Statutory rate without a valid treaty claim: 30%.
Rates on investment and other income
Treaty in effect generally from Jan. 1, 1960. Protocols in effect from: none listed. IRS country code PK.
| Income | 1042-S code | Treaty rate | Article |
|---|---|---|---|
| Interest paid by U.S. obligors, general | 01 | 30% | XIV |
| Dividends paid by U.S. corporations, general | 06 | 30% | VII(2) / VI(1) |
| Dividends qualifying for the direct dividend rate | 07 | 15% | VII(2) / VI(1) |
| Royalties: industrial, commercial or scientific equipment | 10 | n/au | VIII(1) |
| Royalties: know-how and other industrial royalties | 10 | 0% (exempt) | VIII(1) |
| Royalties: patents | 10 | 0% (exempt) | VIII(1) |
| Royalties: motion picture and television copyrights | 11 | n/au | VIII(1) |
| Royalties: copyrights (including software, unless the treaty says otherwise) | 12 | 0% (exempt) | VIII(1) |
| Pensions and annuities | 15 | 0% (exempt)j | X(1)-(3) |
| U.S. Social Security benefits (applies to 85% of the payment) | 15 | 30% | None |
"n/a" means the payment type is not covered by the royalty article: equipment leasing is business profits (no withholding without a permanent establishment) or other income. Superscript letters are the IRS's own conditions, listed at the end of this page.
Pay for personal services performed in the United States
Each row is an exemption the treaty gives, with the limits the IRS lists. All conditions in a row must be met; if any is not, the pay is withheld on at 30% (contractors) or under the wage rules (employees). Services performed entirely outside the United States are foreign-source and need no treaty claim.
| Code | Purpose | Maximum presence in U.S. | Required employer or payer | Maximum amount | Article |
|---|---|---|---|---|---|
| 16 | Scholarship or fellowship grant15 | No limit | Pakistani nonprofit organization | No limit | XIII(1) |
| 17 | Independent personal services16 | 183 days | Pakistani resident contractor | No limit | XI |
| 18 | Dependent personal services16 | 183 days | Pakistani resident | No limit | XI |
| 19 | Teaching | 2 years | U.S. educational institution | No limit | XII |
| 20 | Remittances or allowances | No limit | Any foreign resident | No limit | XIII(1) |
| 20 | Compensation during training | No limit | U.S. or any foreign resident | $5,000 p.a. | XIII(1) |
| 20 | Compensation while gaining experience2 | 1 year | Pakistani resident | $6,000 | XIII(2) |
| 20 | Compensation while under U.S. Government program | No limit | U.S. Government, its contractor, or any foreign resident employer | $10,000 | XIII(3) |
How the payee claims these rates
- Individuals claim a reduced rate on interest, dividends, royalties or pensions in Part II of Form W-8BEN: treaty country, article, rate and any conditions. Most claims need a U.S. TIN or a foreign TIN on the form.
- Entities claim in Part III of Form W-8BEN-E, which also asks which limitation-on-benefits test the entity meets (this treaty has no limitation-on-benefits article).
- Pay for services performed in the United States by an individual is exempted on Form 8233, not the W-8BEN, one form per tax year and per payer.
- The payer reports the payment on Form 1042-S with the income code shown above and chapter 3 exemption code 04 (exempt or reduced withholding under a tax treaty). From 2026 an exemption code is required whenever less than 30% is withheld.
The rate in a table is the most the United States may withhold under the treaty, not an entitlement. The payee has to be a resident of Pakistan under the treaty, the beneficial owner of the income, and (for entities) meet the limitation-on-benefits article, and the payer has to hold a valid certificate before the payment. The IRS tables are a summary: check the article itself when the amount is material.
Questions payers ask
What is the U.S. withholding rate on dividends paid to a resident of Pakistan?
30% on dividends generally and 15% on dividends qualifying for the direct dividend rate, under Article VII(2) / VI(1), if the shareholder documents the claim on a W-8BEN or W-8BEN-E. Without a valid claim the rate is 30%.
What is the U.S. withholding rate on royalties paid to a resident of Pakistan?
0% on copyright and software royalties (income code 12), 0% on patent royalties and not covered by the royalty article on film and television royalties, under Article VIII(1).
What is the U.S. withholding rate on interest paid to a resident of Pakistan?
30% under Article XIV, before considering the Code's own exemptions for portfolio interest and bank deposit interest.
Is a contractor from Pakistan working in the United States exempt from U.S. withholding?
Under Article XI, pay for independent personal services is exempt if the contractor is present in the United States for no more than 183 days, subject to the conditions in the article. An individual claims the exemption on Form 8233; without it, withhold 30%.
Do we withhold on a contractor from Pakistan who works only outside the United States?
No. Pay for services performed entirely outside the United States is foreign-source income: no withholding and no Form 1042-S. Keep the contractor's W-8BEN or W-8BEN-E on file.
The IRS notes behind the figures
Notes to the rates (IRS Table 1)
- j In Pakistan, the exemption is not available when the distribution is from a fund under an employees' pension or annuity plan, if contributions to such plan are deductible under U.S. tax laws in determining taxable income of the employer.
- u If enterprise earns income from leasing of equipment in the conduct of a trade or business, covered by Business Profits article (net tax). If passive income from the leasing of equipment, and not in Royalty article, covered by the Other Income article, if any. In Pakistan payment for TV broadcasting rights are covered by the Royalty article but not rental income from motion picture films.
Notes to the services table (IRS Table 2)
- 2 Applies only if training or experience is received from a person other than alien's employer.
- 15 Does not apply to payments from the National Institutes of Health under its Visiting Associate Program and Visiting Scientist Program.
- 16 Exemption applies only if the compensation is subject to tax in the country of residence.
Transcribed from the IRS Tax Treaty Tables. Treaty texts and technical explanations: United States income tax treaties, A to Z.
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