What to know

Understanding both the rules in Pakistan, and their exceptions; taxes, investments, pensions, remittances, offshore and estate planning.

Expatriates from Pakistan are not required to pay taxes on income earned in the UAE, provided that they live outside of Pakistan for 183 days or more of a given tax year, which in Pakistan runs from July 1 to June 30. But while Pakistani expatriates who earn income solely in the UAE are exempt from taxation, any income earned inside Pakistan is still subject to tax, regardless of an expatriate's residency status.

Income earned from rental properties in Pakistan, for example, is subject to tax, as are dividends from stocks held inside the country. In the case of rental income, any amount over 150,000 rupees (Dh6,800) is taxable at rates of between 5 and 10 per cent, depending on how far above the threshold the income is. It should be noted that while paying taxes is mandatory in Pakistan (not paying them is considered evasion), most Pakistani expatriates - and most Pakistani citizens - simply do not file tax forms, even if they are technically required to do so. According to one estimate from 2008, around 500bn rupees in taxes owed, or roughly half of all taxes, go unpaid each year. Given Pakistan's tenuous political situation, many expatriates reason that it would be foolish to pay into a tax system that might be made obsolete if the government should change.

Expatriates can own stocks and other investments in Pakistan with ease. The main downside to keeping investments in Pakistan is the taxes that they can generate, though these taxes are quite low compared to many developed countries. While stock dividends are taxed in Pakistan, there is currently no capital gains tax on equities, though plans are under way to start taxing profits on stocks held for less than three months at 10 per cent. Gains on stocks held for three to six months would be taxed at five per cent, and stocks held for longer than that wouldn't attract any tax.

Capital gains made on investment properties are also expected to be subject to taxation in coming years, but it is not yet clear exactly what rates the government plans to charge. Even if these taxes are imposed, though, many expatriates from Pakistan say they do not expect to have to pay them. There are already various federal and provincial fees and other costs associated with buying and selling property, but expatriates say it is common practice to avoid them by simply not paying them, because the government does not enforce their collection.

The pension system in Pakistan is underdeveloped. The country has no universal state-sponsored pension or superannuation scheme, and most workers must rely on family networks to provide for them during retirement. Government workers receive a pension, and some private pensions do exist, but pension coverage is scant, and expatriates in the UAE are generally not covered by pensions in Pakistan unless they work for the Pakistani government or one of the rare Pakistani private companies that offers a pension.

Two years ago, Pakistan started a voluntary pension system (VPS) under which Pakistanis could get tax breaks on contributions that would go into a selection of mutual funds chosen by the government. Pakistanis, including those living outside the country, can contribute up to 20 per cent of their taxable income to the system, but few do. With little taxable income to report, not many expatriates are allowed to contribute much, and with Pakistan's ongoing political instability, the future for the VPS is uncertain.

Pakistan's economy relies heavily on remittances, and a great portion of them come from the UAE. According to Money Transfer International, over US$174 million (Dh639mn) was transferred from the UAE to Pakistan this March alone. Thankfully, it's easy for expatriates to send money to Pakistan, although financial advisers stress that the so-called hawala money transfer system, an informal collection of money brokers who are well established in Pakistan, should be avoided. It is impossible to trace money that gets sent through the hawala system, and it is also a major route for money-laundering rings. It's also illegal.

There are no legal obstacles for Pakistanis putting money in offshore accounts, and many expatriates take advantage of the opportunity. As for expatriates from many nations, going offshore smooths out estate planning, as savings and investments kept offshore can be earmarked for an automatic transfer to a named beneficiary without going through a potentially lengthy court process. Offshore accounts also often offer higher interest rates on deposits than those in the UAE, although rates in the UAE have been high in recent months.

The same rules apply for estate planning as for expatriates from other countries. Advisers recommend that Pakistanis have clear wills while they are in the UAE. Should a Pakistan citizen die in the UAE, local courts will take a will under consideration when distributing his assets. Without one, executing an estate can be a tricky and lengthy process. [e-mail]