1. Openness To, and Restrictions Upon, Foreign Investment
Policies towards Foreign Direct Investment
Under the Private Investment Law of 2005 (PIL), qualified domestic or foreign entities may invest in all sectors of the economy.
On July 29, 2016, Afghanistan was formally admitted to the WTO which could bring about a number of benefits for Afghanistan, including improving prospects for foreign direct investment.
Article 16 of the PIL also states that approved domestic and foreign companies with similar objectives are subject to the same rights under Afghan law and the same protections against discriminatory governmental actions.
Afghanistan Investment Support Agency (AISA) is an investment promotion agency that was merged into the Ministry of Commerce and Industries (MOCI) in October 2016. The transition period is ongoing so the AISA continues to play a semi-independent role. MOCI has taken on the role of promoting business growth, investment, and trade.
The High Commission on Investment (HCI) is responsible for investment policy making. The HCI includes the Ministers of Agriculture, Economy, Finance, Foreign Affairs, Mines and Industries, the Governor of the Central Bank (Da Afghanistan Bank), and the Chief Executive Officer of AISA. The Minister of Commerce and Industries chairs the HCI. The High Economic Council (HEC), which is chaired by the President and includes both the HCI members and representatives from academia and the private sector, also plays a role in investment policy development.
The HEC, HCI, MOCI, Afghan Chamber of Commerce and Industries, and AISA are tasked with maintaining a dialogue and resolving business disputes with the government.
Limits on Foreign Control and Right to Private Ownership and Establishment
Under the PIL, foreign and domestic private entities have equal standing and may establish and own business enterprises, engage in all forms of remunerative activity, and freely acquire and dispose of interests in business enterprises.
While there is no requirement for foreigners to secure Afghan partners, the Afghan Constitution and the PIL prohibit foreign ownership of land. In practice most foreign firms find it necessary to work with an Afghan partner. Foreign land ownership is not permitted. However, foreigners may lease land for up to 50 years.
Although the HCI has authority to limit the share of foreign investment in some industries, specific economic sectors, and specific companies, that authority has never been exercised. In practice, investments may be 100 percent foreign owned.
Article 5 of the PIL prohibits investment in nuclear energy and gambling establishments.
Investment in certain sectors, such as production and sales of weapons and explosives, non-banking financial activities, insurance, natural resources, and infrastructure (defined as power, water, sewage, waste-treatment, airports, telecommunications, and health and education facilities) is subject to special consideration by the HCI, in consultation with relevant government ministries. The HCI may choose to apply specific requirements for investments in restricted sectors. Direct investment exceeding USD 3 million requires HCI approval of the investment application.
Other Investment Policy Reviews
There have been no third-party investment policy reviews by the OECD, WTO, or UNCTAD in the past three years.
Afghanistan’s last major investment policy review was the Afghanistan National Development Strategy (ANDS), which was developed with the assistance of the United Nations Development Program (UNDP) and covered the period 2008-2013. That strategy attempted to guide development investments in the focus areas of (1) agriculture and rural rehabilitation, (2) human capacity development, and (3) economic development and infrastructure, through high-priority programs chosen for contributions to job creation, broad geographic impact, and likelihood of attracting additional investment. As of March 2016 the Afghanistan Investment Support Agency (AISA) is urging the government to consider an updated strategy, potentially focusing on support to industry, electricity generation, taxation reform, industry supports, customs, technology, and the agricultural sector.
Currently a new investment law has been drafted by MoCI and is awaiting review by the Council of Ministers.
Responsibility for business facilitation, previous under AISA, was recently moved to MOCI. The HCI and HEC are responsible for investment and economic policy making.
Foreign or domestic companies investing in Afghanistan must obtain a corporate registration from the Afghanistan Central Business Registry (ACBR) and a Tax Identification Number issued by the Department of Revenue.
The websites for registration are:
Companies operating in the security, telecommunications, agriculture, and health sectors require additional licenses from the relevant ministries. Companies seeking licenses to provide consultancy, legal, or audit services must meet requirements for education or related experience for top officers.
To begin the process for initial issuance of licenses, renewals, and material changes to the license, foreign firms must first obtain an introduction letter from the Ministry of Foreign Affairs (MOFA) addressed to the Ministry of Commerce and Industries. Obtaining this letter typically requires an application to the Afghan embassy located in the country where the company is incorporated or a letter of introduction from the embassy or commercial attaché in Kabul representing the country where the company is incorporated. Once this process is complete, the company will be introduced by MOFA to MOCI/AISA and may proceed to obtain a license.
These steps to register a business can take as little as two days to complete but may require longer and may require a local attorney’s help.
Ease of doing business reforms in 2016 led AISA to begin issuing licenses for three years, as opposed to one year, to attract investment. Obtaining a business license is relatively simple, however, applications for renewal are contingent upon certification from the Ministry of Finance (MOF) that all tax obligations have been met. Some companies have seen AISA license renewals delayed while MOF audits their tax status, despite MOF assurances that an ongoing tax audit should not impede AISA license renewal.
The government does not promote or incentivize outward investment. However, due to the security situation capital flight is a concern.
Private investors have the right to transfer capital and profits out of Afghanistan, including for off-shore loan debt service. There are no restrictions on converting, remitting, or transferring funds associated with investment, such as dividends, return on capital, interest and principal on private foreign debt, lease payments, or royalties and management fees, into a freely usable currency at a legal market clearing rate. The PIL states that an investor may freely transfer investment dividends or proceeds from the sale of an approved enterprise abroad. MOF has in some instances frozen the domestic bank accounts of companies over tax disputes, which has effectively served to prohibit transfers of capital.