Afghanistan Compliance Advisory – Issue #21

16 April 2017
As discussed in previous advisories, the Bilateral Security Agreement (BSA) applies to U.S. Department of Defense and North Atlantic Treaty Organisation (DOD/NATO) contracts awarded after 1 Jan 2015 (Post-BSA).

On 14 Mar 2017, the Ministry of Finance (MOF) signed into action a Legacy Tax Exemption Group Ruling (Group Ruling) following efforts by the Tax Working Group (consisting of the US Embassy Kabul, Resolute Support, and the Ministry of Finance) to resolve historical tax issues for DOD/NATO contracts awarded before 1 Jan 2015 (Pre-BSA). A copy of this Pre-BSA Group Ruling as well as guidance from the Tax Working Group is available at
The Group Ruling included a list of 31 contractors. However, it is the position of the Tax Working Group that there is to be no distinction between contractors on this list and those not included on this list. As long as the company was awarded a DOD/NATO contract or subcontract before 1 Jan 2015 with performance in Afghanistan, they are eligible to avail this Group Ruling for those specific contracts. Here are the next steps for such contracts:

Existing TECs. 

For those contracts that have had Tax Exemption Confirmation (TEC) letters issued by the MOF already, no further action is needed. This Group Ruling automatically amends those TECs to include tax exemption for withholding from non-Afghan subcontractors, as well as wage withholding tax, professional services income, insurance withholding taxes, dividend withholding tax, and all related penalties (0.1% per day and 10% for not withholding) for these aforementioned taxes. However, contractors are still liable for tax withholding from Afghan citizen landlords, Afghan citizen employees, and Afghan citizen vendors/subcontractors.

New TECs

. If your firm has any contracts before 1 Jan 2015 that you have not yet received a TEC for, particularly DOD/NATO subcontracts, you may now apply for them under the same process required for prime contract TECs (submitting a cover letter, copy of full contract, and contracting officer request letter).

Tax Audit and Enforcement. 

For any open tax audit or tax enforcement issues involving pre-BSA contracts, you should provide a letter to the assigned MOF audit team to consider this Group Ruling in their assessments.

Annual Income Tax Returns Due. 

The 1395 Afghan fiscal year ended 20 December 2016, with income tax returns due by 20 March 2017. Even if you have a three year business license, or even if all of your contracts are tax exempt, or even if you have no activity, Afghan law requires filing informational monthly, quarterly and annual tax forms to avoid accruing penalties.

Other Compliance Matters.

 For those new to Afghan compliance, previous issues of this advisory are available at In particular, we would like to highlight:
Issue 13 which provides a general overview of licensing, visas, weapon permits, tax exemptions and filings,
Issue 16 which explains changes in procedures for obtaining new Afghan visas or renewing existing Afghan visas, and
Issue 19 which explains changes in procedures for business licensing and annual income tax return submission.

For more information, quotations or questions about any of the above, please email


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