Afghanistan - Income Tax

Afghanistan - Income Tax

Taxation of international executives

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Tax returns and Compliance

When are tax returns due?

An individual’s tax return (or annual statement as the case may be) must be filed by 21 March following end of tax year on 21 December. The tax law does not provide for any extension in due date for filing of return.

What is the tax year end?

The tax year begins on 22 December and ends on 21 December of the next year. The income earned during a year is taxable in the relevant year.

What are the compliance requirements for tax returns in Afghanistan?

An individual is required to obtain registration with the tax authorities i.e. Tax Identification Number (TIN). TIN is required to be mentioned on tax return and withholding tax deposit forms.

A prescribed form is to be used for filing of annual tax return which is due if the employee’s taxable income exceeds the maximum limit not chargeable to tax. The prescribed limit is AFN 60,000.

Tax on salaries is required to be withheld at source by the employer at the time of payment and to be deposited within ten days after the end of the month in which such tax has been deducted.

In case of default in filing of a tax return by individuals, a penalty is levied at AFN 100 per day for each day of delay in filing of tax return.  Where tax is also unpaid with return, an additional tax at 0.1% per day also applies in addition to penalty.

Tax Rates

What are the current income tax rates for residents and non-residents in Afghanistan?

Tax rates for individuals are common for all, irrespective of their residential status. The proposed income tax rates for assessment year 1394 (2015) are as follows:

Income tax rates table for the tax year 1394 (2015)

From AFN To AFN AFN Percent
0 60,000 0 0
60,001 150,000 1,800 2
150,001 1,200,000 AFN 1,800 + 10% of the excess over AFN 150,000 10
1,200,001 No Limit AFN 106,800 + 20% of the excess over AFN 1,200,000 20

 

There is no provision for joint filing of the return of income. There is also no distinction amongst individuals, whether married, unmarried, or having children and the same tax rates apply to all.

Residence rules

An individual is said to be resident in Afghanistan in any tax year if he/she:

  • has his or her principal home in Afghanistan at any time during the fiscal year; or
  • Is present in Afghanistan in that tax year for a period or periods totaling 183 days or more or
  • Is an employee or official of the Government of Afghanistan irrespective of where he/she is performing his duties of employment

What if the assignee enters the country before their assignment begins?

The residential status is determined based on the individual's actual physical stay in Afghanistan during the relevant tax year and accordingly, the days spent in Afghanistan prior to start of the assignment are also considered for determining the residential status of the individual for that year.

Termination of residence

Are there any tax compliance requirements when leaving Afghanistan?

Non-residents, who intend to leave Afghanistan before the due date of tax payments, are required to submit their tax return forms and pay tax two weeks before leaving the country.

What if the assignee comes back for a trip after residency has terminated?

The residential status is determined each year based on the total physical stay of the individual in the concerned tax year irrespective of its purpose.

Will an assignee have a filing requirement in the host country after they leave the country and repatriate?

The individual is required to file return of income if he/she earned Afghan-sourced income exceeding the prescribed exemption limit (AFN 60,000) during that year. This is irrespective of the presence of assignee in Afghanistan.

Communication between immigration and taxation authorities

Tax authorities usually communicate with immigration authorities in the event there is an outstanding tax liability against any person and they believe the persone would leave Afghanistan permanently.

Economic employer approach

Do the taxation authorities in Afghanistan adopt the economic employer approach1 to interpreting Article 15 of the OECD treaty?

No.

De Minimus number of Days

Are there a de minimus number of days2 before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?

There is no such test or approach.

Types of taxable compensation

What categories are subject to income tax in general situations?

In general, income from employment includes all compensation, in-cash or in-kind, which is due to or received by an employee in a tax year. Taxable compensation includes the following:

  • salary, wages, bonuses, allowances, and other cash compensation for services rendered in Afghanistan;
  • income tax paid by the employer on behalf of the employee;
  • perquisites

Tax-exempt income

Are there any areas of income that are exempt from taxation in Afghanistan? If so, please provide a general definition of these areas

Generally, the following items are not taxable:

  • meals up to USD 2 a day
  • transportation up to USD 1 a day
  • accommodation and meals (USD 35/- per in Kabul and USD 25 per day in other provinces) to expats only
  • living away from home allowance to employees away from ordinary residence
  • provision of relocation facility or reimbursement of relocation costs to employees away from ordinary residence
  • provision of  travel facility or re-imbursement of travel expense on commencement and cessation of employment to employees away from ordinary residence
  • actual medical treatment or reimbursement of actual medical treatment incidental to commencement and cessation of employment to employees away from ordinary residence

Expatriate concessions

Are there any concessions made for expatriates in Afghanistan?

Certain exemptions are available to foreign nationals and/or non-residents, subject to fulfillment of specified conditions. The exemptions available include the following:

  • accommodation and meals (USD 35/- per in Kabul and USD 25 per day in other provinces) to expats only
  • living away from home allowance to employees away from ordinary residence
  • relocation allowance or reimbursement of relocation to employees away from ordinary residence
  • travel allowance / travel facility or re-imbursement of travel expense on commencement and cessation of employment to employees away from ordinary residence
  • acual medical treatment or reimbursement of actual medical treatment incidental to commencement and cessation of employment to employees away from ordinary residence

Exptriates are exempt from tax on USAID funded projects and contracts with DOD/US Military and NATO forces under bilateral agreements.

Salary earned from working abroad

Is salary earned from working abroad taxed in Afghanistan? If so, how?

Compensation received outside Afghanistan for work performed by a non-resident employee abroad, which is not in connection with the services being rendered in Afghanistan, is not taxable in Afghanistan. Afghan tax residents are however liable to pay tax in Afghanistan for any income earned abroad. Tax credit is admissible against such liability for any foreign income tax paid outside Afghanistan.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in Afghanistan? If so, how?

Income from the transfer of a capital asset situated in Afghanistan is deemed to accrue in Afghanistan and as such taxable in Afghanistan. All individuals are liable for tax on capital gains arising from the transfer of capital assets in Afghanistan.

Dividend, interest, rent and royalty from investment held in Afghanistan is taxable in Afghanistan. The payment of such income is subject to withholding tax at the rate of 20%.

Benefits from Employees Stock Option Plan (ESOP) are taxed as perquisite in the hands of employees and are taxed at the time of exercising this option.

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Afghanistan? If so, please discuss?

Not applicable.

Are there capital gains tax exceptions in Afghanistan? If so, please discuss?

Not applicable.

General deductions from income

What are the general deductions from income allowed in Afghanistan?

Generally deductions are not allowable other than expenses related to taxable income.

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in Afghanistan?

The employer will deduct tax from the employee’s salary and deposit it directly with the tax authorities through cash or wire transfer to the Central Bank.

Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in Afghansitan?

The Afghanistan tax system runs on pay-as-you-earn basis in respect of salary payments. Accordingly, tax needs to be withheld and deposited with the tax authorities on a monthly basis. If taxes are not deducted additional tax/penalty is levied at the rate of 10 per cent on tax not deducted. If the taxes deducted are not deposited into the Government treasury, there would be an additional tax charged at the rate of 0.1 percent per day till the date of the payment of tax. The tax withheld needs to be deposited within 10 days after the end of month in which the payment is made.

When are estimates/prepayments/withholding of tax due in Afghanistan?For example: monthly, annually, both, and so on.

The employer is liable to deduct tax at the time of payment of salary to its employees. The tax deducted is to be deposited with the Afghan government within ten days from the end of the month in which tax is deducted.

An annual salary certificate is required to be issued to the employee in respect of tax deducted at source at end of the tax year.

Relief for foreign taxes

Is there any Relief for Foreign Taxes in Afghanistan? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

A resident is entitled to claim credit for foreign taxes paid on foreign-sourced income against the Afghanistan tax payable on such income.

Currently, Afghanistan has no Double Taxation Avoidance Agreement (DTAA) with any country.

General tax credits

What are the general tax credits that may be claimed in Afghanistan? Please list below.

None.

Sample tax calculation

This calculation assumes a taxpayer non-resident in Afghanistan with two children whose three-year assignment begins 22 December 2012 and ends 21 December 2015. The taxpayer’s base salary is USD 100,000 per annum and the calculation covers three years.

 

2013

USD

2014

USD

2015

USD

Salary 100,000 100,000 100,000
Bonus 20,000

20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 - 20,000
Home leave - 5,000 -
Education allowance 3,000 3,000 3,000
Interet income from non-local sources 6,000 6,000 6,000

Assumptions

  • All salary income is attributable to services rendered in Afghanistan.
  • Bonuses are paid at the end of each tax year.
  • The company car is used for business and private purposes.
  • The employee is deemed resident throughout the assignment.
  • Employee is re-located in 2013 and 2015.
  • 1 USD is equal to AFN 60

Calculation of Taxable Income

Year-ended

2013

AFN

2014

AFN

2015

AFN

Days in Afghanistan during year 365 365 365
Salary 6,000,000 6,000,000 6,000,000
Bonus 1,200,000 1,200,000 1,200,000
Cost-of-living allowance 600,000 600,000 600,000
Housing allowance 720,000 720,000 720,000
Company car 360,000 360,000 360,000
Moving expense reinbursement 1,200,000 - 1,200,000
Home leave - 300,000 -
Education allowance 180,000 180,000 180,000
Interest Income from non-local sources 360,000 360,000 360,000
Total earned income 10,620,000 9,720,000 10,620,000
Investment income - - -
Total income 10,620,000 9,720,000 10,620,000
Deductions (1,200,000)   (1,200,000)
Total taxable income 9,420,000 9,720,000 9,420,000

 

Calculation of Tax Liability

Taxable income as above 9,420,000 9,720,000 9,420,000
Income tax thereon 1,966,800 2,026,800 1,966,800
Less:      
Non-refundable tax credits - - -
Total income tax 1,966,800 2,026,800 1,966,800

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