you don’t have an internal email address)

• Are able to delegate or subcontract work

• Work without direction or supervision

When you work with clients, it’s important to be correctly classified to avoid penalties and fines, and to ensure that you are paying the right taxes.

How to become an independent contractor in Pakistan

With Pakistan's unemployment rate increasing in recent years, learning how to become a freelancer can help you leverage your specialized skills for better work opportunities.

You can take advantage of remote opportunities by becoming an independent contractor. Here are the steps you need to take to do this:

1. Select and register your business name

First, brainstorm some business name possibilities that reflect your values, products, or services.

After you've settled on a name, verify its availability in the relevant business registry.

If the name is available, you can secure it using trademark protection. You can also purchase a domain name and set up social media pages on your preferred platforms to make it even more secure.

The Securities and Exchange Commission of Pakistan (SECP) offers guidance on how to properly register your company name.

2. Choose a business structure

Before you can begin working as an independent contractor in Pakistan, you’ll first need to choose a formal structure for your business.

As an independent contractor, you can set up as a sole proprietor, limited liability company (LLC), a public limited company (PLC), or a private limited company.

The most popular model for sole owners is the sole proprietor structure, as it’s quick and easy to set up and maintain. In this structure, you have full control of the enterprise, although there is no legal separation between you (the owner) and the business; you are personally responsible for all its debts and liabilities.

If you do opt for the sole proprietor model, all you need to do is acquire a National Tax Number (NTN) and Sales Tax Number (STN) from the Federal Board of Revenue (FBR). You can do this online through the IRIS portal.

If you want more legal protection, you’re working with other partners, or you anticipate generating a large amount of revenue, you can also incorporate a single-member company or enter into a partnership. If you’re unsure which structure is most suitable for your business, it’s a good idea to speak with a registered solicitor or accountant.

Note that if your business activity is regulated (i.e., you practice a protected profession such as medicine or law, or you’re handling food), you may also need to acquire additional business permits or licenses from the relevant issuing authority.

3. Apply for business licenses and permits

Once you’ve identified your business structure, you need to obtain the necessary licenses and permits. A good way to begin is to research the specific licensing requirements. Consider consulting Pakistan government websites, for instance.

These licenses give you the clearance you need to work as an independent contractor legally. That said, the requirements can differ depending on your industry. For instance, if you offer telecommunication services, you’re required to get licensing approvals and clearances specifically from the Pakistan Telecommunication Authority (PTA).

4. Set up payment processes

Register an official bank account for your business to simplify bookkeeping and tax preparation. This account helps you separate business cash flow from your personal finances.

Next, set up accounting software to assist with invoicing. Alternatively, you can choose a platform that lets you handle your clients, work, and billing from one place.

With Remote, you can create invoices that display the currency you need to avoid dealing with currency conversion problems.

How to get paid as an independent contractor in Pakistan

As an independent contractor, it’s up to you to handle your invoices and payment collection. Unfortunately, this means billing each client individually and collecting payment through their preferred payment method — which can be inefficient and time-consuming.

Some of the most common ways to collect payments include:

• Bank transfers

• Direct deposits

• Paper checks

• Money orders

• Virtual wallets

• Digital transfer services like PayPal and Wise

These methods all have their own pros and cons. For instance, bank and digital transfers can be pretty quick but often come with hefty service fees. And if you have clients in other countries besides Pakistan, the payment collection process can be even more complicated.

Alternatively, you can use a trusted solution like Remote. Remote lets you easily send invoices and define where your money goes when your clients pay you. You can even split your payments and use different deposit methods to cater to different needs, such as your pension savings.

Our platform is a simple, secure, and reliable way to get paid quickly in Pakistani rupees — and with no hidden fees. Learn more about how our platform can help.

Independent contractor taxes in Pakistan

As an independent contractor, you’re responsible for filing and paying your own taxes and health insurance contributions.

The good news is that, as a sole proprietor, you pay personal income tax on your business profits. This means you don’t have to fill out extra returns or pay additional corporate taxes.

In Pakistan, you will be taxed at anywhere between 0% and 35%, depending on your level of taxable income. You must also pay a nominal professional tax fee each year of around Rs 500 ($2).

You are not required to make social security payments, although it’s generally recommended to make voluntary contributions.

You must file your tax return by September 30 each year. If your annual taxable income exceeds Rs 1 million (around $3,500), you must pay your taxes in advance quarterly installments.

VAT information for independent contractors in Pakistan

In Pakistan, VAT is known as the sales tax. If your annual business income exceeds Rs 10 million (around $35,000), you will need to register for — and start charging your clients — sales tax.

The current standard VAT rate in Pakistan is 18%, although some goods and services are charged at the higher rate of 25%.

Liability considerations for independent contractors in Pakistan

As a sole proprietor, you are personally liable for finance and tax debts, which means your private assets can be forcibly used to settle your business debts. Many independent contractors purchase liability insurance to help mitigate this risk.

It’s also important to cover yourself when drafting and signing agreements with clients. Our legal experts can provide you with fully compliant contract templates, for both Pakistani and international clients.

Accounting requirements for independent contractors in Pakistan

As a sole proprietor, you do not need to publish financial statements or accounts.

However, you should still keep organized, accurate records of all your income and expenditures (including client invoices, purchase orders, bank statements, and receipts). This will help you correctly file your taxes, give you a stronger picture of your financial situation, and generally make life easier if you are audited by the tax authorities.

You can either manage these records yourself using an accounting or bookkeeping tool or hire a professional bookkeeper or accountant.

The dangers of contractor misclassification in Pakistan

As we’ve mentioned, independent contractors are classified differently from employees in Pakistan. Many of the protections and benefits employees enjoy don’t typically apply to contractors.

As a result, companies may deliberately misclassify you to circumvent their legal obligations, while at other times, it may happen accidentally. Whether it’s intentional or not, misclassification can result in penalties and fines for both you and your client.

As an independent contractor, you can work with your clients to ensure this doesn’t happen. Discuss your role and responsibilities with them, and review the working arrangement regularly.

If your working relationship changes over time and you become more integrated into a client’s company, you can ask to be converted into an employee.

Use our Contractor Compliance Checklist to avoid misclassification

Work through this checklist to help determine if a new hire should have a contractor or employee relationship.

Download

Benefits of being an independent contractor in Pakistan

Becoming an independent contractor in Pakistan comes with several benefits. Here are just a few:

Higher earning potential

As an independent contractor, you often have a much higher potential to earn more than a full-time employee. You can engage with multiple clients and work on different projects to increase your earning potential.

What's more, you get to set your rates depending on your expertise and industry.

Flexibility and better work-life balance

Independent contractors can set their working hours and take on as much or as little work as they like, giving them a better work-life balance than full-time employees.

Exposure to diverse opportunities

Being an independent contractor allows you to work with clients worldwide. As you get more exposure to international work standards and practices, you gain extensive experience in your industry. Your specialized skills and project portfolio then give you the freedom to take on different types of projects.

Tax benefits

If you define your business structure under a sole proprietorship, then you must pay income tax on the money your business makes. This means you don't need to file extra tax returns or pay extra corporate taxes.

Additionally, you’re not required to make social security contributions, meaning you have a lower tax liability than traditional employees.

Better job satisfaction

Access to numerous job opportunities allows you to pursue projects and work with clients whose interests and passions align with your own. With sites like Upwork and Fiverr, for example, you can easily look for opportunities that are a good match.

Professional growth

Working on numerous projects allows you to build a solid personal brand and professional network. With every exemplary performance, your clients can give you reviews or even refer you to new opportunities.

You also can gain specialized expertise from handling projects that might otherwise not have been available locally. You end up gaining a broad skill set and extensive experience, as well as developing a diverse portfolio of work that you can use when seeking new opportunities.

Common challenges independent contractors face

Despite all the benefits of working as an independent contractor, there are also some challenges. Let's take a look at some.

Uncertain workload and income

Working as an independent contractor means dealing with fluctuating client demands.

If you’re a graphic designer, for instance, you might find that you are busier during event and product launch season but slower during the post-holiday slump.

Although it largely depends on your industry, fluctuating workloads often mean irregular income on your part. Plus, you can’t access employer-provided benefits like paid leave, health insurance, and retirement plans. This means you may have to pay for these benefits out of pocket.

Legal and compliance issues

As an independent contractor, you’re responsible for staying compliant with all relevant labor regulations, tax laws, and other legal requirements. In fact, you can get fined for not following these laws or industry-specific standards.

Additionally, without a properly drafted employment contract, client disputes over project scopes and payment terms can escalate into expensive legal battles.

This means it's crucial for you to stay informed on any changes made to industry-specific laws and regulations.

An all-inclusive freelancer hub like Remote can simplify the task of remaining compliant with applicable laws and regulations.

Administrative burden

Independent contractors take care of their own paperwork, like tax returns and invoices. You may find managing administrative tasks and project work simultaneously challenging, leaving less time for billable hours.

Errors made during administrative tasks can result in missed deadlines or even cash flow issues. For instance, problems with invoicing can delay payments, impacting your cash flow.

Consider using software that automates repetitive tasks, like time management, invoicing, and expense tracking, to stay on top of your workflow.

Remote can help you manage all the complexities of project management. For instance, the Remote Freelancer Hub gives you the tools you need to monitor your workflow and employment contracts. Not only that, but it makes tracking and reporting billable hours easy.

Client management

Without clear and well-managed contracts with your clients, disagreements can easily arise. Additionally, poor communication with clients can lead to misunderstandings, errors in deliverables, and frustration for both parties.

To better manage your clients, make sure your contracts are clear and detailed, spelling out the scope of the project, its due date, payment terms, and other important details.

You should also communicate regularly and openly with your clients to manage their expectations and address any issues that pop up.

How do I ask the company I’m working with to convert me to an employee in Pakistan?

Open a dialogue with your client and carefully discuss the risks and benefits of moving to an employer-employee relationship. In particular, be clear about how it can benefit both parties — not just you.

You can even suggest the help of a third-party solution, such as Remote, to ease the transition. Our global employment services help both parties stay compliant by taking care of key HR functions (like payroll management and benefits administration) in line with Pakistani law.

4 ways Remote makes life easier for contractors and their clients

As you can see, there’s a lot to take on board when setting up as an independent contractor. Remote can help you with many of these challenges, allowing you to focus on growing your business and delivering to your clients. Here’s how:

1. International payments in countries around the world

Navigating all of your clients’ different invoicing, approvals, and payment systems can be complicated and time-consuming. And manual methods of invoicing and collecting payments can increase the risk of fees, errors, and delays.

Remote gives you access to a highly secure, streamlined dashboard that makes invoice management and international payments cost-effective and efficient. You can use our platform to get paid in Pakistani rupees (or other currencies), without any hidden fees.

2. Localized in-app contracts and advice

When you draft agreements and contracts for your clients, you run the risk of non-compliance with local labor laws — especially when working with international clients. Remote offers localized contracts tailored to Pakistani laws, ensuring that you stay compliant. Our legal experts can also provide guidance on complex issues, such as local classification and intellectual property protections.

3. Invoicing automation

With Remote, you no longer need to rely on spreadsheets and other manual tools to invoice for payments; we remove many of the inaccuracies and delays caused by archaic processes and manual management. Our platform lets you create invoices, submit them for approval, and subsequently get paid in your local currency without needing to switch to any other tool or software.

4. Tax management

Tax management is notoriously complex work. Remote helps you quickly and efficiently deal with tax management by compiling data about your income based on your invoices and payments received.

Setting up as an independent contractor in Pakistan

Having the freedom and flexibility to work on your own terms is liberating. But your administrative responsibilities can distract from what you really want to be doing: helping your clients, delivering great work, and collecting invoices.

By using a stable, trusted platform like Remote, you can manage these obligations quickly and efficiently, allowing you to focus on your business goals. Specifically, we can help you:

• Avoid intermediary fees and delays with international client payments

• Draft compliant contracts for Pakistani and foreign clients

• Enhance your invoice management and avoid manual processes

• Comply with local labor laws regarding work practices

Our platform makes it quick, simple, and seamless to get started as an independent contractor. Learn more about how our expertise can save you time and resources today.