IRAQ Law and Practice Contributed by: Ahmed Al-Janabi, MENA Associates in association with AMERELLER
• the employee assumed a false identity or submitted false documents; or • the employee committed a grave error, caus - ing loss to the employer. 4.5 Employee Representations Employees (except for civil servants) are allowed to create or join a trade union or workers’ asso - ciation, but this is rarely practised in Iraq. For any employment-related issues, the union would usually meet with the Ministry of Labour and Social Affairs to try to reach a resolution. Once a decision is agreed upon with the employer, it shall take immediate effect. 5. Tax Law 5.1 Taxes Applicable to Employees/ Employers Income tax in Iraq is governed by Income Tax Law No 113 of 1982 as amended. Entities are required to withhold the income tax from their employees’ wages, regardless of the type of entity and of whether or not it is tax exempt. The law imposes taxes on the income of a resident Iraqi individual who earns it inside or outside Iraq, irrespective of the place of payment. The income tax rate for wages ranges between 3% and 15% of the total wages received, with 10% being for wages of IQD1 million and above. This does not apply to freelancers, who are subject to and liable for payment of their own income tax. Iraq recently enacted the new Social Secu - rity Law No 18 of 2023, under which employ - ers operating in Iraq are also required to remit social security contributions for all their employ - ees working in Iraq. Although in practice foreign employees are often not registered in the Iraqi social security system, it is becoming increas - ingly difficult to forego this requirement as for -
eign employees may not opt out of this by law. The contributions are to be paid on a monthly basis to the social security office. Social security is 17% of a local employee’s monthly wages; 12% is paid by the employer and the remaining 5% is deducted from the employee’s wages. For foreign employees, the rate is 25% (5% deduct - ed from the employee’s salary and 20% paid by the employer). 5.2 Taxes Applicable to Businesses Where applicable, the corporate tax rate is 15%. If there is no profit, no tax is levied. In practice, the tax authorities work on the basis of estimat - ing a company’s gross income from a contract without taking account of any expenses (even though the law allows this in theory). They then levy a percentage charge (eg, 15%) on the esti - mated gross income as being the tax payable. Therefore, it is becoming increasingly attractive for Western companies to apply for an invest - ment licence under Iraqi Investment Law No 13 of 2006 (if they meet the conditions set out under the law), which enables tax breaks to be given. Iraq has no VAT but sales tax is imposed on alcohol and tobacco, cars, travel tickets, inter - net and mobile recharge cards, and first class hotels and restaurants. With regard to withhold - ing tax, private contracts do not normally apply such obligations, which are usually only applied in public contracts. 5.3 Available Tax Credits/Incentives The Investment Law offers tax incentives for holders of an investment licence. Investors may benefit from tax exemptions for a period of ten years from the date of commencement of opera - tions, subject to the development plan approved by the Council of Ministers. This exemption may be extended up to 15 years in cases where Iraqi investors’ shareholding capital exceeds 50%.
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