Overview
This section prescribes the specific tax-related clauses and provisions that Contracting Officers must include in solicitations and contracts performed in foreign countries or with foreign governments. It aims to standardize how the U.S. Government handles foreign tax liabilities, reporting requirements, and specific excise taxes on foreign procurements.
Key Rules
- Fixed-Price Contracts:
- FAR 52.229-6: Mandatory for fixed-price contracts exceeding the Simplified Acquisition Threshold (SAT) performed abroad, unless the contractor is a foreign government.
- FAR 52.229-7: Mandatory for fixed-price contracts exceeding the SAT specifically with foreign governments.
- Cost-Reimbursement Contracts:
- FAR 52.229-8: Required for cost-reimbursement contracts performed abroad, except those with foreign governments.
- FAR 52.229-9: Required for cost-reimbursement contracts specifically with foreign governments.
- Section 5000C Excise Tax (2% Foreign Tax):
- FAR 52.229-11: A notice and representation provision required in most solicitations (including commercial items) to identify "foreign persons" subject to the tax.
- FAR 52.229-12: The corresponding contract clause used when the provision is present and the contractor identifies as a foreign person.
- Exceptions: Rules for the 2% tax do not apply to acquisitions at/below the SAT, emergency/urgent acquisitions, certain personal services, or specific foreign humanitarian assistance.
- Afghanistan-Specific Rules:
- FAR 52.229-13: Standard clause for performance in Afghanistan.
- FAR 52.229-14: Used for performance in Afghanistan when the contract is governed by the NATO Status of Forces Agreement (SOFA).
Practical Implications
- Contractor Due Diligence: Foreign contractors must accurately complete representations regarding their status to determine if a 2% excise tax will be withheld from their payments under Section 5000C.
- Compliance Complexity: Contracting Officers must distinguish between "foreign performance" and "foreign entity" status, as the application of clauses varies based on whether the government is contracting with a private foreign firm versus a sovereign foreign government.