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Hiring in Afghanistan
Afghanistan, officially known as the Islamic Republic of Afghanistan is a landlocked country in South Asia, whereby the capital is Kabul. Global PEO or Employer of Record (EOR) play a pivotal role in providing companies with services related to hiring employees, and ensuring compliance with Afghanistan’s legal and tax regulations. The employment regulations, holidays and employment contracts are covered by the Labor Code in accordance with Article 48 of the constitution of the Islamic Republic of Afghanistan. The Ministry of Finance oversees the income tax laws and regulations. Accordingly, residents must pay tax on their worldwide earnings and non-residents must pay tax on their income earned in Afghanistan. Hence, Global PEOs can facilitate companies with compliance with Afghanistan’s Labor Code and Tax laws in a more efficient manner. However, it is important to consider the current situation pertaining to the Taliban takeover of Kabul before conducting business in Afghanistan.
statutory labor requirements
Probation Period
- Probationary period should not exceed 2 weeks
Annual Leave
- The employees are entitled to 20 days of paid recreational leave per year.
- Employees are entitled to 10 days of paid essential leave
Public Holidays
- Liberation Day (15th February)
- Nowruz (20th March)
- First day of Ramadan
- Mujahideen Victory Day (28th April)
- Labor Day (1st May)
- Eid al-Fitr
- Day of Arafat
- Eid al-Adha
- Afghan Independence Day (19th August)
- Ashura
- Prophet's Birthday
Maternity Leave
- A female employee is entitled to 90 days of paid maternity leave.
- 30 days of leave is granted before the delivery and the remaining is granted post delivery
Paternity Leave
- There is no paternity leave
Sick Leave
- An employee is entitled to 20 days of sick leave with pay and other allowances per year.
- Employee’s sick leave for up to three days can be granted on the basis of a written notice.
Work Hours
- The typical working week is Sunday through Thursday.
- Business hours are typically 7:30 AM to 4:30 PM
- The Labor Law sets a maximum of 40 working hours per week on average.
Overtime
- The overtime may not exceed four hours a day
- An hourly wage for overtime is paid 25% more than the official working hour rate on ordinary days and 50% more than the hourly rate on off days (weekend or holidays)
Notice Period
- If the employer wishes to terminate the employment agreement for any of the reasons provided for in the law, one month’s notice is required.
- Although the law does not state explicitly that the notice must give in writing, it is generally recommended.
- Termination upon immediate notice is possible during the probationary period, unless the reason for termination is unsatisfactory performance of the employee.
- Employees may terminate the employment agreement without prior notice if the employer has violated the labor law or breached the provisions of the employment agreement.
- Termination without notice to employer is also allowed in the case of incurable illness of the employee. In other circumstances, one month’s prior written notice is the general rule.
Severance
- When an employee is terminated because of cessation of work, reduction in staff, imprisonment or refusal to work, the employer is obliged to make severance payments, based on the duration of employment as follows:
- less than one year: one month’s salary including entitlements;
- one to five years: two months’ salary including entitlements;
- five to ten years: four months’ salary including entitlements; and
- more than ten years: six months’ salary including entitlements.
13th / 14th Month Pay
- Yes
- There is no statutory requirement to pay the 13th or 14th month salary, however many employers have decided to offer the 13th month salary to their employees. There is no 14th month salary.
- Other payments over holidays:
- According to Art 50 or the Labour Code, when an employee will be paid in advance for authorised recreational leave.
- According to Art 44 in companies where the employer is unable to give holidays during public holidays because the work cannot be delayed, the employee will be entitled to 50% salary in addition to the normal overtime wage as an incentive.
income tax
- The natural and legal persons are obliged to pay the tax as following based on the provisions of this Law:
- Resident persons: from overall income (income from both Afghan and Non-Afghan sources)
- Non-resident persons: Only from Afghan revenue sources.
- The income tax of legal persons shall be 20 percent of taxable income for the tax year.
- The income tax shall be assessed and exchange to Afghani currency.
- The exchange rate shall be the average of open rates determined by Da Afghanistan Bank on the basis of buy rate at the end of each month.
- The income tax of natural persons is calculating as below chart:
|
Income slab per month |
Applicable Rate |
|
From AFN 0 to AFN 5,000 monthly |
0% |
|
From AFN 5,001 to AFN 12,500 |
2% |
|
From AFN 12,501 to AFN 100,000 |
10% + AFN 150 fixed amount |
|
In excess of AFN 100,000 |
20% + AFN 8,900 fixed amount |
deductible expenses
The following deductions are admissible:
- Any expense related to the cost of production or trade and business, such as insurance and freight expenses, etc.;
- The cost of supplies, materials, fuel, electricity, water, and ordinary and necessary expenses used in the production of income, or in a trade or business;
- Wages, salaries, commissions, and fees paid for services rendered by employees in trade or business;
- Interest paid on business loans;
- Rent paid on property necessary to and used in trade or business;
- Cost of repairs and maintenance of properties and equipment necessary to and used for purposes of the business or trade;
- Depreciation of movable and immovable property
- Any tax or charge that is a necessary expense for doing business, holding property for income, or for producing income, if paid or accrued during the taxable year. Taxes imposed by this Law and taxes not qualifying as a necessary business expense are not deductible, except as otherwise provided for by this Law;
- Damages to movable or immovable property caused by fire, earthquake, and by casualty or disaster of any kind, over a three-year period, to the extent that the cost is determined and substantiated by records and the loss was not recovered by insurance;
- Losses in business or trade from bad debts according to the Income Tax Manual;
- Dividends paid in money by a legal entity organized under the laws of Afghanistan; and
- Other expenses of doing business and of holding movable or immovable property for the production of income under relevant legislative documents.
immigration
- Applicants for an Afghan visa, regardless of the type of visa, are required to obey the laws of the Islamic Republic of Afghanistan.
- Currently, the standard visa processing time is 5-7 business days but this may vary on an individual basis.
- Foreign nationals who have entered Afghanistan on an Entry Visa or a Work Visa are eligible to work.
- This category of individuals must obtain a work permit from relevant agencies after entry to Afghanistan.
- If employment is the purpose of your visit, an official letter of introduction from your employer, sponsoring government or organization stating the purpose and duration of your trip is required.
- Please also include any sponsorship information and a financial guarantee for expenses that will be incurred in Afghanistan.
- Applicants applying for a Work Visa should be below the age of retirement (65) and must provide their educational documents along with the visa application, invitation or introduction letter from the employer company in Afghanistan (including passport information, the purpose of travel and duration of stay of the applicant).
- Additionally, they should also have a confirmation letter from Consular Affairs Directorate-General of the Ministry of Foreign Affairs of the I.R. of Afghanistan.
- Those who intend to travel to Afghanistan for investment and business purposes can apply for an Afghan Business Visa by providing the following documentation:
- Introduction or permission letter from the Ministry of Foreign Affairs, Chamber of Commerce, or other related official bodies
- Work permit and business license
- Address of the company
- Documents providing the type of commercial activities, payment of taxes and bank account number
|
Type of Visa/Permit |
Documentation |
Validity |
Eligibility |
|
Official Visa (OV) |
|
Varies |
|
|
Business Visa (BV) |
|
1 to 3 years |
|
|
Working Entry Visa (WV) |
|
1 year |
|
value added tax (vat)
- VAT is levied on only very few items and services such as hotel services etc. and no separate comprehensive regulation exists for VAT.
- The Government of Afghanistan planned to levy VAT on various services and goods in 2017, however, the matter has been deferred.
withholding tax
Individuals and organizations are subject to the following withholding taxes:
|
Type of income |
Applicable Rate |
|
Salary |
Personal Income Tax Rate |
|
Interest |
20% |
|
Dividends |
20% |
|
Royalties |
20% |
|
Prizes |
20% |
|
Rewards |
20% |
|
Lotteries |
20% |
|
Bonuses |
20% |
|
Service charges |
20% |
|
Rent |
If the monthly rent is more than AFN 10,000 and less than AFN 100,000 - 10 %. If the monthly rent is more than AFN 100,000 -15%. |
|
Contractors for supplies of goods and services |
7% for contractors without a business license and 2% for contractors having a business license |
termination
Under the Labor Law, an employment contract may be terminated under the following circumstances:
-
- agreement by the parties;
- end of contract term;
- retirement;
- death of the employee;
- a disability hindering the performance of work;
- cessation of work for more than six months;
- dissolution of the company or reduction in the number of staff;
- final conviction leading to at least two months’ imprisonment of the employee;
- disciplinary reasons;
- refusal to work; and
- an unsatisfactory probationary period.
- The procedures for dismissal generally require 30 days’ notice, although it is common for employers to provide one month’s salary and benefits in lieu of notice.
- Under some circumstances, the employee may also be entitled to severance pay.
- The Labor Law does not make any provision for immediate termination.
- Collective redundancies can generally not be carried out without the approval of the Ministry of Labor, Social Affairs, Martyrs and Disabled.
statutory benefits
- These are mandatory benefits as postulated by law
- These include probationary period, annual leave, public holidays, sick leave, maternity leave, overtime pay, notice period, and severance pay
- Statutory benefits also include social security benefits
|
Statutory Benefits |
|
Probationary Period |
|
Annual Leave |
|
Public Holidays |
|
Maternity Leave |
|
Sick Leave |
|
Overtime Pay |
|
Notice Period |
|
Severance Pay |
|
Social Security Benefits |
payments and invoicing
- The taxable year is the solar year which starts from the first day of Jadi (21st December) and ends on the last day of Qaws (20th December).
- A legal person (but not a natural person) wishing to use a different taxation year may apply in writing to the Ministry of Finance explaining the reasons for the requested change.
- The Afghanistan Revenue Department (ARD) is responsible for the administration and collection of tax and non-tax revenue for the Government of Afghanistan
ease of doing business
- The ease of doing business index is an index created by Simeon Djankov, an economist at the Central and Eastern Europe sector of the World Bank Group.
- Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.
- According to the World Bank Afghanistan ranked 173rd in the World in 2019 in terms of ease of doing business.
employee accruals
| Christmas Bonus% | 0% |
| Christmas Bonus Over Vacations % | 0% |
| Severance per Year % | Severance payments, based on the duration of employment are as follows: • less than one year: one month’s salary (8.33% of annual salary) • one to five years: two months’ salary (16.66% of annual salary) • five to ten years: four months’ salary (33.33% of annual salary) • more than ten years: six months’ salary (50% of annual salary). |
| Vacations % | Based on 20 days of paid vacation a year (5.49% of annual salary) |
| Notice % | One month’s notice is required (8.33%) |
| Christmas Bonus Over Notifications% | 0% |
| Vacations Plus% | Based on 20 days of paid vacation a year (5.49% of annual salary) |
| Total percentage of Salary (yearly) | The total employment accruals as a percentage of salary per anum are equal to 22.15% of annual salary. |
employer accruals
Additional information (Country Accruals)
| Vacation | 9.59% |
| Maternity leave | 90 |
| Sick leave | 5.48% |
Employer Accruals Additional information
| Employment Accruals | ||
| Annual Leave | Employees are entitled to 20 days of paid recreational leave and 10 days of paid essential leave. Therefore, Employers must take into account the costs associated with this paid leave. | This equals 30 days of pay or 8.22% of annual salary (30/365 days) |
| Maternity Leave | A female employee is entitled to 90 days of paid maternity leave. | This equals 24.65% of annual salary (90/365) |
| Sick Leave | An employee is entitled to 20 days of sick leave with pay | This equals 5.48% of annual salary (20/365) |
| Overtime Pay | An hourly wage for overtime is paid 25% more than the official working hour rate on ordinary days and 50% more than the hourly rate on off days (weekend or holidays). The overtime may not exceed four hours a day | |
| Severance Pay | Severance Pay is based on duration of employment: - • less than one year: one month’s salary including entitlements; • one to five years: two months’ salary including entitlements; • five to ten years: four months’ salary including entitlements; and • more than ten years: six months’ salary including entitlements. Note: - For the purpose of this calculation, assume one to five years employment period. |
This equals 16.66% of annual salary (2/12 months) |
| Social Security Contribution | Employers are not required to make any contribution to the social insurance program. |
