Afghanistan

Country Name: Islamic Emirate of Afghanistan
Currency: Afghan Afghani (AFN)
Primary Tax Authority: Afghanistan Revenue Department (ARD), Ministry of Finance
Key Legislation:

Income Tax Law (2009, as amended)
Customs Law
Value Added Tax (VAT) Law (effective from 2021)
Business Receipts Tax (BRT) Law
Investment Law

Fiscal Authority Allocation

Centralized Fiscal System:
Afghanistan operates a centralized tax system, with the Afghanistan Revenue Department (ARD) under the Ministry of Finance responsible for administering and collecting taxes, including corporate income tax (CIT), personal income tax (PIT), value-added tax (VAT), and business receipts tax (BRT).

Corporate Income Tax (CIT)

Standard Rate: 20%
Afghanistan imposes a flat corporate income tax rate of 20% on the taxable income of resident and non-resident companies.

Corporate Forms and Taxation:

Resident Companies: Taxed on worldwide income.
Non-Resident Companies: Taxed only on Afghanistan-sourced income.

Exemptions and Incentives:

Investment Law: Afghanistan provides tax exemptions and incentives for companies investing in key sectors such as infrastructure, manufacturing, agriculture, and mining. These include CIT exemptions for up to five years, depending on the location and size of the investment.
Free Trade Zones (FTZs): Businesses operating in designated free trade zones are exempt from import duties, CIT, and VAT for a specified period.

Goods and Services Tax (GST) / Value-Added Tax (VAT)

Standard Rate: 10%
Afghanistan introduced VAT in 2021, replacing the previous business receipts tax (BRT) for certain sectors. VAT is applied at a standard rate of 10% on the supply of goods and services, as well as on imports.

Exemptions:
Certain essential goods and services, including healthcare, education, and basic food items, are VAT-exempt. Exports are zero-rated, allowing businesses to reclaim VAT on inputs used to produce export goods.

Personal Income Tax (PIT)

Progressive Rates:
Afghanistan applies a progressive personal income tax system on residents’ worldwide income. Non-residents are taxed only on Afghanistan-sourced income.

Resident Tax Rates for 2023 (Annual Income):

Up to AFN 60,000: 0%
AFN 60,001 to AFN 150,000: 2%
AFN 150,001 to AFN 1,200,000: 10%
Above AFN 1,200,000: 20%

Non-Resident Tax Rate:
Non-residents are subject to a flat tax rate of 20% on income derived from Afghanistan.

Additional Mandatory Contributions

Social Security Contributions:
Afghanistan does not have a formal social security system. However, employers may be required to contribute to workers’ compensation or insurance schemes based on specific industry regulations.

Withholding Taxes

Dividends: 20%
Interest: 20%
Royalties: 20%
Afghanistan imposes withholding taxes on payments to non-residents. Dividends, interest, and royalties are subject to a flat 20% withholding tax. These rates may be reduced under Afghanistan’s double taxation agreements (DTAs).

Transfer Pricing Rules

Afghanistan does not have formal transfer pricing regulations. However, multinational companies are expected to adhere to the arm’s-length principle for related-party transactions. Cross-border transactions may be scrutinized to ensure compliance with fair market pricing.

Special Tax Regimes

Free Trade Zones (FTZs): Businesses operating in FTZs benefit from tax holidays, exemptions from import duties, and reduced CIT rates. These zones are aimed at promoting export-driven industries, manufacturing, and infrastructure development.
Investment Incentives: Companies investing in key sectors like mining, energy, and agriculture can benefit from tax holidays and customs duty exemptions under Afghanistan’s Investment Law. These incentives are designed to attract foreign direct investment (FDI) to support economic recovery.

Other Taxes

Customs Duties: Afghanistan imposes customs duties on imports, with rates varying based on the type of goods, ranging from 0% to 40%. Essential goods, such as food, medical supplies, and raw materials, may benefit from lower rates or exemptions.
Excise Taxes: Excise taxes are levied on specific goods, including alcohol, tobacco, and petroleum products.
Real Property Transfer Tax: Afghanistan imposes a 5% tax on the transfer of real estate properties based on the transaction value.

Double Taxation Agreements (DTAs)

Afghanistan has signed several double taxation agreements (DTAs) with countries such as Pakistan, India, and Turkey. These agreements aim to reduce withholding taxes on cross-border payments and prevent double taxation of income earned in Afghanistan and partner countries.

Local Taxes

Local authorities may impose minor taxes and fees, such as property taxes or business license fees, but major taxes (CIT, PIT, VAT) are centrally administered by the Afghanistan Revenue Department (ARD).

Compliance and Reporting

Annual Filing:
Corporate tax returns must be filed by March 31st of the following year. Personal income tax returns are generally due by March 31st. VAT returns are typically filed monthly, and businesses must remit VAT collected to the ARD.

Penalties for Late Filing:
Penalties for non-compliance or late filing include fines and interest on unpaid taxes. The ARD may impose a 0.1% daily penalty on overdue tax payments, along with additional fines for underreporting or misreporting income.

Recent Developments

Efforts to Modernize Tax System:
Afghanistan has been working to modernize its tax administration and expand its tax base. The introduction of VAT in 2021 is part of broader efforts to increase government revenue and streamline tax collection. The government is also implementing digital tax filing systems to improve compliance and transparency.

Investment in Infrastructure and Mining:
To attract foreign direct investment (FDI), Afghanistan is prioritizing infrastructure development, especially in the mining, energy, and construction sectors. Tax incentives such as CIT holidays and customs duty exemptions have been introduced to support these sectors, with a focus on economic recovery and long-term growth.

Focus on Compliance:
The Afghanistan Revenue Department (ARD) is focusing on improving tax compliance by introducing stricter enforcement measures, including penalties for tax evasion and underreporting. This includes enhancing audit capabilities and implementing more rigorous oversight of businesses operating in high-risk sectors.

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