Oil sector contractors in Iraq: staffing, tax and contracts

A company winning a subcontract from a field operator in Basrah or Maysan finds that its first legal questions are not about drilling but about tax, foreign staff permits and the form in which it operates in Iraq. The office of lawyer Ali Barakat in Baghdad, al-Yarmouk, explains the official texts on these three points.

Tax: a dedicated statute and rate

A dedicated tax statute of March 2010 (No. 19, Gazette issue 4148) targets foreign petroleum companies. Its first article takes 35% of profit generated inside Iraq from their contracts, whether performed directly or through a branch or office, and extends to those working beneath them as subcontractors, so long as the activity is upstream extraction, production or linked industry.

Three points deserve attention:

• the text reaches subcontractors, not only the main contract holder;
• where the special statute is silent, article 2 falls back on the general 1982 income tax legislation, including assessment and objection;
• article 3 leaves it to finance ministry instructions, agreed with the oil ministry, to say which contracts fall in scope, so ask which instructions are in force before costing a bid.

Filing income reports under Law 19 of 2010

Because article 2 of the special statute refers to Income Tax Law No. 113 of 1982, the general law's timetable governs a subcontractor:

• the income report is filed before 1 June of the assessment year, or within twenty-one days of a written notice from the tax authority, under article 27;
• an objection to an assessment is filed in writing within twenty-one days of notification, with the books and records supporting it, and the assessed tax must be paid within the objection period, under article 33;
• an overpayment may be reclaimed within five years after the close of the financial year of payment, and tax taken by direct withholding is refunded without a request, under article 49.

If an assessment does not reflect the contract, the objection route is in objecting to an income tax assessment.

Foreign staff: permit first

Under article 30 of the 2015 Labour Law, no establishment may put a non-Iraqi to work until the labour ministry has issued a permit, and article 31 bars the worker from starting before then. The 2026 foreign worker instructions (No. 1) cap foreign labour at half the project's workforce and provide for a field committee to verify actual need. Details are in foreign worker permit rules.

For an oil subcontract, the staffing plan should provide from the outset for at least half Iraqi personnel, and permit processing time should sit in the mobilisation schedule.

Local content in contractor agreements

"Local content" is used in the energy market to describe contractor obligations: employing Iraqis, buying from local suppliers and training staff. In practice these obligations come from the contractor's agreement with the operator or state company, together with the Iraqi workforce ratio in the 2026 instructions mentioned above. The staffing, supply and training clauses are therefore read line by line before signing and tied to the mobilisation schedule and the staff register.

Staff register and subcontract clauses

The Labour Law obliges every employer to maintain a wage and overtime register, free of erasures and insertions and open to ministry inspectors, under article 61, and inspectors may examine any records the law requires, under article 129. Article 16 makes Arabic the language of employment contracts and records. Before signing a subcontract, check these clauses:

• the ratio of Iraqi to foreign staff at each phase, and who obtains work permits;
• which party bears the special tax, and how it is withheld from payments;
• required local supply and training, and how performance is evidenced;
• the effect of any head contract amendment on the subcontract.

Legal form and state counterparties

A foreign company performing in Iraq needs a registered legal presence to contract, open accounts and register staff. The choice of form is covered in choosing between a branch, a subsidiary and a liaison office.

The counterparty is often a state company, or an operator working under a service contract with the state. The head contract may be reviewed or amended, so the amendment clause and its knock-on effect on the subcontract warrant careful reading. If the head contract changes, does the subcontract change with it, and does the subcontractor gain a right to compensation or exit? A written clause should answer that.

Legal basis and sources

1. Law No. 19 of 2010 imposing income tax on foreign oil companies contracted to work in Iraq
2. Income Tax Law No. 113 of 1982, as amended
3. Labour Law No. 37 of 2015
4. Instructions No. 1 of 2026 on recruiting, employing and licensing foreign workers

Frequently asked questions

Related topics and articles

• 01Instructions No. 1 of 2026 on the recruitment, employment and work permits of foreign workersA reading of Instructions No. 1 of 2026: applications, committees for three or more workers, cancellation and training.
• 02Objecting 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.
• 03A branch, a subsidiary and a representative office, and what may differ in the RegionA foreign-company branch, an Iraqi subsidiary, and a so-called representative office, with a general note on the Region, under the 2017 regulation.
• 04The legal framework for oil and gas in IraqIraq oil and gas framework: Constitution articles 111–112, INOC Law 4/2018 and Federal Supreme Court cancellations, and the status of Kurdistan Law 22/2007.
• 05Electricity Ministry Law 53/2017: private generation and solar plantsHow Iraq's Ministry of Electricity Law 53/2017 opens generation, distribution and renewable plants to private investors, the role of investment bodies and Constitution article 114.

Always check the text in force and its amendments in the official source.

To ask about your matter