Contractors Withholding Tax and Rates:
The Tax Guide 21 – Withholding Tax on Contractor Services defines the contractors withholding tax rates as below:
1. Contractors with business licenses:
If the Contractor has a business license, the withholding rate is two percent (.02) of the gross payment to the Contractor. Contractors with business licenses will take credit for the withholding as an advance payment on their annual income tax returns for the tax period in which they were paid.
2. Contractors without business licenses:
If the Contractor does not have a business license, the withholding rate is seven percent (.07) of the gross payment to the Contractor. Contractors without business licenses will treat the withholding as a final tax.
Licensed Contractors:
The 2009 Income Tax Law either in this article or in any other articles have not defined the term “licensed contractors.” Therefore, by reference to the technical meaning of the business license, it can be concluded that all different types of licenses issued by the Afghanistan government and its other agencies for the purpose of permitting commercial activity can be deemed as a valid business license. These licenses can vary from most reputable business licenses issued by the Central Business Registry of Ministry of Commerce to Afghanistan municipalities’ licenses for small businesses.
In case you want to know more about how contractor withholding tax should be calculated and when is the due date for paying withholding taxes as per the Afghanistan tax law, please click here and go to section 2.3 Withholding Taxes.