Who Is Liable For Income Taxes in Iraq
Residents and nonresidents of Iraq are subject to tax on their income derived from Iraq. In addition, residents and non-residents of Iraq are subject to tax on income that is realized outside Iraq on income arising from funds and deposits held in Iraq, including the following:
- Interest
- Commissions
- Investment returns and profits from trading in currencies, valuable metals and securities
Iraqi nationals are considered residents for tax purposes. In addition, a non-Iraqi national is considered resident for tax purposes if either of the following circumstances exists:
- He or she has Iraqi nationality.
- He or she resides in Iraq for a total period of at least six non-consecutive months or a period of 120 consecutive days in a tax year.
Residents may claim personal allowances.
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.
Self-employment and business income. Iraqi individuals must pay tax on income earned from all taxable self-employment and business activities in Iraq at the rates.
Investment income. In general, dividends received are exempt from tax. Interest is subject to income tax at the normal 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.
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.
Deductions
Personal deductions and allowances. Individuals are granted the following deductions and allowances:
- An amount equal to 100% of salaries received from the government, public institutions and local authorities.
- Deductions from salaries received from the private sector equal to the following:
— IQD 5 million for the employee.
— IQD 4 million for a nonworking wife.
— IQD 400,000 per child, regardless of the number of children.
— IQD 600,000 for persons over 63 years old.
— IQD 6,400,000 for a widow or divorcee and IQD 400,000 for every child lawfully maintained by such person, regardless of the number of children.
- Contributions to a social security system, provident fund medical insurance plan, pension fund or similar fund approved by the tax authorities.
- Delegation or overseas allowances received by foreign employees, up to 25% of the basic salary.
- Other allowances, up to 30% of the basic salary.
- Hospitalization costs incurred and paid in Iraq by an employee.
Business deductions. All business expenses incurred in generating income are deductible. However, certain limitations apply to certain expenses, including entertainment expenses.
B. Other taxes
Inheritance and gift taxes. Iraq does not impose inheritance and gift taxes.
Property tax. Property tax is imposed on the annual rent from buildings at a rate of 9% and on the annual rent from land at a rate of 2%.
Stamp fees. Stamp fees are imposed on the total contract value at a rate of 0.2%.
C. Social security
Rates of social security contributions are applied to the salaries and benefits of local and expatriate employees, after deduction of a portion of employee allowances (transportation, accommodation, housing and other allowances) up to an amount equaling 30% of the base salary. The general rates 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.
To learn more about the history, culture, economy and other information about the Iraq
We have been preparing US income tax returns for US Citizens and permanent residents living in Iraq for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Iraq and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Iraq.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email