Top 7 Things to Know About American Expat Taxes while Living in Afghanistan

If you are one of the many contractors from the US who is working and living in Afghanistan, there are a few things you need to know about filing taxes. As a US expat, you are responsible for knowing the tax laws for both your host country and your home country. Fortunately, we’ve outlined the 7 things you need to know as an expat living in Afghanistan.

1. Tax Rates in Afghanistan

Income tax rates in Afghanistan are progressive and capped at 20%. There are three tax brackets that determine how much you’ll need to pay in taxes. The lowest earners will be exempt form paying any income tax.

2. Afghanistan Residency

Unlike many other countries that determine residency based on the number of days you’ve been in the country, Afghanistan has a more formal process that requires individuals to file for residency. Those who are not residents will only be taxed on any income that comes directly from an Afghanistan source.

3. Tax Deadlines in Afghanistan

The tax year in Afghanistan runs from March 21 – the first day of Haman – to March 20th, which is the last day of Hoot. If your only source of income is from an Afghani employer, you will not need to file taxes with the Ministry of Finance since employers are required to withhold taxes.

4. Social Security Taxes

Individuals are required to pay 3% of all earnings into Afghanistan’s social security system. This money goes toward healthcare, unemployment insurance and disability insurance for Afghani nationals.

In addition, US expats may also need to pay into US Social Security, depending on their residency status.

5. Other Taxes in Afghanistan

In addition to salary, nearly all other forms of income from Afghanistan are taxed. This includes dividends, capital gains, royalties and fees. And, although there is currently not a tax treaty between the US and Afghanistan, there are efforts in place to reduce dual taxation.

6. Foreign Bank Account Reporting

If you are a US citizen or resident, you will still be required to file US taxes each year. If you have assets in foreign bank accounts, you may be required to report those as well. Specifically, anyone with 10,000 dollars or more in a foreign bank or financial institution during a calendar year will be required to file the FBAR.

7. US Tax Credits for Americans in Afghanistan

Fortunately, there are a few ways you can lower or eliminate your US tax obligations. The first is the Foreign Earned Income Exclusion, which allows you to exclude a certain amount from your foreign earned income on your US expat taxes.

The second is the Foreign Tax Credit, which allows you to offset the taxes you paid in your host country with your US expat taxes dollar for dollar.

And third is the Foreign Housing Exclusion, which allows an additional exclusion from income on US expat taxes for certain amounts paid for household expenses that occur as a consequence of living abroad.

If you have any questions about filing your US expat taxes, please contact us.

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