Afghanistan Compliance Advisory – Issue #22
22 September 2017
he Bilateral Security Agreement (BSA) went into effect 1 Jan 2015, requiring business licenses and visas for all contractors working for the U.S. Department of Defense or North Atlantic Treaty Organisation (DOD/NATO). Consequently, many DOD/NATO contractors first registered in Afghanistan in 2015. Most of these business licenses were issued (or renewed) with 3 year validity, meaning they will expire sometime in 2018. To check the status of your business license, please visit https://www.acbrip.gov.af/companyverification/. To make any changes, contact us at firstname.lastname@example.org for assistance.
Many companies incorrectly assume that they can wait until a business license is expired to renew it, without realizing there are monthly, quarterly and annual tax filing requirements along the way. These mandatory filings are required even if all of your contracts are tax exempt, or even if you have no activity in Afghanistan at all. A tax clearance letter from the Ministry of Finance (MOF) is required for business license renewal, changes or closure. This process can take several months to complete, so please plan well ahead of your license expiry date. Obtaining new visas or renewing visas requires an active business license, as does banking, customs clearance and even certain deployment training programs.
Military or development contracts are not automatically tax exempt. Both prime and subcontractors must submit applications for tax exemption confirmation which includes a cover letter, a copy of the contract, and a letter from your contracting officer. For assistance with tax exemptions or tax filings, please email us at email@example.com.
There are four main penalties for tax non-compliance. Even if no tax is due, the penalty is 100 Afghani (about $1.5) per day for each day a form is filed late. This includes monthly rental, wage and contractor withholding tax forms, quarterly BRT forms and annual income tax forms. Second, if taxes that should have been withheld from payments to landlords, employees or vendors were not withheld, the penalty is 10% of the tax due, in addition to the tax. Third, if any of tax amounts were deposited late to the MOF, the penalty is 0.1% per date late. Finally, if certain revenue is not reported with intent to evade tax, the penalty is 2 times the tax assessed.
Important reforms continue to be implemented, with highly experienced and educated professionals joining both the management and line offices of the MOF. The MOF is working on a new income tax law and has launched a tax academy to improve tax education and awareness. In addition, a new independent organization, Certified Professional Accountants Afghanistan (CPA Afghanistan) has been established to oversee the accounting profession in the country. They are currently writing tax and law variant exam papers for those ACCA students who are interested in becoming a CPA Member.
For those new to Afghan compliance, previous issues of this advisory are available at https://ahg.af/aca/. 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.