Afghanistan Compliance Advisory – Issue #19
10 October 2016
This advisory is an update on compliance matters in Afghanistan.
Changes to the business licensing process. The Afghanistan Investment Support Agency (AISA) has merged into the Central Business Registry (CBR) of the Ministry of Commerce and Industries (MOCI). AISA previously issued investment licenses while CBR issued business registration certificates. So far the following changes have resulted:
The hard copy license has been redesigned and is now called a business license, including both AISA and CBR numbers.
A singular business license allows import, export, manufacturing and general business activities.
All new and renewing companies will receive 3 year business licenses – not only military contractors. However, income tax returns are still due annually within 3 months of the end of the fiscal year.
For domestic companies, the licensing fee is expected to be 19,000 Afs for sole proprietors and 31,000 Afs for other legal structures. For foreign companies, the licensing fee has not changed yet.
Any mandatory documents for foreign entity registration, including the Power of Attorney and Board Resolution, are required to be translated into Dari or Pashto.
The location for obtaining a business license and reporting all changes has changed from AISA to the General Directorate of Central Business Registry and Intellectual Property, opposite Ustad Betab High School and near Ghazi Stadium.
Changes to tax law implementation. The Ministry of Finance (MOF) is working to implement the new Tax Administration Law, including some of the following new interpretations:
Business receipts tax (BRT) filings are now required quarterly regardless if a company is fully tax exempt or even if it has no activity at all.
BRT (4%, 5% or 10%) is now required to be calculated on an accrual basis, totaling gross revenue invoiced during each quarter, even if not yet received.
The new penalty of 100 Afs per day for any form filed late is causing a deluge of paperwork, resulting in increased backlogs at the MOF.
International military subcontractor tax exemption (and corresponding tax withholding) prior to the 1/1/2015 BSA is still an outstanding issue.
Contractors that have international licenses, but are not a branch office of a foreign entity, may no longer be eligible for tax exemption.
Contractors not withholding taxes from subcontractors holding international licenses may start having to prove exempt status by providing their subcontractors’ Tax Exemption Confirmation (TEC) issued by the MOF.
Changes to annual income tax return processing. Although the law requires the mandatory annual tax clearance letter be issued within 21 days, the process in practice has lengthened dramatically:
Obtain hard copy blank Annual Income Tax Return (AITR) forms with corresponding Standard Integrated Government Tax Administration System (SIGTAS) stickers.
Complete and submit AITR forms plus all additional supporting documentation as per MOF checklist, attach 12 months of wage/rental/contractor withholding forms and 4 quarterly BRT forms.
Process every single individual form (usually 40-80 forms) through SIGTAS’ various sections.
Receive a tax assessment for outstanding taxes and penalties.
Pay any assessed taxes and penalties at the Central Bank of Afghanistan.
Again, process all forms through SIGTAS’ various departments to reconcile payments.
Receive a revised tax assessment showing no further taxes or penalties due.
If none, case is then forwarded to the head of the relevant department for review.
If case is in the Large Taxpayers Office (LTO), additionally obtain 3 questionnaires for case management, tax audit and tax enforcement to each respond.
If approved, case is then forwarded to the screening committee for their review and decision on whether to approve or refer to audit.
If approved, case is again sent back to case manager to prepare a tax clearance letter.
If issued, tax clearance letter must be signed by entire chain-of-command before being issued by the archives department.
If fully signed, a copy of tax clearance is sent directly to CBR to allow license renewal.