Iraq's Income Tax Law No. 113 of 1982 imposes a progressive tax on a resident individual's income, after deducting the legal allowances, through four consecutive brackets: 3% on the first 250 thousand dinars, then 5% on the amount above that up to 500 thousand dinars, then 10% on the amount above that up to one million dinars, and finally 15% on everything exceeding one million dinars.

The Tax Brackets for a Resident Individual's Income

The law provides that the tax is imposed on what remains of a resident individual's income after deducting the tax allowances granted to them, according to the following rates:

The same rates apply to a non-resident individual's income from Iraqi sources, subject to special provisions on certain types of income subject to direct withholding at different rates, such as interest and annual payments due to non-residents outside Iraq.

The Employer's Role in Withholding the Tax

The law obliges every "employer" to deduct the tax due on its employees from the cash and in-kind salaries, allowances and taxable retirement pensions it pays them, and to remit it to the tax authority starting from the beginning of the assessment year in the manner determined by the Minister of Finance. This is what is known in practice as the direct payroll withholding system, under which the employer is responsible for deducting the monthly tax before paying out the employee's net salary, with adjustments for any over- or under-withholding made during the assessment year.

Who Qualifies as a "Resident" for Salary Tax Purposes?

Applying the income tax brackets depends on determining "resident" status. Among other cases, Iraqi law defines a resident as an Iraqi who has resided in Iraq for a period of no less than four months during the year in which the income arose, or whose absence from Iraq is temporary and who has a permanent employee and a main place of business in Iraq. The progressive brackets of 3%, 5%, 10% and 15% apply to this category's income after granting the legal allowances.

Combining a Married Couple's Income

The law allows a married couple to jointly request that their income be combined and the tax imposed in the husband's name, during the tax return filing period, in one of three cases: if the husband has no taxable income, if his income is below the legal allowance, or if the wife's income is below the legal allowance she is entitled to as a taxpayer in her own right. In these cases, the same bracket scale (3%, 5%, 10% and 15%) applies to the combined income after granting the allowances due to the family.

How Are the Brackets Applied in Practice?

Each rate applies only to the portion of income falling within its own bracket, not to the entire income; that is, the income is divided into up to four portions, each taxed at its own rate, and the partial tax amounts are then summed to obtain the total tax due. These brackets are calculated after deducting the legal allowances granted to the taxpayer based on their family status, not on the gross salary before allowances.

Illustrative Example

Illustrative example with hypothetical figures for explanation only: if taxable income (after allowances) were 250 thousand dinars in a given month, the entire tax due on it would fall within the first bracket at 3% only, because the amount does not exceed the first bracket's threshold.

Scope of These Brackets and the Kurdistan Region

The brackets above (250 thousand, 500 thousand and one million dinars) are the brackets for a resident individual's income across Iraq generally. In the Kurdistan Region, however, the same Article 13 was separately amended for the Region to set different brackets at the same rates of 3%, 5%, 10% and 15%, but with higher thresholds: 3% up to two million dinars, 5% on the amount above that up to 4 million dinars, 10% up to 6 million dinars, and 15% above 6 million dinars.

Legal References