Afghanistan Compliance Advisory
23 June 2015

Introduction. This advisory is generally applicable to all entities operating in Afghanistan including prime/sub, corporate/NGO, Afghan/non-Afghan. There are special provisions for military contractors which are labeled as such. Important changes this month are underlined.

The BSA and SOFA entered into force on 1 Jan 2015 requiring all U.S. DOD and NATO prime or subcontractors in Afghanistan (hereafter “military contractors”) to abide by Afghan law, including with respect to business licensing, visas, weapons permits and taxation. The Afghan Government, through Presidential Decree 38 instituted a transition period allowing for phased application of Afghan law until 1 Jun 2015. On 16 Jun 2015, this transition period was extended to 1 Sep 2015, allowing more time for contractors to become compliant without penalty. See the latest Resolute Support (RS) Legal Office Frequently Asked Questions.

Business licensing. All companies are required to obtain their own business license in Afghanistan; they cannot use another company’s license. A business license is necessary to apply for employee visas, weapons permits and tax exemption confirmations. Military contractors with existing 1-year business licenses can convert to a 3-year license at the time of renewal. Here are the documents required to apply for a new business license:
Original authenticated Power of Attorney to agent to apply on behalf of company
Original authenticated Board Resolution Letter authorizing the opening of a branch office in Afghanistan, OR original NATO Contractor Certificate
Original RS Physical Presence Memo listing base address, OR copy of rental agreement
Original RS Letter of Introduction listing President and VP appointed for Afghan branch office; OR original Letter of Introduction from the respective Embassy in Afghanistan
Copy of foreign Articles of Incorporation or similar document
Color copy of the biographical page of the passport of the President and VP
Color copy of 4x5cm photos of the President and VP
Brief description of activities, initial capital investment and estimated number of personnel
Official license fee payment receipt depending on the license sector (commonly $1,000 for 1-year license and $3,000 for 3-year license)

Visas. AHG no longer assists with obtaining visas at Embassies/Consulates outside Afghanistan. Please note carrying other persons’ passports through international airports may be subject to confiscation and/or detention. Non-military contractors are required to obtain an invitation letter, a 1-month single entry visa, a 1 year work permit and then 6-month multiple entry visas (MEVs) for their employees.

Military contractors can apply directly for 1 year MEVs. On 23 June 2015, the Ministry of Interior (MOI) restarted issuing military contractor visas in Kabul, having suspended the process on 1 Jun 2015. After 1 Sep 2015, those arriving to Afghanistan without visas should receive an entry stamp in their passport upon arrival and are required to obtain a visa within 15 days. Here are the documents required to apply for a 1-year multiple entry visa for military contractors (note that the company’s name on the business license, letters and LOAs must match exactly):
A one-time Letter of Introduction from the contractor to the MOI introducing the authorized pickup/dropoff agent
For each batch of applications, a Request Letter from the contractor which provides a list of the contractor’s employees who are applying for visas (names, nationalities, passport numbers) and the authorized pickup/dropoff agent
One visa application form – no need to notarize, but stamp each page with company ink stamp
One 4x5cm photo (attached to application form)
Original passport, valid for at least 6 months
Color copy of the biographical page of the passport
Official payment receipt for $360 visa fee plus $200 for first time BSA visa applicants
Color copy of valid AISA business license of the contractor
Color copy of the front and back of company photo ID of the employee (but not military ID)
One of the following 3 documents that serve as verification of a contractor employee eligibility:
DOD Letter of Authorization (LOA) – for U.S. Contractors as generated by SPOT (two pages)
NATO Letter of Affiliation (LOA) – for NATO Contractors under the NATO Support Procurement Agency (NSPA) or NATO Communications and Information Agency (NCIA)
NATO Contractor Certificate – for other eligible contractors not listed above, issued by the RS Legal Office

Weapons permits. The MOI has started accepting applications for weapons permits for military contractors. Here are the documents required to apply for a weapons permit:
For each batch of applications, a Request Letter from the contractor which provides a list of the contractor’s employees who are applying for weapons permits (names, nationalities, passport numbers), as well as the type and serial number list and other specifications of the weapons per packet and the authorized pickup/dropoff agent
Original US Forces Afghanistan Letter of Introduction to the MOI
One weapons permit application form – stamp each page with company ink stamp
One signed Statement of Understanding of Afghan Law
Two 4x5cm photos (attached to application form)
Color copy of the biographical page of passport
Official payment receipt for 5,000 Afghani (about $90) per weapon
Color copy of valid AISA business license of the contractor
Color copy of the front and back of company photo ID of the employee (but not military ID)
Copy of DOD Letter of Authorization (LOA) as generated by SPOT
Approved US Forces Afghanistan Arming Authorization Letter (AAL)

Tax exemption confirmations. Tax exemptions are not automatic, even for non-profits. The Ministry of Finance (MOF) has restarted issuing tax exemption confirmations (TECs) after clarification of the process. All TECs are issued on a contract by contract basis, not on a blanket organization basis. TECs are retroactive to the start date of the contract, regardless of the date of TEC application or business license registration. Only certain contracts under bilateral agreements (NATO, DOD, DOS/INL, USAID, DFID) or non-profit work are currently eligible for TECs. Here are the documents required to apply for a TEC:
Original Cover Letter from the company to the MOF, listing the full legal name, Afghan TIN, point of contact, contract number(s) and other details
One full unredacted copy of the contract signed by both parties, with all modifications, task orders and changes, with all page numbers and sections complete and in order
Original Request Letter from the Contracting Officer; multiple contract numbers and mods can be listed on the same letter
For DOD contractors, there is an additional verification process. For those contracts issued before 1 Jan 2015, Contracting Officers should refer to HCA Bulletin 13-02 for a template Request Letter, and for contracts issued after 1 Jan 2015, refer to HCA Bulletin 15-06. The MOF requires stamping of all DOD Contracting Officer Request letters through the following process:
The DOD Contracting Officer fills out Form DD557 and physically prints, signs, scans and emails to U.S. Embassy Kabul/SDDC. This is for the SDDC to update their database if the Contracting Officer has not done this before.
The DOD Contracting Officer is to physically print, sign, scan and email the Request Letter to SDDC and copy their agent.
The agent is to print, physically submit the same Request Letter to the SDDC, and then return to pickup after it has been stamped.
On 1 July 2015, the RS Legal Office will take over the role of SDDC in verifying Contracting Officer Request Letters.

Tax filing requirements. A tax clearance letter from the MOF is required to renew a business license. All entities in Afghanistan are required follow applicable provisions in the Afghanistan Income Tax Law, even companies that are exclusively on tax exempt contracts. Here are the main statutory requirements:
Rental withholding tax (RWT): All entities are required to withhold tax from any rent payments to Afghan landlords (0% for 0-10,000, 10% for 10,001-100,000, 15% for 100,001+ monthly rent amount). Due 15 days after end of the month in which payment was made to the landlord. [Article 59]
Wage withholding tax (WWT): Non-Afghan national employees may be exempt from wage withholding by a TEC. All Afghan nationals are subject to wage withholding tax (0% of 0-5,000, 2% of 5,001-12,500, 10% of 12,501-100,000 and 20% of 100,001+ portion of monthly salary). In addition, the employer is required to obtain individual Afghan Taxpayer Identification Numbers for all employees subject to wage withholding tax. Due 10 days after end of the month in which wages were paid to the employee. [Article 58]
Contractor withholding tax (CWT): International companies are those that are owned over 50% by non-Afghan nationals (with AISA license numbers starting with an “I”) while domestic companies are those that are owned 50% or more by Afghan nationals (with AISA license numbers starting with a “D”). International vendors may be exempt from contractor withholding by a TEC while all domestic vendors are subject to contractor withholding tax (500,000 per year threshold, then 2% of invoice amount for registered companies, 7% for unregistered). Due 10 days after end of the month in which invoices were paid to the vendor. Vendor receives a tax credit for any withheld amounts to apply against annual income tax liabilities. [Article 72]
Business receipts tax (BRT): Often confused with CWT, this is a completely separate tax. Contracts with a TEC are usually exempt from paying BRT, while all other revenue is subject to tax on gross quarterly receipts depending on the sector (10% for telecom, airline or hospitality with over 750,000 revenue, 5% for hospitality under 750,000 revenue, 2% for all other sectors). Due 15 days after end of each quarter. [Article 64]
Annual income tax return (ITR): Requires full breakdown and reconciliation of the above 4 tax areas against a Profit & Loss Statement and Balance Sheet Statement for Afghanistan activities. Companies with both tax exempt and taxable revenue are required to file two returns – one informational return consolidating all their tax exempt work and one actual return consolidating all taxable work. Due 3 months after the end of each fiscal year: [Article 8]
Tax forms, guides and instructions are available here. All figures are in Afghani currency, and official exchange rates are available here. All due dates follow the Afghan fiscal calendar (not the Gregorian calendar), and a converter is available here. All withheld taxes, BRT and ITR are to be paid to the assigned MOF Small, Medium or Large Taxpayers Office bank account at Da Afghanistan Bank (DAB). All tax areas require in-person filing, typically with four carbon copy forms, with one copy distributed each to Payer, Payee, MOF and DAB.

Non-compliance penalties. There are serious penalties for not complying with the Afghanistan Income Tax Law:
For not withholding tax: 10% of the tax that should have been withheld [Article 103]
For not paying other taxes without reasonable cause: 10% of the tax that should have been paid [Article 104]
For not depositing withheld tax or other taxes on time: 0.1% of the tax per day late [Article 100]
For not obtaining an Afghan TIN when required (Afghan TIN already included with an AISA registration): 20,000 Afghani [Article 105]
For not maintaining appropriate financial records: 20,000 Afghani [Article 101]
For intentionally attempting to evade tax: penalty of 2 times the tax assessed [Article 98]
For late filing of annual income tax returns: all returns before 1389 are subject to a one-time penalty of 10,000 Afghani; for 1390 and 1391 returns, there is a penalty of 500 Afghani per business day late; for 1392 and 1393 returns, penalty of 100 Afghani per business day late. ITRs are required starting from the date of business license registration, but tax liabilities accrue from the start of operations in Afghanistan. Here are the approximate Afghan fiscal years for filing ITRs:
1394 – 21 December 2014 to 20 December 2015: due 21 March 2016
1393 – 21 December 2013 to 20 December 2014: due 21 March 2015
1392 – 21 December 2012 to 20 December 2013: due 21 March 2014
1391 – 21 March 2012 to 20 December 2012: due 21 March 2013 (9 mo, new filing schedule)
1390 – 21 March 2011 to 20 March 2012: due 21 June 2012
1389 – 21 March 2010 to 20 March 2011: due 21 June 2011
1388 – 21 March 2009 to 20 March 2010: due 21 June 2010

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