DOING BUSINESS IN AFGHANISTAN IN 2020
Since 2003, Healy Consultants Group PLC has been efficiently and effectively assisting our Clients with registering a business in Afghanistan. We offer services including i) company incorporation ii) licence registration iii) visa solutions iv) office space rental solutions and v) employee recruitment.
|Compare different Afghanistan entities||Tax resident LLC||Turnkey solution||Fast Nominee LLC||Branch||Representative office|
|Operations and Logistics|
|Best use of company?||All products and services||Close a customer deal now||Business forbidden to foreigners||Import/ Export||Marketing and research|
|How soon can you invoice Clients/sign sales contracts?||3 months||1 week||1 month||2 months||Cannot trade|
|How soon can you hire staff?||3 months||2 weeks||4 weeks||2 months||2 months|
|How soon can you sign a lease agreement?||Immediately||Immediately||Immediately||Immediately||Immediately|
|How long to supply corporate bank account numbers?||4 months||2 weeks||1 month||3 months||3 months|
|How long to supply company registration/tax numbers?||2 months||1 week||1 month||2 months||2 months|
|Accounting and Tax|
|Corporate tax payable?||20%||20%||20%||20%||Cannot trade|
|Corporate bank account location?||Afghan International Bank||Islamic Bank of Afghanistan||Afghan Commercial Bank||Azizi Bank||Afghan United Bank|
|Statutory audit required?||No||No||No||No||No|
|Annual tax return to be submitted?||Yes||Yes||Yes||Yes||Yes|
|Access to double tax treaties?||Yes||Yes||Yes||Yes||No|
|Tax (/BRT) payable on sales to local customers?||4%||4%||4%||4%||Cannot trade|
|Minimum paid up share capital?||US$1||US$1||US$1||US$1||N.A.|
|Government approval required for foreign owners?||Yes||Yes||Yes||Yes||Yes|
|Corporate shareholder allowed?||Yes||Yes||Yes||Parent||N.A.|
|Resident director required?||No||No||Yes||N.A.||N.A.|
|Resident company secretary required?||Yes||Yes||Yes||Yes||Yes|
|Resident local representative required?||No||No||No||Yes||Yes|
|Can bid for government contracts?||Yes||Yes||Yes||Yes||No|
|Can secure trade finance?||Yes||Yes||Yes||Yes||No|
|Fee and Timelines|
|Average total engagement period?||4 months||2 months||2 month||3 months||3 months|
|Estimate of engagement costs?||US$30,650||US$42,600||US$42,600||US$33,450||US$34,300|
Afghanistan company registration summary
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Advantages and Disadvantages
Advantages of Afghanistan company registration
- 100% foreign ownership is permitted, and an Afghan company can be incorporated with just one director and one shareholder of any nationality.
- There is no minimum share capital requirement, except for certain large-scale projects as indicated by the Ministry of Industry and Commerce.
- Afghanistan is rich in unexploited natural resources, including gas, coal, oil, gold, and mineral resources estimated to be worth between US$1 trillion and US$3 trillion.
- Afghanistan is close to the two major markets of China and Russia. Furthermore, the Afghan government is signing several multi-billion dollar trade and investment deals with the likes of the US, India and China.
- The government is focused on attracting FDI to develop infrastructure. Recently-announced large-scale projects include a National Rail Network, new electricity networks, roads, dams and airfields.
- Since 2017, foreign investors have been able to secure a single business licence rather than multiple trade licences previously required. The three-year licence costs US$450.
- Foreign companies pay 0% duty on machinery imports, and just 1% duty on raw material imports.
- Corporate tax is 20%. Contractors to United States Forces Afghanistan (USFOR-A)/NATO can claim tax exemption if the goods/services directly benefit USFOR-A or NATO.
- There is no VAT. There are no excise, property, transfer or payroll taxes.
- Afghanistan has a low minimum wage of just US$65 per month, while the informal sector has no minimum wage laws.
- 70% of the population is under 25. In theory, this means a deep pool of labour is available.
Disadvantages of Afghanistan company registration
Doing business in Afghanistan is difficult because:
- Afghanistan has been ranked 173rd in the world by World Bank’s Doing Business Survey.
- The country has been at war since 2001, and was rated as the world’s least peaceful on the 2019 Global Peace Index (GPI), It is a dangerous place to do business and live, with daily kidnappings, terrorist attacks and murders.
- The security situation outlook is precarious. For example, current international security and civilian grant support pledges expire in 2020.
- The country’s infrastructure is basic. Transport of people and goods is difficult because of a lack of quality roads and rail infrastructure. Power cuts are common.
- The country is geographically isolated and landlocked, far from the nearest sea port and with poor land access even to neighbouring countries. Cross-border trade from Afghanistan is therefore severely limited.
- For companies wishing to trade despite the infrastructure/location challenges, Afghan customs officials are inefficient and corrupt.
- The low cost of labour and goods in Afghanistan is offset by the high costs of providing good security for businesses and employees.
- Afghanistan’s legal system is complex and largely anti-business. Foreign investors must navigate a mix of Sharia (Islamic Law), Shura (traditional law and practice), and the formal system under the 2004 Constitution.
- The legal system cannot handle complex commercial cases, property rights are typically ignored and foreign investors would be unlikely to receive fair treatment in the courts.
- Afghanistan is one of the world’s most corrupt countries. Paying bribes to expedite government approvals and processes is an every day fact of business life, and embezzlement is common.
- The financial system is fragile and insecure, and the availability of business finance is extremely limited. One of the major banks, Kabul Bank, required a government bailout to stay afloat after corruption scandals in 2011.
- English is spoken by only about 10% of Afghans, and the language of business is pashto and dari. Foreign investors will find the language barrier a challenge, as well as the need to translate documents into the national languages an administrative and time burden.
- Investments exceeding US$3 million in non-banking financial activities, insurance, natural resources, infrastructure (power, water, sewage, waste-treatment, airports, telecommunications, and health and education facilities) require approval from the High Commission on Investment (HCI).
- Afghanistan is a poor country. Almost 60% of the population is illiterate. The country also suffers from very low labour productivity, and the number of Afghans pursuing higher education is one of the world’s lowest. Consequently, availability of skilled, qualified talent in the country is low.
- Most foreign investors engage an Afghan partner with knowledge of the local market and high-level business contacts. Because of corruption and the fact foreign investors are not protected well by law, we urge multinational Clients to conduct thorough due diligence before entering joint ventures or partnership agreements.
Best uses for a Afghanistan company
- Spice trading. Afghanistan is one of the world’s leading spice exporters.
- Companies in the fashion item supply chain can also make use of a business in Afghanistan due to its large production of cotton.
- Time to incorporate: Seven weeks
- Cost to set up: US$30,650
- Minimum capital: US$1
- Physical office required: Yes
- Shareholders: 2
- Directors: 1
- Company secretary: No
- Resident director: No
- Corporate tax rate: 0-20%
- Corporate tax base: Territorial
- Shelf companies: Unavailable
- Main company type: LLC
Healy Consultants’ video on Afghanistan business setup
Contact the presenter: Apurv Trivedi, Client engagements officer, Healy Consultants Group
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