The Government of Afghanistan actively supports investment in the private sector as a means to creating a prosperous market economy in Afghanistan. Your decision to consider investing in Afghanistan is a smart one. There is no region in the world with greater untapped economic potential than Central Asia. As an area rich in human and natural resources, profitable investment opportunities abound.
Historically, Afghanistan has been at the heart of major trading routes, amongst them, the fabled Silk Road, which is one of many that have served the region throughout the centuries. Over the past ten years, the Afghan people have steadily progressed towards peace and prosperity, and its economy has seen meteoric growth. Once again, Afghanistan is emerging as a central hub for trade as the economies of Central and South Asia continue to grow and become increasingly integrated into the global economy.
Doing business in Afghanistan can be very worthwhile. Even smaller investments may generate high profits in a short period of time. And yet, at least for the time being Afghanistan remains a challenging environment even to the most experienced professionals. Access to local know-how and to informal networks is decisive. Careful analysis of market potentials and best strategies for business development are strongly recommended before setting up operations, and sufficient time should be spent on networking to understand local business practices and to find the right partners.
To help you understand more about the environment, the following information is provided:
• Obtaining Visa and work permit
• Office Space and industrial plots
• Power, water and Sewage Infrastructure
• Transports and logistics
• Finance and Insurance
• Taxes and incentives
• Corporate income Tax
• Personal income Tax
• Wage Withholding
• Income Tax for Sole proprietors
• Withholding Tax on Rental Services
• Business Receipts Tax
• Custom Tariffs
• Tax Holidays for investors
• Repatriating Capital and Profits
Obtaining Visa & Work Permits
One year business visas are available at the Afghan Embassy in Washington DC and its councilor offices in New York for single and double entry. Multiple entry visas may be issued for a period of one year. You need a valid passport (validity more than six months) and a company or sponsorship letter. In case of a business journey the name and the address of the commissioning firm or person are required. For further details see the tab on visa in this web site
If you are holding a valid business license with AISA then investor support department extends the service of applying for and / or renewing a work visa for your foreign staff.
Recently the afghan ministry of foreign affairs stated Visas “on arrival” for those national who does not have afghastan embassy in their home country. Please contact the Afghan Embassy before you leave home. Foreign employees in Afghanistan will need a work permit from the Ministry of Labour and Social Affairs. The employer has to apply for his employee to get a work permit which will be granted for one year (AISA support department is there to help). The work permit can be extended within Afghanistan for another year if the employer extends the work-contract with his employee.
With unemployment rates estimated to be as high as 50 % in Kabul and even higher outside the capital, labour in Afghanistan is available at cheap prices. It is easy to find unskilled labour, and local recruits are highly motivated and very willing to learn. Competition among employers is higher as far as general management skills and English language are required. Technical know-how and engineering knowledge are relatively scarce, given that the country suffered nearly three decades of war and economic isolation. Tensions in the labour market tend to be alleviated by returning Afghan professionals and their children who grew up and have been educated mainly in Pakistan, UAE, Iran, UK, USA, and Germany. Investors should, however, still be prepared to invest substantially in the further technical education of its local workforce.
Average monthly salaries in Kabul are about USD 150-200 per month, with wages much lower outside the capital. Educated Afghan professionals, fluent in English, Dari and Farsi (Dari is the commercial language of Afghanistan and very close to Farsi or Persian), earn up to USD 1.000 per month. Most civil servants are still getting paid USD 100-150 per month – a taxi driver in Kabul may earn up to USD 300 in the same period , making it difficult for the public service to recruit and retain skilled staff.
Empirical data also suggest that it is more difficult for international companies than for domestic businesses to find the right people. This may partly reflect higher profiles requested by international companies, and highly informal character of the Afghan labor market and the difficulty for international businesses to get quick and easy access to local networks. Across all industry sectors, there are no state-obligate benefits, no social security system, and no retirement funds. Employers are, however, expected to cover other benefits such as meals at the workplace and transportation allowances.
Salaries are generally paid in cash US dollars. The minimum working age is 15 for commerce and light industry work, and 18 for heavy industry. Official working hours amount to 40 hours per week, for underground work, such as mining, it is 35 hours per week. Night shifts are to be max. 11 hours and overtime allowance is 25% over the regular salary. Workers receive double salaries during holidays which amount to 20 days annually and to 30 days annually for minors. 30 days unpaid vacation is optional. Sick leave is 20 days per year. In case of sickness for more than 3 consecutive days, a physician’s statement is required.
Office Space and Industrial Plots
Basic services such as electric power, water and sewage infrastructure are still very limited in Afghanistan. Most companies use own power generators, and even were state or municipal services are available, companies heavily rely on their equipment due to frequent breakdowns of the network. There are no fixed rates for power to date, with prices between companies and government being negotiated on a case-by-case basis. Similar conditions apply to water: Companies generally drill their own wells and then pump for free.
They may also purchase water from another company or locate near rivers and other sources of natural water. No waste water services are available in Kabul for the time being. Reliable infrastructure for businesses are available only in 20 new industrial parks which are already established throughout the country.
Recent research among Kabul-based businesses indicates that it still takes an average 116 days in Kabul metropolitan area to get a fixed phone line. Quality is very low, outreach remains limited. Unsurprisingly, only a third of all companies in the Kabul area invest into land lines, while everyone uses mobile communications. In fact, mobile phoning in Afghanistan is privately run as a profitable business since 2002. Coverage has been extended to most major cities, whereas satellite phones are more reliable as soon as you leave urban areas. Pre-paid phone service is available the same day.
International roaming is possible to more than 40 countries. Service quality is judged to be good, while both services and prices are expected to get better as two new operators. Currently, Roshan, Etisilate, Afghan Bi sim, Salam, Etislat and Afghan Telecom are functional approximately throughout the country. Internet service can be immediately available through the mobile companies, or internet provider companies.
Transports and Logistics
Poor roads, arbitrary road closings, unloading and reloading at the borders, poor condition of vehicles, custom delays, arbitrary rules and regulation in Afghan countryside, difficult access to insurance for shipments – these are the most pressing issues in Afghanistan’s transports & logistics sector today. Views of local and international investors do not differ significantly in this respect.
Air transport is to date the best way to bring goods into the country – 74 % of goods arrive on time and practically none get lost.
Commercial goods entering the country by road, rail and sea take an average of 9 days to pass customs at the border of Afghanistan, and companies indicate that unofficial payments to customs officials and multiple customs checks in the country are the norm. Better services and cheaper prices, however, can be expected in the years to come: High profitability of the sector and expected new market entrants as well as the strategic importance of transports & logistics to the entire region will put significant pressure on reconstruction and ongoing custom reforms.
Financing and Insurance
Like nearly everything else in Afghanistan, the country’s financial sector is being (re-) built from the ground up. Major successes include the institutional recovery of the Central Bank of Afghanistan and the introduction of a new and stable currency in 2002.
While sector reform will go on for the next years, international banks such as National Bank of Pakistan, Habib Bank (Pakistan), Punjab National Bank (India), Aryan Bank (Iran) Afghanistan International Bank (managed by Dutch ING, controlled by by ARC Companies LLC, Constellation Business Group Inc., Rahmat Group, Marco Polo Gulf Trading FZE, Asian Development Bank, Overseas Private Investment Corporation), First Microfinance Bank (Aga Khan Fund for Economic Development, Deutsche Kreditanstalt für Wiederaufbau, International Finance Corporation) have entered the market.
Available banking services include domestic and international money transfers, letters of credit and other trade services, savings and current accounts. Selected credit products and financing instruments are available for specific targets such as donor-financed reconstruction projects, cross-border trade of basic consumer goods, fuel or construction supplies as well as (mainly rural) micro-financing programs.
Elementary credit products for small and medium enterprises – such as account over-drafting, bridge loans anticipating future payments term, loans for new machinery, and financing of production facilities and new ventures – are still rare. Current reluctance of banks to engage more strongly in SME business, project and investment financing in Afghanistan stems from the continuing lack of enforceability for loan agreements and lack of collaterals. Even when collateral in the form of land or property is offered, current systems of deeds and property rights enforcement makes it difficult to know if a property can be considered to be legally owned.
Banks also refer to yet non-existing insurance, which makes loaning for purchase of machinery and equipment particularly risky. Banks therefore respond more positively to joint-ventures managed by international partners who offer guarantees and collateral in their home countries.
Previously, Multilateral Investment Guarantee Agency (MIGA) and OPIC were providing long-term political risk insurance to foreign investors and foreign financial institutions, located abroad or in Afghanistan, who make loans to local Afghan businesses. Yet there is need to negotiate the renewal and attract their cooperation to continue with same mode as in the previous time. Coverage is available against transfer restrictions, expropriation, war and civil disturbance, breach of contract.
You won’t find it so hard to secure financing if you engage in trade or procurement in Afghanistan. Standard banking products and services for trade are available, and large scale contracting and procurement are being financed by international donors following international standards. Several international banks have entered the Afghan market.
Financing is more difficult to obtain if you wish to start or expand your operations in Afghanistan. Given the continuing lack of enforceability for loan agreements and collaterals, access to international development funding and public private partnerships have proven to be crucial for industrial project and (foreign) direct investment finance in Afghanistan. In fact, the Asian Development Bank (ADB), the International Finance Corporation (IFC) and private organizations such as the Aga Khan Development Network have all invested
Please directly consult with the US government agencies in your home country to learn more about funds that potentially can be used to co-finance your investment in Afghanistan. The Overseas Private Investment Corporation (www.opic.gov), for example, has a USD 100 million line of credit available to help US companies of all sizes to invest in Afghanistan.
Further potential co-funding for your investment is available if your proposal relates to the specific agenda of a major development agency operating in Afghanistan. In case you need more information related to foreign investment finance, please contact AISA’s investment support department.
Taxes & Incentives
The government modernized the Afghan tax regime creating a more effective and transparent system that follows international standards.
Corporate Income Tax: Corporate income tax is a flat tax of 20 % of net taxable income. Net taxable income is computed by deducting all ordinary and necessary business expenses from gross income. Corporate rates apply to legal entities such as corporations, limited liability companies, and some types of partnerships.
Personal Income Tax: Resident natural persons are taxed on income from all sources worldwide, including but not limited to wages, salaries, rents, certain types of partnership income, royalties, etc. Non-residents are taxed on all income with its source in Afghanistan. In this regard please see the income tax law of Afghanistan.
Wage Withholding: Employers with two or more employees are required to withhold tax from their employees’ salaries/wages based on income tax code. These rates are pro-rated based on the frequency of payment (monthly, weekly, etc.). Wage/salary earners with only one employer and no other sources of income are not required to file an annual tax declaration. A wage earner who has more than one employer or additional sources of income must file an annual income tax declaration.
Income Tax for Sole Proprietors: Sole Proprietors Self-employed individuals must file a tax declaration, and are allowed to deduct all ordinary and necessary business expenses to compute net taxable income. Tax at the 10% and 20% rates is then computed on net taxable income above 150,000 and 1,200,000 Afghanis per year, respectively. This is the same tax-free threshold given to wage earners.
Withholding Tax on Rental Services: This is a pre-payment of landlords’ income tax. Legal entity tenants and natural person tenants conducting business at the rented property, and paying more than 15,000 Afghanis per month in rent are required to withhold the tax at the time the rent is paid. The tax is 20% of the rent payment. The landlord is responsible for reporting rental income on his annual income tax declaration and paying tax annually at appropriate rates depending on entity type (legal person or natural person). Ordinary and necessary expenses of maintaining rental property are allowable as deductions against rental income. Tax withheld and paid by the tenant is allowed as a credit when the annual tax declaration is filed.
Business Receipts Tax: A 2% business receipts tax is imposed on gross receipts of all types of income of corporations and limited liability companies, except for rents, royalties, commissions, fees, interest, dividends, and similar income, which is taxed at 5%. In addition, a 10% on gross receipts for businesses with over 50,000 Afghanis income per month is imposed on service providers in the following sectors:
• Passenger airline services
• Telecom services, including Internet
• Hotel services
• Restaurant services
The tax paid is deductible from gross income in arriving at taxable income for income tax purposes.
Custom Tariffs: A new customs code has dramatically reduced and simplified the very large number of ad valorem and regionally-specific customs duty rates to six major national categories: 2.5 percent (essential food and non-food products), 5 percent (raw materials and capital goods), 8 percent (petroleum sector), 10 percent (semi-manufactured products), 15 percent and 16 percent for respectively luxury and non-priority products.
Tax Holidays for Investors: To limit lost revenues, and to encourage investment in Afghanistan the originally in 2002 granted tax holiday provisions to investors have been repealed and new measures such as competitive depreciation rules and loss carry-forwards have been introduced. All tax concessions in laws other than the Income Tax Law ceased to have any effect as of 2004, June 21. Further information: www.mof.gov.af/tax.
Repatriating Capital and Profits
Private investors have the right to transfer their capital and profits out of Afghanistan. They may sell the enterprise and may transfer their capital and proceedings of the sale outside the country. These rights and respective procedures have been guaranteed by the investment law. Additionally, the Multilateral Investment Guarantee Agency (MIGA) which is a member of the World Bank Group offers insurance against major political risks such as transfer restriction, expropriation, war and civil disturbance, breach of contract by the host government.
Please note that the investment law covers all areas of investment except investments in construction of pipelines, telecommunications infrastructure, oil and gas, mines and minerals, as well as heavy industries, reinvestments
As everything else in Afghanistan, commercial marketing is just emerging. It would, however, be a fatal error to underestimate Afghan consumers in their ability to value quality and price and to shift preferences or change style. As markets develop quickly, we recommend careful analysis and definition of your marketing strategy before entering the market.
For some first and very valuable insights into consumer habits, changing preferences, regional differences and existing marketing practices in sectorial markets such as food and construction, refer to the recent www.undp.org/afghanistan.
There are now full factors in place to help you in marketing your product and service that you are intending to produce.
According to Transparency International even Afghanistan ranked 172 out of 172 in 2014 which is high and the average annual amount per company used for bribes is estimated at USD 35,000.
But the new government intended is committed for a large scale reform and taking bold steps to curb corruption.