Iraq's Income Tax Law fully exempts a number of income types from tax, most notably agricultural income, real estate income already subject to real estate tax, retirees' pension-related income, income of cooperative societies, plus a temporary exemption for some new hotels, in addition to personal allowances deducted from the taxpayer's income before the tax is calculated.
Exemptions for Specific Types of Income
Article 7 of the Income Tax Law provides that the following income is fully exempt from tax, most notably:
- Agricultural income earned by farmers and livestock breeders from plant and animal produce, including animal husbandry.
- Real estate income already subject to the Real Estate Tax Law, to avoid double taxation of the same source.
- Retirees' or their dependents' income arising from the retirement pension, the retirement gratuity, the end-of-service gratuity, and regular leave pay.
- Income of cooperative societies.
- Individuals' income from interest on their deposits and accounts in Iraqi banks and savings funds.
- Any lump sum paid as a benefit or compensation to a deceased person's family, or any compensation to a taxpayer for injury or death.
- Salaries and allowances paid by foreign missions to their diplomatic staff, with their non-diplomatic staff and non-Iraqi consular staff eligible for exemption by decision of the Council of Ministers on a reciprocal basis.
- Profits and income of socialist-sector establishments and enterprises, including municipalities and local government.
A Temporary Exemption for Some New Hotels
The law also exempts the income of deluxe- and first-class hotels established in Baghdad, for the first five years from the start of their operation, with the exemption period extending to seven years for similar hotels established outside Baghdad. This exemption does not cover premises attached to those hotels that are unrelated to the hotel investment itself, such as storerooms and exhibition halls.
Relief From Double Taxation on Foreign Income
Tax relief is not limited to direct exemptions: the law also allows a resident Iraqi who pays income tax to a foreign country on income derived from that country to deduct that foreign tax from the tax due in Iraq, provided the deducted amount does not exceed the tax assessed in Iraq on the income earned from that foreign country, calculated at the rate applied in Iraq. If the foreign tax paid exceeds this limit, the excess is carried forward for five consecutive years and deducted within the allowable limit for each of those years.
Personal Allowances From an Individual's Income
Alongside exempting specific types of income, the law grants every resident person personal allowances deducted from their assessed income before the tax is calculated, including a base amount for the taxpayer personally or for an unmarried female taxpayer, an additional amount for a homemaker spouse with no income, a fixed amount for each child regardless of their number, and a higher amount for a widow or divorcee. The law also grants a taxpayer who has passed the age of sixty-three an additional exemption of 300 thousand dinars, added to the other allowances granted to them under other sections of the law.
Legal References
- Income Tax Law No. (113) of 1982 — Articles 7 and 12