Country Name: Republic of Iraq
Currency: Iraqi Dinar (IQD)
Primary Tax Authority: General Commission for Taxes (GCT)
Key Legislation:
- Income Tax Law No. 113 of 1982 (as amended)
- Value Added Tax (VAT) Law (not yet implemented)
- Customs Law
- Investment Law
Fiscal Authority Allocation
Centralized Fiscal System:
Iraq operates a centralized tax system, with the General Commission for Taxes (GCT) responsible for administering and collecting taxes, including corporate income tax (CIT), personal income tax (PIT), and customs duties. Local governments have limited authority in tax administration, with most tax matters handled at the federal level.
Corporate Income Tax (CIT)
Standard Rate: 15%
Iraq imposes a corporate income tax rate of 15% on the net taxable income of resident companies and foreign companies with permanent establishments (PEs) in Iraq. Companies engaged in oil and gas activities are subject to a higher tax rate.
Corporate Forms and Taxation:
- Domestic Companies: Subject to the 15% CIT rate on worldwide income.
- Foreign Branches and Permanent Establishments (PEs): Taxed at the same CIT rate of 15% on income derived from operations within Iraq.
Exemptions and Incentives:
- Investment Incentives: Under the Investment Law, companies investing in strategic sectors such as infrastructure, agriculture, and industry may qualify for tax exemptions and customs duty reductions for a period of up to 10 years.
- Oil and Gas Sector: Companies in the oil and gas sector are subject to a higher tax rate of 35% or more, depending on production-sharing agreements (PSAs) with the government.
Goods and Services Tax (GST) / Value-Added Tax (VAT)
Not Yet Implemented
Iraq has not implemented a VAT or GST system, though plans for VAT adoption have been discussed in line with broader efforts to diversify government revenues. No formal timeline for VAT implementation has been set.
Personal Income Tax (PIT)
Progressive Rates:
Iraq applies a progressive personal income tax system on the income of residents and non-residents working in Iraq. The rates are as follows:
- Up to IQD 2,500,000 (approximately USD 1,700): 3%
- IQD 2,500,001 to IQD 5,000,000 (USD 1,700 to USD 3,400): 5%
- Above IQD 5,000,000 (over USD 3,400): 10%
Additional Mandatory Contributions
Social Security Contributions:
Employers and employees must contribute to Iraq’s social security system, which provides pensions, healthcare, and unemployment benefits.
- Employer Contribution: 12% of gross salary.
- Employee Contribution: 5% of gross salary.
Withholding Taxes
- Dividends: 0%
- Interest: 0%
- Royalties: 15% on payments made to non-residents.
Withholding taxes apply only to royalties paid to non-residents, while dividends and interest are not subject to withholding tax.
Transfer Pricing Rules
Iraq does not have specific transfer pricing regulations. However, related-party transactions should be conducted at arm’s length, and the tax authority may scrutinize cross-border transactions, particularly for companies operating in the oil and gas sector.
Special Tax Regimes
- Oil and Gas Sector: Companies involved in the oil and gas sector are taxed at higher rates, typically around 35%, depending on individual agreements with the government. The oil sector remains a critical source of government revenue, and production-sharing agreements (PSAs) govern taxation and revenue-sharing terms.
- Investment Law: Iraq’s Investment Law provides significant incentives to foreign and domestic investors, including exemptions from CIT and customs duties for up to 10 years in specific sectors like agriculture, industry, and infrastructure development.
Other Taxes
- Customs Duties: Iraq imposes customs duties on goods imported into the country. Standard rates generally range from 5% to 15%, though certain essential goods, such as food and medical supplies, may benefit from exemptions or reduced rates.
- Excise Taxes: Iraq imposes excise taxes on specific goods, such as tobacco, alcohol, and luxury items.
- Property Tax: A property tax is imposed on the ownership and rental of real estate, with rates varying by region and property type.
Double Taxation Agreements (DTAs)
Iraq has signed a limited number of double taxation agreements (DTAs), mainly with neighboring countries. These agreements aim to prevent the double taxation of income earned in Iraq and the other contracting states, providing relief for cross-border investors and workers.
Local Taxes
Local authorities in Iraq do not impose separate taxes. All tax collection, including CIT, PIT, and customs duties, is administered centrally by the General Commission for Taxes (GCT).
Compliance and Reporting
Annual Filing:
Corporate tax returns must be filed by May 31st of the year following the tax year. Personal income tax returns are due by the end of March each year. Companies are also required to submit audited financial statements along with their tax filings.
Penalties for Late Filing:
Penalties for non-compliance or late filing include fines and interest on unpaid taxes. The General Commission for Taxes may impose fines of up to 2% of the tax due per month of delay.
Recent Developments
Post-Conflict Reconstruction and Tax Incentives:
Iraq is heavily focused on rebuilding its infrastructure and economy following years of conflict. As part of this effort, the government offers tax incentives to investors, particularly in sectors critical to reconstruction, such as energy, transport, and manufacturing. These incentives are aimed at attracting foreign direct investment (FDI) and promoting job creation.
Oil and Gas Sector Dominance:
Iraq’s economy remains heavily dependent on the oil and gas sector, which contributes the majority of government revenue. The government is seeking to diversify the economy, but for the foreseeable future, oil and gas will remain the primary source of income. Companies in this sector are subject to a special tax regime and higher tax rates under production-sharing agreements (PSAs).
Efforts to Implement VAT:
Iraq has discussed the possibility of implementing a VAT system as part of broader fiscal reforms aimed at reducing reliance on oil revenues. While there is no official timeline for VAT implementation, the adoption of such a system could help stabilize government finances and expand the tax base.
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