How to Set Up a Sole Proprietorship in Afghanistan: A Complete Guide

Afghanistan is a country that presents unique opportunities and challenges for businesses. It is rich in natural resources, including minerals and gas, which makes it an attractive destination for investors looking to explore these opportunities. The country has a large, young population that is largely untapped, presenting a significant market for businesses to establish a foothold. The Afghan government has also implemented measures to promote the expansion of the private sector and attract foreign investment. This has led to establishing of various initiatives, including the Afghanistan Investment Support Agency (AISA) and the Afghanistan National Development Strategy (ANDS) launch.

Discover the process of registering a sole proprietorship in Afghanistan, including the associated costs, and gain insight into the tax and legal aspects of operating a sole proprietorship in the country. This guide will give you the information to establish a sole proprietorship in Afghanistan.

Who Can Be a Sole Proprietor in Afghanistan? 

Any individual, whether an Afghan citizen or a foreigner, can register as self-employed in Afghanistan. Foreign investors seeking to establish a business in Afghanistan must obtain an investment license and register with the Afghanistan Central Business Registry & Intellectual Property (ACBRIP). This requirement is mandated by the Private Investment Law (2003), which was updated in 2006. The law permits investors to choose from various legal structures, including sole proprietorship, to register their businesses. Additionally, foreign nationals may need work permits or visas to work legally in the country. 

Benefits of Sole Proprietorship in Afghanistan

Registering as self-employed in Afghanistan can benefit global investors, making the country an increasingly attractive marketplace. Here are some advantages of registering as self-employed in Afghanistan.

• Untapped market: The market in Afghanistan remains largely untapped, characterized by a sizable young population, presenting substantial opportunities for businesses to establish their presence and thrive.
• Strategic location: Due to its strategic location at the confluence of Central Asia, the Middle East, and South Asia, Afghanistan offers businesses a key position for expanding their presence in these regions.
• Natural resources: Afghanistan possesses abundant natural resources, including minerals, oil, and gas, which offer promising business prospects in these industries.
• Government incentives: The government of Afghanistan has undertaken initiatives to foster private sector growth and attract foreign investment, including providing incentives and tax breaks to businesses operating within the country.
• Low labor costs: Compared to other nations in the region, labor costs in Afghanistan are comparatively low, making it an appealing choice for businesses aiming to lower their operational expenses.

Additionally, there are myriads of benefits for individuals who plan to register as self-employed in Afghanistan. These include:

• Easy to establish: Setting up a sole proprietorship in Afghanistan is relatively straightforward, with minimal legal formalities and paperwork required.
• Complete control: As a company’s sole owner, a sole proprietor in Afghanistan has complete control over all business decisions and operations.
• Flexibility: Sole proprietorships in Afghanistan are flexible, allowing owners to adapt quickly to market or business environment changes.
• Tax benefits: A sole proprietorship in Afghanistan enjoys several tax benefits, including a lower tax rate and more straightforward tax filing requirements than other business structures.
• Minimal compliance requirements: Unlike other business structures, such as corporations, a sole proprietorship in Afghanistan has fewer compliance requirements, making it easier and less expensive to operate.

The steps outlined above have simplified the process of doing business in Afghanistan, making it more accessible to both local entities and foreign investors. As a result, registering as self-employed in Afghanistan has become more accessible and straightforward than ever before.

Documents Required for Registering Your Business in Afghanistan 

The following are some of the documents required for registering a business in Afghanistan:

1. Investment license: An investment license is required for all businesses established in Afghanistan, including foreign-owned businesses.
2. Proof of identity: All business owners must provide proof of identity, such as a national ID card or a passport.
3. Business plan: A comprehensive business plan outlining the nature of the business, its goals, and objectives, including financial projections, is required.
4. Articles of Association: This legal document outlines the business owner’s rights, duties, and responsibilities.
5. Lease agreement: A lease agreement is required if the business leases a property.
6. Tax registration: All businesses must register with the Afghan Revenue Department for tax purposes.
7. Work permits: Foreign nationals in Afghanistan must obtain work permits or visas.

Other Criteria for Registering a Sole Proprietorship in Afghanistan

To register as a sole proprietorship in Afghanistan, there are no strict requirements one needs to meet. However, entrepreneurs must know about sole proprietorship in Afghanistan tax before proceeding with the registration process.

Sole proprietorships in Afghanistan are subject to income tax, calculated based on the business’s net income. The tax rate for sole proprietors is based on a progressive tax system, with rates ranging from 2.5% to 20%, depending on the income level.

Sole proprietors in Afghanistan must file tax returns annually by the end of the Afghan fiscal year, which is December 21st. The Afghan Revenue Department is responsible for administering and collecting taxes in the country.

In addition to income tax, there are several other sole proprietorships in Afghanistan tax, such as value-added tax (VAT), depending on the nature of their business activities.

How to Register a Sole Proprietorship Business in Afghanistan? 

For those seeking information on how to register self-employed in Afghanistan, there are several steps that must be taken per the sole proprietorship Afghanistan law. Despite the straightforward nature of the process, it is critical to successfully comply with all the requirements to register a sole proprietorship in Afghanistan.

• The first step is to obtain a referral letter from either the Trade License Office, ASIA, or another licensing department and submit it to the Afghanistan Central Business Registry (ACBR). 
• Along with the referral letter, the ACBR website’s business application form must be completed and submitted as a copy of the president and vice president’s passport or equivalent identification and two colored passport photos of each individual. 
• The Articles of Incorporation must also be provided.
• Upon successful registration, a permanent ten-digit Tax Identification Number (TIN) will be issued, which must be renewed upon expiration. 
• The newly registered business’s details will be published in the Official Gazette, including the business name, the initial capital, the business location, and the type of activities to be engaged in.
• A Registration Certificate with no expiration date will also be issued, which should be kept for record-keeping purposes. 
• Upon successful registration and issuance of a Tax Identification Number (TIN), the business will receive a memorandum confirming its registration status. Subsequently, the licensing officer will issue the business license, marking the completion of the business registration process in Afghanistan. 

Conclusion 

With its burgeoning economy, Afghanistan has emerged as a sought-after destination for foreign investors seeking to establish their operations. Setting up a sole proprietorship in Afghanistan is straightforward, making it an appealing choice for local and international investors. Moreover, there are many benefits for companies operating in Afghanistan, opening up new opportunities for entrepreneurs to launch their businesses.

Multiplier provides reliable and secure EOR (Employer of Record) solutions that simplify the process for businesses looking to hire and manage foreign employees. Additionally, Multiplier streamlines payroll management for freelancers in various countries, including sole proprietorships, with their convenient one-click payment systems.