AlSaif Tax Law Firm in Iraq
Iraqi Tax Law
The main source of tax law in Iraq is the Federal Income Tax Law, Law No. 113 of November 1982, as amended in 2003 (the Federal Income Tax Law). There are no state level or municipal taxes imposed in Iraq.
Article 2 of the Federal Income Tax Law broadly defines types of income which are subject to tax in Iraq. According to Article 2, the following types of income are included as taxable:
- Profits from commercial activity or from activity having a commercial nature, vocations and professions, including contracts, undertakings and compensation for non-fulfilment thereof if not for making good a loss sustained by the taxpayer
- Interest, commissions, discounts and profit arising from trading in bonds and securities
- Any other source not exempted by law and not liable to any tax in Iraq Article 5 provides that ―tax shall be imposed on income of the resident Iraqi person which arises inside or outside Iraq,
regardless of the place of receipt. ‖ ‗Person‘ in this context refers to both natural persons and legal persons (i.e. companies, branches of foreign companies, etc). Tax is also imposed on the income of a non-resident which arises in Iraq, even if it is not received in Iraq
The main provisions regarding tax retentions (withholding) are set out in Instruction No. 2 of 2008 which requires that information relating to contracts with foreign suppliers should be disclosed to the GCT in order for the tax office to determine whether the contractor is liable for tax and to confirm the rate of retention.
Retentions of tax on payments for certain contracts must be made by the payer, at various rates up to a maximum of 10% of the gross payments, depending on the nature of the contract/services performed, plus the whole of the final payment installment. Tax retentions under Instruction No. 2 of 2008 are not intended to be a ‗final‘ withholding tax. Amounts retained on installment payments should be transferred to the tax authority (although no specific time frame is defined within which retentions on installment payments should be paid over to the tax authority). In addition, according to Instruction No. 2 of 2008, the whole of the final installment payment should be retained from the contractor, unless the contractor is able to obtain written approval, or a tax clearance, from the tax authority. Tax clearance can strictly only be awarded once the supplier has completed their tax filing obligations and settled any due taxes in Iraq. If no tax clearance is obtained within 90 or 180 days from the end of the contract (depending on the type of contract), then the amounts retained should strictly be transferred to the tax authority, in accordance with the Instructions.
Instruction No. 5 of 2011 covers Oil and gas contracts. Instruction No. 5 of 2011 provides that subcontractors to whom the Oil and Gas Tax Law applies should be subject to retentions of tax on their contract payments at a rate of 7% of the gross amounts for petroleum contracts and at a rate of 3.3% for non-petroleum contracts. The Instructions provide that the entity making the
payment should remit the retained amounts to the tax authority within 30 days of making the payment, with the amounts to be held by the tax authority to be reconciled with the contractor‘s final tax calculation.
In addition, the whole of the final installment payment should be withheld from the contractor until the contractor has completed the corporate tax filing and has obtained a tax clearance Filing and payment The tax year in Iraq is the calendar year. The corporate tax return must be filed by May 31 following the end of
the year, with payment due following the tax authority‘s assessment of the tax return. The filing deadline for corporate income taxes in the Kurdistan Region is May 31, however a one month extension to June 30 is granted to all taxpayers.
Rates Under the Federal Income Tax Law, the headline corporate income tax rate is a flat rate of 15% of net profit. A separate tax law was passed in March 2010, Law No.19 of 2010 (the Oil and Gas Tax Law), which applies to upstream oil and gas companies and supporting industries operating in Federal Iraq. The Oil and Gas Tax Law provides for an increased corporate income tax rate of 35% on contracts concluded with foreign oil companies and their subcontractors operating in Iraq in the field of oil and gas production and associated industries.
OUR SERVICES RELATED TO TAX MATTERS
Alsaif’s many year’s legal practices have enabled us to diagnose predictable legal problems that companies, and individuals may face. The Iraqi laws present many options for various interpretations of provisions. Only the best professional expertise can assure full compliance with the laws and regulations and provide clients with the best strategies to protect their business interests while meeting all legal requirements.
Due to problems and obstacles that have caused tremendous financial and legal problems to companies based on accounting services, we also offer various accounting services cooperating with elite and reliable accountants and accounting firms. Alsaif will guarantee the outcome and be held responsible for these accounting services. Such step is important to merge the tremendous legal knowledge of tax law and other related laws that change regularly with the accounting services, preventing any present or future financial & legal problems.
ACCOUNTING SERVICES OFFERED:
- Corporation tax settlement
- Year-end account and tax
- Annual Company’s balance sheet (for annual tax settlement)
- Tax Clearance Certificate
- Monthly employees tax direct deductions (Social Security related to Ministry of Labor and social security)