AfghanistanTax Obligations Detailed

Employers in Afghanistan have specific tax obligations for their employees, encompassing withholding and remittance of wage taxes.

Wage Withholding Tax

Employers with two or more employees must withhold wage tax, calculated on a progressive scale, from employee salaries. A monthly exemption of AFN 5,000 applies. The withheld amount must be remitted to the Afghanistan Revenue Department (ARD) within 10 days after the end of the month the wages were paid. This applies to both resident and non-resident employees working in Afghanistan. Non-resident employees may be exempt if their home country offers a reciprocal exemption to Afghan residents. Employees of foreign governments and international organizations are taxed according to relevant treaties or contracts. The tax rates are progressive, based on monthly income brackets (see below). Prorated schedules apply for different payroll frequencies. Employers must provide an annual wage and tax statement to each employee by the end of the month following the solar year (31 Hamal), or immediately upon termination of employment.

Income Tax Rates

While specific rates for 2025 aren't available in the provided sources, the general structure involves a progressive system, as follows (please note that the tax rate brackets might change):

• AFN 0 - AFN 5000: 0%
• AFN 5001- AFN 12,500: 2%
• AFN 12,501 - AFN 100,000: 10% (plus AFN 150 for income exceeding AFN 12,500)
• Over AFN 100,000: 20% (plus AFN 8,900 for income exceeding AFN 100,000)

Corporate Income Tax

The corporate income tax rate is 20% of taxable income. Companies are required to file an annual tax return and pay by the end of Jawza (3rd month) of the following fiscal year.

Business Receipts Tax (BRT)

Businesses are subject to BRT, a tax on sales, and must file and pay quarterly. Payments are due within 15 days following the end of the solar quarter in which sales occurred.

Other Taxes

• Fixed tax on imports: Applies to imported goods and includes customs duties.

Social Security

Information on social security contributions for 2025 is not explicitly detailed within the given sources, though it is mentioned that the employer contributes 50% and the employee 20%.

It's important to note that tax laws and regulations are subject to change. Consulting with a tax professional or the Afghanistan Revenue Department directly for the most current information is recommended. This information is current as of February 5, 2025.

In Afghanistan, employers are responsible for withholding taxes from employee salaries above a certain threshold.

Employer Responsibilities

• Who Withholds: Legal entities (companies, organizations, government agencies) and individuals with two or more employees must withhold taxes.
• Which Payments: Salaries, wages, overtime pay, cash allowances (food, transportation, etc.), and non-cash payments are subject to withholding.
• Employee Threshold: Withholding applies to resident and non-resident employees earning above AFN 5,000 per month (or equivalent). Non-resident employees are exempt if their home country has a reciprocal exemption with Afghanistan. Employees of foreign governments and international organizations are taxed based on treaties or contracts.
• Tax Rates: A progressive tax system is in place, meaning the tax rate increases along with the income. Unfortunately I do not have access to the tax rate schedule at this time.

Employee Deductions

• Types of Income: Taxable income includes salaries, wages, bonuses (performance, Eid, etc.), overtime pay, and all cash allowances, irrespective of their purpose (transportation, phone, food, winter wood, medical, etc.) as of June 3, 2024.
• Per Diems: Per diems for work-related travel are subject to withholding tax. as of June 3, 2024.

Business Expenses and Deductions for Employers

Most business-related expenses are deductible. This information is valid as of today, February 5, 2025 and might change in the future. Depreciation of assets (excluding land) is deductible. Startup expenses are not deductible. Interest expenses are deductible, but subject to a 20% withholding tax. No deductions are allowed for expenses like dividends, interest, royalties, etc., if the employer failed to withhold the required tax.

Additional Information for Non-Residents

Non-resident individuals, companies, and organizations conducting business in Afghanistan are taxed on income from Afghan sources. Deductions are limited to expenses linked to Afghan-sourced income. Foreign taxes paid on Afghan-sourced income are generally not deductible or creditable, unless specified by a tax treaty. The U.S. does not currently have a tax treaty with Afghanistan. This information is valid as of today, February 5, 2025 and might change in the future.

Social Contribution Tax (as of January 6, 2025)

There's a social contribution tax benefit for new labor market entrants, applying to employees with no more than three months of work experience with another employer in the past year. Employers can reduce their social contribution tax base by the minimum wage for up to a year, and by 50% of the minimum wage for an additional six months.

Afghanistan's Value Added Tax (VAT) system levies a standard rate of 10% on most goods and services. Businesses with an annual turnover exceeding AFN 150 million are required to register, while those below this threshold can register voluntarily if they meet specific criteria. VAT returns are filed quarterly.

VAT Rates

• Standard Rate: 10% applies to most goods and services.
• Zero Rate: 0% applies to exports and essential goods like basic food items (wheat, flour, rice, sugar, cooking oil, tea, onions, potatoes, salt), books, and household commodities (coal, wood, gas, soap).

VAT Registration

• Mandatory Registration: Businesses with an annual turnover exceeding AFN 150 million.
• Voluntary Registration: Businesses below the mandatory threshold can register if 75% of their supplies are to registered VAT taxpayers or 25% of their supplies are exports. Additional requirements include a fixed place of business and compliance with all tax laws.

VAT Filing and Payment

• Filing Frequency: Quarterly
• Filing Deadline: Within 15 days following the end of the quarter.
• Payment Deadline: Tax payments are due no later than the 15th day following the end of the solar quarter in which the sales occurred. The tax year in Afghanistan begins on December 21st.

Exempt Goods and Services

Several categories of goods and services are exempt from VAT including:

• Health services
• Educational services
• Financial and insurance services
• Residential immovable property transfer or lease
• Religious services
• Humanitarian aid
• Goods and services provided to the government for disaster rehabilitation
• Sport services

General Information on VAT in Afghanistan

As of February 5, 2025, the implementation date for VAT has been delayed several times and while originally set for December 21, 2020, it is important to consult the most up-to-date official sources for the current status. The VAT replaces the previous Business Receipts Tax (BRT) and aims to modernize the tax system, align with international standards, and provide a more stable revenue source for the Afghan government. Non-resident businesses making local supplies may be required to register and appoint a local VAT representative. A refund system exists for excess input VAT credits carried forward for at least one period, processed within 45 days. Penalties exist for non-compliance with VAT regulations, including late filing, late payment, and inaccurate reporting. While e-invoicing is not currently mandatory, it is encouraged.

Afghanistan's tax landscape is currently undergoing significant changes, with new incentives being introduced to stimulate economic activity. As of February 5, 2025, the following incentives are available:

Tax Incentives for Businesses

• Tax Exemption for New Industries: Returning Afghan investors establishing new industries are exempt from all taxes except employee payroll taxes for a period of five years. This exemption aims to encourage investment and revitalize various sectors of the Afghan economy.
• Customs Duty Exemption: Imported machinery and tools intended for industrial use are exempt from customs duties. This measure intends to reduce the cost of setting up new industries and make Afghan products more competitive.
• Tax Relief for Small Businesses and Specific Sectors: Businesses with annual sales up to two million Afghanis (approximately $27,000 USD as of 2024) are exempt from paying taxes. For businesses exceeding this threshold, the tax rate has been reduced from 0.5 percent to 0.3 percent. This relief also applies to hotels and fuel stations. Additionally, there is no Business Receipt Tax (BRT) since VAT has been introduced at a rate of 10%. There is an exemption of VAT for many necessities including health services; educational services; financial and insurance services; transfer or lease of immovable properties for residential purposes; provision of religious services; humanitarian aids; goods and services provided to a government entity for the purposes of rehabilitation after natural disasters, industrial incidents, and catastrophes; and sports services.

General Tax Information in Afghanistan

• Individual Income Tax: Afghanistan has a progressive individual income tax system. Income from agricultural and livestock production, as well as grants and gifts from public institutions and foreign governments, are generally exempt from income tax. Self-employed individuals are taxed similarly to wage earners, with rates ranging from 2% to 20% based on income brackets. Sole proprietors are taxed at 10% for net taxable income between 150,000 and 1,200,000 Afghanis and 20% for income above 1,200,000 Afghanis.
• Corporate Income Tax: The standard corporate income tax rate is 20%. Capital gains are generally included in taxable income and taxed at this rate. Capital gains arising from property sales, however, are subject to a separate 1% tax that can be credited against corporate taxes.
• Value Added Tax (VAT): A VAT of 10% is applicable to a range of products.

Additional Considerations: Please note that the Afghan tax system is subject to change, and regulations can be complex. It's important to consult with tax professionals for the most up-to-date information and guidance. While incentives are in place to attract investment, various challenges, including financial sector instability and policy changes, can impact businesses operating in Afghanistan. Furthermore, specifics on application procedures for tax incentives and exemptions may vary. Direct engagement with relevant Afghan authorities is recommended to obtain the latest procedural details.