Simple Tax Guide for Americans in Iraq
US Expat Taxes - Iraq
At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and green card holders working in Iraq for over 4 years. Our clients are mainly defense contractors who work in Baghdad and Mosul.
As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country.
We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS.
The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the calendar year as is standard in IraqIraq for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.
Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax and legal concerns; we look forward to working with you.
Personal income tax rates in Iraq
Below we include information on the Iraqi Tax System for the American Expatriates.
Tax shall be imposed on the taxpayer in respect of each year of assessment at the following rates Â– resident individual after granting the allowance(s) provided for in Article 12, and non-resident individual:
- at the rate of 3% on amounts up to ID 250,000;
- at the rate of 5% on amounts over ID 250,000 and up to ID 500,000;
- at the rate of 10% on amounts over ID 500,000 and up to ID 1,000,000;
- at the rate of 15% on amounts over ID 1,000,000.
The tax rate for income earned by corporations from April 1, 2004 will be a flat 15%. As provided for in the current Income Tax Law Number 113 of 1982, the rate will be levied on the income of private sector companies (limited liability companies, private joint-stock companies and mixed joint-stock companies), including income of foreign companies operating in Iraq. This lower rate, compared to the prior rate of up to 40%, will encourage reinvestment of company profits. This in turn will encourage increased capital investment and job creation in Iraq by private sector firms. The lower flat rate also will lead to increased revenue collection as companies respond to Iraq's transition to a free market-based economy.
Exemptions from taxation are given to the following:
- the CPA, Coalition Forces, forces of countries acting in coordination with Coalition Forces, and departments and agencies of Coalition Forces' governments, are not liable for any tax or similar charge within the territory of Iraq;
- governments and international organisations are not liable for any tax or similar charge within the territory of Iraq;
- foreign (non-Iraqi) employees and foreign (non-Iraqi) contractors and subcontractors of the CPA, Coalition Forces, forces of countries acting in coordination with Coalition Forces, and departments and agencies of Coalition Forces' governments, that are providing technical, financial, logistical, administrative or other assistance to Iraq, and foreign employees of such contractors and sub-contractors, shall not be liable to pay any tax on income or similar charge within the territory of Iraq on income from foreign sources or on income from or paid on behalf of the CPA, Coalition Forces, forces of countries acting in coordination with Coalition Forces, or departments or agencies of the governments of Coalition Forces;
- foreign (non-Iraqi) employees and foreign (non-Iraqi) contractors and subcontractors of foreign (non-Iraqi) governments, international organisations, and non-governmental organisations registered pursuant to CPA Order Number 45, that are providingtechnical, financial, logistical, administrative or other assistance to Iraq, and foreign employees of such contractors and subcontractors, shall not be liable to pay any tax on income or similar charge within the territory of Iraq on income from foreign sources or on income from or paid on behalf of such governments, international organisations, and non-governmental organisations.
In addition to the above, the following persons shall be exempt from payment of income tax:
- members of foreign diplomatic missions to Iraq, as well as members of their households, if they are not citizens of Iraq;
- members of consular offices, as well as members of their households, if they are not citizens of Iraq;
- honorary consuls of foreign countries, but only for income received from the country that has appointed them honorary consul.