A company's and a foreign branch's tax file, and tax clearance

Many founders treat entering the company on the registrar's books and settling its tax position as one and the same. They are not. Registration ends with a certificate of incorporation; the tax side starts afterwards and lasts as long as the company does. This page gathers what Income Tax Law No. 113 of 1982, as amended, says about an Iraqi company and a foreign company's branch, and when "clearance" becomes a genuine condition. The Law Office of Ali Barakat, in Baghdad, al-Yarmouk, handles these files with the General Commission of Taxes.

Incorporation does not wait for tax

Paragraph two of article 208 of the Companies Law (No. 21 of 1997, as amended) settles the point: a company cannot be required, as a condition of registration, to prove compliance with the tax laws or to show that it owes no tax. The new company is registered first; its tax duties grow out of its activity afterwards.

Which companies are within the tax?

The Income Tax Law defines "company" broadly in article 1: any joint-stock or limited company, set up in Iraq or abroad, that trades or keeps an office, place of work or supervision in Iraq. A legal person is resident if its place of business, management or control is in Iraq. A branch operating in Iraq is therefore covered. Article 13, as displayed in the Database, charges limited companies and private and mixed joint-stock companies at a flat fifteen per cent.

For a foreign company's branch, article 21 lets the tax be assessed in the name of the branch head or the company's manager in Iraq, whether or not that person receives the income. The local manager is the one the tax authority will address.

Recurring duties

1. The annual income return. Article 27 obliges everyone with taxable income, whether or not registered with the income-tax offices, to file a return before the first of June of the assessment year unless called on earlier by notice. The text as amended for the Kurdistan Region moves the deadline to the first of July. The tax authority may extend the period for a legitimate excuse.
2. Tax on staff pay. Article 17 requires the employer to deduct the tax due on its employees' pay and hand it over, and the employer remains liable to hand it over even if it failed to deduct it. If it is not paid within 21 days of the dates the minister sets, additional amounts are added. Article 18 requires the employer to supply a list of staff and their pay on request, and treats the manager of a legal person as the employer for that purpose.
3. Where the assessment is made. Article 31 places it in the assessor's office covering the taxpayer's home or place of work; a business spread over several areas may be assessed in one or more offices as the tax authority decides.

When is clearance really required?

The law does not use the word "clearance" everywhere, but its effect shows in three provisions:

• Freezing transactions (article 28(3)). The tax authority may freeze any tax-related transaction and stop other departments completing it until the tax, or security for it, is paid. That is why many offices ask for confirmation from the Commission before finishing a company's paperwork.
• Holding back contractors' money (article 28(4)). The tax authority may ask State bodies, the mixed sector or any person to hold back up to ten per cent of sums due to contractors, releasing it only once the Commission confirms that their income-tax position is clear. This matters to any company performing government contracts.
• Liquidation (article 16). Dissolving or winding up a company is treated as a distribution of profits, and liquidation cannot be completed without the tax authority's approval. See company liquidation and striking off.

Alongside income tax, article 20 of the workers' social security law requires the employer's account with the social security department to be clear in certain cases, as explained in social security clearance on closing a branch.

Preparing ahead

In practice, clearance comes more easily to a company that keeps orderly records, files its annual return on time and pays over staff tax as it goes. If an assessment arrives that the company does not accept, the route to challenge it is set out in objecting to an income-tax assessment; the window is twenty-one days from notification.

Legal basis and sources

1. Income Tax Law No. 113 of 1982, as amended, articles 1, 13, 16, 17, 18, 21, 27, 28 and 31 (Official Gazette No. 2917 of 27/12/1982)
2. Companies Law No. 21 of 1997, as amended, article 208
3. Workers' Retirement and Social Security Law No. 18 of 2023, article 20

Frequently asked questions

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.
• 02Income tax on non-residents and payments made outside IraqWho counts as resident and who as non-resident under Income Tax Law No. 113 of 1982, how a non-resident is taxed on Iraqi-source income through an agent or manager, and what an Iraqi payer must do when it pays someone abroad.
• 03Liquidating an Iraqi company and striking it off: the steps after the liquidation decisionWhat happens after an Iraqi company is put into liquidation under Companies Law No. 21 of 1997: appointing the liquidator, calling creditors, the order of payment, voiding pre-liquidation dealings, tax authority approval, notice to social security, striking off and distributing the remainder.
• 04Social security clearance when closing a business or liquidating a foreign branchWhy closing, selling or liquidating a business or a foreign company branch in Iraq depends on a clearance certificate from the Workers' Pension and Social Security Department under article 20 of Law No. 18 of 2023, what must be paid first, and what applies to foreign workers leaving.

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

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