Iraq: Business Environment

Company Tax

15%

Tax Rate For Foreign Companies

Foreign companies are taxed at the same rate as national ones. The income realised in Iraq from contracts concluded with foreign oil companies, their branches or offices, and subcontractors working in Iraq in the oil and gas production sector and related industries is subject to a withholding tax (usually at 3.3% or 7% for oil and gas).

Capital Gains Taxation

Gains derived from the sale of assets are included in ordinary income and taxed at the normal corporate tax rate. Gains derived from the sale of shares and bonds not in the course of a trading activity may be exempted from tax.

Main Allowable Deductions and Tax Credits

Under the tax law, legally documented expenses of a taxpayer incurred in producing income in Iraq, are generally deducted from profits arising from other sources, provided they are duly documented.
Depreciation of fixed assets is tax-deductible (with maximum rates set by the Iraqi Depreciation Committee). The Iraqi tax legislation does not include a provision regarding the deductibility of goodwill or interest expenses. Start-up expenses are not covered by the Iraqi legislation either; however, they are usually capitalised and amortised as per Iraqi Generally Accepted Accounting Principles.
Bad debts are generally deductible, same as for charitable contributions to recognised institutions.
Fines and taxes are not deductible.
Losses can be carried forward up to five years, but are limited to half of the taxable income of each of the five years. Moreover, losses carried forward may be offset only against the same source of income from which the original loss arose. Carryback of losses is not allowed.

Other Corporate Taxes

A basic tax of 10.8% (12%, discounted by 10% to allow a notional deduction for assumed maintenance and depreciation) is assessed on the annual revenue for all real estate and is collected from the real estate owner or the long-term lessee (five years).
Stamp fees for contracts range between 0.1% and 3% of the contract value. Stamp duty stands at 0.2% on contracts of fixed value.
The employer is required to withhold tax from salaries and wages paid to its employees and remit it to the tax authorities.
Regarding social security contributions, employers are divided into a number of categories with different contribution percentage. Employers categorised as prime contribute 25% of an employee's salary for social security, whereas other categories contribute at the lower rate of 12%. The employer deducts 5% from an employee’s salary and also makes a 12% or 25% employer contribution.
The social security contributions in the Kurdistan Region are 5% for employees and 12% for employers.

Other Domestic Resources

Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.

Tax Rate

Allowable Deductions and Tax Credits

Deductible annual allowances for salaries received include an amount equal to 100% of salaries received from the government, public institutions, and local authorities; and contributions to a social security system.
An exemption from tax in relation to "risk allowances" is allowed, up to 30% of the basic salary.
Individuals working in the private sector are eligible for personal allowances (adequate supporting documents must be provided): IQD 2.5 million for a single person, IQD 4.5 million for a married person, IQD 300,000 for age allowance (over 65), IQD 200,000 for child allowance.

In the Kurdistan Region, individuals are entitled to a tax-free legal allowance of IQD 1 million per month.

Special Expatriate Tax Regime

Iraqi residents are taxable on their worldwide income, whereas non-Iraqi nationals are subject to tax on income arising in Iraq, irrespective of their residence status.
Income derived abroad through funds and deposits held in Iraq is also taxable.