Iraq Rental Income Tax Guide

Rental Income — Taxed at IIT 3–15% Progressive

• Taxable income: The rental income from the real estate in Iraq is subject to the Iraqi personal income tax (IIT) at the progressive rates. The rental income is included in the taxpayer's total income for the year.
• IIT progressive rates: The IIT rates for 2026 are: 3% on the first IQD 250,000/month (IQD 3,000,000/year), 5% on the next bracket, 10% on the middle bracket, and 15% on the income above the threshold. The rental income is added to the other income (salary, business income) and taxed at the applicable marginal rate.
• Annual filing: The rental income must be reported in the annual tax return by April 30 of the following year. The landlord must declare the gross rental income and the allowable deductions.

For example: a landlord earning IQD 500,000/month in rental income with no other income pays approximately IQD 12,500/month in tax (3% on the first 250,000 + 5% on the next 250,000 = IQD 7,500 + IQD 12,500 = IQD 20,000/month or IQD 240,000/year).

10% Standard Deduction — or Itemised Expenses

• Standard deduction — 10%: The taxpayer may claim a standard deduction of 10% of the gross rental income to cover the maintenance, the repairs, and the other rental expenses. No supporting documentation is required for the standard deduction.
• Itemised deduction: Alternatively, the taxpayer may claim the itemised deduction for the actual expenses incurred. The allowable expenses include: the property maintenance, the repairs, the property management fees, the municipal taxes, and the insurance premiums.
• Comparison: The taxpayer should compare the 10% standard deduction with the actual expenses and choose the option that provides the greater tax benefit. The itemised deduction requires the supporting receipts and the documentation.

For example: a landlord with gross rental income of IQD 6,000,000/year may claim a standard deduction of IQD 600,000 (10%). If the actual expenses are IQD 800,000, the itemised deduction is more beneficial.

Real Estate Registration Required

• Compulsory registration: The real estate in Iraq must be registered with the Real Estate Registration Directorate (دائرة التسجيل العقاري) under the Ministry of Justice. The registration is required for the legal recognition of the ownership and for the tax purposes.
• Impact on rental income: The GCT requires the proof of the real estate registration to allow the rental expense deductions and to verify the rental income. The unregistered properties may face the challenges in the tax compliance.
• Transfer tax: The real estate transactions (sale, gift, inheritance) are subject to the real estate registration fees and the transfer taxes, which vary by the property value and the location.

For example: a landlord who owns a property in Baghdad must ensure that the property is registered with the Real Estate Registration Directorate to claim the rental expense deductions and to report the rental income.

KRG — Separate Rules

• Separate KRG regime: The Kurdistan Regional Government has its own rules for the rental income taxation. The KRG may impose a flat rate on the rental income instead of the progressive federal rates.
• KRG rental tax: The KRG tax authorities may levy a 5–10% flat tax on the gross rental income, without the standard deduction or the itemised expenses. The landlord must register with the KRG General Tax Authority in Erbil.
• Dual compliance: A landlord with the properties in both the federal Iraq and the Kurdistan Region must comply with both the federal and the KRG tax rules.

For example: a landlord with a rental property in Erbil pays the KRG rental tax at 5% of the gross rent, filed separately with the KRG General Tax Authority.

Non-Resident Landlord — 15% WHT on Gross Rent

• Withholding tax — 15%: If the landlord is a non-resident of Iraq, the tenant (or the property manager) must withhold 15% of the gross rental payment and remit it to the GCT as the final tax. The non-resident landlord is not required to file the annual tax return for the rental income.
• No deductions: The 15% withholding tax is applied to the gross rental income, without any deduction for the expenses. The non-resident landlord may not claim the standard or the itemised deductions.
• Responsibility: The tenant is responsible for the withholding and the remittance. The failure to withhold may result in the penalties for the tenant.

For example: a non-resident landlord in the UAE receives IQD 2,000,000/month in gross rent from a tenant in Baghdad. The tenant withholds IQD 300,000 (15%) and remits it to the GCT.

Lease Registration at the Municipality

• Mandatory lease registration: The lease agreements in Iraq must be registered with the local municipality (البلدية) where the property is located. The lease registration is required for the legal enforceability of the lease and for the tax purposes.
• Municipal fees: The lease registration involves the payment of the municipal registration fees, which are typically a percentage of the annual rent. The fee varies by the municipality.
• Tax compliance: The GCT may cross-check the lease registration data with the tax returns to verify the rental income. The unregistered leases may trigger the tax audits.

For example: a landlord registers the lease agreement with the Baghdad Municipality and pays a 2% municipal registration fee on the annual rent, then uses the registered lease as the evidence for the tax return.

FAQs

Is the rental income subject to the VAT in Iraq?

No, Iraq does not have a value-added tax (VAT). There is no VAT on the rental income. However, the Reconstruction Tax may apply to the corporate landlords in addition to the income tax.

Can the mortgage interest be deducted from the rental income?

The mortgage interest on the property is not explicitly listed as an allowable deduction under the Iraqi tax law. The interest expense may be deductible if it is directly related to the generation of the rental income, but the taxpayers should confirm the treatment with the GCT.

What happens if the rental income is not declared?

The undeclared rental income may be discovered through the municipality lease registration data or the tenant's withholding records. The penalties for the tax evasion include: the back taxes, the penalties of up to 6% per annum on the unpaid tax, and the potential criminal prosecution in the serious cases.