Guide 05 vices, overtime pay, cash allowances provided by
the employer to the employee (including, but not lim-
Wage Withholding
Tax
Introduction
Amendments to the Income Tax Law of Afghanistan
have changed some of the applications of the wage
withholding tax. This brochure will explain those
changes and help you in complying with the
law.Note
There
are no fees or charges payable to the Ministry of
Finance or its Revenue Department or the Musto-
fiat for any Tax Guides or Forms or at any stage
of the tax assessment collection or enforcement
processes
Who Must Withhold?
Legal persons and natural persons (individuals) with
two (2) or more employees during any month of the
tax year are required to withhold tax from employees
(Article 58 Income Tax Law) whose income exceeds
the threshold, discussed later. Legal persons include
partnerships, corporations, limited liability compa-
nies, organizations, agencies, ministries and other
national or local government agencies and depart-
ments, enterprises of the State and municipalities,
and charitable institutions.
Note regarding Natural Persons who are Em-
ployers: Effective September 23, 2005 (1 Mizan,
1384) the Income Tax Law was changed to include
natural persons in the requirement to withhold taxes
from employees.
What Payments are Subject to the Withhold-
ing?
Payments to employees in the form of salaries and
wages for work provided are subject to withholding.
Salaries and wages include: regular pay for ser-
Guide 05WWT407 E revise.doc
ited to, food allowances and transportation allow-
ances), and non-cash payments for services.
Who is Subject to Withholding?
All resident and non-resident employees working in
Afghanistan whose salaries and wages exceed the
tax threshold of 12,500 Afghanis (or equivalent in
foreign currency) per month or equivalent prorated
amounts for those paid on alternate payroll periods.
Non-resident employees are exempt from withhold-
ing if their home country provides the same exemp-
tion to residents of Afghanistan. Resident and non-
resident employees of foreign governments and in-
ternational organizations are subject to tax based on
existing treaties or contracts with the State.
Who is a Resident? Who is a Non-Resident?
According to the income Tax Law, a natural person
is a resident of Afghanistan (Article 2) for the tax
year if:
1) The person has his or her principal home in Af-
ghanistan at any time during the year; or
2) The person is present in Afghanistan for a period
of one hundred eighty three (183) days in the tax
year; or
3) The person is an employee or an official of the
Government of Afghanistan posted abroad at any
time during the tax year.
Worldwide income is taxable in Afghanistan on all
residents.
Non-residents are those people who do not meet the
above requirements. All Afghan-source income is
taxable for non-residents. Afghan-source income is
defined as any income directly produced in Afghani-
stan or paid for services provided in Afghanistan.
Example 1:
Joe Brown is a foreign national who arrived in Kabul
on 12 May for a year’s assignment working for a
non-profit British aid organization. There is no con-
tract with the State in place to exempt employees of
his organization from taxation in Afghanistan. He is
paid in pounds sterling from his home office in Lon-
don. The money is deposited directly into his British
bank account. However, his wages are paid for ser-
vices provided in Afghanistan, so they are consid-
ered Afghan-source income and would be subject to
withholding. He remained in Afghanistan for the en-
tire year, with the exception of two trips of three
weeks each to visit his family, who live in his princi-
pal home in the UK. He has met the requirement of For bi-weekly payrolls
being present in Afghanistan for 183 days in the tax Income Income not Tax
year, so he would be considered a resident for tax more more than
purposes and be subject to tax on worldwide in- than
come.
0 5769 0%
Example 2: 10% of amount over
5769 46,154
5769
Abdul Nasri is an Afghan national who lives in Du- 46,154 4038 + 20% of the
bai. He spent three months in Kabul working for the amount over 46,154
same British firm as Mr. Brown. He also owns a
building in Kabul which he rents out to a foreign aid
organization. Since he does not maintain his princi- For weekly payrolls
pal home in Afghanistan, was not in the country for Income Income not Tax
at least 183 days, and is not an employee of the Af- more more than
ghan government, he is considered a non-resident. than
However, both his wages for work in Afghanistan 0 2885 0%
and his rental income from the building in Kabul are 10% of amount over
considered Afghan-source income and subject to 2885 23,077
2885
tax. The British firm is required to withhold on his
wages and pay the tax over to the Afghan govern- 23.077 2019 + 20% of the
ment. In addition, Mr. Nasri should also file an in- amount over 23,077
come tax return and declare his rental income.
For daily payrolls
What is the rate of Withholding? Income Income not Tax
more more than
There is a monthly exemption of 12,500 Afghanis (or than
prorated share for alternate payroll periods) per per-
0 411 0%
son. Taxes are withheld at rates based on the
monthly schedule established in the Income Tax 10% of amount over
411 3288
Law (Article 4). 411
3288 288 + 20% of the
For monthly payrolls amount over 3288
Income Income not Tax
more more than Example 1:
than
0 12,500 0% ABC, Inc., a foreign firm, pays its foreign employees
10% of amount over working in Afghanistan bi-weekly. However, the firm
12,500 100,000 pays its local employees on a monthly basis. The
12,500
100,000 8750 + 20% of the firm would be required to withhold from each group
amount over 100,000 of employees on each separate pay date, but file
and pay the withheld tax within ten days of the end
of the month.
Employees paid on alternate payroll schedules
(weekly, semi-monthly, etc.) are subject to withhold- Example 2:
ing according to the following prorated schedules,
which are based on the monthly schedule. XYZ, Inc., another foreign firm, pays its foreign em-
ployees semi-monthly and its local employees
For semi-monthly payrolls monthly. This firm would still have one filing re-
Income Income Tax quirement per month.
more not more
than than
How is the Wage Withholding Tax Cal-
0 6250 0%
culated?
10% of amount over
6250 50,000
6250 Wage withholding tax is calculated based on the
50,000 4375 + 20% of the above tables. Determine which payroll period you
amount over 50,000 use. For each employee, look at the total salary (in-
cluding taxable benefits). If it is in excess of the up-
per threshold (100,000 for monthly payroll, 50,000
2
for semi-monthly payroll, etc.), use the third row of
the appropriate schedule. If the total salary (includ-
ing taxable benefits) is more than the lower thresh-
old (12,500 monthly, 6250, semi-monthly, etc.), but
does not exceed the upper threshold, use the sec-
ond row of the appropriate schedule. If the total sal-
ary is less than the lower threshold, there is no with-
holding requirement.
When Does the Tax Withheld Have to be
Paid?
The employer is required to remit to the State the
amount withheld no later than 10 days (Article 60)
after the end of the month in which the amounts
were withheld.
How is the Wage Withholding Tax Re-
ported?
Annual salary and tax statement: The employer
must give each employee an annual salary and tax
statement showing the employer’s name, address,
and TIN; the employee’s name and address; and the
amount of the employee’s total salary or wage, as
well as the amount withheld. A copy of this will be
forwarded to the Ministry of Finance as well (Article
61).
Annual summary report of tax withheld: The em-
ployer will file an annual summary of all wages or
salaries paid to all employees during the tax year
and all taxes withheld (Article 61).
Wage withholding report and deposit form: This form
must be completed and filed within ten days of the
end of the month in which the salaries were paid,
reporting total wages or salaries paid for the month
and taxes withheld. Payment is due in Afghanis at
Da Afghanistan Bank with the form (Article 60).
What is the Employee’s Responsibility?
If the employee has only one job they have no fur-
ther responsibility or filing requirements. The Ministry
of Finance will receive the appropriate information
through the employer’s annual summary report filing.
If the employee has any other income (including, but
not limited to, another job, self-employment, divi-
dends, rental income, etc.) he must file an individual
income tax return and calculate his total tax for the
year. He will be able to take credit for any tax with-
held against his total tax liability (Article 63).
Talking to Your Employees about the Tax
Many employees will be confused by the implemen-
tation of this tax. Although the wage withholding has
been in the law for many years, it has not been ef-
fectively administered, or has not been administered
at all for a long time. It is important to explain to em-
ployees that the income tax requirement has been a
part of Afghan tax law for years, and that compliance
with the withholding tax is a legal requirement under
the Income Tax Law of Afghanistan.
If your employees have questions regarding the
wage withholding specifically, or income tax filing in
general, please direct them to contact the Ministry of
Finance, Department of Revenue. If you would like
to have a representative of the Department of Reve-
nue come to your place of business to address your
employees regarding these or other tax issues,
please feel free to contact the Ministry to set up a
convenient time.
Tax Forms and Information
Tax forms and guides are available at the Ministry of
Finance, Revenue Department, Taxpayer Assis-
tance Team.
For more information or assistance visit the Revenue
Department, Taxpayer Assistance Team, visit the
“Tax Information Page” at www.mof.gov.af/tax or call
075 2005 433.
Note: The “Tax Information Page” website also con-
tains a copy of the Income Tax Law, various public
rulings, forms and Questions & Answers regarding
the wage withholding tax.
Enforcement Provisions
Failure to comply with the requirements of the In-
come Tax Law may result in the Ministry of Finance
using administrative powers within the tax law to en-
sure compliance. These provisions are contained in
Chapters XIV & XVI and include fines, penalties and
imprisonment.
1386
Ministry of Finance
Afghanistan Revenue Department
Islamic Republic of Afghanistan