52.229-13
Taxes—Foreign Contracts in Afghanistan
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.