We believe in
Collaboration, Future
and Innovation.

SOFA Agreement

What is the SOFA Agreement About?

The United States of America deploys troops all around the world and relies on contractors and other employees to bolster its operations abroad. Consequently, questions arise about which laws of the host country apply. Usually, these so-called SOFA Agreements are used to overcome these uncertainties. 

What is a SOFA Agreement? 

Status of Forces Agreements (SOFA) are bilateral or multilateral agreements, which govern the legal status of U.S. forces and their dependents, activities, and assets belonging to the U.S. Department of Defence (DoD) within the borders of another nation. Furthermore, it outlines the rights and obligations between the United States and the host government. 

So far we have assisted over 400 companies.

Find out more about the SOFA Agreement in general: https://www.everycrsreport.com/reports/RL34531.html 

SOFA Agreement: Military Contractors  

Who are considered military contractors? In the SOFA Agreement, U.S. contractors are referred to as non-individuals and legal entities from the United States, along with their employees, who are engaged in contracts or subcontracts with the U.S. Department of Defence. Nonetheless, the U.S. forces are free to contract with whomever they wish to without any restriction from the Hungarian authorities.

They are exempted from Hungarian laws and regulations regarding the terms and conditions of their employment and with respect to the licensing and registration of businesses and corporations only concerning the provision of goods and services to the U.S. forces in the territory of Hungary. 

For expert assistance with your process, feel free to reach out to us anytime at: info [@] gurcanpartners.com

SOFA Agreement: Civilian Employees of Defence Organizations 

In accordance with SOFA, employees also known as civilian components are individuals employed by non-Hungarian, non-commercial organizations, are U.S. nationals or residents of the United States, and accompanying U.S. forces in Hungary for the sole purpose of contributing to their welfare, morale or education. However, civilian components can also be considered under the agreement as dependents who are employed by the U.S. forces. 

SOFA Agreement: Practical Implications for Employees and Contractors 

Entry and Exit of Contractors and Civilian Employees of Defence Organizations  

Pursuant to the agreement members of the civilian component, dependents and US contractors are exempt from visa requirements for entry and exit from Hungary if they have a valid passport and U.S. Department of Defence identification card, movement order, or letter of authorization issued by the component authority of the United States.

Thus, civilian components and contractors have unrestricted entry and exit from Hungary. In addition, civilian components are not required to have a work permit and the terms and conditions of their employment are outlined by the forces themselves and the organizations according to US laws and regulations. Wages, salaries and benefits must be in accordance with US laws.

However, they also have to take into account the Hungarian labour legislation.  

For any inquiries or to initiate a consultation, please don’t hesitate to reach out to us. You can contact us conveniently via email at info [@] gurcanpartners.com

Tax Ramifications for Military Contractors Under the SOFA Agreement 

SOFA differentiates between official and personal importation and exportation. In accordance with the agreement, official importation and exportation shall be duty-free and free from any import or registration fee or any other similar charges. 

Under the personal importation and exportation, civil components and U.S. contractors can import any item for personal and domestic use free of customs duty and taxes during their deployment in Hungary. As with importation, exporting of any commodity that is imported while under duty on Hungarian territory is likewise duty-free. 

American contractors are not subject to any corporate taxes specifically related to providing goods or services to U.S. forces or constructing facilities for them within the territory of Hungary.

The income or profits from a contract or subcontract with U.S. forces are also free from any income or profits tax levied by Hungary or any of its political subdivisions for those contractors. While working in Hungary under contracts with US troops, US contractors are exempt from Hungarian laws and regulations pertaining to the terms and circumstances of their employment. 

Hungarian contractors, who do not fall under the definition of U.S. contractors have the possibility of VAT reimbursement. 

SOFA Agreement
SOFA Agreement

Conclusion

To conclude, civilian components and U.S. contractors have the same rights and privileges in light of entry and exit rights and taxation. Both have the right to enter and depart Hungary without a visa or work permit. Furthermore, taxation benefits them since, in most circumstances, they are not required to pay import and export taxes, as well as income taxes. However, regardless of the existence of such an agreement both civilian components and contractors must comply with both US and Hungarian laws and regulations. 

Hilary Agbo

 

Source: 

Status of Forces Agreement (SOFA)

Do Military Contractors Pay Taxes In Countries With Sofa Agreements?