Doing Business In Afghanistan: Navigating Opportunities And Challenges

Afghanistan is a challenging market for businesses, with widespread corruption, a difficult security environment, and a legal system that struggles with commercial issues. However, there are opportunities for businesses willing to take on the risk, particularly in the mining, oil and gas, security, and construction sectors. The country has a very low level of competition, a growing population, and a commitment from the new government to tackle corruption and develop the economy.

To start a business in Afghanistan, you will need to obtain a business license from the Afghanistan Investment Support Agency (AISA), which costs between 100 and 5000 USD. You will also need to register with the Afghanistan Central Business Registry within the Ministry of Commerce & Industry (MoCI) and obtain an operations license from AISA once your company is operational. There are four types of legal entities for businesses in Afghanistan: Sole Proprietorship, Partnerships, Limited, and Corporation.

Other considerations for doing business in Afghanistan include respecting Muslim customs, such as conservative dress for women and refraining from eating, drinking, smoking, or chewing gum in public during Ramadan. English is widely understood, but it may be difficult to hire fluent English speakers due to governmental restrictions on foreign workers. Afghanistan also has a culture of bargaining, and bribery (candy) is common in business transactions.

Obtaining a business license and operations license

To obtain a business license in Afghanistan, you must first register your business with the Afghanistan Central Business Registry (ACBR). This involves the following steps:

• Complete an application form, which is available on the ACBR website in English, Pashto, and Dari.
• Provide a copy of the Tazkera or passport of the President and Vice President of the business.
• Submit 2 sets of colour passport photographs of the President and Vice President of the business.
• Draft and submit the Article of Incorporation, which must list the names of owners, shares, and other agreement clauses. This document only needs to be submitted once, but any changes must be reported to the ACBR.

After submitting these documents, you will need to pay the registration and publication fees at a bank. The fees can be paid at Kabul Bank in Kabul or at a branch of the Da Afghanistan Bank (the Central Bank of Afghanistan) in the provinces.

Once your registration is complete, you will receive a referral memo stating that your business is registered, has been issued a Tax Identification Number (TIN), and has been published in the official gazette. This referral memo can then be used to obtain a business license from the Afghanistan Investment Support Agency (AISA). An investor should personally visit the AISA office to complete this process, or they can send an authorized representative.

The business license from AISA must be renewed yearly. Some industries, such as the health sector, may also require an additional license from their respective ministries before starting operations. It is important to check with the Investor Support Department to see if your type of business requires such additional licenses.

Paying taxes and hiring workers

Afghanistan's economy is largely dependent on foreign aid, with the government aiming to transition to a self-sufficient, private sector-led economy over the next decade. The country has a young and growing population, with 70% below the age of 25, and a burgeoning middle class.

Paying Taxes

Afghanistan's tax system includes corporate taxes, income taxes, customs, and fees. The country's corporate tax rate is 20%, with a 10% value-added tax (VAT) on taxable supply for domestic businesses and taxable imports for importers. Additionally, there is a business receipt tax (BRT) that varies depending on the type and size of the company, ranging from 4% to 5%.

Individuals are taxed at progressive rates, with the first 5,000 AFN of monthly income exempt from taxation. Income above 5,000 AFN but less than 12,500 AFN is taxed at 2%, while income between 12,501 AFN and 100,000 AFN is taxed at 10%. Any monthly income exceeding 100,000 AFN is subject to a 20% income tax rate.

Hiring Workers

Hiring workers in Afghanistan can be challenging due to governmental restrictions on the number of foreign workers allowed in companies. The process of hiring employees is lengthy and complex, often requiring registration and compliance with various regulations.

Employers have the flexibility to hire and fire employees as they see fit, but they must provide notice to government agencies when terminating employees who have worked for a certain number of years. There is no mandated minimum wage, and the average wage in Afghanistan is currently 200 USD per year.

It is important to note that Afghanistan is an Islamic state, and certain cultural and religious customs should be respected. For instance, women are expected to dress conservatively and avoid making eye contact with men. Additionally, free mixing of genders generally occurs only within families.

Exporting goods

Afghanistan is a challenging export market due to security concerns, widespread corruption, and a complex bureaucratic process. However, there are opportunities for businesses willing to navigate these challenges, particularly in the mining, oil and gas, security, and construction sectors.

When exporting goods from Afghanistan, standard documents such as a bill of lading, duties exemption form, certificate of origin, insurance certificate, and packing list are required. The process is relatively simple and low cost, costing between $1000 to $4000, even when hiring an attorney for document preparation and clearing customs.

Afghanistan is a landlocked country, which adds complexity to the export process. For example, ocean shipments to Karachi that are then transported by road to Afghanistan will require customs clearances and transport documentation for transit through Pakistan. An alternative option is to use multi-modal transport, such as ocean freight to the UAE followed by air transport to Afghanistan, which avoids road haulage through Pakistan but requires experienced freight forwarding staff to navigate Dubai customs.

The Afghanistan Customs website provides information on tariffs and procedures. Afghanistan maintains the lowest import tariffs in the region, with duties ranging from 2.5% to 20%. All imported goods must be accompanied by a customs declaration, invoice or proof of payment, certificate of origin, and shipment documentation (original bill of lading and packing list). Transit permission is required for shipments passing through Pakistan, which is overseen by the Transit Department at the Ministry of Commerce and Industries (MoCI). Certain goods, such as armoured vehicles, communication equipment, and medicines, require additional certification from the relevant ministries.

It is important to note that Afghanistan does not have any laws or regulations governing labelling and marketing requirements for products. Additionally, English is not universally spoken in Afghanistan, so it may be beneficial to have documents and marketing materials translated into local languages.

Afghanistan is an Islamic state, and it is important to respect Muslim customs when doing business in the country. Women are expected to dress conservatively and drape a scarf over their shoulders when attending meetings. While Western attire is acceptable, it is important to avoid planning business trips during the holy month of Ramadan.

Enforcing contracts

Afghanistan is notorious for being a nation in which it is difficult to enforce contracts. However, the courts do hold power; the problem is having them exercise that power to your benefit. For example, in many regions, it is not uncommon to have to pay the prosecutor to prosecute a crime or pay the judge to enforce a contract. Someone familiar with the system should be able to act as a guide to increase your chances of enforcement.

A new term has entered the vernacular of doing business in Afghanistan: "Shirni" or "Candy". It is, to put it simply, a bribe. Make no mistake; a well-run business in Afghanistan will not be able to function without the payment of bribes. The truck driver bringing your goods may get lost and need some money to find his way to you. The bureaucrat issuing your business license may deny you until you have paid him a gift. Your supplies may be stolen from your worksite unless you have paid the police for protection.

The World Bank's Ease of Doing Business Index ranks Afghanistan very low, and the country is also ranked very low on Transparency International's Corruption Perceptions Index.

The steps to enforcing contracts in Afghanistan are as follows:

• The time to resolve a dispute, counted from the moment the plaintiff decides to file the lawsuit in court until payment. This includes both the days when actions take place and the waiting periods in between.
• Cost (% of claim value) - The cost in court fees, attorney fees (where the use of attorneys is mandatory or common) and enforcement fees expressed as a percentage of the claim value.
• Quality of judicial processes index (0-18) - The quality of judicial processes index measures whether each economy has adopted a series of good practices in its court system in four areas: court structure and proceedings, case management, court automation and alternative dispute resolution.

Understanding cultural customs and expectations

Afghanistan is a deeply religious country, with 99% of Afghans practising Islam. This influences everything from the way people dress, greet each other, eat, sleep and work.

Afghanistan is a patriarchal society, with clearly defined gender roles. Men are generally the breadwinners, while women are responsible for household duties. In urban areas, however, there are professional women.

Women are expected to dress modestly and conservatively, keeping their legs covered and wearing a headscarf in public. Women should also avoid making eye contact with men and keep their eyes lowered when walking down the street.

Men should not initiate social conversations with women who are not their wives, and should not ask a male about his wife or female relatives.

In business, handshakes are the most common form of greeting. Business cards carry a sense of importance and prestige, so if you are given one, take it respectfully and study it.

Punctuality is important, but be flexible if delays occur. It is respectful to begin with small talk and ask about the other person's well-being before getting down to business.

Bargaining is common, and interruptions to meetings are to be expected.

In Afghanistan, relationships are essential to business. Loyalty is crucial, and an Afghan will want to know a lot about your background before building trust. Afghans are often perceptive of people's character and will notice if you seem insincere.

It is important to respect the age and status hierarchy in meetings. Wait for someone older than you to initiate the conversation, and be patient if the meeting is interrupted by prayer time.

Corruption is a major problem in Afghanistan, and bribes ("candy") are commonplace.

Frequently asked questions