IraqTax Obligations Detailed

Employers in Iraq have various tax obligations related to their employees' income, social security contributions, and corporate taxes.

Employee Taxes & Contributions

• Individual Income Tax: A progressive tax system applies to employee income, ranging from 3% to 15%. The specific rate depends on the employee's income level. This tax is withheld by the employer and remitted to the tax authorities.
• Social Security Contributions: Employers contribute 12% of the employee's net salary to social security. Employees also contribute 5% of their net salary. However, employers classified as "prime" contribute 25%. These contributions cover areas such as pension and social welfare programs.

Corporate Taxes

• Corporate Income Tax: The general corporate income tax rate is 15%. However, a higher rate of 35% applies to companies in the oil and gas sector. Capital gains are considered part of ordinary income and are taxed at the regular corporate rate.
• Real Property Tax: If the company owns real estate, a tax of 10.8% applies to the annual rental income derived from the property. A 10% discount is applied to the annual revenue for presumed maintenance and depreciation expenses, resulting in the effective 10.8% rate.

Additional Taxes and Considerations

• Sales Tax/VAT: Iraq does not have a Value Added Tax (VAT) system. However, sales taxes apply to specific goods and services like alcohol, tobacco, travel tickets, cars, mobile recharge cards, internet services, and services provided by luxury hotels and restaurants.
• Withholding and Remittance: Employers are responsible for withholding employee income tax and remitting it to the General Commission of Taxes (GCT) by the 15th of the following month. Social security contributions are similarly withheld and remitted. Annual employee income tax filing is due by March 31st each year.

Kurdistan Region: The Kurdistan Region of Iraq has its own tax regulations, which may differ from those of Federal Iraq. For example, a 5% employment tax is applied to taxable income, including salaries and benefits exceeding 30% of the base salary. Social security contribution rates are the same, however, the income tax differs. Consult specific regulations for the Kurdistan Region for detailed information.

It's important to consult with a tax advisor or legal expert familiar with Iraqi tax laws to ensure complete compliance and obtain the most up-to-date information, as regulations are subject to change. This information is current as of February 5, 2025.

In Iraq, employees are subject to various deductions from their salaries, primarily income tax and social security contributions. These deductions are managed differently in Federal Iraq and the Kurdistan Region, with distinct rates, thresholds, and deadlines.

Federal Iraq Tax Deductions

• Income Tax: A progressive income tax system is in place, with rates ranging from 3% to 15% of an employee's salary. Specific rates depend on the income level.
• Social Security: Employees contribute 5% of their net salary to social security. Employers contribute 12%, or 25% for those categorized as "prime" employers. This contribution is calculated after deducting allowances.
• Allowances and Exemptions: Certain allowances are deductible when calculating taxable income. This includes a "risk allowance," typically capped at 30% of the base salary. Government employees receive a 100% deduction on their salaries.
• Deadlines and Reporting: Tax withheld from employees must be remitted by the 15th of the following month. Annual tax returns are due by March 31st of the following year.

Kurdistan Region Tax Deductions

• Income Tax: A 5% direct deduction is applied to the net income of employees earning over one million Iraqi Dinars monthly. A progressive tax also exists in the region, with rates varying based on income level.
• Social Security: Employee contributions are 5% of their net salaries, mirrored by a 12% employer contribution.
• Direct Deduction Threshold: Only employees earning more than one million Iraqi dinars are subject to the 5% direct income tax deduction.
• Deadlines and Reporting: Tax remittances and quarterly returns are due within 21 days of the quarter's end. Annual tax returns must be submitted by March 1st of the following year.

General Tax Information

• Tax Year: The tax year in Iraq aligns with the calendar year, running from January 1st to December 31st.
• Currency: The Iraqi Dinar (IQD) is the official currency.
• Tax Treaties: Currently, there isn't a tax treaty between Iraq and the United States, meaning US citizens working in Iraq are subject to both Iraqi and US tax laws but may be eligible for certain exclusions or credits to avoid double taxation.

It is important to consult with a tax professional for personalized guidance. Tax laws and regulations can change, so staying updated with current information is always recommended. This information is current as of February 5, 2025.

In Iraq, there is no Value Added Tax (VAT). Instead, a sales tax system is in place, affecting specific goods and services.

Sales Tax in Iraq

As of February 5, 2025, Iraq utilizes a sales tax system rather than a VAT regime. This sales tax is applied to specific goods and services at varying rates.

• High-Rate Goods: Alcohol and tobacco products are subject to a 300% sales tax.
• Mid-Rate Goods and Services: A 20% sales tax applies to mobile recharge cards and internet services. Travel tickets and car purchases are taxed at 15%.
• Lower-Rate Services: A 10% sales tax is levied on services provided by deluxe and first-class restaurants and hotels.

Implementation and Administration

The sales tax law, implemented in early 2015, designates the Ministry of Finance to issue instructions for implementation. While proposals exist to implement a Goods and Services Tax (GST) by 2027, it is not yet in effect as of February 2025.

Corporate Taxes in Iraq

• General Corporate Income Tax: A flat rate of 15% applies to most companies operating in Federal Iraq.
• Oil and Gas Sector: Companies in this sector face a higher corporate tax rate of 35% in Federal Iraq. The Kurdistan Region maintains a 15% rate for all industries.
• Dividend Taxation: Dividends received by an Iraqi entity are generally not subject to tax if the profits from which they are paid were taxed in Iraq.
• Capital Gains: Capital gains are considered ordinary income and taxed at the standard corporate tax rate.

Personal Income Tax in Iraq

• Withholding: Employers withhold income tax from employee salaries, remitting it to the tax authorities monthly (Federal Iraq) or quarterly (Kurdistan Region).
• Annual Filing: While employees are not typically required to file annual tax returns in Federal Iraq, employers file on their behalf by March 31st of the following year. In the Kurdistan Region, the deadline is March 1st.
• Social Security: Employers contribute 12% of employee salaries to social security, while employees contribute 5%. "Prime" employers contribute 25%.

Other Relevant Taxes

• Real Estate Tax: A 10.8% tax applies to rental income, typically paid by the landlord.
• Stamp Duty: Contracts are subject to a stamp duty of approximately 0.2% of the contract value.
• Withholding Tax (Non-Residents): A 15% withholding tax applies to royalties and interest paid to non-residents. No withholding tax exists on dividends.

It's important to remember that this information is current as of February 5, 2025, and tax laws and regulations can change. Consulting with a tax professional is always recommended for specific situations.

Iraq's tax incentives primarily focus on attracting investment and stimulating economic growth. Key incentives include tax holidays, import/export exemptions, and allowances.

Corporate Tax Incentives

• Tax Holidays: Qualified investment projects can benefit from a 10-year exemption from all taxes, including corporate tax. This exemption is extended to 15 years for joint ventures with majority Iraqi ownership. This covers corporate taxes and fees.
• Import/Export Exemptions: A three-year exemption from import fees is available for equipment and materials required for qualified projects.

Individual Tax Incentives

• Personal Allowances: Federal Iraq offers personal allowances deductible from taxable income: IQD 2.5 million for single individuals, IQD 4.5 million for married individuals, IQD 300,000 for individuals over 65, and IQD 200,000 per child. In the Kurdistan Region, a monthly tax-free allowance of IQD 1 million applies.
• Employment-Related Allowances: Deductions are allowed for salaries received from government, public institutions, and local authorities. Contributions to social security are also deductible. "Risk allowances" up to 30% of the base salary are tax-exempt.

General Tax Information (As of February 5, 2025)

• Corporate Tax Rate: A flat rate of 15% applies in most sectors. However, the oil and gas sector is subject to a 35% tax rate for foreign companies and subcontractors.
• Individual Income Tax Rate: Progressive rates up to a maximum of 15% apply in Federal Iraq. The Kurdistan Region imposes a 5% employment tax on taxable income (base salary plus allowances/benefits exceeding 30% of the base salary).
• Capital Gains: Treated as ordinary income and taxed at the applicable corporate or individual rate.
• Losses: Tax-deductible and can be carried forward for five years, offsetting up to 50% of each year's taxable income.
• VAT (Value Added Tax): Not currently implemented in Iraq.

It's important to consult with tax professionals for specific guidance tailored to your situation. Tax laws and regulations are complex and subject to change. The information above is a general overview, not exhaustive legal or financial advice.