Iraq payroll and tax overview.

Your guide to doing business in Iraq

Doing Business in Iraq

Iraq is a Persian Gulf state bordered by Iran, Turkey, Syria, Jordan, Saudi Arabia, and Kuwait. Situated at the heart of the Middle East, Iraq has close cultural and political ties to its neighbours while its connection to the Gulf also allows for regional and international shipping links. With an output of 4.3 million barrels per day, the oil industry dominates Iraq’s economy, accounting for over 99% of foreign exports and over 65% of the country’s GDP. Iraq’s government is attempting to diversify the country's economy to reduce its dependence on oil and in the 21st century the food processing, textiles, construction materials, and tobacco industries have grown in prominence. Iraq is also modernizing its historically important agricultural industry which accounts for around 7% of GDP and benefits from abundant farmable land and water resources. In 2019, Iraq had an estimated GDP of over $250 billion, with a growth rate of around 4.8%. Since the US invasion in 2003, Iraq’s government has opened the country up to foreign investment and engaged in numerous infrastructure projects to stimulate growth, resilience, and prosperity. Iraq is a member of the UN, the League of Arab States, the Organization of Islamic Cooperation, and the WTO. In 2019, the World Bank ranked Iraq 172 on its Ease of Doing Business Survey.

Foreign Direct Investment in Iraq

Broader economic development, long-term fiscal health, and sustained improvements in the overall standard of living still depend on the central government passing major policy reforms. Iraq's largely state-run economy is dominated by the oil sector.

The Iraqi Kurdistan Region's (IKR) autonomous Kurdistan Regional Government (KRG) passed its own oil law in 2007, and has directly signed contracts to develop IKR energy reserves.

Iraq is making slow progress enacting laws and developing the institutions needed to implement economic policy, and political reforms are still needed to assuage investors' concerns regarding the uncertain business climate, which may have been harmed by the November 2012 standoff between Baghdad and Erbil and the removal of the Central Bank Governor in October 2012.

The government of Iraq is eager to attract additional foreign direct investment, but it faces a number of obstacles including a tenuous political system and concerns about security and societal stability.

Under the Iraqi Constitution, some competencies relevant to the overall investment climate are either shared by the federal government and the regions or are devolved entirely to the regions.

Investment in the IKR operates within the framework of the Kurdistan Region Investment Law (Law 4 of 2006) and the Kurdistan Board of Investment, which is designed to provide incentives to help economic development in areas under the authority of the KRG. Inflation has remained under control since 2006 as security improved. However, Iraqi leaders remain hard pressed to translate macroeconomic gains into an improved standard of living for the Iraqi populace.

Registering a Company and Establishing an Entity in Iraq

Company registration in Iraq on average takes around 3-4 months.

The requirements/actions for incorporating a limited liability company in the Kurdistan Region include:

  • Reservation of name of proposed company at Chamber of Commerce;
  • Completed application form
  • Draft company statement/company contract (similar to a memorandum of association);
  • For each corporate shareholder:
  1. Certificate of Incorporation;
  2. Articles of Association/Charter;
  3. Board resolution approving incorporation of a subsidiary in the Kurdistan region;
  4. Power of Attorney in favor of a Kurdistan region lawyer to undertake
  5. Incorporation procedures;
  • For each individual shareholder:
  1. Passport copy;
  2. Power of Attorney in favor of a Kurdistan region lawyer;
  • Lease of premises in the Kurdistan region;
  • Evidence of residency of proposed Managing Director in the Kurdistan region;
  • Deposit of initial share capital (minimum one million Iraqi Dinars);
  • Appointment of statutory lawyer;
  • Appointment of statutory accountant

All documents submitted to the Companies Registry must be in Kurdish, Arabic or accompanied by a translation. Documents signed outside Iraq must be notarized and legalized at the nearest KRG Representation Office or Iraqi Embassy.

The application to establish a company in Kurdistan may be filed in Baghdad, Erbil or Sulaimaniya, and foreigners may own up to 100% of the share capital in any company.

Once the legal entity has been established, to register for payroll the company has to apply to the tax/social security authorities and it may take around 5 working days till completion. A file name for the company will be given after tax/social security inspection visit to the company’s premises.

The registration of a limited liability company (LLC) in Baghdad takes about 3-4 months.

Business Banking in Iraq

It is mandatory to have an in-country bank account in Iraq to process a payroll; however, the statutory payments to the applicable authorities can be made in cash, by certified check or through a designated bank.

Working Week and Working Hours in Iraq

The working week in Iraq is Sunday to Thursday from 8am to 5pm.

Basic Facts about Iraq

Full Name: Republic of Iraq

Population: 38.27 million (World Bank, 2017)

Capital: Baghdad

Major Language: Arabic - Kurdish

Major Religion: Islam

Currency: Iraqi Dinar

Internet Domain: .iq

International Dialling Code: +964


Hello (As-Salām 'Alaykum) مرحب

Good Morning (Ṣabāḥul KẖAyr) صباح الخير

Good Evening (Masā' Al-Khayr) مساء الخير

Do You Speak English? (Hal Tatakallam El-Ingliziyya) هل تتلم الانجليزية تلم هل

Good Bye (Bāy Bāy) باي باي, (Ma`A As-Salāma) السلامة مع

Thank You (Shukran) شكرا (


Dates are usually written in the day, month and year sequence. For example, 5th September 2015.

Numbers are written with a comma to denote thousands and a period to denote fractions. For example, 2,000.00 IQD (two thousand Iraqi Dinars).

Income Tax & Social Security in Iraq

The tax year in Iraq is 1st January to 31st December.

Income Tax in Iraq

Residents and non-residents of Iraq are subject to tax on their income derived from Iraq.

Iraqi nationals are considered residents for tax purposes. In addition, a non-Iraqi national is considered resident for tax purposes if:

  • They spend total of six months during a tax year in Iraq; OR
  • They reside for four consecutive months in Iraq

Tax residents may claim personal allowances.

Most sources of income are considered taxable, unless specifically exempted. This includes directors’ fees and employer-paid rent, school fees and relocation expenses.

The following tax rates (after granting the resident the legal allowances) are applicable to individual’s income in Iraq:

  • 3% up to ID 250,000
  • 5% on amounts over ID 250,000 and up to ID 500,000
  • 10% on amounts over ID 500,000 and up to ID 1,000,000
  • 15% on amounts over ID 1,000,000

Individuals are granted the following deductions and allowances:

  • Deductions from salaries received from the private sector equal to the following:
  1. ID 2,500,000 for the employee himself
  2. ID 2,000,000 for a non-working wife
  3. ID 200,000 per child, regardless of the number of children
  4. ID 300,000 for persons over 63 years old
  5. ID 3,200,000 for a widow or divorcee and ID400,000 for every child lawfully maintained by such person, regardless of the number of children
  • Contributions to a social security system, provident fund medical insurance plan, pension fund or similar fund approved by the tax authorities
  • Delegation or overseas allowances received by foreign employees, up to 25% of the basic salary
  • The Iraqi tax authorities allow an exemption from tax in relation to ’risk allowances’; in practice, such allowances should not exceed 30% of the basic salary.

In order to obtain such allowances, proper supporting documents are presented to the concerned tax authority in order to be effective; otherwise, the tax authorities shall treat the taxpayer as a ‘bachelor’ and grant the annual allowance indicated above.

Employers are responsible for and should guarantee the payment of tax. Tax is withheld from the employees’ income for each month of the fiscal year. The withheld tax must be sent monthly to the General Commission for Taxes, one of its branches or to an authority designated by the tax authority by the 15th day of the month following the month of withholding.

If the tax is not paid by the due date, an addition of 5% of the tax amount is imposed on the employer after the lapse of 21 days from the due date. This percentage is doubled if the amount is not paid within 21 days after the expiration of the first 21-day period.

At the end of the fiscal year, reconciliation takes place as to the annual staff personal income tax with the total monthly amounts paid during subsequent months.

Foreign Tax Relief

Income tax paid to a foreign country on income earned in that country may be credited against tax paid to Iraq. The amount of the credit may not exceed the amount of tax assessed in Iraq on the income earned in the foreign country at the rate in effect in Iraq. If taxes paid to a foreign country exceed the amount of this limitation, then the excess taxes may be carried to credit in five consecutive years subject to the limitation in those years.

Income Tax Kurdistan

In the Kurdistan region, the first ID1 million of basic salary is exempt. The amount exceeding IQD1 million is subject to tax at a rate of 5%.

In Kurdistan, the income tax contributions on salaries are required to be paid quarterly, by the 21st day of the following month. Penalties on unpaid or late paid tax generally are limited to an amount of 5% to 10% of the tax liability, up to a maximum per year of IQD 75,000.

Social Security in Iraq

Social security contributions are applied to the salaries and the benefits of both local and expatriate employees after a deduction of a portion of employee allowances (transportation, accommodation, housing and other allowances) up to an amount equaling 30% of the base salary. In general, the rates are 12% for employers and 5% for employees, however for oil and gas companies the contribution rates are 25% for employers and 5% employees.

Social security must be paid within 30 days following each month end.

Any late payment would entail a late payment penalty of 2% of the amount due for each month of delay.

There is no Government Pension Scheme in Iraq or Kurdistan.

Reporting Tax in Iraq


Reports to the social security department should be sent monthly.


Reports to the Tax Directorate are to be submitted on an annual basis.

When submitting the relevant reports, the company’s registration paper is necessary, together with the name of employee, starting date, salary, allowances, overtime (if applicable), termination date, status and number of children.

The payroll provider on behalf of the client on condition to provide an attestation from the company can submit both monthly and yearly statutory reports.

These reports must be signed and stamped by the employer.

New Starts in Iraq

The new start must be registered with the Social Security Authority, however for some nationalities (i.e. Indian, Bangladesh, etc.); an additional registration with the Ministry of Labour and Social Affairs has to be completed.

The registration of the new start has to be done within the first 10 days of joining, however this timeframe appears to be flexible.

The details required to set up the new start are:

  • Company’s registration number with social security and tax directorate
  • File ID number

Documents required from expat new starts:

  • Passport copy,
  • A copy of the residency card
  • Contract of employment (if available)
  • The full name of the employee
  • Position details
  • Salary details
  • Date of employment etc.

Leavers in Iraq

The local authorities should be informed about the termination of the employment contract during the following month after the termination, at the time of submitting the social security contributions.

The final payment should be made within seven days of the last working day.

The Labour Law includes a comprehensive list of the authorized grounds for termination. They are the following: -

  • Mutual written agreement
  • Expiry of the term of the contract
  • The will of the employee, after following certain procedures
  • Incapacity due to illness for more than six months
  • Incapacity of the employee amounting to at least 75%; and
  • Decline in the establishment’s business provided that the Labour Minister has been informed.

The Labour Law also contains provisions concerning termination of illegal employment contracts. In addition, it is possible to terminate an employment contract in accordance with the general principles of the Civil Code.