Afghanistan - Openness to and Restriction on Foreign InvestmentAfghanistan - Foreigm Investment
Attitude toward Foreign Direct Investment
Article 16 of the Private Investment Law of 2005 (PIL) stipulates that foreign investors are provided national treatment. President Ghani and the Afghan government have repeatedly spoken out about the need to attract inward investment.
Other Investment Policy Reviews
Afghanistan is not yet a member of the World Trade Organization. In December 2015 Afghanistan committed to a range of reforms in association with its pending accession to the WTO. The reforms are listed at: https://www.wto.org/english/news_e/news15_e/afgancommitmentsmc10_e.pdf.
Neither the U.N. Commission on Trade and Development (UNCTAD) nor the Organization on Economic Cooperation and Development (OECD) has conducted an Investment Policy Review.
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.
Laws/Regulations on Foreign Direct Investment
In the Private Investment Law of 2005 (PIL), investment is defined as currency and contributions in kind, including, without limitation, licenses, leases, machinery, equipment, and industrial and intellectual-property rights provided for the purpose of acquiring shares of stock or other ownership interests in a registered enterprise. The PIL permits investments in nearly all sectors except nuclear power, gambling, and production of narcotics and intoxicants. There are also limitations on the total value of service transactions or assets with respect to motion pictures, road transport (passenger and freight), and on the total number of people that can be employed in security companies.
Foreign investors have repeatedly complained of irregularities in the court system, arbitration, and tax disputes. Disputes and disagreements have arisen from capricious application of the tax laws by the Ministry of Finance; harsh penalties on compliance issues that have resulted in company officials placed on the Afghan government’s “no-fly” list and freezing of back accounts; disinclination to respect international agreements as primacy over national law; and extrajudicial actions in commercial or contract disputes that can result in the criminalization of foreign parties. As a result of the various legal and regulatory challenges, companies operating in Afghanistan should seek local legal counsel to help navigate licensing and permitting requirements and conforming to tax regulations.
Foreign or domestic companies investing in Afghanistan require at a minimum a business license issued by the Afghanistan Investment Support Agency (AISA), a corporate registration from the Afghanistan Central Business Registry (ACBR), and a Tax Identification Number issued by the Department of Revenue. AISA is the first entry into this process.
Firms operating in selected sectors such as security, telecommunications, agriculture, and health require additional licenses from the relevant ministries. Firms seeking licenses to provide consultancy, legal, or audit services must meet requirements for education or related experience for top officers.
These steps to register a business can take as little as two days to complete but usually require longer and may require a local attorney’s help. Putting parts of business registration and other administrative processes online and simplifying them mark significant steps by Afghanistan toward a more transparent, welcoming investment climate. Nevertheless, according to credible private sector contacts, requests for bribes and unexpected bureaucratic delays frequently occur during the registration process, for foreign firms and even more for Afghan firms.
Most AISA licenses must be renewed annually, expect for companies operating under the Bilateral Security Agreement, for which the license period is three years. Plans are underway to extend the license validity to three years for all companies. It is widely understood within Afghanistan’s private sector, especially among international companies operating in Afghanistan, that while starting a business in Afghanistan might be relatively easy, renewing a business license can be a difficult exercise. 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. According to contacts, corruption and bribery are commonplace in the license renewal process.
The Afghanistan Investment Support Agency (AISA) is responsible for investment promotion and is currently reviewing its efforts. The High Commission on Investment (HCI) is responsible for investment policy making. The HCI includes participation by 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, 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.
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.
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.
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 and many businesses cite lack of land ownership as one of the greatest impediments to investment in Afghanistan. Foreigners may lease arable land for 3-5 years and non-arable land for 25-30 years.
There are no active privatization programs ongoing in Afghanistan.
Screening of FDI
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.
There is no relevant law or authority in Afghanistan for review of competition-related concerns, though some preliminary work has been taken towards developing a law. In some sectors, such as trading, fuels, money changing, and carpet production, small groups of businessmen reportedly have ability to sway market prices and forestall competition.
Afghanistan Economic Development and Investment Law