What Taxes Do American Expats Living in Iraq Have to Pay?
- Living as an American Expat in Iraq
- Iraq at a Glance
- What Are Expat Taxes like for Americans Living in Iraq?
- Who Has to File Taxes in Iraq?
- Who Qualifies as a Tax Resident in Iraq?
- What Types of Taxation Does Iraq Have?
- What Tax Forms Do Americans Living in Iraq Have to File?
- What US Tax Deductions Are Available for Expats Living in Iraq?
- When Are Taxes Due in Iraq?
- Does the US Have a Tax Treaty with Iraq?
- Does the US Have a Totalization Agreement with Iraq?
- What If I’m Behind on Filing My US Expat Taxes?
- Navigating Tax Compliance for US Expats in Iraq
Living as an American Expat in Iraq
Living as an American expat in Iraq can be a unique and rewarding experience, but it comes with its own set of challenges. As an expatriate in Iraq, you’ll have the opportunity to immerse yourself in a rich and vibrant culture that is steeped in history and tradition. However, you’ll also need to navigate complex tax laws and regulations to ensure that you’re complying with all necessary requirements.
As an American living in Iraq, you’ll still be subject to US taxes on your worldwide income. However, there are certain exemptions and deductions that may be available to you, depending on your individual circumstances. For example, you may be eligible for the Foreign Earned Income Exclusion, which allows you to exclude a certain amount of your foreign earnings from US taxation.
In addition to US taxes, you’ll also need to comply with Iraqi tax laws. The Iraqi tax system is based on a progressive tax rate, which means that the more you earn, the higher your tax rate will be.
What taxes can you expect to pay as an American living in Iraq? Read on to get the answers you need.
Iraq at a Glance
- Primary Tax Form for Residents: Iraqi Income Tax Return Form
- Tax Year: January 1–December 31
- Tax Deadline: May 31
- Currency: Iraqi dinar (IQD)
- Population: 40.4 million
- Number of US Expats: Estimated 1,000+
- Capital City: Baghdad
- Primary Language: Arabic
- Tax Treaty: No
- Totalization Agreement: No
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.
Learn where the best tax havens are, common traps, and ways to save money on your US expat taxes.
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?
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).
|Income Level (IQD)
|0 – 250,000
|250,000 – 500,000
|500,000 – 1,000,000
|1,000,000 and over
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%.
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%
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%.
What Tax Forms Do Americans Living in Iraq Have to File?
Most Americans living in Iraq will have to file an Iraqi tax return. In addition to this, you will also have to file a US tax return. You may have further US filing requirements, as well. Let’s look at the most common tax forms US expats have to file.
IRS Form 1040: Individual Income Tax Return
Form 1040 is the standard US individual income tax return. All US citizens are required to file this form regardless of where they live. For most US citizens, Form 1040 is due on April 15th. For expats, that deadline is automatically extended to June 15th.
IRS Form 8938: Statement of Specified Foreign Financial Assets (FATCA)
If you own non-US financial assets valued above certain thresholds, you must file a FATCA report. The specific threshold for your finances will depend on your filing status and whether you qualify as a bona fide resident of Iraq. If you do have to file a FATCA report, attach it to your Form 1040 and file both at the same time.
FinCEN Form 114: Report of Foreign Bank and Financial Accounts (FBAR)
If you have at least $10,000 deposited in one or more non-US bank accounts, you’ll need to report it by filing FinCEN Form 114, also known as the FBAR. This is not an IRS form—rather, it’s issued by the Financial Crimes Enforcement Network (FinCEN). That doesn’t make it any less essential, though. Failing to file an FBAR when required can result in severe penalties.
The FBAR is technically due on April 15th, but if you miss that deadline, don’t panic. The deadline will automatically extend to October 15th
What US Tax Deductions Are Available for Expats Living in Iraq?
The IRS provides several other potential tax credits and deductions for Americans overseas. Using these tax benefits, many expats are able to erase their US tax debt entirely. Here are the three most common.
1. Foreign Earned Income Exclusion
The Foreign Earned Income Exclusion is a tax credit that lets expats exclude a certain amount of foreign-earned income from US taxation. The exact amount you can exclude changes from year to year. For the 2023 tax year, the limit is $120,000. If you qualify for the Foreign Earned Income Exclusion, you can claim it by filing IRS Form 2555.
2. Foreign Tax Credit
The Foreign Tax Credit will offset your US tax bill by the amount of taxes you paid to a foreign government—dollar for dollar. This helps reduce the possibility of double taxation in countries without a US tax treaty. If you qualify for the Foreign Tax Credit, you can claim it by filing IRS Form 1116
3. Foreign Housing Exclusion
The Foreign Housing Exclusion lets expats deduct housing-related expenses from their US tax bill. If you qualify for the Foreign Housing Exclusion, you can claim it by filing Form 2555, the same form used for the Foreign Earned Income Exclusion.
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.
When you live in the US, tax day is simple: April 15th! When you move abroad, it’s not so straightforward! Learn about all the expat deadlines and extensions you need to know to file.
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.
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.
Navigating Tax Compliance for US Expats in Iraq
If you’re an American living in Iraq, you may wonder about your expat tax obligations. We hope this guide has answered your questions. If you need further assistance or have additional inquiries, our team is here to help.
If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions.