FAR 52.229-13—Taxes—Foreign Contracts in Afghanistan.
Plain-English Summary
FAR 52.229-13, Taxes—Foreign Contracts in Afghanistan, tells contractors how Afghan taxes and similar charges are treated when a U.S. Government contract is performed in Afghanistan in support of U.S. Forces. It defines the term “U.S. Forces,” ties the clause to the Security and Defense Cooperation Agreement between Afghanistan and the United States, and explains the scope of the Afghan tax exemption for the Government, contractors, and subcontractors that are not Afghan legal entities or residents. The clause also addresses which taxes, customs, duties, fees, and similar charges must be excluded from the contract price, and it makes clear that Afghan employees of contractors and subcontractors are not exempt from Afghan tax laws. In addition, it requires contractors to withhold and remit Afghan income taxes from covered employees’ wages when Afghan law requires it, and it clarifies that those withholdings are the employees’ liability rather than a tax on the contractor. Finally, it requires flowdown of the clause, including the subcontract paragraph, to all subcontracts, including those for commercial products and commercial services. In practice, this clause is important because it determines who bears Afghan tax costs, prevents improper pricing of exempt charges, and ensures subcontractors follow the same tax treatment and withholding obligations.
Key Rules
Defines U.S. Forces
The clause defines “U.S. Forces” broadly to include the force, civilian component, and all U.S. property, equipment, and materiel present in Afghanistan. This definition matters because the tax exemption applies only to activities on behalf of or in support of U.S. Forces.
Applies the Afghan agreement
The clause implements the Security and Defense Cooperation Agreement between Afghanistan and the United States. That agreement is the legal basis for the tax and customs exemptions described in the clause.
Exempts covered taxes and charges
The U.S. Government and its contractors and subcontractors, except Afghan legal entities or residents, are exempt from Afghan taxes or similar charges on covered contract activities in Afghanistan. The exemption also covers acquisition, importation, exportation, reexportation, transportation, and use of supplies and services when done on behalf of or in support of U.S. Forces.
Exclude exempt taxes from price
The contractor must leave Afghan taxes, customs, duties, fees, and similar charges out of the contract price, except for charges that apply to Afghan legal entities or residents. This prevents the Government from paying amounts that should not be owed under the agreement.
Afghan employee taxes still apply
The agreement does not exempt Afghan employees of contractors or subcontractors from Afghan tax laws. If Afghan law requires withholding, the contractor must withhold the tax from wages and remit it to the proper Afghan authority.
Withholding is employee liability
Any required withholding on Afghan employees is treated as the employee’s tax liability, not as a tax imposed on the contractor. This distinction helps avoid mischaracterizing payroll withholding as a contractor cost.
Mandatory subcontract flowdown
The contractor must include the substance of the clause, including the subcontract flowdown paragraph, in all subcontracts. This applies even to subcontracts for commercial products or commercial services.
Responsibilities
Contracting Officer
Include this clause when prescribed by FAR 29.402-4(a) and ensure the contract reflects the correct tax treatment for work performed in Afghanistan in support of U.S. Forces.
Contractor
Exclude exempt Afghan taxes and similar charges from the contract price, comply with Afghan employee withholding requirements when applicable, and flow the clause down to all subcontracts, including commercial item subcontracts.
Subcontractor
Follow the same tax exemption, pricing, and withholding requirements that apply to the prime contractor, and include the clause in lower-tier subcontracts as required by the flowdown.
Afghan Employees of Contractors/Subcontractors
Remain subject to Afghan tax laws to the extent applicable; their wage withholding obligations are handled through the contractor or subcontractor payroll process.
Government of Afghanistan
Administer Afghan tax and customs laws consistent with the Security and Defense Cooperation Agreement, including recognizing the exemptions for covered U.S. Government and contractor activities.
Practical Implications
Contract pricing must separate exempt Afghan taxes and charges from taxable items; otherwise the contractor may overstate the price or later face disputes over reimbursement.
Contractors should verify whether the work is actually on behalf of or in support of U.S. Forces, because the exemption is tied to that relationship and does not automatically cover every Afghanistan-based activity.
Payroll systems must be able to identify Afghan employees and apply any required Afghan withholding correctly; failure to withhold can create local tax exposure and compliance problems.
The flowdown requirement is broad and includes commercial products and commercial services, so subcontract templates should be updated rather than handled case by case.
A common pitfall is assuming all Afghan-related costs are exempt; the clause specifically excludes Afghan legal entities or residents from the contractor/subcontractor exemption and preserves Afghan employee tax obligations.
Official Regulatory Text
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)