Setting up a software house or IT company in Pakistan

IT and IT-enabled services are among Pakistan's largest export earners, and the sector is unusual in one respect: almost all the customers, and most of the money, are outside the country.

That shapes every legal decision — how you are structured, how you get paid, how you are taxed, and who owns what you build.

Structure

Sole proprietor works to begin with, and many freelancers stay there. See freelancers and IT exporters.

Private limited company becomes the right answer once you employ people, sign enterprise contracts with liability clauses, take on investors, or need a counterparty that can survive you. Serious foreign clients increasingly require a company on the other side of the contract.

Offshore holding company. Startups raising foreign capital are frequently asked to establish a holding company abroad, with the Pakistani entity as a subsidiary performing development. That is a structural decision with tax, regulatory and repatriation consequences, and it should be planned before investment, not retrofitted after. See startup fundraising and term sheets and branch, liaison office or subsidiary.

For the general comparison see choosing a business structure.

Registration

SECP incorporation, with objects covering software and IT-enabled services
NTN and, where applicable, provincial sales tax on services registration. IT services are within the provincial services net, with the applicable treatment and rates — check the current position and the export treatment
PSEB registration with the Pakistan Software Export Board, which is generally required to access the sector's incentives and facilitation
PTA licensing where you operate as a call centre or provide certain communication-based services. See telecom and PTA licensing and call centres and BPO operations
Employer registrations — EOBI and SESSI once you have staff. See employer registrations

Getting paid from abroad

The single most important operational matter, and where most avoidable trouble arises.

Use the banking channel and document it. Export proceeds for services must be brought in and reported through the proper channel, with the documentation the State Bank framework requires. Payments received informally, through third parties, or into personal accounts create tax problems, AML flags and — increasingly — frozen accounts.

Exporters' foreign currency retention arrangements exist for the sector, permitting a portion of proceeds to be retained for permitted business expenses. Set this up properly at the outset; it is one of the sector's genuine advantages.

Payment platforms. Where clients pay through international platforms, understand how funds ultimately reach Pakistan and whether that route is documented. Convenience now can be an unexplainable receipt later.

Invoicing. Issue proper invoices matching what the bank sees. Reconciling invoices, contracts and receipts is the exercise FBR performs.

See withholding tax obligations and repatriating profits and capital.

Tax

The sector has historically enjoyed favourable treatment for exported IT and IT-enabled services, subject to conditions — registration, receipt through banking channels, and filing. The specifics change with each Finance Act, so confirm the current regime rather than relying on what applied two years ago.

What does not change: the benefit depends on compliance. Businesses that receive money outside the channel, or fail to file, lose the treatment and then argue about it under audit. See FBR audit notices.

The client contract

Whether you are contracting with a US startup or a local bank, the terms that matter:

Scope and deliverables, in a schedule, with an acceptance procedure
Change control — the most valuable clause in any development contract
Payment, milestones, currency, and interest on late payment
IP ownership — usually assigned to the client on payment. Note that "on payment" matters: assign on receipt of funds, not on delivery
Retained rights to your own pre-existing tools, libraries and know-how. Without this you can sign away the components you reuse across every project
Confidentiality and data, including where data may be processed
Warranties and support, and what is included after delivery
Limitation of liability, with a cap and exclusion of indirect loss. Uncapped liability on a fixed-fee project is not a business
Termination, and what is payable for work in progress
Non-solicitation of your staff — clients poach developers constantly
Governing law and dispute resolution. Where the client is foreign, arbitration with a properly specified seat. See drafting an arbitration clause and enforcing foreign judgments and awards

For software development specifically see software development and SaaS agreements.

Owning what you build

Employees. Include an express IP assignment in the employment contract. Do not assume everything an employee creates automatically vests in the company — put it in writing.

Contractors. This is where companies lose ownership. A contractor's work does not automatically belong to you; you need a written assignment. Software houses that subcontract without one have delivered code to clients that they did not own.

Open source. Know what licences are in your codebase. Copyleft obligations can require disclosure of source in ways your client contract prohibits, and enterprise clients audit for this. Maintain a dependency inventory. See open source licensing compliance.

Brand. Register your name and logo as trade marks, and secure the domain. See trade mark registration and domain names and cybersquatting.

People

Employment contracts with IP assignment, confidentiality, and realistic restraints — bear in mind section 27 of the Contract Act limits post-employment non-competes, so rely on confidentiality and narrow non-solicitation instead. See employment contracts and protecting your business when an employee leaves.

Remote and overseas staff. Where you engage people outside Pakistan, or your staff work for foreign entities, the employment classification and tax position need thought on both sides.

Equity for the team. Employee share schemes are increasingly expected in the sector, and doing them properly matters. See ESOPs and employee share schemes.

Harassment compliance — the statutory committee and code of conduct apply, and enterprise clients audit for them. See the employer's harassment duties.

Data and security obligations

If you process personal data for clients in the EU, UK or elsewhere, your contract will impose obligations that flow through to you regardless of Pakistani law — data processing terms, security standards, breach notification within tight deadlines, sub-processor approval, and audit rights. Read them before signing, because they are operational commitments, not boilerplate.

See data protection for Pakistani businesses and responding to a data breach.

How the firm can help

We incorporate and structure IT companies including offshore holding arrangements, handle PSEB and regulatory registrations, negotiate client master services agreements and SaaS terms, put IP assignment and open source compliance in order, draft employment and contractor documentation, and advise on export proceeds, tax treatment and repatriation.

See corporate and commercial, or contact the firm.

This article is general information about Pakistani law and practice as at 12 March 2026. It is not legal advice, and it is not a substitute for advice on your own circumstances. The law and the procedure change. If the subject affects you, take advice on the facts.