Afghanistan Personal Income Tax

Taxation in Afghanistan is based on an individual’s residential status for tax purposes. In general, tax residents of Afghanistan are taxed on their worldwide income, while nonresi­dents are taxed on their Afghan-source income only. However, a nonresident person may be exempt from income tax in Afghanistan if the person is from a foreign country that grants a similar exemption to Afghan residents based in that country.

An individual is considered to be a tax resident of Afghanistan if any of the following three conditions are met:

  • The person has his or her principal home in Afghanistan at any time during the tax year.
  • The person is present in Afghanistan for a period aggregating 183 days in a tax year (21 December to 20 December).
  • The person is an employee or official of the government of Afghanistan and has been assigned to perform services abroad at any time during the tax year.

Income subject to tax

Employment income. Income from salary is Afghan-source income if it is attributable to employment exercised in Afghanistan. No exceptions exist. As a result, all cash and non-cash benefits received with respect to employment in Afghanistan may be con­sidered taxable.

Business income. All residents and nonresidents who are engaged in economic, service or business activities are taxed on their busi­ness income.

Natural persons who engage in business activities and meet both of the following conditions are subject to fixed tax:

  • Their income is neither exempt nor subject to withholding tax.
  • Their total gross income is less than AFN3 million for the tax year.

Natural persons who have total income of less than AFN60,000 from all sources, including business activities, are exempt from fixed tax.

The following are the rates of the fixed tax.

Gross income

Exceeding AFN Not Exceeding AFN Annual Amount of Tax
0 60,000 0
60,000 150,000 AFN2,000 (paid in equal quarterly installments)
150,000 500,000 AFN8,000  (paid in equal quarterly installments)
500,000 3,000,000 3% of gross income, or income tax and business receipt tax (BRT; see below)

A person who is required to pay 3% tax on gross income received may elect to pay BRT (see Section B) and annual income tax under the normal tax regime. The election to pay income tax and BRT is irrevocable for a period of three years.

All natural persons who meet the conditions described above are required to file an income tax return.

Investment income. In general, dividend, interest and royalty in­come derived by nonresident natural persons is subject to a final tax of 20%, which is withheld at source. For resident individuals, this tax is treated as advance tax that may be credited against the eventual tax liability of the taxpayer.

Any gain derived from the sale, exchange, or transfer of assets is treated as taxable income.

Entertainment income. Income derived from entertainment exhi­bitions such as movies, radio or television, music, sport competi­tions and other similar activities, is subject to a 10% fixed tax.

Rental income. Income derived from the renting or leasing of tangible property owned by natural persons is subject to income tax that is withheld at source. The tax withheld is treated as ad­vance tax, which may be credited against the taxpayer’s final tax liability calculated using the normal income tax rates (see Rates).

Payments of rent by natural persons with respect to immovable property used for commercial, industrial and other economic pur­poses are subject to withholding tax at a rate of 10% or 15%, depending on the amount of the monthly rent.

Other income. Income from prizes, rewards, lotteries, gratuities, bonuses and service charges is subject to a final withholding tax at a rate of 20%.

Exempt income. The following types of income are not subject to tax in Afghanistan:

  • Grants, gifts and awards of the state, foreign governments, in­ternational organizations or nonprofit organizations, for contri­bution to science, art, literature, social progress or international understanding
  • Scholarships, fellowships, and other grants for professional and technical training
  • Health, accident, and unemployment insurance benefits and life insurance paid on death
  • Compensation or damages for personal injuries or sickness or restitution of reputation
  • Proceeds of borrowing and proceeds from stocks and bonds issued by companies
  • Acquisition of assets in connection with mergers of domestic corporations and other legal persons
  • Acquisition of movable or immovable property through expro­priation of property of debtors
  • Payments on principal received from debtors
  • Interest on bonds issued by the state or municipalities
  • Income representing self-consumption of food, fuel or other goods by the producer or by members of their household
  • Pensions of government employees
  • Any other receipts according to the provisions of the law

Taxation of employer-provided stock options. Employer-provided stock options are taxed at the time the options are exercised. The taxable amount is the difference between the market value of the shares on the date of issuance and the amount paid by the employee.

Capital gains and losses. Gains derived from the sale of capital assets used in business, including depreciable assets, shares of stock, trades or businesses, are taxed at the normal individual tax rates provided in Rates. However, capital gains derived from the sale, exchange or transfer of such assets held for more than 18 months are subject to tax at special rates. The special rate is calculated based on the average tax rate derived from distributing the gain equally over the holding period with 2% being the lowest rate.

If a natural person transfers an immovable or movable personal asset, the price received or receivable from such transfer is sub­ject to a 1% tax at the time of transfer of ownership of the prop­erty. This fixed tax is imposed instead of income tax. This mea­sure does not apply to capital gains derived from the sale or transfer of movable or immovable property acquired by inheri­tance. Such capital gains are not subject to tax.

Capital losses may offset capital gains only.

Partnerships. General and special partnerships are treated as flow-through entities with partners being taxed on their share of profits at the applicable individual tax rates. However, limited liability companies are taxed as corporations, and their distribu­tions are treated as dividends for tax purposes.

Deductions

Deductible expenses. Expenses of production, collection and preservation of income are allowed as deductions from business income if these expenses have been incurred during the tax year or one of the preceding three years. The following is a list of de­ductible expenses:

  • Rent paid on leased property used for the purposes of the business
  • Non-cash benefits provided to employees if the providing of the benefits is directly related to the employer’s business
  • Losses of property used for the production, collection, or pres­ervation of income, resulting from fires, earthquakes, casualties or any disasters to the extent that such losses are not reimbursed by insurance
  • Premiums paid for insurance of property

Nondeductible expenses. The following personal expenses are not deductible:

  • Costs and expenses incurred in providing benefits for owners, officers and management that are not necessary for the conduct of business
  • Payments made to persons for their own benefit or enjoyment or their family’s benefit and enjoyment
  • Costs of maintenance, repair, construction, improvement, fur­nishing, and other expenses with respect to the taxpayer’s fam­ily house or residence or any property devoted to the taxpayer’s own personal or family use
  • Interest on personal loans
  • Costs of commuting to and from work and cost of travel for per­sonal purposes
  • Cost of life, accident, health, and liability insurance for the protection of the taxpayer and his or her family
  • Cost of any type of insurance for the protection of property used for personal purposes

Rates. The following tax rates apply to income derived by individuals.

Taxable Income

Exceeding AFN Not Exceeding AFN Tax on Lower Amount Tax Rate %
0 60,000 0 0
60,000 150,000 0 2
150,000 1,200,000 1,800 10
1,200,000 106,800 20

Withholding tax. All natural persons who employ two or more employees are required to withhold taxes from salaries and wages paid.

The tax withheld must be deposited together with the Report of Tax Withholding and Bank Deposit Form for Employers into an account determined by the Ministry of Finance (MoF) no later than 10 days after the end of the month in which the amounts are withheld.

For information regarding other withholding, see Income subject to tax.

Relief for losses. Business losses of approved and registered enter­prises are entitled to carry forward the net operating loss to offset profits of subsequent years until the losses are fully offset.

Credits. Foreign tax credits are generally available if foreign tax is paid on foreign-source income.

If a resident person derives income from more than one foreign country, he or she may claim a foreign tax credit against the tax on his or her foreign-source income from each country. The foreign tax credit for each country is proportionate to the foreign-source income derived from that country as compared to worldwide income. A foreign tax credit is available in full.

Business receipt tax

Natural persons who have business income of AFN3 million or more per year are subject to a 4% business receipt tax (BRT), effective from 23 August 2015. BRT is imposed on the total income (gross receipts) received before any deductions. The fol­lowing exceptions apply:

  • Hotels, guesthouses and restaurants that have total income of more than AFN3 million per year are subject to BRT at a rate of 5%.
  • All clubs and halls and airline services are subject to BRT at a rate of 5%.
  • Telecommunication, hotels and restaurants providing premium services are subject to BRT at a rate of 10%.

BRT paid is deductible in calculating taxable income.

Tax filing and payment procedures

Tax Identification Number. All natural persons who are liable to pay tax or custom duties must have a Tax Identification Number (TIN).

A TIN can be obtained by requesting an application form from the MoF or a mustofiat office that has a TIN office located on the premises.

Income tax returns. The tax year in Afghanistan for all natural persons is from 21 December to 20 December.

All natural persons who are subject to income tax must file a detailed tax return and balance sheet and submit it to the relevant tax office by 20 March of the following calendar year.

Taxpayers who are subject to income tax, but are exempt from tax under an international agreement or treaty, must file an income tax return reflecting the effect of the exemption. The relevant agreement or portion of the treaty must be attached to the tax return together with an explanation as to why the agreement or treaty applies.

All residents and nonresidents who intend to leave the country, and who will be out of the country when their tax return is due must prepare and file their tax return two weeks before departing the country.

Tax payments. Taxpayers who are subject to fixed tax are re­quired to pay their tax quarterly by the 15th day of the month following the end of each quarter.

The income tax (or any tax instead of income tax) on shows, exhibitions, theaters, cinemas, concerts and sports must be paid by the 15th day of the following month. If the shows are not continuous, income tax must be paid after the end of each show.

Any income tax payable must be paid when the return is filed.

Business license. All nonresidents planning to conduct business activities in Afghanistan must obtain a business license from the

Afghanistan Investment Support Agency (AISA). The applicant or an authorized representative must be personally present at the office of AISA to complete the license registration process.

In ordinary circumstances, the business license is valid for a period of one year, which may be renewed on the filing of the annual return and obtaining a clearance certificate. However, under the Security and Defense Cooperation Agreement with the United States and the Status of Forces Agreement with the North Atlantic Treaty Organization (NATO) Resolute Support Mission in Afghanistan, the US government and NATO contractors are issued a business registration license, which is valid for three years after payment of a reasonable, standard, one-time service charge to AISA, as required by the laws and regulations of Afghanistan. For further details regarding these agreements, see Section D.

Bilateral agreements

The bilateral agreement between Afghanistan and the United States, which existed in the form of Diplomatic Notes exchanged between the countries, has been renewed by the Afghanistan government through the signing of a Security and Defense Cooperation Agreement with the United States, effective from 1 January 2015. Under the agreement, a tax exemption is pro­vided to the US forces (comprising of the members of the forces and the civilian component of the forces) and to contractors engaged in supplying goods and services in Afghanistan to, or on behalf of, the US forces under a contract or subcontract with, or in support of, the US forces. The Afghanistan government has also signed the Status of Forces Agreement with the NATO Resolute Support Mission in Afghanistan, which provides a tax exemption to NATO contractors and subcontractors. This tax exemption is similar to the tax exemption provided by the Security and Defense Cooperation Agreement with the United States.

Exemptions available under these agreements are subject to pri­vate rulings obtained from the MoF. In addition, the agreements generally do not provide exemptions from the obligation to with­hold tax from all payments to employees, vendors, suppliers, service providers, lessors of premises and other persons, as re­quired under the local tax laws.

Visas

To promote domestic and foreign investment, the Afghan government has begun implementing a policy to strengthen and con­solidate its relations with the international community. To carry out this policy, Afghanistan has introduced various types of visas. Details regarding the various types of visas issued by Afghanistan are provided below.

Business visa. An entry visa is issued for business, economic, commercial, cultural, industrial purposes and for employment with non-governmental organizations. A single-entry visa is used to obtain a work permit visa, followed by a multiple-entry or stay visa. A business visa can be obtained from the Consulate Section of the Afghan Ministry of Foreign Affairs. The employer or spon­sor must directly contact the relevant department of the Ministry of Foreign Affairs. To obtain the visa, the following documents must be submitted:

  • Complete visa application form
  • Two recent passport-size photos (size of 3/4 centimeter)
  • Valid passport, with a remaining validity period of at least six months
  • Employment letter or a letter of introduction from the employer/ sponsor stating the purpose and duration of the individual’s stay
  • Visa processing fee (usually payable in local currency)
  • Curriculum vitae of employee
  • Copy of educational certificates

A short interview may also be required.

Tourist visa/visit visa. A tourist visa/visit visa is issued for for­eign nationals who intend to travel to Afghanistan individually or with a group for the purpose of touring Afghanistan or visiting their relatives. Afghan missions issue this type of visa. This type of visa is valid for one month, which can be extended only once by the Ministry of Interior with the agreement of the Afghan Tourism Organization.

Work permit visa. A work permit visa is usually issued to foreign nationals who are interested in working in Afghanistan. The Ministry of Labor and Social Affairs issues a work permit visa for a normal fee of USD150. The following documents must be sub­mitted with respect to an application for a work permit visa:

  • Application for work permit on company letterhead
  • Original passport and entry visa
  • Original educational certificates (attested by foreign office of individual’s country)
  • Employee job description
  • Copy of invitation letter from the employer that was sent for entry visa
  • Four latest passport-size photographs of employee
  • Color photocopy of passport of employee, including pages with picture and particulars of the passport holder
  • Copy of registration certificate of company or firm registered in Afghanistan or with AISA (original must be ready for presenta­tion at all times)
  • Contract letter with Ministry of Labor and Social Affairs (this is a pro forma contract available at all ministries)

Resident visa. The Ministry of Interior issues resident visas to foreign nationals holding ordinary passports who have already entered Afghanistan with a proper visa. The validity of this type of visa is from one month to six months and can be extended.

Diplomatic visa. The diplomatic visa is issued to diplomatic pass­port holders who intend to travel to Afghanistan. Diplomatic passport holders can obtain this type of visa from the Afghan missions abroad. However, they must contact the Section of Diplomatic Passport and Diplomatic Visa of the Afghan Ministry of Foreign Affairs directly through their mission in Kabul.

Exit visa. An exit visa is issued to the foreign nationals who have entered the country with a work permit visa. The validity of this type of visa is one to six days. In some circumstances, its dura­tion can be extended. All Afghans with dual citizenship are required to obtain a visa exception letter from Afghan embassies or consulates abroad.

Other information and regulations. The Ministry of Foreign Affairs strongly recommends all visitors extend their visa prior to expiration, if they wish to stay longer than the permitted duration. If the visa is not extended by the expiration date, a penalty of USD2 for each day during the first 10 days of the delay is im­posed on the holder of the passport, and a penalty of USD4 per day is imposed for the next 10 days of the delay (the penalty can be paid at ports). If the delay is more than 30 days, an additional penalty of USD10 per day is imposed, and the holder is deported.

Visitors are strongly recommended to register with their embassy in Kabul, the local Afghan Police Department and the Afghan Tourist Organization (if the visit is for tourism purposes only) on arrival.