Iraq Tax Regime

Iraq taxes all income derived from Iraq at source, regardless of the residence of the recipient, under a flat statutory corporate income tax rate of 15% for juristic persons other than partnerships, with no progressive rate scale. A materially higher 35% rate applies specifically to income earned by foreign oil companies, their branches and offices, and subcontractors working in the oil and gas production sector and related industries — a rate differential that dominates practical tax planning for any entity touching the extractive sector. The General Commission for Taxes (GCT) frequently applies a deemed-profit approach, assessing tax on a percentage of reported revenue and taxing the higher of that deemed amount or the statutory rate applied to reported taxable profit. There is no VAT in the conventional sense; indirect taxation instead relies on a sales tax and specific commodity levies, and there are no local, state or provincial income taxes.

1.1 Sources

Primary legislation includes the Iraqi Income Tax Law No. 113 of 1982 (as amended), Oil and Gas Production Sector income tax rules applicable to foreign oil companies and their contractors, and General Commission for Taxes (GCT) instructions governing deemed-profit assessment and withholding procedures.

1.2 Recent developments

Iraq's core corporate rate structure — a flat 15% general rate and a 35% rate for foreign oil companies, branches and subcontractors in the oil and gas production sector — has remained stable, with the GCT continuing to apply its deemed-profit assessment methodology (taxing the higher of a percentage of reported revenue or the statutory rate on reported taxable profit) as the practical mechanism for assessing many contractors and service providers, particularly those without robust, GCT-accepted cost documentation. Iraq has not adopted a Pillar Two minimum tax regime, and administrative modernisation continues incrementally, with the GCT and Ministry of Oil-linked contracting frameworks remaining the two most consequential points of contact for foreign investors.

Headline statutory corporate income tax rate for a resident company. Where sub-national (state, provincial, cantonal or municipal) corporate taxes apply, the combined rate reported by the OECD is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

Top marginal statutory personal income tax rate on employment income for a resident individual. Where sub-national (state, provincial, cantonal or municipal) income taxes are a standard part of the system, the combined top rate is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

2.1 Rates and residence

All income derived from Iraq is subject to Iraqi tax regardless of the residence of the recipient — Iraq's system is source-based rather than built around a formal corporate residence test driving worldwide taxation. Juristic persons other than partnerships are subject to a flat statutory corporate income tax rate of 15% at all income levels, with no progressive scale. A significantly higher rate of 35% applies to income realised in Iraq from contracts concluded with foreign oil companies, their branches or offices, and subcontractors working in Iraq in the oil and gas production sector and related industries — this is the single most important rate distinction in the Iraqi system and should be checked first for any entity with oil-and-gas-sector contracts, whether as a principal contractor or subcontractor. The GCT applies a deemed-profit approach in practice, computing a deemed tax by applying a specified percentage to total reported revenue and then assessing the higher of that deemed-revenue-based tax or the 15% (35% for oil and gas) rate applied to reported profit or taxable profit. There is no separate local, state or provincial income tax.

2.2 Dividends and participation exemption

Iraq does not operate a European-style participation exemption regime. Dividend distributions by Iraqi companies are generally addressed through the withholding and deemed-profit framework applicable to Iraqi-source payments rather than through a codified intercorporate dividend exemption; in practice, profits distributed from an entity that has already been subject to Iraqi corporate income tax are not typically taxed again at the distributing-company level, but foreign parent companies receiving dividends from Iraqi subsidiaries should confirm the specific withholding treatment applicable to their distribution channel and banking arrangements given the absence of a codified exemption regime and Iraq's limited tax treaty network.

2.3 Income determination and deductions

Taxable profit is computed from gross Iraqi-source revenue less costs and expenses that are ordinary, necessary and properly documented, subject to the GCT's practical preference for its deemed-profit assessment where documentation is viewed as insufficient or where the taxpayer's declared margin appears low relative to sector norms. Depreciation is allowed on capital assets at rates prescribed administratively by asset category, generally on a straight-line basis. Related-party and intercompany charges (management fees, technical service fees, interest and royalties) are subject to heightened GCT scrutiny for reasonableness and arm's-length character, particularly in oil-and-gas-sector contracting structures where the 35% rate creates a strong incentive to shift margin into lower-taxed related entities.

2.4 Interest limitation

Iraq does not apply a codified EBITDA-based interest limitation rule of the ATAD/BEPS Action 4 type. Interest deductibility is instead governed by general documentation, business-purpose and reasonableness principles applied by the GCT, with related-party financing arrangements subject to additional scrutiny, particularly where the GCT's deemed-profit approach is applied and renders the specific interest deduction largely immaterial to the final assessed liability.

2.5 Losses

Trading losses may generally be carried forward and offset against future taxable profits for a limited number of subsequent years under GCT practice, subject to conditions on continuity of the underlying business and acceptance of the taxpayer's supporting records; there is no loss carryback. Because the GCT frequently applies a deemed-profit assessment based on gross revenue rather than declared net profit, taxpayers in a loss position should not assume that a commercially genuine loss will automatically translate into a nil or reduced tax assessment, since the deemed-revenue-based tax can still apply as a floor.

2.6 Group taxation

Iraq does not have a fiscal consolidation or group relief regime. Each juristic person is assessed and taxed separately by the GCT, and losses or tax attributes of one group entity cannot be transferred to or offset against another affiliated entity's taxable profit. Groups operating multiple Iraqi contracting vehicles — a common structure in the oil and gas services sector, where distinct entities may be used for different contract scopes — must manage each entity's compliance and assessment position independently.

2.7 Controlled foreign companies

Iraq does not operate a CFC attribution regime. Consistent with the source-based nature of the Iraqi system, there is no mechanism taxing an Iraqi shareholder currently on the undistributed profits of a foreign subsidiary; Iraq's taxing rights are anchored to income actually derived from Iraq rather than to the residence or ownership chain of the recipient.

2.8 Transfer pricing

Formal, OECD-aligned transfer pricing documentation rules are less developed in Iraq than in mature tax administrations; nonetheless, the GCT closely scrutinises related-party and intercompany pricing in practice, particularly for management fees, technical service charges, equipment leasing and subcontractor arrangements within the oil and gas sector, given the strong incentive to shift margin away from the 35% sector rate. Contractors and subcontractors operating in the oil and gas production sector should maintain robust contemporaneous documentation supporting the commercial rationale and pricing of intercompany charges, since the GCT's deemed-profit methodology can otherwise be applied to override declared results.

2.9 Incentives

Investment incentives are available under Iraq's National Investment Law (and related provincial investment authority frameworks), which can offer income tax exemptions for a period of years for qualifying projects (typically ten years for many sectors, with variations by activity and location), together with customs duty exemptions on imported capital goods and equipment used in the licensed project. Qualification requires a formal investment licence from the National Investment Commission or the relevant provincial investment authority, with conditions on capital deployment, project completion timelines and, in some cases, Iraqi employment levels. Oil and gas sector contracts are generally governed by their own contractual and fiscal terms (including technical service contracts and production-sharing-style arrangements with the Ministry of Oil or the Kurdistan Regional Government in the applicable region) rather than by the general investment incentive framework.

2.10 Pillar Two

Iraq has not enacted Pillar Two (global minimum tax) legislation and is not currently implementing an income inclusion rule, undertaxed profits rule or qualified domestic minimum top-up tax. In-scope multinational groups with Iraqi operations should nonetheless monitor Iraq's 15% general rate — which sits below the 15% Pillar Two minimum only marginally before considering the deemed-profit floor and any investment-law tax holiday — and the 35% oil and gas sector rate, for purposes of parent-jurisdiction top-up tax calculations under the ultimate parent's Pillar Two regime; investment-law tax holidays in particular can push the effective rate on qualifying Iraqi projects below 15% during the holiday period.

2.11 Branch income and reorganisations

A branch or office of a foreign oil company, or a subcontractor working in the oil and gas production sector and related industries, is taxed at the elevated 35% rate on income realised in Iraq from the relevant contracts; branches and offices operating outside the oil and gas production sector are generally taxed at the standard 15% rate on Iraqi-source income under the same deemed-profit-or-actual-profit approach applied to locally incorporated entities. There is no separate branch profits or remittance tax beyond the ordinary corporate rate applicable to the branch's Iraqi-source income. Iraq does not have a comprehensive statutory tax-neutral reorganisation regime comparable to OECD jurisdictions; asset transfers, mergers and restructurings are generally analysed under general principles and can trigger a taxable event absent a specific exemption or investment-licence accommodation.

3.1 Residence and rates

Individuals are taxed on Iraqi-source income, consistent with the source-based orientation of the Iraqi tax system generally. Employment income earned in Iraq is subject to progressive personal income tax rates, with bands rising from a low initial rate on the lowest income tranches to a top marginal rate of 15% on annual income (after allowances) above IQD 1,000,000, subject to periodic adjustment by the GCT and Ministry of Finance. A basic personal allowance and family-status-related allowances (spouse, dependent children) reduce assessable employment income before the progressive schedule applies. Employers are generally responsible for withholding employee income tax from salaries and remitting it to the GCT.

3.2 Capital income and real estate

Capital gains realised by individuals are generally addressed under the ordinary income rules rather than through a distinct, separately scheduled capital gains tax regime; gains connected with a trade or business are typically taxed as ordinary income, while gains on personal, non-business assets fall largely outside routine assessment in practice. Dividend income received by individuals from Iraqi companies is generally not subject to an additional separate personal-level dividend tax beyond the tax already borne at the distributing company level, reflecting the absence of a codified secondary distribution tax. Rental income from real property situated in Iraq is assessable as ordinary income, net of allowable expenses.

3.3 Social security and payroll

Employers and employees contribute to Iraq's social security scheme administered by the General Authority for Pensions and Social Security (or the equivalent regional authority in the Kurdistan Region), covering retirement, disability and related benefits; contribution rates are set as a percentage of salary, with the employer generally bearing a materially larger share than the employee. Foreign employees working under expatriate contracts in the oil and gas sector are frequently, though not automatically, subject to the same social security framework, and contract terms should be checked for the specific treatment applicable to the individual's employment structure.

3.4 Inbound individuals

Iraq does not levy a net wealth tax, and there is no general inheritance or gift tax regime of the type found in many OECD jurisdictions, though property transfers can attract registration fees and stamp-duty-style charges. There is no dedicated statutory expatriate or inpatriate tax regime; foreign nationals working in Iraq, including expatriate staff on oil and gas sector contracts, are generally taxed under the same source-based employment income rules as Iraqi nationals for services performed in Iraq, with the employing contractor typically responsible for payroll withholding compliance on their behalf.

Iraq applies withholding-style retention mechanisms on a range of payments, most prominently a retention requirement on payments to contractors and subcontractors (a common feature of oil and gas sector and government contracting) that functions as an advance collection mechanism against the contractor's final assessed liability. Iraq's double tax treaty network is narrow relative to many jurisdictions in the region, so most cross-border payments should be assumed to bear full domestic withholding or retention absent a specific, verified treaty relief.

Because Iraq's treaty network does not cover many of the jurisdictions from which foreign contractors and investors originate, cross-border payors should plan on domestic retention and assessment rules applying in full, verifying treaty availability only where a specific bilateral agreement with the counterparty's home jurisdiction is confirmed to be in force. Contractors in the oil and gas production sector should in particular confirm whether the 35% sector rate applies to their specific contract scope before assuming the general 15% rate.

5.1 General anti-abuse and hybrids

Iraqi tax law empowers the General Commission for Taxes to apply its deemed-profit assessment methodology where declared results are viewed as inconsistent with the taxpayer's actual revenue or with sector norms, which functions in practice as a significant anti-avoidance backstop even without a codified general anti-abuse rule of the OECD/EU statutory type. Iraq does not have a dedicated hybrid-mismatch neutralisation regime of the ATAD/BEPS Action 2 type; cross-border hybrid financing and entity mismatches are addressed, to the extent at all, through the GCT's general assessment discretion and documentation requirements rather than a specific hybrid framework.

5.2 Exit taxation and disclosure

Iraq does not impose a formal corporate exit tax on migration of residence or on the transfer of a business's tax presence out of Iraq, consistent with the strictly source-based nature of the system — Iraqi taxing rights attach to income actually derived from Iraq rather than to the residence of the taxpayer. There is no mandatory cross-border arrangement disclosure regime comparable to DAC6. Central Bank of Iraq foreign exchange and banking-sector controls govern the practical mechanics of repatriating profits and capital and interact with GCT tax clearance requirements in practice, giving the authorities visibility into significant outbound payment flows.

6.1 Sales tax and indirect taxation

Iraq does not operate a broad-based value-added tax; instead, a sales tax applies to specified goods and services, most prominently a service-and-hospitality-oriented sales tax applied at hotels, restaurants and similar establishments (commonly at a rate in the region of 10%), alongside specific excise-style levies on selected imported and domestically produced goods. Import duties administered by Iraqi Customs apply broadly to goods entering the country, with a general reconstruction levy historically applied to imports (subject to periodic suspension and reinstatement) in addition to standard customs duty; qualifying investment-licensed projects can obtain customs duty relief on imported capital goods under the National Investment Law framework described in Section 2.9.

6.2 Transaction, payroll and other taxes

Real estate transactions attract registration fees and stamp-duty-style charges on transfer, payable to the relevant real estate registration directorate. There is no net wealth tax on individuals or companies. Contractor retention and withholding mechanisms described in Section 4 function as a significant practical component of the indirect tax and advance-collection landscape, particularly for the oil and gas sector and government contracting more broadly. Municipal fees and licensing charges apply to specific business activities at the local level, though these do not constitute a separate local income tax regime.

7.1 Filing, assessment and audit

The Iraqi tax year is generally the calendar year. Companies file annual tax returns with the General Commission for Taxes, supported by financial statements and underlying records; in practice, the GCT frequently applies its deemed-profit approach — assessing tax on a percentage of reported gross revenue and comparing that deemed amount against the statutory-rate assessment of reported profit, then charging the higher figure — particularly for contractors and businesses whose supporting documentation is viewed as insufficient. Audits are conducted by the GCT on a risk basis, with oil and gas sector contractors and large government contractors typically receiving close attention given the revenue significance of the sector. The GCT can reopen and reassess prior periods within a period specified under the Income Tax Law, extended in cases of non-filing or material misstatement.

7.2 Rulings, appeals and penalties

A formal binding advance ruling programme comparable to those in mature OECD tax administrations is not broadly available; taxpayers may seek administrative guidance from the GCT on specific questions, but certainty is generally lower than under an APA-style regime. Assessments may be challenged through an internal GCT objection process and, ultimately, before the competent tax appeal committees and the Iraqi courts. Penalties apply for late filing, late payment and understatement, with interest or surcharge accruing on unpaid amounts; taxpayers disputing a deemed-profit assessment should be prepared to substantiate actual results with robust documentation, since the burden in practice often falls on the taxpayer to displace the GCT's deemed calculation.

Because the GCT's deemed-profit methodology can override a taxpayer's own return-based calculation, contractors — particularly in the oil and gas production sector — should budget for the possibility that final tax settlement may exceed the amount computed under their own declared costs and revenue, and should engage with the GCT assessment process proactively rather than treating the filed return as final.

9.1 Entity choice

A limited liability company registered under Iraqi companies legislation is the standard vehicle for foreign investors not engaged in oil and gas sector contracting, offering limited liability and a straightforward registration process through the Ministry of Trade's companies registrar. Foreign oil companies and their contractors typically operate through a registered branch or representative office authorised to perform the specific scope of the relevant petroleum or service contract, which is taxed at the elevated 35% sector rate rather than as a general 15%-rate entity. Investment-licensed projects under the National Investment Law can be structured through locally registered project companies to access the incentive package described in Section 2.9.

9.2 Structuring and incentives

The single most consequential structuring question for any Iraq-facing business is whether its activity falls within the 35% oil and gas production sector rate or the general 15% rate — this determination should be made contract-by-contract and scope-by-scope, since subcontractors performing sector-adjacent but not sector-specific work may in some cases fall outside the elevated rate depending on the precise characterisation of their services. Businesses considering a National Investment Law licence should weigh the potential multi-year income tax exemption and customs relief against the compliance and reporting obligations tied to the licence, and should model the GCT's deemed-profit assessment risk into any effective-rate projection, since a nominal statutory exemption does not necessarily eliminate deemed-revenue-based assessment risk if the investment licence's specific tax relief is narrowly drafted.

9.3 Worked effective-rate illustration

A foreign oilfield services subcontractor earns Iraqi-source contract revenue of USD 20,000,000 for the year, with allowable costs and expenses of USD 14,000,000, giving reported taxable profit of USD 6,000,000. Applying the 35% oil and gas sector rate to reported profit gives a statutory assessment of 6,000,000 × 0.35 = USD 2,100,000. Suppose the GCT's deemed-profit approach applies a 10% deemed-profit margin to gross revenue for this contract category: deemed profit is 20,000,000 × 0.10 = USD 2,000,000, and the deemed tax at 35% is 2,000,000 × 0.35 = USD 700,000. Since the GCT assesses the higher of the deemed-revenue-based tax and the 35%-of-reported-profit tax, and USD 2,100,000 (actual-profit basis) exceeds USD 700,000 (deemed-revenue basis) on these facts, the contractor is assessed USD 2,100,000 — an effective rate of 2,100,000 / 6,000,000 = 35% of reported profit, or 2,100,000 / 20,000,000 = 10.5% of gross revenue. Had the same contractor instead reported a lower margin of only USD 1,500,000 profit on the same USD 20,000,000 revenue (profit-basis tax of 1,500,000 × 0.35 = USD 525,000), the deemed-revenue-basis tax of USD 700,000 would exceed the profit-basis tax, and the GCT would assess the higher USD 700,000 figure — illustrating how the deemed-profit floor protects Iraqi revenue against aggressive cost reporting and should always be modelled alongside the nominal statutory rate.

9.4 Compliance

Expect annual corporate tax filing with the GCT supported by financial records, monthly payroll withholding and social security remittance, and — for oil and gas sector contractors in particular — active engagement with the GCT's deemed-profit assessment process, since a purely return-based filing may not be accepted without challenge. National Investment Law-licensed projects carry additional periodic reporting obligations to the National Investment Commission or provincial investment authority to substantiate continued compliance with licence conditions. Businesses should maintain robust, contemporaneous documentation of costs, related-party pricing and contract scope characterisation (sector versus non-sector work) given the significant rate differential and the GCT's practical reliance on deemed assessment where documentation is viewed as weak.