Income tax on non-residents and payments made outside Iraq

When an Iraqi company hires an expert, buys from a supplier or borrows from a lender abroad, or when a foreigner works in Iraq for a short spell, the tax question follows: is the foreign party liable to Iraqi income tax, and who pays if it has no presence here? This page answers from the text of Income Tax Law No. 113 of 1982, as amended, as shown in the Iraqi Legislation Database. Challenging an assessment once it is issued has its own page: objecting to an income-tax assessment. The Law Office of Ali Barakat, in Baghdad, al-Yarmouk, advises on these questions.

Who is resident?

Paragraph 10 of article 1 does not make residence purely a matter of nationality. It gives each group its own test:

• An Iraqi is resident after living in Iraq for at least four months in the income year, or if their absence is temporary and they keep a permanent employee and a main place of business in Iraq.
• Nationals of Arab countries working in Iraq are resident however long they stay.
• Other foreigners are resident if their stays add up to six months in the year, or four months without a break, or if they are employed by a legal person in Iraq, whatever the length of stay.
• A legal person is resident if its place of business, management or control is in Iraq, whether it was formed under Iraqi or foreign law.

Anyone outside these tests is non-resident (paragraph 11), even if income reaches them from Iraq.

In the Kurdistan Region paragraph 10(c) reads differently: Law No. 26 of 2007 suspended it there and treats people from the Region living outside Iraq as resident; see does the same rule apply in Baghdad, the Kurdistan Region and Basrah?.

What is a non-resident taxed on?

Article 5 separates the two cases. A resident Iraqi is taxed on income from inside and outside Iraq. A non-resident is taxed only on income arising in Iraq, even when it is collected abroad. A resident who is not Iraqi is not taxed on income arising outside Iraq.

What matters, then, is where the income is generated, not where the money is sent. A foreign consultant who does the work inside Iraq and is paid into an account abroad does not step outside the tax by that route.

In whose name is the tax assessed?

A non-resident does not normally deal with the tax office in person. Article 21 therefore makes it assessable in the name of whoever represents it in Iraq: an agent, attorney, commission merchant, branch head or company manager, whether or not that person actually receives the income.

The same article covers related-party dealings. Where a non-resident trades with a resident and one controls the other so that the business is run in a way that leaves the resident no profit, or less than normal, the tax authority may assess the non-resident's true profits and charge them in the resident's name. If the true figure cannot easily be established, it may apply a reasonable percentage to the volume of business. The article does protect the occasional intermediary: a broker or agent who does not act under a regular agency does not become the non-resident's tax representative just by closing a deal.

What must the payer do?

Three provisions apply to an Iraqi payer:

1. Article 19: a resident who owes, for itself or on behalf of another, an amount to someone abroad for interest on bonds, mortgages, loans, deposits or advances, or for annuities, pensions and other annual payments, is answerable to the tax authority for the tax on it at the moment of payment or book entry. The text shown in the Database sets that at fifteen per cent, with banks exempt. The payer may deduct the tax from the payment, provided it gives the non-resident a statement of the tax paid each time.
2. Article 22: anyone who pays or credits another person with taxable profit or income, even where payment is due outside Iraq, must send the tax authority a report within 21 days giving the true amount and the recipient's name and address.
3. Article 23: a person paying tax for someone else may hold back enough from the money in its hands to cover it, is protected from claims for doing so, and must give the income owner an account showing the tax, the rate and the net balance.

In practice, a contract with a party abroad should state plainly who bears the tax and whether the agreed amount is net or gross, because the Iraqi payer is the one the tax authority will pursue.

Travelling before the tax is paid

Article 51 allows the tax authority, if satisfied that someone is trying to leave Iraq to put off paying tax already imposed or about to be imposed, to ask for that person to be stopped from travelling until they pay or produce a certificate lifting the ban. This matters to a foreign worker winding up a contract and preparing to leave.

Legal basis and sources

1. Income Tax Law No. 113 of 1982, as amended, articles 1, 5, 13, 19, 21, 22, 23 and 51 (Official Gazette No. 2917 of 27/12/1982)

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.
• 02A company's and a foreign branch's tax file, and tax clearanceWhat Income Tax Law No. 113 of 1982 requires of an Iraqi company and of a foreign company's branch once registered: the annual return, withholding on staff pay, when tax clearance is actually demanded, and why it is not demanded at incorporation.
• 03Can an unregistered foreign company operate or open an office in Iraq?Whether a foreign company may do business or open premises in Iraq without a branch registration licence: article 14 of Foreign Company Branches Regulation No. 2 of 2017, the 2025 supply-contract exception, when activity exists, and the penalty in article 215 of the Companies Law.

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

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