Two founders shake hands to start their business. They decided not to go down the private limited route due to the hassle of registering with SECP, auditing, and fees.
This gives you a simpler choice. However, troubles can occur later when you require an NTN from your bank, a registered firm from your client or being asked by FBR why you didn’t file.
This guide goes through everything you need to know about Partnership Firm Registration & Tax in Pakistan.
Why do Partners Choose AOP?
A Partnership Firm is treated as an Association of Persons (AOP) and taxed accordingly by the Income Tax Ordinance, 2001. It can be formed without being incorporated with SECP, statutory audited, or having to file annual returns to the corporate registrar.
As such there are minimal costs to set up and maintain the Partnership Firm. However, Partners are personally liable for debts of the firm – unlike a private limited company.
1. Partnership Firm Formation
Partnerships are regulated under the Partnership Act 1932. These can be registered with your Provinces Registrar of Firms or the ICT Administration in Islamabad.
Is a Partnership Firm Required?
The 1932 Act provides that a partnership firm is not required to be registered. The Act imposes no penalty for not registering. However, registering in court involves a cost.
If a Partnership Firm is not registered then it cannot bring an action against a third party to enforce a contract (Section 69). Partners in an unregistered Partnership Firm cannot bring an action against the Partnership Firm or other partners to enforce rights from the deed.
Therefore, there is one reason to register.
Partnership Deed
This is the founding document of your Partnership Firm. At a minimum it should include:
- Name of Partnership Firm & Main Address
- Names, Addresses & CNIC’s of Partners
- Capital Contribution
- Profit & Loss Sharing Ratio
- Salaries, Drawings & Interest (if applicable)
- Bank Account & Signing Authority
- Admission, Retirement & Death of Partners
- Dispute Resolution (Ideally Arbitration)
- Dissolution
Most generic templates are left blank or vague. This can cause issues between Partners.
How to Register Partnership Firm
The process varies between provinces. Using the process in Islamabad (as published by ICT Administration) provides a good overview:
- Create the Partnership Deed using Stamp Paper (Rs 1000 in Islamabad) & Notarise.
- Complete Form-I (Application for Registration under Partnership Act).
- Pay the Registration Fee (Rs 1000) to National Bank of Pakistan.
- Sign an Affidavit confirming documents & Office Address.
- Attach Office Tenancy Agreement or Proof of Ownership, Utility Bill & CNIC’s of Partners.
- Submit to the Citizen Facilitation Centre. All Partners & Witnesses must attend with the Registrar.
It will usually take around 10 working days to receive the Registration Certificate. Often it is referred to as the Form C Certificate.
Provinces will have their own Stamp Duty, Forms & Portals. Please check what is required currently in your Province.
Partnership Deed Registration Pakistan
Save your Certified Partnership Deed & Registration Certificate. You will need these with your bank & FBR.
Any changes to Partners, Name, Address or Profit Sharing should be notified to the Registrar. An outdated record can cause issues with your bank & FBR.
2. FBR NTN Registration AOP
A Partnership Firm will remain invisible to the FBR until it has its own NTN. This can be done via the Iris Portal.
Who Files?
The Principal Officer (usually Managing Partner) will file the application. They must first be registered on Iris using their own name.
Process:
- Login to iris.FBR.gov.pk using the Principal Officers details.
- Click on Registration.
- Click on Application to register AOP.
- Enter Partnership Name, Address & Business Activity.
- Add all Partners including their CNIC & Percentage Share.
- Attach Deed, Registration Certificate, Tenancy Agreement & Utility Bill.
- Submit using your PIN. Track your application on Iris.
Labels will change as Iris is updated, however the information required to complete will remain the same.
Choose the correct Business Activity
This will tell the FBR what type of income to expect from the Partnership Firm and what Withholding Rules to apply.Choosing the improper activity could lead to data inconsistencies, inaccurate tax deductions and notices.
The 5,000 square feet of space will be used for retail and restaurant purposes.
Why can’t I use a Partners Personal NTN?
The Partnership Firm is a separate taxpayer and all income, bank account and Withholding Credits will fall under the AOP NTN.
Using a Partners personal account for Partnership Firm funds will show income on their return that isn’t theirs. Most Banks will require a Partnership Firm NTN before opening an account in the Partnership Firms name.
How is AOP Business Taxed? (2026)
AOP’s are taxed as a separate entity under Section 92 of the Income Tax Ordinance.
The firm will calculate it’s profit & pay tax on it.
Once the AOP has paid their tax, the Partners share is exempt from tax in their hands. Income will not be taxed twice.
Rate Purposes
Whilst the Partnership share is exempt, if the Partner has other taxable income it will generally be added to their income for rate purposes.
There is no tax on the AOP share, however it can cause the Partners other income to fall into a higher slab. Rules are different if a Company is involved.
AOP Tax Rates 2026
The following AOP Tax Rates 2026 have been notified by the FBR. These apply to AOP’s and Non-Salaried Individuals for Tax Year 2027 (July 1st 2026 – June 30th 2027).
| Taxable Income | Tax Due |
|---|---|
| Up to Rs 600,000 | Nil |
| Rs 600,001 – Rs 1,200,000 | 15% of amount over Rs 600,000 |
| Rs 1,200,001 – Rs 1,600,000 | Rs 90,000 + 20% of amount over Rs 1,200,000 |
| Rs 1,600,001 – Rs 3,200,000 | Rs 170,000 + 30% of amount over Rs 1,600,000 |
| Rs 3,200,001 – Rs 5,600,000 | Rs 650,000 + 40% of amount over Rs 3,200,000 |
| Over Rs 5,600,000 | Rs 1,610,000 + 45% of amount over Rs 5,600,000 |
Professional Firms who cannot be incorporated will have a maximum rate of 40%.
Example:
AOP makes a taxable profit of Rs 4,000,000.
Tax = Rs 650,000 + 40% x Rs 800,000 = Rs 970,000
Profit After Tax = Rs 3,030,000
Each Partner (equal split) will receive Rs 1,515,000. This will be exempt from tax in their returns. They will still declare it & it will count towards rate purposes if they have other income.
Withholding & Minimum Tax
Clients, Banks & Importers will withhold tax from your Partnership Firm. Some will be Minimum Tax or Final Tax & cannot always be reclaimed.
Keep track of all deductions made to your AOP NTN. If you cannot prove what credits you have at the time of filing they will be lost.
Common Mistakes to Avoid
Trading without a Registered Deed
Whilst the Deed may bind the Partners together, Section 69 means the Partnership Firm cannot bring an action against a contract in Court. This is particularly an issue if your Client stops paying.
Opening Joint Accounts without AOP NTN
A Joint Account in two personal names is not a Partnership Firm Account. The FBR will see two individuals with unexplained income. This can be difficult to justify splitting the income.
Not Filing Return due to Loss
You must still file the AOP Annual Return even if you have made a loss. The deadline is the same as individuals. For Tax Year 2026 this was October 31st 2026.
A loss can be carried forward if it is filed. If it is not filed it is lost.
There is also a cost for filing late. The Surcharge to rejoin the Active Taxpayer List under Section 182A is now Rs 50,000 for AOP’s. On top of the penalty for filing late under Section 182.
Forget Partners Personal Returns
Each Partner should file their own return. They should declare their AOP share & Capital in their Wealth Statement. If there is Capital in the Partnership Firm without a source in a Partners Wealth Statement this can cause questions.
Think the Deed is a one off
Partners will come & go and the profit sharing will be renegotiated. If the Deed & FBR are not updated this can cause discrepancies between the Partnership Firms tax position & Partners rights.
Do It Once & Right
Issues with the Deed, incorrect Business Activity Code on the Iris form or incorrect Slab Calculation are unlikely to cause an issue straight away. However, they will cause issues months down the line with notices from the FBR or issues between Partners who no longer agree what they signed.
Our Corporate Legal Team at TaxAccountant.pk can create Partnership Deeds, register your Partnership Firm with the Registrar, setup your AOP NTN on Iris & file your AOP & Partner Annual Returns. Our team include Rana Asim (Advocate High Court) for Deed creation & Partner Disputes.
We just need your Partners details & Business Activity & we will take care of the rest.
