Iraq's Commercial Bookkeeping System for Income Tax Purposes No. 2 of 1985 requires specific categories of taxpayers, such as companies and holders of capital of 30 thousand dinars or more, to keep a general journal, a general ledger and store books in Arabic, to have the journal notarized by a notary public, and to retain the books and documents for at least seven years.
The Required Books and Documents
The system specifies the books and documents required for its purposes, including:
- The general journal and any auxiliary journal required by the nature of the business, such as a cash journal, a purchases journal and a sales journal, among others.
- The general ledger and any auxiliary ledgers required by the nature of the business.
- Store books, such as a raw materials book, a finished goods book and a book for goods purchased for sale.
- Files of correspondence and other documents, kept in sequence according to the date each was prepared or issued.
Rules for Keeping and Notarizing the Books
The books are kept in Arabic, and the journal is notarized by a notary public under the Commercial Law; this notarization also covers cards used instead of the journal, at the end of the year and after they are bound. The books must be free of any crossing-out, erasure, insertion or blank space not permitted by proper bookkeeping practice, and accounts may be kept on a computer under special conditions relating to organizing the journal on sequential sheets that are bundled, bound and notarized by a notary public at the end of each fiscal year.
Who Is Subject to This System?
The system obliges the following to keep commercial books and submit final accounts audited and certified by an auditor: companies; branches of foreign companies and economic establishments; simple partnerships and other partnerships with capital of 30 thousand dinars or more; merchants registered with chambers of commerce and industry in the first and second categories; importers and exporters whose dealings reach a certain threshold; classified contractors; and owners of hotels classified as three stars or above. Taxpayers with lower capital or transaction volumes keep simplified books without a requirement that they be audited by an auditor.
Keeping Accounts Electronically
The system allows a taxpayer to keep their accounts on a computer instead of the paper books mentioned, provided the journal is organized as sequential sheets showing all journal entries in a form that can be reviewed and audited, with these sheets bundled in chronological order, bound, and notarized by a notary public at the end of each fiscal year to which they relate.
Professionals and Craftspeople
The system gives special treatment to members of the professions and craftspeople, providing that they keep simplified accounting books according to forms prepared by the tax authority and suited to the nature of each profession or craft, instead of the full commercial books required of companies and large merchants. The categories covered by this treatment notably include professionals such as physicians, lawyers and engineers, as well as craftspeople such as blacksmiths, barbers, carpenters and tailors.
The Retention Period for Books and Documents
A taxpayer may not destroy or otherwise dispose of the books, documents and correspondence covered by the system without the written approval of the tax authority, unless more than seven years have passed since the end of the accounting year whose assessments have become final, and the taxpayer may keep a copy instead of the original during this period.
Legal References
- Commercial Bookkeeping System for Income Tax Purposes No. 2 of 1985 — Articles 1, 2, 3, 5 and 7