52.229-14
Taxes—Foreign Contracts in Afghanistan (North Atlantic Treaty Organization Status of Forces Agreement)
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.