Understanding how corporate income tax and withholding tax work in Iraq is essential for any company doing business in the country – whether you are an Iraqi company, a foreign contractor, or an international investor.
Iraq’s tax system is mainly governed by the Federal Income Tax Law No. 113 of 1982, as amended, and administered by the General Commission for Taxes (GCT).
General Commission of taxes
1. Overview of Corporate Taxation in Iraq
Iraq does not impose separate provincial or municipal income taxes. Corporate taxation is handled at the federal level under the Income Tax Law.
Two main business taxes you will regularly hear about are:
Although both are “income taxes”, they are applied differently, to different taxpayers, and at different stages.
2. What Is Corporate Income Tax in Iraq?
2.1 Who pays corporate income tax?
Corporate income tax (CIT) generally applies to:
The key focus is on business profits generated from activities carried out in Iraq.
2.2 Tax rates
As of 2025, the headline corporate income tax rate in Iraq is:
These rates are applied to net taxable profit, not to revenue.
2.3 Tax base and deductions
Corporate income tax in Iraq is calculated on net profit after allowable deductions, such as:
Non-deductible items and specific limitations are set out in the Income Tax Law and related instructions.
2.4 Filing and payment
3. What Is Withholding Tax in Iraq?
3.1 Concept: tax deducted at source
Withholding tax (WHT) is a tax that is deducted at the time of payment and remitted by the payer (usually an Iraqi resident entity) to the GCT on behalf of the recipient.
In Iraq, withholding tax is especially relevant for:
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Payments from Iraqi residents to non-resident entities, and
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Certain cross-border services, interest, royalties, and other yearly payments.
3.2 Withholding tax rates
Under current practice and guidance:
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A 15% withholding tax often applies to payments to non-resident entities, including interest and certain yearly payments, unless reduced by a double tax treaty.
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In some sectors (especially oil & gas or major service contracts), the tax authorities may apply specific deemed profit or withholding arrangements through instructions or contract provisions.
In other words, withholding tax is often charged on the gross payment, not on net profit.
3.3 Who is responsible?
Failure to withhold correctly can result in the Iraqi payer being treated as personally liable for the unpaid tax plus penalties.
3.4 Credit against corporate income tax
For the foreign recipient, the withholding tax is usually treated as a prepayment of Iraqi income tax and may be credited:
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Against its final Iraqi income tax assessment, if it has a taxable presence in Iraq; or
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Against tax in its home country, if a double tax treaty allows foreign tax credit.
3.5 Oil & Gas and Contractual Payments (“Other” Payments)
Contractual payments characterised as “other income” or trading/contractor receipts are, in practice, subject to withholding tax in Iraq. For contracts in the oil and gas sector, a 7% withholding tax is generally imposed on gross payments made under those contracts. This 7% is not a final tax: it is treated as an advance payment of corporate income tax, and the oil company may set off the withheld amount against any Iraqi tax liabilities arising from the relevant contract. Any excess can typically be carried forward and used to offset Iraqi income tax assessed in subsequent years, within a five-year period.
For non–oil and gas contracts (but still “trading” or contractor-type payments), the withholding tax is generally lower, typically in the region of approximately 3% to 3.3%, depending on the industry and the deemed-profit rates applied by the tax authorities.
Where a double tax treaty applies, Iraq’s domestic withholding rules continue to operate, but the treaty will usually govern the method of relief in the recipient’s state of residence (most commonly through a foreign tax credit for the Iraqi tax withheld).
4. Corporate Income Tax vs Withholding Tax in Iraq: Key Differences
| Point of comparison |
Corporate Income Tax (CIT) |
Withholding Tax (WHT) |
| Who is taxed? |
Iraqi companies and foreign entities with income taxable in Iraq (e.g. branches, permanent establishments) |
Mainly non-resident entities receiving income from Iraq (interest, services, royalties, etc.) |
| Who pays to GCT? |
The taxpayer company files and pays its own tax. |
The Iraqi payer withholds tax from the payment and remits it to GCT. |
| Tax base |
Net taxable profit (revenues minus allowable expenses) |
Gross amount of the payment (e.g. gross service fee, interest payment) |
| Typical rate |
15% standard; 35% for oil & gas sector |
Commonly 15% on payments to non-residents, subject to treaties and specific instructions |
| Timing |
Calculated annually on profits for the tax year |
Deducted when the payment is made or credited to the non-resident |
| Documentation |
Annual tax returns, financial statements, tax assessment notices. |
WHT calculation, payment receipts, withholding tax certificates for the recipient |
| Goal |
Taxing the overall profits of entities doing business in Iraq. |
Ensuring collection of tax at source from cross-border or non-resident income. |
5. Practical Examples Under Iraqi Tax Law
Example 1: Iraqi trading company (local operations only)
An Iraqi-registered trading company buys and sells goods inside Iraq and does not pay any foreign suppliers for services.
Example 2: Iraqi company paying a foreign engineering firm
An Iraqi construction company engages a foreign engineering firm (no branch in Iraq) to design a project. The Iraqi company pays USD 1,000,000 in fees.
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The Iraqi company must withhold 15% (USD 150,000) and pay it to the GCT
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It remits USD 850,000 net to the foreign supplier.
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For the foreign engineering firm, the USD 150,000 represents Iraqi withholding tax, which may be creditable in its home country under a double tax treaty, if applicable.
The Iraqi construction company still pays corporate income tax on its own net profit, separate from the withholding.
Example 3: Oil & gas service contract
A foreign oilfield services company works in Iraq for a major oil project.
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Corporate income from oil and gas contracts may be taxed at 35% under Iraqi rules and contract terms
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At the same time, withholding tax may be applied on payments to the non-resident contractor, often based on deemed profit rates or specific instructions from the GCT.
This is a complex area where corporate income tax and withholding tax interact, and careful tax planning is essential.
6. Compliance Risks and Common Pitfalls
Businesses operating in Iraq frequently face challenges such as
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Failure to register with GCT
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Incorrect or no withholding
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Ignoring double tax treaties
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Iraq has started signing double taxation agreements (for example, with Pakistan), which may reduce the applicable withholding tax rate if the treaty is correctly applied and supported by documentation
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Inadequate documentation
7. Key Takeaways for Companies and Investors in Iraq
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Corporate income tax in Iraq taxes net profits of companies and branches at 15% (or 35% in the oil & gas sector)
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Withholding tax in Iraq applies mainly to payments from Iraqi residents to non-resident entities, usually at 15% on the gross payment, subject to treaties and GCT instructions The Iraqi payer is responsible for withholding and remitting WHT, while the recipient may credit the tax against Iraqi or foreign tax liabilities.
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Both taxes are based on the same legal framework (Income Tax Law No. 113 of 1982, as amended), but they serve different functions in Iraq’s tax system
Because the Iraqi tax landscape continues to evolve, and new instructions and reforms are issued periodically, businesses should regularly review their corporate income tax and withholding tax exposure and seek professional advice before signing contracts or making cross-border payments.
