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4.1. Domestic PE of a Foreign Entity

The Income Tax Law (‘ITL’) of Afghanistan does not define the term permanent establishment (‘PE’). Generally, a foreign enterprise is considered as having a permanent establishment (PE) in Afghanistan if it carries on its operations in the country through a place of business in Afghanistan.

However, sales through an independent agent, dealer or broker is not considered as operating through a place of business. Place of business is ‘the place in which the business of the enterprise is wholly or partly carried on’.

The domestic law does not define the constitution of a service PE on completion of a specified number of days. Further, Afghanistan’s concluded tax treaties (which are yet to be effective) also do not include a service PE clause.

When a foreign enterprise is considered to have a PE in Afghanistan, income from its activities conducted through the PE will be subject to tax in Afghanistan.