Foreign companies face high taxes in Iraq

Although Iraq is a major oil province, unlike certain Gulf states, it imposed high taxation on individual and corporate incomes under Tax Law No. 113 of 1982 as amended.

The rate of income tax approached 60% of net income and in many cases the Income Tax authorities did not accept figures from audited accounts as the basis for levying income tax, and instead made independent assessments based on estimations.

Audited accounts, and other evidence of profits, revenues and costs, were often utilized as indications, rather than an accepted basis for tax calculations.

The same Tax Law applied to foreign companies who have a legal presence in Iraq. However, foreign companies that are involved in major development projects could qualify for significant exemptions from corporate and personal income tax, customs duty, social security contributions and other related exemptions, pursuant to a 1973 Law for the implementation of major projects as amended in 1985.

In the absence of a project being covered by this Law, the foreign company would be subject to payment of income tax according to the highest rate provided in the Income Tax Law.

In the absence of applicable exemptions, Iraqi employees are responsible for their own income tax, whilst foreigners spending more than 6 months per tax year as Iraqi residents are also subject to income tax.

Equipment for certain projects was permitted to enter the country under temporary import duty-free allowance. However, at the end of the project, the equipment was subject to re-export or transferred to Government if mutually agreed.

Companies were obliged to pay social security contributions in respect of both foreign and Iraqi personnel, although foreign staff were exempted if able to show that similar contributions are made in home country.

It is noted that prevailing Iraqi income tax laws do not encourage foreign or national investment within Iraq, and are generally significantly more onerous than tax treatment within the Gulf region. The high tax rates impact economic development in all sectors, including priority areas, such as the property/housing sector, which require substantial investment based on equitable economic returns to the owners.

For further information, please refer to www.iraqbusinesslaw.com or contact Sadiq Jafar on s.jafar@tamimi.com