Iraq Individual Tax Guide

Iraq

EY

Mail address: P.O. Box 6004 Baghdad Iraq

Street addresses: Baghdad office

Al-Ameerat St.

Al-Mansoor Block 609 Street 3 House 23 Baghdad Iraq

Erbil office

Gulan St. English Village Villa 284

Erbil, Kurdistan Region Iraq

Executive and immigration contacts

Jacob Rabie +962 (6) 580-0777 (resident in Amman, Jordan) Email: jacob.rabie@jo.ey.com Mustafa Abbas +964 (1) 543-0357 (resident in Baghdad) +964 7700-824-139 Email: mustafa.abbas@iq.ey.com Ali Samara +962 (6) 580-0777 (resident in Amman, Jordan) Email: ali.samara@iq.ey.com

Abdulkarim Maraqa +964 750-798-4444 (resident in Erbil, Kurdistan +964 7700-454-4444 Region of Iraq) Email: abdulkarim.maraqa@iq.ey.com

A. Income tax

Who is liable. Iraqi nationals and foreigners working in Iraq are subject to tax on their income derived from Iraq (including the Kurdistan Region of Iraq). In addition, Iraqi nationals residing in Iraq are subject to tax on income earned from all sources (Iraqi and foreign-source income).

Iraqi nationals are considered residents of Iraq for tax purposes if they reside in Iraq for only one day. Non-Iraqi nationals (including nationals of other Arab countries) are considered resi dents of Iraq for tax purposes if they meet certain residency criteria.

The concept of residency as described above is important to resi dents of Iraq when determining the availability of certain per sonal allowances (see Deductions).

Income subject to tax

Employment income. Income tax is assessed on all remuneration and benefits earned in Iraq (including the Kurdistan Region of

Iraq), except for sources of income that are explicitly exempt under the Income Tax Law No. 113 of 1982 (as amended). Remuneration and benefits include directors’ fees and employerpaid 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 (including the Kurdistan Region of Iraq) at the personal income tax rates described in Rates.

Investment income. Dividends paid out of previously taxed income are exempt from tax. Interest is subject to income tax at the normal personal income tax rates (see Rates).

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. In Iraq (excluding the Kurdistan Region of Iraq), individuals are granted the following personal deductions and allowances:

• Personal allowances equal to the following (available to resi dents of Iraq only):

— IQD2,500,000 for an employee who is single

— IQD4,500,000 for a nonworking wife

— IQD200,000 per child (under 18 years of age or a student under 25 years of age)

— IQD3,200,000 for persons over 63 years old

IQD300,000 for a widow or divorcee

• Employee contributions to the Iraqi social security system

• Delegation or overseas allowances received by foreign employ ees, up to 25% of the basic salary (available to residents of Iraq only)

• General allowances, up to 30% of the basic salary

In the Kurdistan Region of Iraq, individuals are granted the fol lowing personal deductions and allowances:

• First IQD1 million of employee’s monthly income

• Employee contributions to the Iraqi social security system

• 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.

income

In the Kurdistan Region of Iraq, an employee’s taxable income is subject to a flat personal income tax rate of 5%.

B. Inheritance and gift taxes

Iraq (including the Kurdistan Region of Iraq) does not impose inheritance and gift taxes.

C. Social security

Rates of social security contributions are applied to the salaries of Iraqi and foreign employees as of the date of hire, or the January salary, whichever is earlier. The salary subject to social security is equal to total salary less general allowances. General allowances of all types, whether cash or non-cash and whether received by Iraqis or foreigners, may not exceed 30% of basic salary. The general rates of social security in Iraq (including the Kurdistan Region of Iraq) are 12% for employers and 5% for employees. For oil and gas companies in Iraq (excluding the Kurdistan Region of Iraq), the rates for social security contribu tions are 25% for employers and 5% for employees.

D. Tax filing and payment procedures

In Iraq, employers are responsible for and should guarantee the payment of tax to the General Commission for Taxes, which is the Iraqi tax authority. 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 by the 15th day of the month following the month of withholding. An annual filing is also required by 31 March of each year.

In the Kurdistan Region of Iraq, employers are responsible for and should guarantee the payment of tax to the General Directorate of Taxation, which is the Kurdistan Region of Iraq tax authority. Tax is withheld from the employees’ income for each month of the fiscal year. The withheld tax must be sent quarterly to the General Directorate of Taxation by the 21st day of the month following the end of the calendar quarter. An annual filing is also required by 1 March of each year.

If the tax is not paid by the due date, a penalty 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. Interest is also imposed.

E. Entry visas

Foreign nationals who intend to visit Iraq (including the Kurdistan Region of Iraq) must obtain an entry visa. The most common form is a single-entry visit visa from the 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. Multiple-entry visas are also available. The procedures for entry into the Kurdistan Region of Iraq may vary.

F. 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 resi dence 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 with respect to each foreign employee:

• 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 of Immigration and Residency informs the company that the request is accept ed and that a residence permit valid for one year is granted to the employee.

The procedures for residence permits in the Kurdistan Region of Iraq may vary.

G. Work permits

Work permits are required for foreigners to work in Iraq. The Ministry of Labor and Social Affairs issues work permits in accordance with Article 30 of the Iraqi Labor Law No. 37 of 2015 and the procedures set forth in Labor Instructions No. 18 of 1987, which are still in force and provide specific rules for the employment of foreigners in Iraq.

For the employer to apply for work permits with respect to its foreign employees, it must ensure that its foreign employees have valid entry visas for Iraq (evidenced by a sticker affixed to each employee’s passport or any other valid alternative method accept able to the Iraqi authorities) and that it meets Iraq’s minimum local employment threshold, among other requirements.

A work permit is valid for a period of one year, subject to renew al. The renewal of the work permit must be initiated a month in advance of its expiration date. The renewal process requires the employer to follow the same procedure as the procedure used for applying for the initial work permit with the Ministry of Labor and Social Affairs.

Noncompliance with the work permit requirement carries a risk of the employees and their employers being subject to monetary penalties and legal action.

The procedures for work permits in the Kurdistan Region of Iraq may vary.