52.229-13 Taxes—Foreign Contracts in Afghanistan
Source: FAR 52.229-13 on acquisition.gov
U.S. Government contractors in Afghanistan are generally exempt from Afghan taxes for contract activities supporting U.S. Forces, but must withhold taxes from Afghan employees and flow down these requirements to all subcontracts.
Overview
FAR 52.229-13 establishes tax exemption rules for U.S. Government contracts performed in Afghanistan, pursuant to the Security and Defense Cooperation Agreement (SDCA) between the U.S. and Afghanistan. The clause ensures that U.S. Government contractors and subcontractors (excluding Afghan legal entities or residents) are exempt from Afghan taxes, customs, duties, and similar charges when performing activities on behalf of or in support of U.S. Forces. It also clarifies that Afghan employees of contractors are not exempt from Afghan tax laws, and contractors must withhold and remit applicable taxes from these employees' wages. The clause must be flowed down to all subcontracts, including those for commercial products and services.
Key Rules
- Tax Exemption for U.S. Contractors
- U.S. Government contractors and subcontractors (excluding Afghan legal entities or residents) are exempt from Afghan taxes and similar charges for contract activities supporting U.S. Forces.
- Exclusion of Afghan Taxes from Contract Price
- Contractors must exclude Afghan taxes, customs, duties, and fees from the contract price, except for those applicable to Afghan legal entities or residents.
- Afghan Employee Tax Withholding
- Contractors must withhold and remit Afghan taxes from wages paid to Afghan employees, as required by Afghan law.
- Flowdown Requirement
- The substance of this clause must be included in all subcontracts, including those for commercial products or services.
Responsibilities
- Contracting Officers: Ensure inclusion of this clause in applicable contracts and verify compliance.
- Contractors: Exclude Afghan taxes from pricing, withhold taxes from Afghan employees, and flow down the clause to all subcontracts.
- Agencies: Oversee contractor compliance and address any disputes regarding tax exemptions with Afghan authorities.
Practical Implications
- This clause prevents double taxation and reduces costs for U.S. contractors operating in Afghanistan.
- Contractors must be diligent in excluding Afghan taxes from their pricing and in handling payroll tax obligations for Afghan employees.
- Failure to flow down the clause or comply with withholding requirements can result in noncompliance and potential penalties.
As prescribed in 29.402-4(a), use the following clause:
Taxes—Foreign Contracts in Afghanistan (Nov 2021)
(a) Definition. U.S. Forces, as used in this clause, means the entity comprising the members of the force and of the civilian component, and all property, equipment, and materiel of the United States Armed Forces present in the territory of Afghanistan.
(b) Tax exemption. This acquisition is covered by the Security and Defense Cooperation Agreement (the Agreement) between the Islamic Republic of Afghanistan (Afghanistan) and the United States of America signed on September 30, 2014, and entered into force on January 1, 2015.
(1) The Agreement exempts the United States Government, and its contractors and subcontractors (other than those that are Afghan legal entities or residents), from paying any tax or similar charge assessed by the Government of Afghanistan on activities associated with this contract within Afghanistan if the activities are on behalf of or in support of U.S. Forces. The Agreement also exempts the acquisition, importation, exportation, reexportation, transportation, and use of supplies and services in Afghanistan, on behalf of or in support of U.S. Forces, from any taxes, customs, duties, fees, or similar charges imposed by the Government of Afghanistan.
(2) The Contractor shall exclude any Afghan taxes, customs, duties, fees, or similar charges from the contract price, other than those charged to Afghan legal entities or residents.
(3) The Agreement does not exempt Afghan employees of Government contractors and subcontractors from Afghan tax laws. To the extent required by Afghan law, the Contractor shall withhold tax from the wages of these employees and remit those payments to the appropriate Afghan taxing authority. These withholdings are an individual's liability, not a tax against the Contractor.
(c) Subcontracts. The Contractor shall include the substance of this clause, including this paragraph (c), in all subcontracts including subcontracts for commercial products or commercial services.
(End of clause)