diff --git a/java/google/registry/flows/EppXmlSanitizer.java b/java/google/registry/flows/EppXmlSanitizer.java
index 2113dc5dc..ee20afe71 100644
--- a/java/google/registry/flows/EppXmlSanitizer.java
+++ b/java/google/registry/flows/EppXmlSanitizer.java
@@ -14,14 +14,18 @@
 
 package google.registry.flows;
 
+import static com.google.common.base.Preconditions.checkState;
+
 import com.google.common.base.CharMatcher;
 import com.google.common.collect.ImmutableSet;
 import com.google.common.flogger.FluentLogger;
 import java.io.ByteArrayInputStream;
 import java.io.ByteArrayOutputStream;
+import java.io.UnsupportedEncodingException;
 import java.nio.charset.StandardCharsets;
 import java.util.Base64;
 import java.util.Locale;
+import java.util.Optional;
 import java.util.stream.Collectors;
 import java.util.stream.Stream;
 import javax.xml.namespace.QName;
@@ -32,6 +36,7 @@ import javax.xml.stream.XMLInputFactory;
 import javax.xml.stream.XMLOutputFactory;
 import javax.xml.stream.XMLStreamException;
 import javax.xml.stream.events.Characters;
+import javax.xml.stream.events.StartDocument;
 import javax.xml.stream.events.XMLEvent;
 
 /**
@@ -71,31 +76,47 @@ public class EppXmlSanitizer {
   private static final XMLEventFactory XML_EVENT_FACTORY = XMLEventFactory.newFactory();
 
   /**
-   * Returns sanitized and pretty-printed EPP XML message. For malformed XML messages,
-   * base64-encoded raw bytes will be returned.
+   * Returns sanitized EPP XML message. For malformed XML messages, base64-encoded raw bytes will be
+   * returned.
    *
-   * <p>The xml version header {@code <?xml version="1.0" ?>} is added to the result if the input
-   * does not already contain it. Also, an empty element will be formatted as {@code <tag></tag>}
-   * instead of {@code <tag/>}.
+   * <p>The output always begins with version and encoding declarations no matter if the input
+   * includes them. If encoding is not declared by input, UTF-8 will be used according to XML
+   * standard.
+   *
+   * <p>Also, an empty element will be formatted as {@code <tag></tag>} instead of {@code <tag/>}.
    */
   public static String sanitizeEppXml(byte[] inputXmlBytes) {
     try {
       // Keep exactly one newline at end of sanitized string.
-      return CharMatcher.whitespace()
-              .trimTrailingFrom(new String(sanitize(inputXmlBytes), StandardCharsets.UTF_8))
-          + "\n";
-    } catch (XMLStreamException e) {
+      return CharMatcher.whitespace().trimTrailingFrom(sanitizeAndEncode(inputXmlBytes)) + "\n";
+    } catch (XMLStreamException | UnsupportedEncodingException e) {
       logger.atWarning().withCause(e).log("Failed to sanitize EPP XML message.");
       return Base64.getMimeEncoder().encodeToString(inputXmlBytes);
     }
   }
 
-  private static byte[] sanitize(byte[] inputXmlBytes) throws XMLStreamException {
+  private static String sanitizeAndEncode(byte[] inputXmlBytes)
+      throws XMLStreamException, UnsupportedEncodingException {
     XMLEventReader xmlEventReader =
         XML_INPUT_FACTORY.createXMLEventReader(new ByteArrayInputStream(inputXmlBytes));
 
+    if (!xmlEventReader.hasNext()) {
+      return "";
+    }
+
+    XMLEvent firstEvent = xmlEventReader.nextEvent();
+    checkState(firstEvent.isStartDocument(), "Missing StartDocument");
+    // Get input encoding for use in XMLEventWriter creation, so that sanitized XML preserves the
+    // encoding declaration. According to XML spec, UTF-8 is to be used unless input declares
+    // otherwise. Epp officially allows UTF-8 and UTF-16.
+    String inputEncoding =
+        Optional.ofNullable(((StartDocument) firstEvent).getCharacterEncodingScheme())
+            .orElse(StandardCharsets.UTF_8.name());
+
     ByteArrayOutputStream outputXmlBytes = new ByteArrayOutputStream();
-    XMLEventWriter xmlEventWriter = XML_OUTPUT_FACTORY.createXMLEventWriter(outputXmlBytes);
+    XMLEventWriter xmlEventWriter =
+        XML_OUTPUT_FACTORY.createXMLEventWriter(outputXmlBytes, inputEncoding);
+    xmlEventWriter.add(firstEvent);
 
     while (xmlEventReader.hasNext()) {
       XMLEvent xmlEvent = xmlEventReader.nextEvent();
@@ -118,7 +139,7 @@ public class EppXmlSanitizer {
       }
     }
     xmlEventWriter.flush();
-    return outputXmlBytes.toByteArray();
+    return outputXmlBytes.toString(inputEncoding);
   }
 
   private static String maskSensitiveData(String original) {
diff --git a/javatests/google/registry/flows/EppXmlSanitizerTest.java b/javatests/google/registry/flows/EppXmlSanitizerTest.java
index 3cc098608..1bdad99f6 100644
--- a/javatests/google/registry/flows/EppXmlSanitizerTest.java
+++ b/javatests/google/registry/flows/EppXmlSanitizerTest.java
@@ -17,6 +17,7 @@ package google.registry.flows;
 import static com.google.common.truth.Truth.assertThat;
 import static google.registry.flows.EppXmlSanitizer.sanitizeEppXml;
 import static google.registry.testing.TestDataHelper.loadBytes;
+import static java.nio.charset.StandardCharsets.UTF_16LE;
 import static java.nio.charset.StandardCharsets.UTF_8;
 
 import com.google.common.collect.ImmutableMap;
@@ -30,12 +31,12 @@ import org.junit.runners.JUnit4;
 @RunWith(JUnit4.class)
 public class EppXmlSanitizerTest {
 
-  private static final String XML_HEADER = "<?xml version=\"1.0\" ?>";
+  private static final String UTF8_HEADER = "<?xml version=\"1.0\" encoding=\"UTF-8\"?>";
 
   @Test
   public void testSanitize_noSensitiveData_noop() throws Exception {
     byte[] inputXmlBytes = loadBytes(getClass(), "host_create.xml").read();
-    String expectedXml = XML_HEADER + new String(inputXmlBytes, UTF_8);
+    String expectedXml = UTF8_HEADER + new String(inputXmlBytes, UTF_8);
 
     String sanitizedXml = sanitizeEppXml(inputXmlBytes);
     assertThat(sanitizedXml).isEqualTo(expectedXml);
@@ -50,7 +51,7 @@ public class EppXmlSanitizerTest {
                 ImmutableMap.of("PW", "oldpass", "NEWPW", "newPw"))
             .getEppXml();
     String expectedXml =
-        XML_HEADER
+        UTF8_HEADER
             + new EppLoader(
                     this,
                     "login_update_password.xml",
@@ -68,7 +69,7 @@ public class EppXmlSanitizerTest {
                 this, "login_wrong_case.xml", ImmutableMap.of("PW", "oldpass", "NEWPW", "newPw"))
             .getEppXml();
     String expectedXml =
-        XML_HEADER
+        UTF8_HEADER
             + new EppLoader(
                     this,
                     "login_wrong_case.xml",
@@ -83,7 +84,7 @@ public class EppXmlSanitizerTest {
   public void testSanitize_contactAuthInfo_sanitized() throws Exception {
     byte[] inputXmlBytes = loadBytes(getClass(), "contact_info.xml").read();
     String expectedXml =
-        XML_HEADER
+        UTF8_HEADER
             + new EppLoader(this, "contact_info_sanitized.xml", ImmutableMap.of()).getEppXml();
 
     String sanitizedXml = sanitizeEppXml(inputXmlBytes);
@@ -94,7 +95,7 @@ public class EppXmlSanitizerTest {
   public void testSanitize_contactCreateResponseAuthInfo_sanitized() throws Exception {
     byte[] inputXmlBytes = loadBytes(getClass(), "contact_info_from_create_response.xml").read();
     String expectedXml =
-        XML_HEADER
+        UTF8_HEADER
             + new EppLoader(
                     this, "contact_info_from_create_response_sanitized.xml", ImmutableMap.of())
                 .getEppXml();
@@ -106,7 +107,7 @@ public class EppXmlSanitizerTest {
   @Test
   public void testSanitize_emptyElement_transformedToLongForm() {
     byte[] inputXmlBytes = "<pw/>".getBytes(UTF_8);
-    assertThat(sanitizeEppXml(inputXmlBytes)).isEqualTo(XML_HEADER + "<pw></pw>\n");
+    assertThat(sanitizeEppXml(inputXmlBytes)).isEqualTo(UTF8_HEADER + "<pw></pw>\n");
   }
 
   @Test
@@ -119,7 +120,22 @@ public class EppXmlSanitizerTest {
   @Test
   public void testSanitize_unicode_hasCorrectCharCount() {
     byte[] inputXmlBytes = "<pw>\u007F\u4E43x</pw>".getBytes(UTF_8);
-    String expectedXml = XML_HEADER + "<pw>C**</pw>\n";
+    String expectedXml = UTF8_HEADER + "<pw>C**</pw>\n";
     assertThat(sanitizeEppXml(inputXmlBytes)).isEqualTo(expectedXml);
   }
+
+  @Test
+  public void testSanitize_emptyString_encodedToBase64() {
+    byte[] inputXmlBytes = "".getBytes(UTF_8);
+    assertThat(sanitizeEppXml(inputXmlBytes)).isEqualTo("");
+  }
+
+  @Test
+  public void testSanitize_utf16_encodingPreserved() {
+    // Test data should specify an endian-specific UTF-16 scheme for easy assertion. If 'UTF-16' is
+    // used, the XMLEventReader in sanitizer may resolve it to an endian-specific one.
+    String inputXml = "<?xml version=\"1.0\" encoding=\"UTF-16LE\"?><p>\u03bc</p>\n";
+    String sanitizedXml = sanitizeEppXml(inputXml.getBytes(UTF_16LE));
+    assertThat(sanitizedXml).isEqualTo(inputXml);
+  }
 }
diff --git a/javatests/google/registry/testing/GpgSystemCommandRule.java b/javatests/google/registry/testing/GpgSystemCommandRule.java
index b073a46b5..522295f32 100644
--- a/javatests/google/registry/testing/GpgSystemCommandRule.java
+++ b/javatests/google/registry/testing/GpgSystemCommandRule.java
@@ -17,6 +17,7 @@ package google.registry.testing;
 import static com.google.common.base.Preconditions.checkArgument;
 import static com.google.common.base.Preconditions.checkNotNull;
 import static com.google.common.base.Preconditions.checkState;
+import static com.google.common.base.Strings.isNullOrEmpty;
 import static com.google.common.truth.Truth.assertWithMessage;
 import static java.nio.charset.StandardCharsets.UTF_8;
 
@@ -84,9 +85,14 @@ public final class GpgSystemCommandRule extends ExternalResource {
   @Override
   protected void before() throws IOException, InterruptedException {
     checkState(Objects.equals(cwd, DEV_NULL));
-    File tmpRoot = null;
-    tmpRoot = new File(System.getenv("TMPDIR"));
-    cwd = File.createTempFile(TEMP_FILE_PREFIX, "", tmpRoot);
+    String tmpRootDirString = System.getenv("TMPDIR");
+    // Create the working directory for the forked process on Temp file system. Create under the
+    // path specified by 'TMPDIR' envrionment variable if defined, otherwise create under the
+    // runtime's default (typically /tmp).
+    cwd =
+        isNullOrEmpty(tmpRootDirString)
+            ? File.createTempFile(TEMP_FILE_PREFIX, "")
+            : File.createTempFile(TEMP_FILE_PREFIX, "", new File(tmpRootDirString));
     cwd.delete();
     cwd.mkdir();
     conf = new File(cwd, ".gnupg");
@@ -118,6 +124,7 @@ public final class GpgSystemCommandRule extends ExternalResource {
 
   @Override
   protected void after() {
+    // TODO(weiminyu): we should delete the cwd tree.
     cwd = DEV_NULL;
     conf = DEV_NULL;
   }
diff --git a/javatests/google/registry/testing/TestDataHelper.java b/javatests/google/registry/testing/TestDataHelper.java
index a7cf34415..49dcd83c7 100644
--- a/javatests/google/registry/testing/TestDataHelper.java
+++ b/javatests/google/registry/testing/TestDataHelper.java
@@ -23,7 +23,9 @@ import com.google.common.collect.ImmutableMap;
 import com.google.common.io.ByteSource;
 import com.google.common.io.MoreFiles;
 import com.google.common.io.Resources;
+import java.io.IOException;
 import java.net.URI;
+import java.nio.file.FileSystemAlreadyExistsException;
 import java.nio.file.FileSystems;
 import java.nio.file.Path;
 import java.nio.file.Paths;
@@ -93,7 +95,21 @@ public final class TestDataHelper {
   /** Returns a recursive iterable of all files in the given directory. */
   public static Iterable<Path> listFiles(Class<?> context, String directory) throws Exception {
     URI dir = Resources.getResource(context, directory).toURI();
-    FileSystems.newFileSystem(dir, ImmutableMap.of("create", "true"));
+    ensureFileSystemPresentForUri(dir);
     return MoreFiles.fileTraverser().breadthFirst(Paths.get(dir));
   }
+
+  private static void ensureFileSystemPresentForUri(URI uri) throws IOException {
+    if (uri.getScheme().equals(FileSystems.getDefault().provider().getScheme())) {
+      // URI maps to default file system (file://...), which must be present. Besides, calling
+      // FileSystem.newFileSystem on this URI may trigger FileSystemAlreadyExistsException.
+      return;
+    }
+    try {
+      // URI maps to a special file system, e.g., jar:...
+      FileSystems.newFileSystem(uri, ImmutableMap.of("create", "true"));
+    } catch (FileSystemAlreadyExistsException e) {
+      // ignore.
+    }
+  }
 }