Iraq Payroll & HR Insight from a Global Payroll Outsourcing Leader
This guide is a must read before you either outsource your Iraq payroll or build a local HR and Payroll function. As a Global Payroll Provider, Mercans can guarantee your full compliance with all the applicable regulations.
1.0 Doing Business in Iraq
1.1 Investing in Iraq
Broader economic development, long-term fiscal health, and sustained improvements in the overall standard of living still depend on the central government passing major policy reforms. Iraq’s largely state-run economy is dominated by the oil sector.
The Iraqi Kurdistan Region’s (IKR) autonomous Kurdistan Regional Government (KRG) passed its own oil law in 2007, and has directly signed contracts to develop IKR energy reserves.
Iraq is making slow progress enacting laws and developing the institutions needed to implement economic policy, and political reforms are still needed to assuage investors’ concerns regarding the uncertain business climate, which may have been harmed by the November 2012 standoff between Baghdad and Erbil and the removal of the Central Bank Governor in October 2012.
The government of Iraq is eager to attract additional foreign direct investment, but it faces a number of obstacles including a tenuous political system and concerns about security and societal stability.
Under the Iraqi Constitution, some competencies relevant to the overall investment climate either are shared by the federal government and the regions or are devolved entirely to the regions.
Investment in the IKR operates within the framework of the Kurdistan Region Investment Law (Law 4 of 2006) and the Kurdistan Board of Investment, which is designed to provide incentives to help economic development in areas under the authority of the KRG. Inflation has remained under control since 2006 as security improved. However, Iraqi leaders remain hard pressed to translate macroeconomic gains into an improved standard of living for the Iraqi populace.
Company Registration in Iraq on average takes around 3-4 months.
The requirements/actions for incorporating a limited liability company in the Kurdistan Region include:
- Reservation of name of proposed company at Chamber of Commerce;
- Completed Application Form
- Draft Company Statement/Company Contract (similar to a memorandum of association);
- For each corporate shareholder:
- Certificate of Incorporation;
- Articles of Association/Charter;
- Board Resolution Approving Incorporation Of A Subsidiary In The Kurdistan Region;
- Power of Attorney in favor of a Kurdistan Region Lawyer to undertake
- Incorporation Procedures;
- For each Individual Shareholder:
- Passport Copy;
- Power of Attorney in Favor of a Kurdistan Region Lawyer;
- Lease of Premises in the Kurdistan Region;
- Evidence of Residency of proposed Managing Director in the Kurdistan Region;
- Deposit of Initial Share Capital (Minimum One Million Iraqi Dinars);
- Appointment of Statutory Lawyer;
- Appointment of Statutory Accountant
All documents submitted to the Companies Registry must be in Kurdish, Arabic or accompanied by a translation. Documents signed outside Iraq must be notarized and legalized at the nearest KRG Representation Office or Iraqi Embassy.
The application to establish a company in Kurdistan may be filed in Baghdad, Erbil or Sulaimaniya, and foreigners may own up to 100% of the share capital in any company.
Once the legal entity has been established, to register for payroll the company has to apply to the tax/social security authorities and it may take around 5 working days till completion. A file name for the company will be given after tax/social security inspection visit to the company’s premises.
The registration of a limited liability company (LLC) in Baghdad takes about 3-4 months.
The following documents are required for registration of anLLC in Baghdad:
- Power of Attorney (PoA) for the lawyers in Iraq who will undertake the registration procedures in Iraq. This PoA should be legalized by the Iraqi consulate in the country of registration of the company that will hold shares in the local LLC;
- Copies of the relevant license/certificate of establishment or other equivalent of a “certificate of establishment”, legalized by the Iraqi consulate in the country of registration of the company that will hold shares in the local LLC;
- Copies of the Articles of Association, or, if none, copy of its certificate of formation and its shareholders certificate, legalized by the Iraqi consulate in the country of registration of the company that will hold shares in the local LLC;
- Letter of authorization by the company to the person who will sign the General Assembly Meetings on behalf of the company;
- Colored copies of the passports of the foreign company’s shareholders;
- Colored copy of the passport of the PoA signatory;
- Legible copy of the passport of the individual who will be General Manager of the LLC;
- Letter from a local bank proving the deposit of 100% of the capital (the minimum capital for an LLC is 1,000,000 Iraqi Dinars, which is approximately USD 840);
- Copy of the lease contract for the LLC’s business premises in Iraq, legalized by the municipality (this can be provided as the last step); and
- Copies of the IDs of the Iraqi partner (if the Iraqi partner is a legal entity then the corporate documents of the legal entity).
The minimum capital requirement for an LLC according to the law is 1,000,000 Iraqi Dinars for each activity, which is approximately USD 840.
In order to carry out certain business activities in Iraq (e.g. transportation, construction, etc.), it is necessary to apply for specific licenses from the competent Ministry. The licensing process for each necessary license will require approximately 30 hours.
It is mandatory to have an in-country bank account in Iraq to process a payroll; however the statutory payments to the applicable authorities can be made in cash, by certified check or through a designated bank.
1.4 Working Week
The working week in Iraq is Sunday to Thursday from 8 am to 5pm.
1.5 Basic Facts about Iraq
Full Name: Republic of Iraq
Population: 38.27 million (World Bank, 2017)
Major Language: Arabic- Kurdish
Major religion: Islam
Monetary Unit: Iraqi Dinar
Internet Domain: .iq
International Dialing Code: +964
How to say: –
Hello As-Salām ‘Alaykum
Good morning Ṣabāḥul KẖAyr
Good evening Masā’ Al-Khayr
Do you speak English? Hal Tatakallam El-Ingliziyya
Good bye Bāy Bāy / Ma`A As-Salāma
Thank you Shukran
See you later Ashoufak’ Ourayyeb
Dates & Numbers
Dates are usually written in the day, month and year sequence. For example, 5th September 2015.
Numbers are written with a comma to denote thousands and a period to denote fractions.
For example, 2,000.00 IQD (two thousand Iraqi Dinars).
2.0 Tax & Social Security
The tax year in Iraq is 1st January to 31st December.
2.1 Income Tax
Residents and non-residents of Iraq are subject to tax on their income derived from Iraq.
Iraqi nationals are considered residents for tax purposes. In addition, a non-Iraqi national is considered resident for tax purposes if:
• They spend total of six months during a tax year in Iraq; OR
• They reside four consecutive months in Iraq
Tax residents may claim personal allowances.
Most sources of income are considered taxable, unless specifically exempted. This includes directors’ fees and employer-paid rent, school fees and relocation expenses.
The following Tax Rates, (after granting the resident the legal allowances) are applicable to individual’s income in Iraq:
· 3% up to ID 250,000
· 5% on amounts over ID 250,000 and up to ID 500,000
· 10% on amounts over ID 500,000 and up to ID 1,000,000
· 15% on amounts over ID 1,000,000
Individuals are granted the following deductions and allowances:
• Deductions from salaries received from the private sector equal to the following:
o ID 2,500,000 for the employee himself
o ID 2,000,000 for a non-working wife
o ID 200,000 per child, regardless of the number of children
o ID 300,000 for persons over 63 years old
o ID 3,200,000 for a widow or divorcee and ID400,000 for every child lawfully maintained by such person, regardless of the number of children
· Contributions to a social security system, provident fund medical insurance plan, pension fund or similar fund approved by the tax authorities
· Delegation or overseas allowances received by foreign employees, up to 25% of the basic salary
· The Iraqi tax authorities allow an exemption from tax in relation to ’risk allowances’; in practice, such allowances should not exceed 30% of the basic salary.
In order to obtain such allowances, proper supporting documents are presented to the concerned tax authority in order to be effective; otherwise, the tax authorities shall treat the taxpayer as a ‘bachelor’ and grant the annual allowance indicated above.
Employers are responsible for and should guarantee the payment of tax. Tax is withheld from the employees’ income for each month of the fiscal year. The withheld tax must be sent monthly to the General Commission for Taxes, one of its branches or to an authority designated by the tax authority by the 15th day of the month following the month of withholding.
If the tax is not paid by the due date, an addition of 5% of the tax amount is imposed on the employer after the lapse of 21 days from the due date. This percentage is doubled if the amount is not paid within 21 days after the expiration of the first 21-day period.
At the end of the fiscal year, reconciliation takes place as to the annual staff personal income tax with the total monthly amounts paid during subsequent months.
Foreign tax relief
Income tax paid to a foreign country on income earned in that country may be credited against tax paid to Iraq. The amount of the credit may not exceed the amount of tax assessed in Iraq on the income earned in the foreign country at the rate in effect in Iraq. If taxes paid to a foreign country exceed the amount of this limitation, then the excess taxes may be carried to credit in five consecutive years subject to the limitation in those years.
Income Tax Kurdistan
In the Kurdistan region, the first ID1 million of basic salary is exempt. The amount exceeding IQD1 million is subject to tax at a rate of 5%.
In Kurdistan, the income tax contributions on salaries are required to be paid quarterly, by the 21st day of the following month. Penalties on unpaid or late paid tax generally are limited to an amount of 5% to 10% of the tax liability, up to a maximum per year of IQD 75,000.
2.2 Social Security
Social Security contributions are applied to the salaries and the benefits of both local and expatriate employees after a deduction of a portion of employee allowances (transportation, accommodation, housing and other allowances) up to an amount equaling 30% of the base salary. In general, the rates are 12% for employers and 5% for employees, however for oil and gas companies the contribution rates are 25% for employers and 5% employees.
Social security must be paid within 30 days following each month end.
Any late payment would entail a late payment penalty of 2% of the amount due for each month of delay.
There is no Government Pension Scheme in Iraq or Kurdistan
Reports to the social security department should be sent monthly.
Reports to the Tax Directorate are to be submitted on an annual basis.
When submitting the relevant reports, the Company’s registration paper is necessary, together with the name of employee, starting date, salary, allowances, overtime (if applicable), termination date, status, number of children.
The payroll provider on behalf of the client on condition to provide an attestation from the company can submit both monthly and yearly statutory reports.
These reports must be signed and stamped by the employer.
2.4 New Employees
The new start must be registered with the Social Security Authority, however for some nationalities (i.e. Indian, Bangladesh, etc.); an additional registration with the Ministry of Labour and Social Affairs has to be completed.
The registration of the New Start has to be done within the first 10 days of joining however this timeframe appears to be flexible.
The details required to set up the New Start are: –
· Company’s Registration Number with Social Security and Tax Directorate
· File ID Number
Documents required from Expat New Starts: –
· Passport Copy,
· A Copy of the Residency Card
· Contract of Employment (if available)
· The full name of the Employee
· Position Details
· Salary Details
· Date of Employment etc.
The local authorities should be informed about the termination of the employment contract during the following month after the termination, at the time of submitting the social security contributions.
The final payment should be made within 7 days of the last working day.
The Labour Law includes a comprehensive list of the authorized grounds for termination. They are the following: –
• Mutual written agreement
• Expiry of the term of the contract
• The will of the employee, after following certain procedures
• Incapacity due to illness for more than six months
• Incapacity of the employee amounting to at least 75%; and
• Decline in the establishment’s business provided that the Labour Minister has been informed.
The Labour Law also contains provisions concerning termination of illegal employment contracts. In addition, it is possible to terminate an employment contract in accordance with the general principles of the Civil Code.
3.0 Employment Law
On August 17th 2015, the Iraqi Parliament passed a new labour law to replace the old law that had remained unchanged since 1987. It has taken over 10 years to draft and pass.
The main changes were as follows;
• All employees shall be paid in Iraqi currency unless otherwise stated in the employment contract. Wages should also be equal for both men and women for the same type of work.
• The daily working hours shall not exceed 8 hours per day, subject to the exemptions in the Labour Law.
• Each employee shall be entitled to a rest period of no less than 11 consecutive hours of rest between 2 working days.
• Each worker is entitled to at least one rest period per week of no less than 24 consecutive hours. Friday shall be the weekly day of rest and can be exchanged for another day in the week.
• For any overtime that the employee works the pay rate shall be no more than 50% of the usual wage if it is day time work and no less than double the wage if it is night time work, during a day of rest or if it is arduous or harmful work.
• The Unions and federations may conclude collective agreements on behalf of its members if authorized to do so by the employees.
• Individual employment contracts shall be made in writing (three copies are required) and approved by the Legal Competent Authority or Department for the Private Sector, each party receiving a copy and the third copy to be deposited with the party who approved it.
• The employment contract shall be signed for a determined period (only if the determined period is for less than one year) for the performance of a specific job or provision of a service related to work or enterprise ending on a specific date or expected date.
• When an employee decides that they want to resign, they must give their employer at least 30 days’ notice. If the employee quits without notice or before the expiry date of the notice period specified, the employee shall pay the employer compensation that is the equivalent of the notice period or a fraction of the notice period.
If the laws are violated the penalties can reach up to 500 000 dinars.
3.1 Holiday Accrual / Calculations
Employees are entitled to fully paid leave on feast days and official holidays fixed by the law, except for a Saturday. Employees may be requested to work these days for any reason in return for a double wage. Feast days and official holidays will not be included in the annual leave.
After one year of service, an employee shall be entitled to at least 20 days leave for each year of work. If an employee is employed in work, which is arduous or harmful to their health they shall be entitled to, at least 30 days leave.
An employee’s annual leave will increase by 2 days after 5 years, 2 days after a further 5 years and another 3 days after a further 5 years.
Employees can either take their leave all at once or divide it up.
3.2 Maternity Leave
A female worker is entitled to a 72 days maternity leave at full pay.
A pregnant worker may, by virtue of a medical certificate issued by the competent authority, take the above-mentioned leave, 30 days before her excepted due date and take the remaining days after the delivery.
The competent medical authority may extend the period of the leave for up to 9 months, in the case of a difficult childbirth, the birth of more than one child, or in the event of pre or post-natal complications.
The working mother shall be able at the end of her maternity leave, to go back to the same position or to be employed in a similar position with the same wage.
3.3 Paternity Leave
There are no paternity leave provisions in Iraq.
For every year of work, the worker is entitled to 30 days’ sick leave paid by the employer.
3.5 National service
There is no compulsory national service in Iraq.
4.0 Employee Benefits
Each company has its own benefits, for example, multinationals would offer comprehensive packages including accommodation and car allowances.
No specific reports have to be submitted for this.
5.0 Visas & Work Permits
Any foreign national who wishes to enter Iraq for work is required to apply for a visa from the Iraq Embassy or Consulate in their countries of current residence.
A work permit is granted to foreign nationals who have a pre-drawn employment contract with Iraq-based companies, provided that sufficient proof of transfer, position or employment is presented. The foreigner’s dependents may also be given residence permits and visas by filing together with the initial application or after approval.
Documents required are as follows-
• An applicant for visa.
• Must hold a passport valid for at least six months.
An applicant for visa must be able to meet the employees living costs during their stay in the Republic of Iraq. An applicant should also present a medical document proving their safety from communicable diseases; otherwise, they are subject to the effective rules and instructions on health safety.
Visas are usually processed in 2 to 4 weeks. Emergency service may be available. For Fee information please contact the Iraq Embassy.
Currently the Embassy of Iraq issues only a single entry visa valid 3 months from the date of issue for a stay up to maximum 30 days. The period of stay can be extended on local application after arrival.
We are your trusted HR function outsourcing partner, simplifying employment tasks worldwide. We deliver bespoke human capital management services and global payroll solutions to empower businesses across all continents. A borderless people engagement enabler, driven by technology and innovation and committed to make your teams happy, we ensure your consistent and sustainable growth.
Mercans operate globally, ensuring timely and measurable results, and bottom-line savings. Supported by 500+ payroll and HR specialists with in-depth local knowledge, our pioneering human resources consulting services and trailblazing SaaS payroll software, HR Blizz™ & Mesaar™, are already satisfying 5,000+ international clients, regardless of the size of their organization and their industry. Visit mercans.com
SIMPLIFYING EMPLOYMENT TASKS WORLDWIDE
Local Presence. Regional Strategy. Global Success.
We are a borderless people engagement enabler, committed to make your teams happy. Driven by technology and innovation, we pride ourselves in being global people experts with striking local presence. We deliver bespoke human capital management services and innovative global payroll solutions to empower international businesses.
We are your reliable HR function outsourcing partner, delivering innovative HCM solutions, along with cutting-edge human capital management advice, to ensure consistent business growth, regardless of the size and industry of your company. We develop SaaS software and outsource HCM solutions tailored to 5,000+ clients across all continents.
Mercans operate globally, ensuring timely measurable results and bottom-line savings. We employ 500+ payroll and human resources specialists with in-depth local knowledge. Thanks to success-oriented teams striving for excellence and taking care of your organization’s tasks within budget, we have gained the trust of major multinational companies.
Mercans Services at a Glance
- Global Payroll Solutions
- PEO/GEO Services
- Global Talent Acquisition
- BPO Services
- HR Management SaaS
- Local Statutory Compliance
Say goodbye to offshore call centers, legacy systems, fragmented data, and ENDLESS SLAs.
Mercans cloud-based SaaS products, HRBlizz™ and Mesaar™, combine the performance of proprietary technologies with a human touch. All your data are integrated into single platforms accessible from everywhere and on any device. Interact with local specialists, and benefit from tax and legal advisory services, without creating branches abroad.
Our cost-effective software products are fully-compliant, self-service platforms packed with smart built-in features for your peace of mind. They are compatible with SuccessFactors™, Workday™, Oracle HCM™ and MS Dynamics™.
- Fully-integrated HRM processes and data
- Centralized and automated global workflows management
- Compliance with local regulations and regional business protocols
- Mainstreamed payroll delivery for timeliness and accuracy
- Real-time data updates and optimization for quick reporting
Visit mercans.com now and contact us for a free consultation: +1-877-MERCANS