ance. These provisions are contained in Guide 05 Who is Subject to Withholding? Chapters XIV & XVI and include fines, Note 1 : ! penalties and imprisonment. Wage Withholding All resident and non-resident employees working The “ Information Page” website also in whose salaries and wages exceed contains public announcements, a copy of Tax Tax Forms and Information the tax threshold of 5000 Afghanis (or equivalent the Income , various public in foreign currency) per month or equivalent

rulings, forms, instructions for completing prorated amounts for those paid on alternate Tax forms and guides are available forms, guides, archived documents, payroll periods. Non-resident employees are from the Ministry of Finance, Questions & Answers regarding the wage exempt from withholding if their home country Afghanistan Revenue Department and withholding tax, etc. provides the same exemption to residents of Mustufiat Offices . Afghanistan. Resident and non-resident

Note 2: employees of foreign governments and For more information or assistance visit the international organizations are subject to Department, your local Mustufiat The “Tax Information Page” website also based on existing treaties or contracts with the Office, or the “Tax Information Page” at contains an “ Manual” State. www.mof.gov.af/tax . issued under the authority granted to the Ministry of Finance by Article 113(2) of Introdu ction Who is a Resident? Who is a Non- the Income Tax Law. The purpose of he ?Theُ Income Tax Law of Afghanistan 2009 have Resident manual is to provide additional guidance changed some of the applications of the wage to the Afghanistan Revenue Department withholding tax. This brochure will explain those According to the income Tax Law, a natural and taxpayers regarding the application changes and help you in complying with the law. person is a resident of Afghanistan (Article 2) for of the Income Tax Law of 2005. In this the tax year if: manual, each Article of the law is given separately, followed immediately by the 1) The person has his or her principal home in regulations, and often examples where ! Afghanistan at any time during the year; or appropriate, pertaining to that Article. Note: There are no fees or charges 2) The person is present in Afghanistan for a payable to the Ministry of Finance or its period of one hundred eighty three (183) days in Revenue Department or the Mustufiat for the tax year; or any Tax Guides or Forms or at any stage 3) The person is an employee or an official of the of the collection or Government of Afghanistan posted abroad at any enforcement processes time during the tax year.

Worldwide income is taxable in Afghanistan on all residents. Who Must Withhold ? Non-residents are those people who do not meet Legal persons and natural persons (individuals) the above requirements. All Afghan-source with two (2) or more employees during any month income is taxable for non-residents. Afghan- of the tax year are required to withhold tax from source income is defined as any income directly employees whose income exceeds the threshold, produced in Afghanistan or paid for services discussed later (Article 58 Income Tax Law). provided in Afghanistan. Legal persons include partnerships, corporations, limited liability companies, organizations, Example 1: Joe Brown is a foreign national who agencies, ministries and other national or local arrived in Kabul on 12 May for a year’s government agencies and departments, assignment working for a non-profit British aid enterprises of the State and municipalities, and organization. There is no contract with the State charitable institutions. in place to exempt employees of his organization from taxation in Afghanistan. He is paid in

1388 pounds sterling from his home office in London. What Payments are Subject to the The money is deposited directly into his British Ministry of Finance Withholding? bank account. However, his wages are paid for Afghanistan Revenue Department services provided in Afghanistan, so they are Payments to employees in the form of salaries considered Afghan-source income and would be and wages for work provided are subject to subject to withholding. He remained in withhold ing. Salaries and wages include: regular Afghanistan for the entire year, with the exception pay for services, overtime pay, cash allowances of two trips of three weeks each to visit his family, provided by the employer to the employee Islamic who live in his principal home in the UK. He has (including, but not limited to, food allowances and met the requirement of being present in transportation allowances), and non-cash Afghanistan for 183 days in the tax year, so he payments for services. For more detailed would be considered a resident for tax purposes information regarding which payments are and be subject to tax on worldwide income. subject to withholding, see Ruling 1384/6. 4 1 Example 2: Abdul Nasri is an Afghan national For bi -weekly payrolls Example 3: Abdullah earns 20,000 afghani per Wage withholding report and deposit form: This who lives in Dubai. He spent three months in Income Income Tax month. His monthly withholding rate would be form must be completed and filed within ten days Kabul working for the same British firm as Mr. more up to 900 afghani based on the following calculation of the end of the month in which the salaries Brown. He also owns a building in Kabul which than from the third row of the monthly payroll table: were paid, reporting total wages or salaries paid he rents out to a foreign aid organization. Since for the month and withheld. Payment is due 0 2308 0% he does not maintain his principal home in 20,000 – 12,500 = 7500 in Afghanis at Da Afghanistan Bank with the form 2% of amount over Afghanistan, was not in the country for at least 2308 5769 7500 x 10% (0.1) = 750 (Article 60). 183 days, and is not an employee of the Afghan 2308 750 + 150 = 900 government, he is considered a non-resident. 69 + 10% of amount 5769 46,154 What is the Employee’s Responsibility? However, both his wages for work in Afghanistan over 5769 Example 4: Joe Brown from example 1 earns and his rental income from the building in Kabul 46,154 4108 + 20% of the the equivalent of 55,000 afghani twice a month. If the employee has only one job they have no are considered Afghan-source income and amount over 46,154 His withholding rate would be 5450 afghani on further responsibility or filing requirements. The subject to tax. The British firm is required to a semi-monthly basis based on the following Ministry of Finance will receive the appropriate withhold on his wages and pay the tax over to the calculation from the fourth row of the semi- For weekly payrolls information through the employer’s annual Afghan government. In addition, Mr. Nasri should monthly payroll table: summary report filing. also file an income tax return and declare his Income Income Tax rental income. more up to 55,000 – 50,000 = 5000 If the employee has any other income (including, than 5000 x 20% (0.2) = 1000 NEW ! but not limited to, another job, self-employment, 1000 + 4450 = 5450 What is the rate of Withholding? 0 1154 0% dividends, rental income, etc.) he must file an

2% of amount over individual income tax return and calculate his The new tax law has reduced the monthly 1154 2885 1154 When Does the Tax Withheld Have to be total tax for the year. He will be able to take credit exemption from 12,500 afghani to 5000 afghani Paid? for any tax withheld against his total tax liability (or prorated share for alternate payroll periods) 35 + 10% of amount 2885 23,077 (Article 63). per person. An additional at 2% has over 2885 The employer is required to remit to the State also been added. Taxes are withheld at rates 23,077 2054 + 20% of the the amount withheld no later than 10 days based on the monthly schedule established in the amount over 23,077 (Article 60) after the end of the month in which Talking to Your Employees about the Tax Income Tax Law (Article 4). the amounts were withheld. For daily payrolls Many employees may be confused by the For monthly payrolls changes to this tax application. Recent tax law Income Income Tax Example 5: ABC, Inc., a foreign firm, pays its Income Income Tax foreign employees working in Afghanistan bi- changes have changed the tax rates, resulting in more up to a slightly higher amount of withheld tax for many more up to than weekly. However, the firm pays its local than employees on a monthly basis. The firm would employees, and new withholding requirements 0 164 0% for many more.. It is important to explain to 0 5000 0% be required to withhold from each group of 2% of amount over employees on each separate pay date, but file employees that the income tax requirement has 2% of amount over 164 411 5000 12,500 164 and pay the withheld tax within ten days of the been a part of Afghan tax law for years, and that 5000 5 + 10% of amount end of the month. compliance with the withholding tax is a legal 150 + 10% of amount 411 3288 requirement under the Income Tax Law of 12,500 100,000 over 411 over 12,500 Afghanistan. 3288 293 + 20% of the Example 6: XYZ, Inc., another foreign firm, 100,000 8900 + 20% of the amount over 3288 pays its foreign employees semi-monthly and amount over 100,000 If your employees have questions regarding the its local employees monthly. This firm would still have one filing requirement per month. wage withholding specifically, or income tax filing How is the Wage Withholding Tax in general, please direct them to contact the Employees paid on alternate payroll schedules Ministry of Finance, Afghanistan Revenue (weekly, semi-monthly, etc.) are subject to Calculated? How is the Wage Withholding Tax Department. If you would like to have a withholding according to the following prorated Reported? Wage withholding tax is calculated based on the representative of the Afghanistan Revenue schedules, which are based on the monthly above tables. Determine which payroll period you Department come to your place of business to schedule. Annual salary and tax statement: The employer use. For each employee, look at the total salary must give each employee an annual salary and address your employees regarding these or other (including taxable benefits). If it is in excess of tax issues, please feel free to contact the For semi-monthly payrolls tax statement showing the employer’s name, the highest threshold (100,000 for monthly address, and TIN; the employee’s name, Revenue Department or Mustufiat to set up a Income Income Tax payroll, 50,000 for semi-monthly payroll, etc.), address, and TIN; and the amount of the convenient time. more up to use the fourth row of the appropriate schedule. If employee’s total salary or wage, as well as the than the total salary (including taxable benefits) is amount withheld. A copy of this will be Enforcement Provisions 0 2500 0% more than the next highest threshold (12,500 forwarded to the Ministry of Finance as well monthly, 6250 semi-monthly, etc.), but does not 2% of amount over (Article 61). Failure to comply with the requirements of the 2500 6250 exceed the highest threshold, use the second 2500 Income Tax Law may result in the Ministry of row of the appropriate schedule. If the total salary Finance using administrative powers within the 75 + 10% of amount Annual summary report of tax withheld: The 6250 50,000 (including taxable benefits) is more than the tax law to ensure compli- over 6250 employer will file an annual summary of all lowest threshold (5000 monthly, 2500, semi- wages or salaries paid to all employees during 50,000 4450 + 20% of the monthly, etc.), but does not exceed the second the tax year and all taxes withheld (Article 61). amount over 50,000 lowest threshold, use the second row of the

appropriate schedule. If the total salary is less than the lower threshold, there is no withholding requirement. . 2 3