Iraq accounting and tax considerations in 2021
Since 2003, Healy Consultants Group PLC assists our Clients with timely compliance of their annual legal, accounting and tax obligations in Iraq.
Corporate income tax
- All Iraqi companies suffer a standard corporation income tax rate of 15%. There is no progressive tax rate scale. The only exception is foreign oil companies and their subcontractors operating in the oil and gas sector, which suffers 35% tax on income.
- Royalty income is also taxed at 15%.
- In accordance with Iraq Tax Law, each entity must register for corporate tax and VAT at the General Commission of Taxes (GCT).
- There are no additional local, state or provincial tax considerations.
Withholding taxes/capital gains tax
- There is no withholding tax on dividend or royalty payments. However, interest payments from an Iraqi company to a non-Iraqi company will be subject to tax at 15%.
- Capital gains from the sale of depreciable assets are taxed at 15%. Gains from shares and bonds sales that are not due to trading activity may be tax-exempt.
- Downstream activities contracted with oil and gas companies are subject to withholding tax on all payments at a rate of 3.3% for non-petroleum subcontracting activities, or 7% for petroleum related subcontracts.
- Unfortunately, unlike most countries around the world, Iraq has very few tax treaties in place.
- There is a tax treaty between the Arab Economic Union Council, of which Iraq is a signatory; however, it is not known to be widely applied.
- Additionally, Iraq does have in place individual tax treaties with the UAE and Saudi Arabia, however, the application of which is not known to be widely applied either.
Social security tax
- Employers in Iraq make a social security contribution of between 12% and 25% (for oil and gas companies) of an employee’s monthly gross salary (after allowance deductions, such as housing and transport) and benefits. Employees contribute 5% of net salary.
- Expats can (optionally) exempt themselves from paying social security contributions.
- Social security payments must be made to the GCT by the end of the month following the month in which the salary was received.
Value Added Tax (VAT)
- The Iraqi government imposes 5% VAT on goods and services.
- 20% VAT is applied on mobile recharge cards and internet, 15% on travel tickets and cars, and 10% on first rate tourism related sales.
- There is a 300% sales tax imposed on all alcohol and tobacco sales in Iraq.
- Real estate revenue is subject to 10% tax annually.
Tax reporting, accounting and auditing considerations
- In Iraq, all companies are subject to a calendar tax year, beginning January 1st and ending December 31st.
- Businesses can carry forward their losses for a maximum of five years. Losses can only be offset up to 50% of the company’s annual income.
- Corporate income tax returns must be filed annually by 31 May following the year end with the GCT.
- Payment must be made within 21 days of the assessment of the returns by GCT.
- Companies must file social security returns quarterly.
- All Iraqi resident companies are required to submit audited financial statements, along with the corporate income tax return, to GCT by 31 May. These statements must be i) submitted in Arabic, ii) prepared in accordance with Iraq Uniform Accounting Standards and iii) audited by an Iraqi statutory auditor.
- Branch and representative offices must submit annual financial statements to the Registrar of Companies. Additionally, branches must submit i) financial statements of their parent company for the financial year and ii) an affidavit informing the Registrar of any changes, including changes in the board of directors of the head office of the parent company.
- All companies must reserve 5% of their profits every year until the figure reaches an amount equivalent to 50% of the paid-up share capital.
Iraq tax return filing Deadline Corporate income tax and audited financial statements 31 May (annually) Value Added Tax (VAT) 14 April, 14 July, 14 October, 14 January (quarterly) Social security contributions 14 April, 14 July, 14 October, 14 January (quarterly) All additional annual tax obligations 31 May All additional quarterly tax obligations 14 April, 14 July, 14 October, 14 January
Penalties for late/non-filing of tax returns
- Late filing of corporate income tax returns incur penalties of up to i) IQD500,000 for limited liability companies and ii) IQD10,000 for branches.
- Late payment of social security contributions by the employer incurs a 5% penalty of the amount due for every 21 days of delay.
Healy Consultants Group PLC’s fees for accounting and tax support
Iraq accounting & tax task US$ VAT registration 950 Annual tax and accounting fees (active trading company) 2,300 Annual tax and accounting fees (dormant company) 950
- For an active trading company, Healy Consultants Group PLC’s fees to efficiently and effectively discharge our Client’s annual company accounting, auditing and tax obligations are US$2,300. Following receipt of a set of draft accounting figures from our Client’s company, Healy Consultants Group PLC will more accurately advise accounting and tax fees. For a dormant company, our fee is US$950.
Monthly bookkeeping service
- Healy Consultants Group PLC will be happy to provide a monthly bookkeeping service for your Iraqi company. Typically, our Accounting & Tax Department (ATD) team will receive a Dropbox of data from our Client and will immediately thereafter timely supply our Client with i) a general ledger, ii) trial balance, iii) monthly and quarterly management accounts and iv) monthly and quarterly government reporting, including sales tax and payroll.
For further details of our bookkeeping service and our fees, visit this page.
- Healy Consultants Group PLC’s Compliance Department will also assist our Clients to i) document and implement accounting procedures, ii) implement financial accounting software, iii) prepare of financial accounting records and iv) prepare forecasts, budgets and sensitivity analysis.
Clients should be aware of their personal and corporate tax obligations in their country of residence and domicile. They must fulfil these obligations annually. Let us know if you need Healy Consultants Group PLC’s help to clarify your annual reporting obligations.
Legal and compliance
- An Iraqi LLC can be setup with 1 director and 1 shareholder, while an Iraqi JSC will require 5 directors and 5 shareholders. There is no requirement for either director(s) or shareholder(s) to be Iraqi nationals;
- While the minimum share capital required to register an Iraqi LLC is US$860, the government can request for higher capital when incorporating in specialized fields. For example – the share capital required to register an LLC in the oil & gas sector is US$860,000;
- All foreign directors and shareholders of an Iraqi company will go through a security check by the Ministry of Interior before the registration process can be completed. The security check will be completed within 3 to 6 months;
- To register a branch office or a representative office, our Clients will be required to submit i) audited annual financial statements of the parent company for the previous year and ii) copies of the contract signed between the company and the government;
- Every Iraqi JSC will have a Board of Directors which will have between 5 and 9 members. Two amongst the members will be appointed as the chairperson and vice-chairperson of the company;
- A branch office and a representative office must have a manager and a deputy manager duly appointed by the parent company;
- A company meeting must be convened within 30 days from the date of issuance of the Certificate of Incorporation. Following this, the company name will be registered with the local Chamber of Commerce;
- In order to sell their holdings in an LLC, all shareholders must first approach the other shareholders through the director. Only after 30 days have lapsed since this notification, can the shares be sold to individuals outside the company;
- If the company registration application is rejected, our Clients will have the option of appealing to the Ministry of Trade within 30 days of the notification. In case, the appeal also gets rejected, our Client can approach the applicable Court of First Instance, whose decision shall be final;
- Before a company can begin operating, it must register all its employees for social security and pay i) a social security deposit and ii) an estimated payroll amount for 3 months to the Ministry of Labour;
- While all foreign workers will require a work permit to operate in Iraq, Arab workers will be treated as Iraqi workers and so, will not require a work permit;
- An employee can only be made to work on probation for a maximum period of 3 months. After this period, the employer must either hire the employee on a full-time basis or fire him/her;
- Employment contracts in Iraq can either be i) indefinite term contract (for permanent work) or ii) fixed term contract (for temporary/seasonal work)
- In Iraq, employees cannot be forced to work longer than 6 days per week at a maximum of 8 hours per day. However, overtime work is permitted, provided the employees are compensated with an additional 50% of their hourly wage;
- Employees are entitled to 20 days of paid annual leave for every year of work which must be used by the employee as no carry forward is allowed. The leave will increase by 2 days for every 5 years of work in the company;
- Employees are also entitled to 30 days of paid sick leave for every year of work. It is important that employees produce a medical certificate on the subsequent day to avail of the sick leaves;
- All employers must contribute 12% of their employee’s salary to their social security account;
- An employee’s contract can only be terminated under the following conditions i) both employee and employer mutually agree ii) employee was hired on a limited period contract and the period has ended iii) employee wishes to end the contract iv) employee has been ill and has been unable to work for the past 6 months v) the employee has become handicapped due to an accident and cannot perform his/duties and vi) the employer can show that the employee’s position has become redundant;
- All Iraqi resident companies will submit audited annual financial statements to the Iraq Registrar of Companies. JSCs will additionally include the following information: i) details of all significant contracts concluded by the company in the previous financial year and ii) other holdings of all shareholders who own at least 10% in the JSC;
- Companies are also required to file their social security returns quarterly;
- Branch offices and representative offices will also submit their annual financial statements to the Registrar of Companies. Additionally, branches will submit i) financial statements of their parent company for the financial year and ii) an affidavit informing the Registrar of any changes including changes in the board of directors or the head office of the parent company;
- All companies must reserve 5% of their profits every year until it reaches an amount equivalent to 50% of the paid-up share capital;
- Due to prevailing currency controls, the amount of currency that can be carried out of Iraq in bank notes without approval from the Central Bank is US$10,000;
- All entrepreneurs who wish to import goods into Iraq will apply for an import license which will be valid for 3 months. Extension of only 1 month can be granted upon request.