CONVENTION

BETWEEN THE GOVERNMENT

OF THE KINGDOM OF SAUDI ARABIA

AND THE GOVERNMENT OF THE ISLAMIC REPUBLIC OF PAKISTAN

FOR THE AVOIDANCE OF DOUBLE TAXATION AND

THE PREVENTION OF TAX EVASION WITH

RESPECT TO TAXES ON INCOME.

PREAMBLE

The Government of the Kingdom of Saudi Arabia and the Government of the Islamic Republic of Pakistan desiring to conclude a Convention for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income to promote and strengthen the economic relations between the two countries,

Have agreed as follows:

CHAPTER I

SCOPE OF THE CONVENTION

Article 1

PERSONS COVERED

This Convention shall apply to persons who are residents of one or both of the Contracting States.

Article 2

TAXES COVERED

1.        This Convention shall apply to taxes on income imposed on behalf of a Contracting State or of its political subdivisions or local authorities, irrespective of the manner in which they are levied.

2.        There shall be regarded as taxes on income all taxes imposed on total income, or on elements of income including taxes on gains from the alienation of movable or immovable property, taxes on the total amounts of wages or salaries paid by enterprises.

3.             The existing taxes to which the Convention shall apply are in particular:

(a)      in case of Saudi Arabia):

-                The Zakat;

-                The Income Tax including the natural gas investment tax.

(hereinafter referred to as “the Saudi tax”) and

(b)      in case of Pakistan the income tax;

(hereinafter referred to as “Pakistan tax”) and

4.        The Convention shall apply also to any identical or substantially similar taxes which are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of significant changes made to their tax law.

CHAPTER II

DEFINITIONS

Article 3

GENERAL DEFINITIONS

1.        For the purposes of this Convention, unless the context otherwise requires:

(a)      The term “a Contracting State and the other Contracting State” means the Kingdom of Saudi Arabia or Islamic Republic of Pakistan as the context requires;

(b)      The term “Kingdom of Saudi Arabia” means the territory of the Kingdom of Saudi Arabia which also includes the area outside the territorial waters, where the Kingdom of Saudi Arabia exercises its sovereign and jurisdictional rights in its waters, seabed, subsoil and natural resources by virtue of its law and international law;

(c)      The term “Pakistan” when used in a geographical sense means Pakistan as defined in the constitution of the Islamic Republic of Pakistan and includes any area outside the territorial waters of Pakistan which under the laws of Pakistan and international law is an area within which Pakistan exercises sovereign rights and exclusive jurisdiction with respect to the natural resources of the seabed and subsoil and superjacent waters;

(d)      The term "company" means any body corporate or any entity that is treated as a body corporate for tax purposes;

(e)      The term "competent authority" means:

(i)       In case of the Islamic Republic of Pakistan, the Central Board of Revenue or its authorized representative; and

(ii)           In case of the Kingdom of Saudi Arabia, the Ministry of Finance represented by the Minister of Finance or his authorized representative;

 (f)      The terms "enterprise of a Contracting State" and "enterprise of the other Contracting State" mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

(g)      The term "international traffic" means any transport by a ship or aircraft operated by an enterprise which has its place of effective management in a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State;

(h)      The term "national" means:

(i)       Any individual possessing the nationality of a Contracting State;

(ii)       Any legal person, partnership or association deriving its status as such from the laws in force in a Contracting State.

(i)       The term "person" includes any individual, any company or any other body of persons, including the State, its political subdivisions or local authorities, estates, trusts and foundation.

2.        As regards the application of the Convention at any time by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning that it has at that time under the law of that State for the purposes of the taxes to which the Convention applies, any meaning under the applicable tax laws of that State prevailing over a meaning given to the term under other laws of that State.

Article 4

RESIDENT

1.        For the purposes of this Convention, the term "resident of a Contracting State" means:

(a)           Any person who, under the laws of that State, is liable to tax in that State, by reason of his domicile, residence, place of management or any other criterion of a similar nature;

(b)           The Government of any of the two Contracting States or any of its legal institutions, agencies or its local authorities;

(c)           A legal person organized under the laws of a Contracting State and that is generally exempt from tax in that State and is established and maintained in that State either:

(i)             Exclusively for a religious, charitable, educational, scientific or other similar purpose; or

(ii)           To provide pensions or other similar benefits to employees pursuant to plan.

2.        Where by reason of the provisions of paragraph 1 of this Article, an individual is considered to be a resident of both Contracting States, then his status shall be determined as follows:

(a)      He shall be deemed to be a resident only of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident only of the Contracting State in which his personal and economic relations are closer (centre of vital interests);

(b)      If the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident only of the State in which he has an habitual abode;

(c)      If he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident only of the State of which he is a national;

(d)      If he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

3.        Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident only of the State in which its place of effective management is situated.

Article 5

PERMANENT ESTABLISHMENT

1.        For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

2.        The term "permanent establishment" includes especially:

(a)      A place of management;

(b)      A branch;

(c)      An office;

(d)      A factory;

(e)      A workshop;

 (f)      A mine, a gas well, a quarry or any other place of extraction of natural   resources.

3.        The term "permanent establishment" also includes:

(a)           A building site, a construction, assembly or installation project, or supervisory activities, in connection therewith, but only if such site, project or activities last more than six months;

(b)           The furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only where activities of that nature continue (for the same or a connected project) within the country for a period or periods aggregating more than six months within any 12 months period.

4.        Notwithstanding the preceding provisions of this Article, the term "permanent establishment" shall be deemed not to include:

(a)      The use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the enterprise;

(b)      The maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display;

(c)      The maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

(d)      The maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise;

(e)      The maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character.

5.        Notwithstanding the provisions of paragraphs 1 and 2, where a person - other than an agent of an independent status to whom paragraph 6 applies - is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned Contracting State in respect of any activit