For solo freelancers starting out, a sole proprietorship registered with FBR is simpler and cheaper. A single member company (SMC) registered with SECP offers limited liability, a company name clients and banks recognise, and a structure for co-founders or investors. Both can use the 0.25% PSEB rate on IT export income.
Developers and agencies paid in dollars regularly ask about this choice on r/legaladvice_pk, r/FBR and r/pakistan.
What is the legal difference?
A sole proprietorship is you trading under a business name on FBR's IRIS portal, not a separate legal person. There is no SECP filing, and you are personally liable for the business's debts.
An SMC is a company formed by one person under the Companies Act, 2017. It is a company limited by shares, so your liability is limited to any amount unpaid on your shares. It has its own NTN and its own bank account and exists separately from you. Other private companies have two to 50 members; the SMC is the one-founder version.
How is each one registered?
For a sole proprietorship, register or update your individual profile on IRIS with your CNIC, add the business name and address, and file an income tax return every year.
For an SMC, reserve a name and file the incorporation online with SECP, then register the company on IRIS to get its NTN. SECP's fee depends on your authorised capital; check its fee calculator before you file. SECP also requires a registered office address within 30 days of incorporation.
When the SMC is formed, the single member must name a nominee director and an alternate nominee, who take over if the member dies. The SMC must also appoint a company secretary.
Does the tax on export income change?
Not at the bank. Under section 154A of the Income Tax Ordinance, 2001, banks deduct tax when foreign proceeds are realised. For software, IT and IT-enabled services exported by a person registered with PSEB the rate is 0.25%, and the Finance Act 2026 extended that concession up to tax year 2029. Other export services are taxed at 1%. Proprietors and companies can both register with PSEB.
The difference shows up when money leaves the business. A proprietor's profit is already their own. In an SMC the profit belongs to the company, so paying yourself means a salary or a dividend, and dividends carry withholding tax under section 150. Income from clients inside Pakistan falls outside section 154A and is taxed under the normal rules for individuals or companies.
What paperwork comes every year?
A proprietor mainly files the annual income tax return, keeps PSEB registration current and stays on the Active Taxpayers List. An SMC adds SECP filings, financial statements, notifications when directors or the address change, and its own company tax return. Its company secretary supports these SECP compliance duties. That extra work is the price of limited liability and a corporate identity.
Which one suits you?
Stay a proprietor if you work alone, invoice through marketplaces and want minimal overhead. Consider an SMC for company contracts, hiring, co-founders or separating personal assets from business risk.
Whichever you choose, TheWing.pk can give the business a base. Our virtual office provides a DHA Phase 2 business address for SECP, with mail and parcel handling and registration support, priced on quote. A dedicated desk is PKR 36,400 a month and includes a complimentary 30-minute tax consultation, a good moment to test the choice against your own numbers. Hot desks are PKR 31,800 a month.
Frequently asked questions
Can I switch to an SMC later?
Yes. You can incorporate an SMC when you are ready. The company gets its own NTN and bank account, and client contracts need moving across to it.
Do I need a nominee for an SMC?
Yes. The single member names a nominee director and an alternate nominee when the company is formed. They step in to manage the company if the member dies, until shares pass to the legal heirs.
Can I register an SMC online?
Yes. SECP handles name reservation and incorporation online, followed by the company's NTN on IRIS.
Can I talk it through in person?
Yes. Book a free tour and ask.
