Depreciation of movable and immovable assets (except agricultural land) used in a business or held by the company for production of income is deductible expense. The total of deduction for depreciation of any asset over a period of years cannot exceed cost of the asset. However, a company is not entitled to depreciation deduction for that part of the cost of an asset on which tax has not been withheld as required under the law. Depreciation is an annual allowance. If it is not deducted or short deducted by the company in any year, such shortfall cannot be deducted in subsequent years.
Depreciation is calculated on a straight-line basis over the useful life of the asset, at the rates prescribed under the law. For companies engaged in mining and industrial operations, the depreciation percentage is prescribed by the Ministry of Mines and Industries periodically. The depreciation rates range from 2% to 50% as per the type of asset and its useful life. A detailed guide on depreciation of assets published by the Ministry of Finance, Afghanistan can be accessed on the Ministry’s website http://mof.gov.af/en/page/14344/14347.
If the asset is not owned or used for the full tax year, the depreciation deduction is proportioned based on the number of months, the asset is owned or used for the production of income. If the amount of time in a month is less than 15 days, that month is not counted.
Research and development expenses can be amortized.
Companies registered under the Afghanistan Private Investment Law are eligible for accelerated depreciation allowance as follows:
- Buildings: 4 years
- Other Capital assets: 2 years
Depreciation deduction is calculated in equal amounts for each tax year of depreciation. If the asset is owned for less than a half year, depreciation is calculated for half of the year, and where the asset is owned/ held for more than a half year, depreciation is calculated for one year. If, as a result of this rule, the asset is not fully depreciated over the 4 or 2 fiscal year period as mentioned above, then the remaining depreciation can be deducted in the immediately succeeding year.