Corporate Tax in Iraq (2025): Full Guide for Foreign Companies

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Iraq operates a flat corporate income tax (CIT) system, with a standard 15% rate applying to most companies, and a 35% rate for the oil and gas industry, specifically for oil & gas production, extraction, and related service contracts. 

All income derived from Iraq is taxable in Iraq, regardless of whether the company is Iraqi or foreign-owned.

For foreign companies, particularly those involved in engineering and construction or working on government contracts in the energy sector, understanding the scope of tax, permanent establishment rules, withholding tax, and compliance obligations is critical for pricing, risk management, and cash-flow planning. 

This guide focuses on 2025 rules and is designed for foreign companies and investors committed to sustainability efforts.

As of 2025, Iraq applies the following headline corporate income tax rates: 

• 15% on taxable profits for most sectors and activities, including engineering and construction, 
• 35% on income from the oil and gas industry, covering production, extraction, and related industries, such as many service contracts linked to upstream operations (Law No. 19 of 2010). 

These rates generally apply to net taxable profit, not gross revenue.

Foreign companies are taxed at the same rate as Iraqi companies. There is no separate, higher 'non-resident corporate tax rate'; the distinction comes from how profit is measured and how withholding and deemed profit rules are applied, which can be particularly relevant for those engaged in sustainability efforts within their operations.

Iraq’s tax system is primarily source-based: 

• All income derived from Iraq is subject to Iraqi tax, irrespective of whether the company is resident or non-resident. 
• Foreign companies with a permanent establishment (PE) in Iraq or a registered branch are subject to a 15% corporate income tax (CIT), or 35% for those engaged in the oil and gas industry, on profits attributable to Iraqi activities. 

A foreign company may be deemed to have a PE or taxable presence in Iraq if, for example: 

• It has a branch registered with the Ministry of Trade 
• It has a fixed place of business (such as an office, project site, or workshop) in Iraq 
• It operates through a long-term project or contract in Iraq, including those related to engineering and construction 
• It provides services in Iraq for a sufficient period or under specific contract structures, potentially contributing to sustainability efforts. 

Even in the absence of a formal branch, tax may still be assessed through withholding tax on deemed profits (see Section 6).

4.1 Taxable Income

Taxable income is generally accounting profit adjusted for tax purposes. In broad terms:

Taxable income = Iraq-source revenues − allowable, income-producing expenses

All income connected to activities performed in Iraq, including those in the engineering and construction sector as well as the oil and gas industry, is potentially taxable, even if invoiced in foreign currency or paid offshore.

4.2 Deductible Expenses

In principle, all expenses incurred to generate income are deductible, provided they are:

• Actually incurred
• Related to income-generating activities
• Properly supported by acceptable documentation

Examples typically deductible if documented include:

• Salaries, wages, and benefits
• Rent and utilities
• Repairs and maintenance
• Depreciation on qualifying assets
• Professional and advisory fees
• Local travel and business expenses
• Certain bad debts (subject to conditions)

Non-deductible or restricted items may include:

• Bribes and illegal payments
• Fines and penalties
• Certain undocumented expenses
• Some donations that are not to approved organizations

For foreign companies, especially those involved in engineering and construction or the oil and gas industry, it is crucial to align contract pricing, cost allocation, and documentation with Iraqi tax expectations to avoid aggressive adjustments during tax audits. This alignment can also support sustainability efforts by ensuring compliance and reducing financial risks.

The oil and gas industry in Iraq is governed by specific tax regulations and a higher effective rate.

• Law No. 19 of 2010 imposes a 35% tax on income derived from contracts with foreign oil companies and their subcontractors involved in oil and gas production, extraction, and related industries, including engineering and construction services.  

In practice, this means that:

• Upstream operators, EPC contractors, and numerous technical service providers engaged in oilfield projects may be subject to the 35% rate, even if they are not directly involved in oil production. 
• The wording of contracts, the scope of work, and the relationships within the “chain” of parties (operator–prime contractor–subcontractor) can affect the applicable rate and tax mechanism.  

Foreign companies participating in the Iraqi oil and gas sector must carefully:

• Review contract structures. 
• Understand whether their activities align with “related industries” as defined by Law 19/2010, and ensure pricing reflects a 35% effective tax where applicable. 

These considerations are crucial, as overlooking them can significantly erode margins, hindering sustainability efforts in their operations.

Iraq applies withholding tax (WHT) primarily through "deemed profit" mechanisms for non-resident service providers and contractors in sectors such as engineering and construction and the oil and gas industry. 

According to current guidance: 

• Non-resident entities may be subject to a 15% corporate income tax (CIT) applied to a deemed profit percentage of the contract value, which varies depending on the sector and the nature of the contract. 
• For certain oil and gas contracts, it is common practice to apply WHT at rates ranging from 3.3% to 7% of the total contract value, reflecting a 15% tax on a deemed profit margin. 

In other words: 

Effective WHT % on contract value = 15% × deemed profit margin. 

The deemed profit margin is determined by the Ministry of Finance or local instructions for various activities, including construction, services, transport, and sustainability efforts. 

Key implications: 

• WHT is typically withheld by the Iraqi customer (such as a government entity, operator, or local company) and remitted to the tax authority. 
• It may be treated as a final tax for a non-resident without a permanent establishment (PE) or as an advance tax credited against the final CIT if a tax return is filed. 
• Contract negotiations must address gross-up clauses and the allocation of WHT costs between parties.

7.1 Tax Year and Filing Deadlines

• The tax year is usually the calendar year.  
• CIT return due date: 31 May following the end of the year.  
• Tax payment deadline: Typically within 3 days from the assessment date issued by the tax authority.  
• There is generally no requirement for quarterly estimated payments under current practice.  

7.2 Tax Audits and Clearance

Tax audits are common, especially for companies operating in the oil and gas industry or those working with government entities, strategic sectors, or large contracts.

A tax clearance certificate is often required for:

• Release of contract payments
• Renewal of registrations
• Participation in new tenders
• Customs and import-related processes

These requirements can influence sustainability efforts as companies navigate compliance while striving for environmentally responsible practices.

The statute of limitations is typically around five years, but the tax authority may go back further in certain cases such as fraud or non-filing.

 Under Iraq’s Investment Law, investors with a valid license from the National Investment Commission (NIC) or regional commissions may benefit from:

• Up to 10 years of exemption from corporate income tax
• Additional benefits such as customs duty exemptions on imported equipment and machinery
   

After the exemption period, income is subject to the standard 15% rate (or 35% in applicable oil & gas projects).

However:

• Exemptions are not automatic – they must be applied for, approved and maintained in line with the license conditions.
• Poor compliance, change of project scope, or deviation from the investment license terms can jeopardize the incentive.

 Foreign companies in Iraq regularly face issues such as:

• Confusion over which rate (15% or 35%) applies 
• Incorrect or missing withholding tax handling in contracts
• Poor documentation of costs, head-office allocations and intercompany charges
• Delays in tax clearance certificates affecting payment flows 
• Misalignment between commercial pricing and post-tax profitability
   

These issues are most acute in oil & gas, construction, engineering and services, where deemed profit and 35% regimes often apply.

 From our presence in Iraq and the UAE, ASHUR International helps foreign companies with:

• Pre-bid and pre-contract tax analysis (15% vs 35%, WHT, deemed profit impact)
• Branch and PE structuring, including registration and local compliance
• Preparation and filing of corporate income tax returns in Iraq
• Withholding tax planning, contract gross-up clauses and documentation
• Support during tax audits and negotiations with the General Commission for Taxes
• Analysis of eligibility for investment incentives and support with NIC processes
• Integrated support across tax, payroll, social security and corporate compliance
   

Our goal is to make Iraq a manageable and predictable tax environment for foreign investors, contractors and service providers.