Withholding from amounts due to a foreign contractor or company
Withholding from a sum due to a foreign contractor or to a company formed outside Iraq is read from Income Tax Law No. 113 of 1982, and from the official instructions issued by the Ministry of Finance and the General Commission for Taxes on accounting for contracts between an Iraqi contracting party and a foreign party. The instruments that appear in the file include Instructions No. 2 of 2008, as amended by Instructions No. 1 of 2014. The general frame for forming an Iraqi company is on company registration. Review of an income-tax assessment, and an objection to it, is a separate path, on the assessment page and on the objection page.
How this path differs from a general assessment
A written objection within twenty-one days before the General Commission for Taxes, then an appeal before the Audit Committee, is the path that follows an assessment already issued against a taxpayer, and is set out on the tax-assessment page. The subject of this page is the duty of the Iraqi contracting party when it pays amounts arising from a contract with a foreign contractor or company, read from the official text of the instructions and from the Income Tax Law, not from an unwritten contracting custom.
The presence of a branch of a foreign company in Iraq, or the formation of an Iraqi limited company, does not stand in for the other, and neither of them, by itself, removes a withholding duty if the text applies to the payment. The branch path is on its page.
The Income Tax Law and the official instructions
The Income Tax Law is the general frame for imposing tax on income that the text treats as taxable. The instructions just mentioned deal with contracts between Iraqi and foreign contracting parties. They place on the contracting party duties of notice and of supplying the Commission or one of its offices with what the text requires, and of withholding, where that applies, at the rates the Commission determines. Those rates, and any contract-value threshold, are read from the official text of the instructions in the file.
The instructions are not replaced by an internal list of the contracting party, nor by a clause in the contract that purports to drop a duty the text has imposed. If later sectoral instructions exist for a particular activity, they are read together with these instructions; one of them is not set aside except by an express provision.
The contracting party's duty at the time of payment
The Iraqi contracting party is the first addressee of the withholding duty at the time payment falls due, according to what the instructions lay down. The foreign contractor or company remains concerned with its tax position and with the information the text asks of it, but that does not shift away from the contracting party what the text has placed on it at the time of disbursement. A restriction on paying a final instalment, or on closing the final account, if it appears in the instructions, is read as it stands in the official text, and no condition is added beyond what appears in that official text.
A certificate or letter from the General Commission for Taxes, if the text requires one before a remainder is paid or before a contractual clearance is given, is requested from the Commission or its office in the official form.
How subjection to withholding is read, and how it differs from classification
Whether the duty applies is read from the description of the contract, the place of performance, and the name in which it was concluded, as the official instructions put those tests. Classification of contractors before the Ministry of Planning is another path, on its page. It does not stand in for tax withholding.
The Law Office of Ali Barakat follows this reading from Baghdad, al-Yarmouk.
Legal basis and sources
- Income Tax Law No. 113 of 1982
- Instructions on tax accounting for contracts between Iraqi and foreign contracting parties No. 2 of 2008, as amended by Instructions No. 1 of 2014 (Iraqi Legislation Database / publications of the General Commission for Taxes)
Frequently asked questions
How does the page on objecting to an assessment relate to the withholding duty?
The objection page deals with an assessment after it has been issued, and with the time limits before the General Commission for Taxes and the Audit Committee. Withholding when amounts under a foreign contract are paid is read from the instructions that address that payment and from the Income Tax Law. The duty may arise before a later assessment, or apart from a pending dispute over an assessment.
From where are withholding rates, and any value threshold at which the duty begins, read?
The rates and any value threshold are read from the official text of the instructions in the file.
Does forming an Iraqi company or opening a branch cancel withholding?
Cancellation is not inferred from formation alone, or from the mere opening of a branch. If the description in the instructions applies to the payment, the duty remains. Each path is read on its own page: the Iraqi company, the branch, or the assessment.
Related topics and articles
- 01Objecting to an income-tax assessment in IraqObjection, appeal and cassation of an income-tax assessment under Law 113/1982: 21 days to object, payment during that period, and the appeal committee.
- 02Obligations that recur after a company is recordedFinal accounts, the audit, the general-assembly meeting and copies sent to the Registrar, distinct from post-incorporation steps and from branch duties.
- 03The address of a company or branch, a lease and a title deedThe company's address in its contract, before the Registrar and in the commercial register; a lease or deed may evidence it. Not a real-estate page.
- 04Registering a company in Basra: which department is approached, and what differs from Baghdad?Registering a company when dealing in Basra under the federal Companies Law, followed from Baghdad.
- 05Company forms under the Iraqi Companies LawCompany types under Companies Law No. 21 of 1997 as amended: joint-stock, limited, partnership, simple, sole proprietorship and holding.