What Taxes Do American Expats Living in Iraq Have to Pay?

Living as an American Expat in Iraq

Iraq is home to a number of US citizens, most of whom are there for work or service abroad. What taxes can you expect to pay as an American living in Iraq? Read on to get the answers you need.

Iraqi Taxes at a Glance

What Are Expat Taxes like for Americans Living in Iraq?

As long as you live and work in Iraq, you will most likely have to pay taxes to the Iraqi government. Unfortunately, this doesn’t cancel your US tax obligations. You will still have to file a US tax return every year regardless of where you are in the world. (As an expat, you may have additional US reporting requirements.)

In this guide, we’re going to look at how the US and Iraq each tax Americans living abroad. Let’s start by talking about Iraqi taxation.

Who Has to File Taxes in Iraq?

Iraq’s taxation policies vary depending on your citizenship and residency status. 

• Resident citizens are taxed on their worldwide income, while non-resident citizens are taxed on only their Iraq-source income.
• All noncitizens are taxed on only their Iraq-source income, regardless of whether they are residents of Iraq.

Income from an Iraqi employer is taxed at the source. However, just like in the US, employees must then file an annual tax return to reconcile their actual tax obligations with the estimated taxes withheld throughout the year. You must use your annual return to report any other forms of taxable income as well, such as self-employment income or investment income.

Who Qualifies as a Tax Resident in Iraq?

You will be considered a resident of Iraq if any of the following standards is true:

• You have lived in Iraq for four consecutive months
• You have lived in Iraq for six nonconsecutive months within a single year
• You are employed by an Iraqi business

If none of these qualifications apply, you will be considered a non-resident for tax purposes.

However, non-citizens are only taxed on their Iraq-source income regardless of residency status.

What Types of Taxation Does Iraq Have?

Income Tax

Iraq taxes residents and non-residents alike at progressive rates ranging from 3% to 15%. Below, you can see the current Iraqi income tax rates. (All amounts are given in IQD).

Social Security Tax

Like the US, Iraq maintains a social security system funded by a payroll tax. All Iraqi-based businesses and their employees are required to contribute to this system. Employees must contribute 5% of their salary, while employers must contribute an additional 12%–25%.

Sales Tax

The Iraqi government imposes a sales tax on certain goods and services. The rate for this tax depends on the details of the sale.

• Alcohol and tobacco products are taxed at 300%
• Mobile recharge cards and internet services are taxed at 20%
• Travel tickets are taxed at 15%
• Cars are taxed at 15%
• Services rendered by first-class restaurants and hotels are taxed at 10%

Stamp Duty

Iraq levies a 0.2% stamp duty on fixed-price contracts.

Real Estate Tax

Income derived from real estate is taxed at 10% of the total annual revenue from all properties.

Corporate Income Tax

As with individuals living in Iraq, foreign corporations are taxed on only their Iraq-source income. Corporate income is generally taxed at a flat rate of 15%. For foreign oil and gas companies operating in Iraq, this rate increases to 35%. 

When Are Taxes Due in Iraq?

The Iraqi tax year is the same as the calendar year. It begins on January 1 and ends on December 31. If you are required to file a tax return with the Iraqi government, you must file it by May 31.

Does the US Have a Tax Treaty with Iraq?

No. There is currently no US-Iraq tax treaty. This leaves Americans living in Iraq at risk of being taxed twice on their income. Fortunately, the IRS provides several tax benefits to help expats avoid double taxation. (More on this below.)

Does the US Have a Totalization Agreement with Iraq?

No. The US and Iraq do not currently have a totalization agreement in place. This means that Americans who live and work in Iraq may be required to contribute to both nations’ social security systems.

What If I’m Behind on Filing My US Expat Taxes?

All US citizens must file a US tax return yearly, no matter where they live. However, many Americans neglect this responsibility after moving overseas because they never knew it was required. Fortunately, the IRS provides an amnesty program to help expats come into compliance without facing any penalties. It’s called the Streamlined Filing Compliance Procedures.

To use this program, all you have to do is:

• Self-certify that your failure to file was an accident, not a willful refusal
• File the last three delinquent income tax returns and pay any delinquent taxes you owed during that time (with interest)
• File Foreign Bank Account Reports (FBARs) for the last six years

This will bring you into compliance with IRS regulations.

Get Help with Your Expat Taxes Today

What expat taxes do Americans living in Iraq have to pay? Hopefully, this guide has helped answer that question. If you still have questions, we can answer those, too.