If your business is subject to Article 45 of Afghanistan’s Income Tax Law (Dividend Tax), and you have accumulated retained earnings by not paying dividends to shareholders/partners for several years, be aware of the following:
A change in ownership can trigger a tax event. Afghan tax law may consider the accumulated retained earnings as a dividend payment to the previous owner(s), subjecting this amount to a 20% withholding tax.
It is also worth noting that:
- Additional costs, such as a 1% commission on the transfer of movable/immovable assets, will apply to the ownership change.
- If you have not filed your annual income tax return for the year preceding the ownership change, we recommend clearing retained earnings by paying dividends and the associated 20% dividend tax. This approach can be more tax-efficient than paying annual income tax. Quest earlier on Newsletter Issue # 11 has issued the related tax tip in this regard that can be found here.