This article was first published on November 14, 2012. It was updated on June 13, 2014, with information relevant to the 2013 and 2014 tax years.
How Working in Afghanistan Impacts US Expat Taxes
How will your US expat taxes be affected by a move to Afghanistan? Contractors from around the world are sent to Afghanistan for a variety of reasons. No matter the project, these employees are going to have to pay US expat taxes and stay on top of other reporting requirements (FBAR, Form 8938, etc.) required by either the IRS or the U.S. Department of the Treasury.
US Expat Taxes in Afghanistan
If you are a citizen or permanent resident of the United States, you are obligated to file US taxes in Afghanistan—or no matter where you live. In addition to the regular income tax return, you could also be required to file an informational return on your assets held in foreign bank accounts, either business or personal. While the US taxes the international income of its citizens and permanent residents who reside overseas, it does have special provisions to help protect them from double taxation. These provisions include:
- The Foreign Earned Income Exclusion, which allows you to decrease your 2012 taxable income by the first $97, 600 earned as a result of your labors while a resident of a foreign country (and $99,200 on your 2014 taxable income),
- A foreign tax credit that could allow you to lower your tax bill on your remaining income by certain amounts paid to a foreign government, and
- A Foreign Housing Exclusion that allows an additional exclusion from income for certain amounts paid for household expenses that occur as a consequence of living abroad.
Note also the filing requirements necessary for assets located overseas, including FBAR Form FinCEN 114 with the U.S. Department of the Treasury and Form 8938 with the IRS. These must be filed if you have assets in bank or financial accounts that are higher than the respective thresholds. For more information, see US Expat Taxes Explained.
Afghanistan Income Tax Rates
The income rates in Afghanistan are progressive and capped at 20%.
|Taxable Income in Afghanistan (AFN)||Rate Applicable to Income Level (%)|
|Up to 12,500/month||exempt|
|100,001 and above/month||AFN 8,750 + 20%|
Individuals seeking residency in Afghanistan must go through the process of applying for residency. Afghani residency begins the day an individual becomes a resident of Afghanistan and ends the day following his or her departure and termination of residency from Afghanistan. Residency in Afghanistan is important to understand, as it dictates whether you are taxed on only your income sourced within Afghanistan or on worldwide income.
Is Foreign Income Taxed Within Afghanistan?
If you are a resident of Afghanistan, you will be required to pay income taxes on your worldwide income. The Afghani government does have a foreign tax credit in place, but this is only applicable to a portion of total annual income. Non-residents are taxed only on income received from sources within Afghanistan.
Afghanistan Tax Due Date
The Islamic Republic of Afghanistan’s Ministry of Finance changed the tax year from the first day of Haman (March 21st) to the last day of Hoot (March 20th) in 2008 (when the information on the website was last updated). Afghani employers are required to withhold taxes from their employees, and if that is an individual’s only source of income, they do not need to file with the Ministry of Finance. If you have more than one source of income or are self-employed, you will need to file three months after the end of the tax year.
Social Security in Afghanistan
The social insurance system of Afghanistan covers all citizens residing in Afghanistan. Individuals are required to pay 3% of earnings into the social insurance program, which goes toward health care, unemployment insurance, and disability insurance for Afghani nationals. Depending on your residency status, you may also need to pay into US Social Security.
US – Afghanistan Tax Treaty
Afghanistan used to be on the blacklist for any sort of tax relief, including the foreign earned income exclusion and foreign tax credit. Expatriates in Afghanistan can now rest assured that they have been made eligible for these credits and deductions on their US expat taxes. While there is no tax treaty between the US and Afghanistan, both countries have tools in place to reduce dual taxation in the event that taxes are paid to both governments.
Other Taxes for Expats in Afghanistan
Taxes are levied on salary income, dividends, any sort of capital gains, and royalties or any fees. Essentially, any money coming into your pocket is going to be taxed by the Afghani government if it is Afghani sourced, unless that money is in the form of assets brought in through an inheritance.
Saving on US Expat Taxes
Unfortunately, working in Afghanistan does not qualify US expat taxpayers the status of working in a conflict zone, which could potentially make you exempt from US expat taxation. At a minimum, there are several tools in place to reduce the taxes for expats paid to Afghanistan.
Need Expatriate Tax Advice While Living in Afghanistan?
If you would like expatriate tax advice regarding your US tax return or would like to learn about our expat tax services, please contact us.