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CONTENETS
ØTAX IMPLICATIONS
ØECONOMIC ACTIVITIES OF NON-RESIDENTS
ØTREATMENT OF BRANCH PROFIT

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LEARNING OUTCOMES
OBJECTIVE
ØTax On Natural Persons
1. Scope of income tax
e) Understand the tax implications for non-residents

2. Tax calculation and exemptions

e) Identify the tax exemptions for non-residents
f) Calculate the taxable income and allowable deductions of
non-residents

1. INTRODUCTION

Non Residents are persons are who do not meet the Afghan
residency criteria

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2. TAX IMPLICATIONS
Non-residents tax exemptions
§ Non-resident persons, who belong to a country with
which Afghanistan has an established tax treaty, are
exempt from paying income tax in Afghanistan.
§ This is normally when the foreign country also grants a
similar exemption to the Afghans residing in that
country.
§ Currently Afghanistan has entered into bilateral treaties
with Pakistan, Germany, Iran and Turkey.

2. TAX IMPLICATIONS…
A pilot or other person performing services in aircraft in
the airspace above Afghanistan is exempt from income
tax in Afghanistan if all of the following conditions are
met:
a) He/she is not a citizen or resident of Afghanistan
b) His/her employer is a foreign company or
government
c) He/she is not residing in Afghanistan
His/her government or employer’s government does not
tax Afghans in a comparable situation.

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2. TAX IMPLICATIONS…
Non-residents tax liabilities
§ If no tax
treaty exists between Afghanistan and the
country to which the Non-Resident belongs to, then non-
resident natural and legal persons are liable to tax on
income earned from Afghan/ local sources.
§ The following income is considered an Afghan source
income:
üInterest or fees for debt, fees for technical services,
royalties, prizes, rewards, lotteries,
übakshishis and bonuses paid by a resident person or
connected with the activities of a
üpermanent establishment 7

2. TAX IMPLICATIONS…
üDividend paid or treated as paid by a resident
corporation or limited liability company
üDividend paid or treated as paid by a permanent
establishment of a non- resident
üRentfor movable or immovable property located in
Afghanistan
üIncome from transfer of movable or immovable
property situated in Afghanistan
üInsurance premium, including reinsurance, if the
insurance policy covers risk arising in Afghanistan
üSalary or wages for employment duties performed in
Afghanistan 8

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2. TAX IMPLICATIONS…
• While some of the amounts received by a non-resident
will be net off withholding tax but these are not
considered as the taxpayers’ final liability and therefore
non-residents are required to submit tax returns.
Example:
Feroz is an individual that is resident in Canada. Feroz
receives Afs.50,000 interest income from an Afghan
corporation. The interest income is subject to 20%
withholding.

2. TAX IMPLICATIONS…
• A non-resident natural or legal person may claim
deductions to reduce his or her income from Afghan
sources if the income is not interest, dividends, rents or
royalties.
• If a non-resident legal or natural person does not file a
return, the Afghanistan Revenue Department may
assess tax on behalf of the non-resident by calculating
tax on the taxpayer’s gross income.
• Deductions are allowed in respect of income other than
interest, dividends, rents and royalties to those non-
resident legal persons who file a true and accurate tax
return including all information required by the
Ministry of Finance. 10

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3. NON-RESIDENTS WITH
ECONOMIC ACTIVITIES
§ Non-residentnatural and legal persons engaged in
economic activities through a permanent
establishment in Afghanistan are subject to tax on
their income connected with the permanent
establishment.
§ Income from economic activity is considered
connected with the permanent establishment if
derived from the permanent establishment or from
similar activities in Afghanistan.
§ For the purpose of determining the taxable income of
the non-resident person who carries on economic
activities through a permanent establishment in
Afghanistan the permanent establishment shall be
regarded as if it is a separate legal person. 11

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3. NON-RESIDENTS WITH
ECONOMIC ACTIVITIES…
§ Deductions for the purpose of calculating the income
tax, are allowed provided that they are connected to
the business of the permanent establishment.
§ Administrative expenses charged by or paid to the
head office or another part of the business of the non-
resident person shall be allowed as deductions if they
are equal to the actual cost.

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4. BRANCH PROFIT TAX

§ A non-resident person operating via a branch will be
subject to withholding tax deduction on the amount
of the branch profits remitted to the non-resident
person, at the time of the transfer.
§ The amount subject to withholding is the net profit
remaining after income tax calculation.
§ When a non-resident person owns a branch in
Afghanistan, and that branch pays or remits an
amount to the non-resident person or to a person that
is “connected” to that non-resident person, the
payment will be considered a distribution from the
branch to that non-resident person.
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4. BRANCH PROFIT TAX…

§ In makingthe determination of whether a payment
has been made the books and records of the branch
are assessed.
If a branch generates profits during the year and
those profits are not reflected as earnings on the
balance sheet at the end of the tax year, a dividend
equal to the profit amount will be deemed to have
been distributed.
This deemed dividend will be subject to all
applicable withholding taxes.

(Refer to Book’s Examples Pages 121,122 and 123)

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4. BRANCH PROFIT TAX…

The tax on the deemed dividends of a branch shall
apply equally to non- residents that invest in
Afghanistan through a partnership. It does not matter
whether the partnership is domestic or foreign.

(Refer to Book’s Example Page 124)

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