52.229-14 Taxes—Foreign Contracts in Afghanistan (North Atlantic Treaty Organization Status of Forces Agreement)
Source: FAR 52.229-14 on acquisition.gov
NATO-related contracts in Afghanistan are exempt from Afghan taxes, but contractors must exclude such taxes from pricing, withhold taxes for Afghan employees, and flow down these requirements to all subcontracts.
Overview
FAR 52.229-14 establishes tax exemption rules for contracts performed in Afghanistan under the NATO Status of Forces Agreement (SOFA). It clarifies that NATO Forces, their contractors, and subcontractors (excluding Afghan legal entities or residents) are exempt from Afghan taxes, customs, duties, and similar charges when performing activities in support of NATO Forces. The clause also requires contractors to exclude such taxes from contract pricing and to withhold and remit taxes from Afghan citizen employees as required by Afghan law. Additionally, contractors must flow down these requirements to all subcontracts, including those for commercial products or services.
Key Rules
- Tax Exemption for NATO-Related Activities
- NATO Forces and their non-Afghan contractors/subcontractors are exempt from Afghan taxes and similar charges for activities supporting NATO Forces.
- Exclusion of Afghan Taxes from Contract Price
- Contractors must not include Afghan taxes, customs, or duties in the contract price, except for those applicable to Afghan legal entities or residents.
- Withholding Tax for Afghan Employees
- Contractors must withhold and remit taxes from Afghan citizen employees’ wages as required by Afghan law; this is the employee’s liability, not the contractor’s.
- Subcontract Flowdown
- 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 and remit taxes for Afghan employees, and flow down the clause to all subcontracts.
- Agencies: Oversee contractor compliance and address any issues related to tax exemptions or withholdings.
Practical Implications
- This clause ensures that U.S. and NATO contractors avoid double taxation in Afghanistan, reducing costs and administrative burdens. Failure to comply can result in improper pricing, tax liabilities, or contract disputes. Contractors must pay close attention to employee tax withholdings and ensure all subcontractors are aware of and comply with these requirements.
As prescribed in 29.402-4(b), use the following clause:
Taxes—Foreign Contracts in Afghanistan (North Atlantic Treaty Organization Status of Forces Agreement) (Nov 2021)
(a) Definition. North Atlantic Treaty Organization (NATO) Forces, as used in this clause, means the Members of the Force, Members of the Civilian Component, NATO Personnel and all property, equipment, and materiel of NATO, NATO Member States, and Operational Partners present in the territory of Afghanistan.
(b) Tax exemption. This acquisition is covered by the Status of Forces Agreement (SOFA) entered into between NATO and the Islamic Republic of Afghanistan (Afghanistan) issued on September 30, 2014, and entered into force on January 1, 2015.
(1) The SOFA exempts NATO Forces 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 within Afghanistan if the activities are on behalf of or in support of NATO Forces. The SOFA also exempts the acquisition, importation, exportation, reexportation, transportation, and use of supplies and services in Afghanistan on behalf of or in support of NATO Forces from all Afghan taxes, customs, duties, fees, or similar charges.
(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) Afghan citizens employed by NATO contractors and subcontractors are subject to Afghan tax laws. To the extent required by Afghan law, the Contractor shall withhold tax from the wages of these employees and remit those withholdings 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)