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Tishk International University
Faculty of Administrative Sciences and Economics
Department of Accounting
Introduction to Taxation –ACC 233
Topic : Taxation in Iraq and KRG
Second Grade- 2021-2022
Instructor: Bryar Tofiq
Objectives
Understand taxation Law in Iraq
Understand Federal Income Tax Law No.113 of 22 November,
1982
DETERMINATION OF RESIDENCE
Different Type of Taxation In Iraq and KRG
Some article of Federal Income Tax Law
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By the end of this Chapter, you will be able to :
Iraqi Tax Institution is one of the oldest tax institutions in the Arab
World, or may be in the whole region. However, Othman Tax
Legislation prevailed in Iraq for many centuries.
Iraq has established the first income tax low after the establishment
of the National Government in 1920
Where the Income Tax Law No. 52 was issued in 1927.
But The main source of tax law in Iraq is the Federal Income Tax Law
No.113 of 22 November, 1982, as amended in 2003 (the “Federal
Income Tax Law”).
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The tax authority in Federal Iraq & KRG
General Commission for Taxes (GCT).
the Large Taxpayer Department (LTD) which Recently, it has been set
up within the GCT to deal with the branches of foreign companies.
The tax authority in the Kurdistan Region is the Income Tax Directorate
(ITD)
The ITD has established a Large Taxpayer Department to look after
the companies classified as “large taxpayers”. The tax year in Iraq is
the calendar year.
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The Taxpayer
The taxpayer is every person taxed under
income tax law No. (113) of 1982 amended
the taxpayer is either (a natural person), the
average individual or (moral person) such as
companies and associations and
Is responsible for the performance (payment) of
the tax to the state.
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DETERMINATION OF RESIDENCE
✓In taxation, residence of an individual plays an important role in
the determination of the tax authority to which the individual
would be liable to pay his tax.
✓However, there is difference between the place an individual is
resident and the place he is deemed resident for tax purposes.
Determination and Importance of Residence
✓In personal taxation, determination of residence is vital, for the
purpose of identifying the relevant tax authority of a
taxpayer.14/11/2021
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Type of Resident in Iraq
Article 5 provides that
(1) Tax shall be imposed on the income of the Iraqi person
resident which arises inside or outside Iraq regardless of place
of receipt.
(2) Tax shall be imposed on the income of the non-resident
which arises in Iraq even if he does not receive it in Iraq.
(3) Tax shall not be imposed on income arising outside Iraq for
the non-Iraqi persons who are resident in Iraq.
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Person” in this context refers to both natural persons and legal persons (i.e. companies, branches of foreign companies, etc.).
An individual is regarded as resident in Kurdistan in an
assessment year if he:
(a) Is domiciled in Kurdistan;
(b) Stay in Kurdistan for a period or periods in all
amounting to 182 days or more in a 12-month period;
(c) Serve as a diplomat or diplomatic agent of Kurdistan in
a country other than Kurdistan. 14/11/2021
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Non Resident Individual
✓A non-resident individual is a person who is not domiciled
in Kurdistan or who stays in Kurdistan for less than 182
days in a 12-month period but derives income or profit
from Kurdistan.
✓A non-resident individual becomes liable to tax in
Kurdistan from the day he commences to carry on trade,
business, vocation or profession in Kurdistan.
✓In the case of employment income, he is liable to tax in
Kurdistan when he becomes a resident. 14/11/2021
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Type of Taxation In Iraq and KRG
1. Direct Tax
A. Income Tax
B. Real Estate Tax
2. Indirect Tax
A. Value added tax
B. Stamp duty
C.Customs duty 14/11/2021
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Income Tax
A. Taxable income
Taxable income generally includes all income from whatever source.
As per Article 2 of the Federal Income Tax Law the following types of income
are considered taxable income:
❖ Profits from commercial activity or from activity of a commercial nature
❖ Interest, commissions, discount and profit arising from trading in bonds
and securities;
❖ Rental of agricultural land;
❖ Salaries, pensions, bonuses, wages of specified work in a limited period of time,
❖ Any other source not exempted by law and not liable to any tax in Iraq.
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Income Tax
B. non-Taxable income or exempted from tax
Some example of non-taxable income
❖Agricultural income arising to cultivators and cattle
breeders from agricultural and animal products, including
cattle breeding.
❖Real estate income which is subject to Real Estate Tax Law
❖Income of Al-Awqaf, places of worship, religious institutions,
which are legally recognized, charitable and educational
establishments formed for the public interest
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Income Tax
❖Salaries and allowances paid by foreign diplomatic
delegations to their diplomatic officials,
❖Income of pensioners
❖Any income exempted from tax by a special law or an
international agreement.
❖New investment project exempted from income tax for
10 years from the state of business in KRG 14/11/2021
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Real Estate Tax
The property tax is imposed under the Tax on The Property
Numbered 162 of 1959, which is a basic tax on the rented
property at 10% of the annual rental allowance for the property
The taxpayer can pay tax on his property in two installments
A. starting from (1/1) until (30/6) of the year,
B. the second installment starts from (1/7) until (31/12) of the year,
C. and the taxpayer can pay the full annual tax in one
installment during the year.
- A delay interest of (10%) of the annual basic tax is imposed if the
taxpayer is late in paying the tax during the fiscal year
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a. Value added tax
A Value-Added Tax (VAT) is a consumption tax assessed on the
value added in each production stage of a good or service.
Every business along the value chain receives a tax credit for the
VAT already paid.
The end consumer does not, making it a tax on final consumption.
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Indirect Tax
Iraq levies sales tax on certain consumer products, including five-star hotels, phone cards, tobacco and alcoholic beverages.
b. Stamp Duty
Contracts are subject to stamp Tax
Stamp Duty Law No. 71 of 2012 provides that the signing of
contracts should be subject to stamp duty at a rate of 0.2%.
In practice, the payment of stamp duty is not common for
contracts between private parties, where the contract is not
intended to be presented to a court or official office.
Conversely, for contracts to which a government is a party,
stamp duty will typically be paid at signing unless an
exemption is relevant.
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C. Customs Duty
Customs Duty is a tax imposed on imports and exports of goods.
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In January 2018, The Iraq General Commission of Customs (“IGCC”) announced the unification of the classification of goods into 21 main categories and the applicable custom duty rates to be between 0.5% - 30%.
the IGCC has announced that effective January 2019, customs
duty would be levied on all goods imported into Iraq, including
those imported by state departments, public and mixed sectors,
civil organizations and private parties.
Some Article of Income Tax law
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Article (8)
Personal income tax Rate
In Federal Iraq, personal income tax applies on
employees’ salaries at the following rates:
Up to IQD 250,000: 3%
Between IQD 250,000 and 500,000: 5%
Between IQD 500,000 and 1,000,000: 10%
Amounts in excess of IQD 1,000,000: 15%
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Personal income tax rate
Personal income tax is applicable forboth Iraqi tax residents, and
non-Iraqi tax residents who have Iraq-sourced income.
Personal income tax is broadly levied on all employees’ income,
including basic salary and allowances which are paid in addition
to basic salary.
In Kurdistan Region, a flat tax rate of 5% is applied to employees’
salaries.
The Kurdistan Region tax authority generally levies income taxes
on basic salary plus any allowances in excess of 30% of the basic
salary.
Individuals are entitled to a tax-free legal allowance of IQD
1,000,000 per month. 14/11/2021
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Deductions in calculating taxable income
Entities registered in Federal Iraq are required to prepare annual financial
statements, which should be prepared
in Arabic and in accordance with Iraqi Uniform Accounting Standards
(UAS).
Article 8 of the Federal Income Tax Law sets out certain expenses which
are specifically allowed as deductions in calculating taxable income. As
a general principle,
it is stated that all expenses incurred by the taxpayer in order to produce
income during the year shall be deducted in calculating taxable profits.
Any deductions which are claimed should be supportable by appropriate
documentation and
it is common for the authority to request any supporting documentation
that they consider is necessary to gain comfort
with respect to the financial statements and tax calculation. 14/11/2021
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Article (4)
Some example of deducted
(1) Interests paid on money borrowed and invested in the production of the income or its increase.
(2)
(a) The rental of the place occupied for earning income;
(b) Depreciation of the building owned by the taxpayer and used by the taxpayer to earn income.
(c) The annual cost of superficiary which includes the cost of the rental of the lands and cost of the buildings constructed on them if the building occupied for earning income is being build on leased land.
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(3) Amounts expended for the maintenance of
machinery and equipment or for replacement
of tools and parts.
(4) The proportion, determined by regulation,
of the cost of tangible fixed assets (excluding
buildings and lands),
(5) Taxes and fees actually paid except
Income Tax and Real Estate Tax
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➢ (6) Pensions, salaries and contributions decided by
Pension and Social Security Laws.
➢ 7) Donations paid in Iraq to the Government and
Socialist Sector departments and to scientific,
cultural, educational, charitable and spiritual
organizations which are legally recognized .
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The loss of a taxpayer in some sources of income arising
in Iraq, substantiated by legally accepted documents,
shall be deducted from profits arising from other sources,
liable to tax in the same year of assessment.
Losses which cannot be settled in this manner, shall be
carried forward and deducted from the income of the
taxpayer during 5 consecutive years,
Tax COLLECTION
The Financial Authority shall notify the taxpayer in writing to
pay the tax stating the amount thereof and the date it becomes
due. The signature of the taxpayer on the notice of the
assessment shall be considered as notification for payment.
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Article (9)
If the tax is not paid within 21 days from the date of
notification, there shall be added 5% of the amount of
tax. This amount shall be doubled if the tax is not paid
within 21 days after the lapse of the first period.
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If the tax is not paid on the determined dates, as indicated
befor, an interest, equal to the current banking interests
current in Al-Rafidain Bank on over draft facilities (14%)
(Fourteen percent), will be charged on the due tax amount
till the date of payment.
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The following formula is used in order to calculate interest charges for every day of delay:
Example: The employer did not pay the Taxes on the determined dates, as indicated in
paragraph (3) of this article, for duration of 30 days (the start day is the 16th of the month),
and the amount owed in Taxes is 100,000 IQD the Penalty will be
(100,000)*(30/360)*(14%) = 1,167 IQD
+
5,000 IQD = 5% of 100,000 (for the initial 21 days) +
5,000 IQD = 5% of 100,000 (for second 21 days)
Total Penalty will be 11,167 IQD
Therefore the employer after 30 days would be required to pay a total of 111,167 IQD
The sum delayed ∗Days of delay
𝟑𝟔𝟎∗ 𝟏𝟒%
The Minister, or the person authorized by him, may exempt the taxpayer from the additional amount, wholly or partially
if that he is satisfied that the delay in payment by the taxpayer was due to
A. his absence from Iraq,
B. sickness incapacitating him from work or any other event of force majeure.
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REFUNDING OF OVERPAID TAX
The General Commission for Taxes shall refund the
excess collected tax of the employee without need to
submit a request, if it’s verified that there is no due
taxes for his other income sources.
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Article (13)
OBJECTION AND APPEAL ON TAX ASSESSMENT
The employer, after being notified of the assessed income on his
employees, and the tax due from them, may submit a written objection
to the General Commission for Taxes, Direct Deduction Department,
Which should be within twenty-one days as to the date of his
notification
They must showing reasons for the objection and the amendment
demanded by him, presenting the necessary documents on the income
in order to prove his objection.
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1. Objection
Article (14)
2. Appeal
The person, whose objection regarding the amount of income or tax is rejected by the General Commission for Taxes
may appeal against its decision to the Appeal Committee,
by an application to be submitted to the Committee within twenty-one days from the date he is notified of the rejection of his objection.
He shall have to prove his claims by documents, records and other statements.
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