Iraq Cross-Border Tax Guide

Tax Residency — 183-Day Rule

• General rule — 183 days: An individual is treated as an Iraqi tax resident if they are present in Iraq for 183 days or more in a tax year. The tax year is the calendar year (1 January to 31 December).
• Worldwide income: Iraqi tax residents are subject to Iraqi income tax on their worldwide income. However, in practice, only the Iraqi-source income is effectively taxed, as the Iraqi tax authorities have limited capacity to assess and collect tax on the foreign-source income.
• Non-residents: Non-residents are taxed only on the Iraq-source income. The Iraq-source income includes the employment income for work performed in Iraq, the business income from an Iraqi permanent establishment, and the investment income from Iraqi sources.

For example: a foreign consultant who spends 200 days in Iraq in 2026 is treated as a tax resident and must file an Iraqi tax return on the worldwide income, but in practice only the Iraq-source earnings are assessed.

Treaty Network — Minimal DTAs

• Limited network: Iraq has a very limited double tax agreement (DTA) network. As of 2026, Iraq has DTAs with only a few countries, primarily the Arab League member states and some neighbouring countries.
• Key treaties: Iraq has DTAs with Jordan, Lebanon, Syria, Egypt, and a few other countries. There are no DTAs with the United States, the United Kingdom, Germany, France, or most Asian economies.
• Impact: The lack of the DTA coverage means that the cross-border payments (dividends, interest, royalties) are subject to the full domestic withholding tax rates, and the foreign tax credit may be the only relief from double taxation.

For example: a US company receiving royalty income from an Iraqi licensee is subject to the full 15% withholding tax under the Iraqi domestic law, as there is no Iraq-US DTA to reduce the rate.

Foreign Tax Credit — Unilateral Relief

• Unilateral foreign tax credit: Iraq provides a unilateral foreign tax credit (FTC) for the taxes paid abroad on the foreign-source income. The credit is limited to the Iraqi tax payable on that foreign income (the per-country limitation).
• Treaty-based relief: Where a DTA exists, the treaty provisions for the relief from double taxation apply. The foreign tax credit is available under the treaty or under the domestic law.
• No carryforward: The excess foreign tax credit may not be carried forward or backward. Any unused credit is lost.

For example: an Iraqi resident earns IQD 10,000,000 in dividend income from Jordan and pays IQD 1,000,000 in Jordanian withholding tax. The Iraqi tax on the dividend is IQD 1,500,000 (15%). The foreign tax credit of IQD 1,000,000 reduces the Iraqi tax to IQD 500,000.

Oil and Gas — 15% Deemed Profit Regime

• Special regime — 15% deemed profit: The foreign oil and gas service companies operating under a Production Sharing Contract (PSC) in Iraq are subject to a special deemed profit tax regime. Under this regime, 15% of the gross revenue is treated as the taxable profit, and the corporate income tax is applied on this deemed profit.
• Effective rate: The effective tax rate is 15% of the gross revenue (or a negotiated rate in the PSC). The standard Iraqi corporate tax rate (15%) applies to the deemed profit, resulting in an effective rate of 2.25% of the gross revenue (15% × 15%).
• PSC terms: The exact tax treatment is typically negotiated in the PSC. Some PSCs provide for a comprehensive tax regime that replaces the standard corporate tax and the withholding taxes.

For example: an oil service company with gross revenue of USD 100,000,000 under a PSC has a deemed profit of USD 15,000,000 (15%). The corporate tax at 15% is USD 2,250,000.

KRG-Specific Rules for Foreign Contractors

• Separate regime: The Kurdistan Regional Government has its own tax rules for the foreign contractors operating in the Kurdistan Region. The KRG imposes a 5–15% withholding tax on the gross payments to the foreign contractors, depending on the type of the contract.
• Registration: The foreign contractors must register with the KRG General Tax Authority in Erbil and obtain a tax card. The KRG tax return is filed separately from the federal Iraqi tax return.
• Coordination: The tax paid to the KRG may or may not be creditable against the federal Iraqi tax liability, depending on the specific circumstances. The foreign contractors operating in the KRG should seek the professional advice on the dual filing requirements.

For example: a foreign construction company in Erbil is subject to a 10% KRG withholding tax on the gross contract payments and must file a separate KRG tax return.

FAQs

Does Iraq have a CFC (Controlled Foreign Corporation) rule?

No, Iraq does not have a CFC regime. The Iraqi tax law does not attribute the undistributed income of a foreign corporation to the Iraqi shareholders. The foreign-source income of the Iraqi residents is taxed only when it is repatriated or accrued under the general rules.

How is the foreign employment income taxed for the Iraqi residents?

The foreign employment income of an Iraqi resident is technically subject to the Iraqi income tax as part of the worldwide income. However, the tax authorities generally focus on the Iraq-source income. If the foreign income has been taxed abroad, the foreign tax credit may be claimed.

What is the permanent establishment (PE) threshold in Iraq?

Iraq does not have a statutory definition of a permanent establishment in the domestic law. Instead, the PE concept is derived from the limited DTA network. In practice, a foreign company with a fixed place of business in Iraq (an office, a branch, a construction site) is treated as having a taxable presence and must register with the General Commission for Taxes.