diff --git a/cmd/crates/soroban-test/tests/fixtures/test-wasms/hello_world/src/lib.rs b/cmd/crates/soroban-test/tests/fixtures/test-wasms/hello_world/src/lib.rs
index 1f1964505..7dc1e7087 100644
--- a/cmd/crates/soroban-test/tests/fixtures/test-wasms/hello_world/src/lib.rs
+++ b/cmd/crates/soroban-test/tests/fixtures/test-wasms/hello_world/src/lib.rs
@@ -1,6 +1,6 @@
 #![no_std]
 use soroban_sdk::{
-    contract, contractimpl, log, symbol_short, vec, Address, Env, String, Symbol, Vec,
+    contract, contractimpl, log, symbol_short, vec, Address, BytesN, Env, String, Symbol, Vec,
 };
 
 const COUNTER: Symbol = symbol_short!("COUNTER");
@@ -46,6 +46,10 @@ impl Contract {
         env.prng().u64_in_range(low..=high)
     }
 
+    pub fn upgrade_contract(env: Env, hash: BytesN<32>) {
+        env.deployer().update_current_contract_wasm(hash);
+    }
+
     #[allow(unused_variables)]
     pub fn multi_word_cmd(env: Env, contract_owner: String) {}
     /// Logs a string with `hello ` in front.
diff --git a/cmd/soroban-rpc/internal/test/simulate_transaction_test.go b/cmd/soroban-rpc/internal/test/simulate_transaction_test.go
index df21d6b65..3256e38e6 100644
--- a/cmd/soroban-rpc/internal/test/simulate_transaction_test.go
+++ b/cmd/soroban-rpc/internal/test/simulate_transaction_test.go
@@ -232,9 +232,9 @@ func TestSimulateTransactionSucceeds(t *testing.T) {
 					},
 				},
 			},
-			Instructions: 5733936,
+			Instructions: 6070660,
 			ReadBytes:    48,
-			WriteBytes:   6576,
+			WriteBytes:   7060,
 		},
 		RefundableFee: 20056,
 	}
@@ -1015,3 +1015,118 @@ func TestSimulateInvokePrng_u64_in_range(t *testing.T) {
 	require.LessOrEqual(t, uint64(*obtainedResult.U64), uint64(high))
 	require.GreaterOrEqual(t, uint64(*obtainedResult.U64), uint64(low))
 }
+
+func TestSimulateSystemEvent(t *testing.T) {
+	test := NewTest(t)
+
+	ch := jhttp.NewChannel(test.sorobanRPCURL(), nil)
+	client := jrpc2.NewClient(ch, nil)
+
+	sourceAccount := keypair.Root(StandaloneNetworkPassphrase)
+	address := sourceAccount.Address()
+	account := txnbuild.NewSimpleAccount(address, 0)
+
+	helloWorldContract := getHelloWorldContract(t)
+
+	params := preflightTransactionParams(t, client, txnbuild.TransactionParams{
+		SourceAccount:        &account,
+		IncrementSequenceNum: true,
+		Operations: []txnbuild.Operation{
+			createInstallContractCodeOperation(account.AccountID, helloWorldContract),
+		},
+		BaseFee: txnbuild.MinBaseFee,
+		Preconditions: txnbuild.Preconditions{
+			TimeBounds: txnbuild.NewInfiniteTimeout(),
+		},
+	})
+
+	tx, err := txnbuild.NewTransaction(params)
+	require.NoError(t, err)
+	sendSuccessfulTransaction(t, client, sourceAccount, tx)
+
+	params = preflightTransactionParams(t, client, txnbuild.TransactionParams{
+		SourceAccount:        &account,
+		IncrementSequenceNum: true,
+		Operations: []txnbuild.Operation{
+			createCreateContractOperation(address, helloWorldContract),
+		},
+		BaseFee: txnbuild.MinBaseFee,
+		Preconditions: txnbuild.Preconditions{
+			TimeBounds: txnbuild.NewInfiniteTimeout(),
+		},
+	})
+
+	tx, err = txnbuild.NewTransaction(params)
+	require.NoError(t, err)
+	sendSuccessfulTransaction(t, client, sourceAccount, tx)
+
+	contractID := getContractID(t, address, testSalt, StandaloneNetworkPassphrase)
+	authAddrArg := "GBRPYHIL2CI3FNQ4BXLFMNDLFJUNPU2HY3ZMFSHONUCEOASW7QC7OX2H"
+	tx, err = txnbuild.NewTransaction(txnbuild.TransactionParams{
+		SourceAccount:        &account,
+		IncrementSequenceNum: true,
+		Operations: []txnbuild.Operation{
+			&txnbuild.CreateAccount{
+				Destination:   authAddrArg,
+				Amount:        "100000",
+				SourceAccount: address,
+			},
+		},
+		BaseFee: txnbuild.MinBaseFee,
+		Preconditions: txnbuild.Preconditions{
+			TimeBounds: txnbuild.NewInfiniteTimeout(),
+		},
+	})
+	require.NoError(t, err)
+	sendSuccessfulTransaction(t, client, sourceAccount, tx)
+
+	contractHash := sha256.Sum256(helloWorldContract)
+	byteSlice := xdr.ScBytes(contractHash[:])
+
+	params = txnbuild.TransactionParams{
+		SourceAccount:        &account,
+		IncrementSequenceNum: false,
+		Operations: []txnbuild.Operation{
+			createInvokeHostOperation(
+				address,
+				contractID,
+				"upgrade_contract",
+				xdr.ScVal{
+					Type:  xdr.ScValTypeScvBytes,
+					Bytes: &byteSlice,
+				},
+			),
+		},
+		BaseFee: txnbuild.MinBaseFee,
+		Preconditions: txnbuild.Preconditions{
+			TimeBounds: txnbuild.NewInfiniteTimeout(),
+		},
+	}
+	tx, err = txnbuild.NewTransaction(params)
+
+	require.NoError(t, err)
+
+	txB64, err := tx.Base64()
+	require.NoError(t, err)
+
+	request := methods.SimulateTransactionRequest{Transaction: txB64}
+	var response methods.SimulateTransactionResponse
+	err = client.CallResult(context.Background(), "simulateTransaction", request, &response)
+	require.NoError(t, err)
+	require.Empty(t, response.Error)
+
+	// check the result
+	require.Len(t, response.Results, 1)
+	var obtainedResult xdr.ScVal
+	err = xdr.SafeUnmarshalBase64(response.Results[0].XDR, &obtainedResult)
+	require.NoError(t, err)
+
+	var transactionData xdr.SorobanTransactionData
+	err = xdr.SafeUnmarshalBase64(response.TransactionData, &transactionData)
+	require.NoError(t, err)
+
+	assert.Equal(t, xdr.Int64(45), transactionData.RefundableFee)
+	assert.Equal(t, xdr.Uint32(7260), transactionData.Resources.ReadBytes)
+	assert.Equal(t, xdr.Uint32(104), transactionData.Resources.WriteBytes)
+	require.GreaterOrEqual(t, len(response.Events), 3)
+}
diff --git a/cmd/soroban-rpc/lib/preflight/src/fees.rs b/cmd/soroban-rpc/lib/preflight/src/fees.rs
index 5018dac82..86d3a9b44 100644
--- a/cmd/soroban-rpc/lib/preflight/src/fees.rs
+++ b/cmd/soroban-rpc/lib/preflight/src/fees.rs
@@ -261,7 +261,9 @@ fn calculate_unmodified_ledger_entry_bytes(
 fn calculate_contract_events_size_bytes(events: &Vec<DiagnosticEvent>) -> Result<u32> {
     let mut res: u32 = 0;
     for e in events {
-        if e.event.type_ != ContractEventType::Contract {
+        if e.event.type_ != ContractEventType::Contract
+            && e.event.type_ != ContractEventType::System
+        {
             continue;
         }
         let event_xdr = e