Iraq Personal Income Tax

Iraqi nationals and foreigners working in Iraq are subject to tax on their income derived from Iraq. In addition, Iraqi nationals are subject to tax on income earned from all sources (Iraqi and foreign-source income).

Iraqi nationals and nationals of Arab countries are considered residents of Iraq for tax purposes if they reside in Iraq for only one day. A non-Iraqi national (other than a national of another Arab country) is considered a resident of Iraq for tax purposes if he or she meets certain residency criteria.

The concept of residency as described above is important when determining the availability of certain personal allowances (see Deductions).

Income subject to tax

Employment income. Income tax is assessed on all remuneration and benefits earned in Iraq. This includes directors’ fees and employer-paid rent, school fees and relocation expenses, after taking into consideration applicable deductions (see Deductions).

Self-employment and business income. Individuals must pay tax on income earned from all taxable self-employment and business activities in Iraq at the rates described in Rates.

Investment income. In general, dividends paid out of previously taxed income are exempt from tax. Interest is subject to income tax at the normal rates (see Rates). Royalties are subject to a 15% withholding tax.

Capital gains. Capital gains derived from the sale of fixed assets are taxable at the normal personal income tax rates (see Rates). Capital gains derived from the sale of shares and bonds not in the course of a trading activity are exempt from tax. Capital gains derived from the sale of shares and bonds in the course of a trading activity are taxable at the normal personal income tax rates (see Rates).

Deductions

Personal deductions and allowances. Individuals are granted the following personal deductions and allowances:

  • Personal allowances equal to the following (available to resi-

dents of Iraq only):

— IQD3,125,000 for an employee who is single

— IQD5,625,000 for a non-working wife

— IQD250,000 per child (under 18 or student under 25)

— IQD375,000 for persons over 63 years old

— IQD4,000,000 for a widow or divorcee

  • Contributions to the Iraqi social security system
  • Delegation or overseas allowances received by foreign employ­ees, up to 25% of the basic salary
  • General allowances, up to 30% of the basic salary

Business deductions. Business expenses incurred in generating income are generally deductible. However, certain limitations apply to certain expenses, including entertainment expenses.

Rates. Tax rates for individuals are levied according to the fol­lowing scale.

Annual taxable income

Exceeding       Not exceeding                                            Rate

IQD                   IQD                                                                %

0                     250,000                                                               3

250,000        500,000                                                              5

500,000     1,000,000                                                            10

1,000,000                 —                                                           15

In the Kurdistan Region of Iraq, the first IQD1 million of the monthly basic salary is exempt. After subtracting the first IQD1 million of the basic salary, the employee’s social security contribution, and any applicable deductions, the remaining amount is considered to be the employee’s taxable income. A flat tax rate of 5% applies to such income.

Inheritance and gift taxes

Iraq does not impose inheritance and gift taxes.

Social security

Rates of social security contributions are applied to the basic salaries of local and expatriate employees as of the date of hire, or the January salary, whichever is earlier. Basic salary is equal to total salary less general allowances and overseas allowances. General allowances of all types, whether cash or non-cash and whether received by Iraqis or non-Iraqis, may not exceed 30% of basic salary. Delegation or overseas allowances received by for­eign employees (not applicable to Iraqi employees) may not exceed 25% of basic salary. The general rates of social security are 12% for employers and 5% for employees. For oil and gas companies, the rates for social security contributions are 25% for employers and 5% for employees.

Tax filing and payment procedures

Employers are responsible for and should guarantee the payment of tax to the General Commission for Taxes. Tax is withheld from the employees’ income for each month of the fiscal year. The withheld tax must be sent monthly to the General Commission for Taxes or one of its branches in Iraq by the 15th day of the month following the month of withholding.

If the tax is not paid by the due date, an addition of 5% of the tax amount is imposed on the employer after the lapse of 21 days from the due date. This percentage is doubled if the amount is not paid within 21 days after the expiration of the first 21-day period.

Entry visas

All foreign nationals who want to visit Iraq must obtain an entry visa. The most common form is a single-entry visit visa from the Iraqi Ministry of Interior. The typical single-entry visit visa allows the visitor to enter Iraq within three months of the visa’s issuance. A visa typically allows the person to remain in Iraq for 30 days. A foreign national may also apply for single-entry stan­dard visa, which permits him or her to remain in Iraq for three months after entry into Iraq. Multiple-entry visas are also avail­able.

Residence permits

Foreign nationals who intend to stay or work in Iraq for longer than 10 consecutive days (whether they are assigned to Iraq indefinitely or are commuters or rotators) must apply for a resi­dence permit. An Iraqi limited liability company or Iraqi branch of a foreign entity established to undertake work in Iraq must take the following steps to apply for a residence permit:

  • Within the first 10 days from the date of entering Iraq, the employee must complete a blood test and obtain a sticker on his or her passport (this sticker shows that the foreigner has informed the concerned authorities of his or her arrival to Iraq), which is effective for three months.
  • The company must apply for the employee’s residence permit through a request letter from the governmental entity with which the company deals (for example, the Ministry of Transportation) that is addressed to the Department of Immigration and Residency, together with the passports of the employees containing the arrival stickers.
  • If the application is approved, the department informs the com­pany that the request is accepted and that a residence permit valid for one year is granted to the employee.

Work permits

Work permits are required for expatriates to work in Iraq and are issued by the Ministry of Labor in accordance with the proce­dures set forth in Instructions No. 18 of 1987, which provide specific rules for the employment of expatriates in Iraq.