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Global Payroll Team
Written by Global Payroll Team
Last updated May 7, 2026
Expert Reviewed
Payroll in Iraq
Tax in Iraq
Immigration in Iraq

Iraq map

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Mercans offers complete payroll, PEO and HR services in Iraq

Iraq occupies a pivotal position in the Middle East and offers opportunities across sectors such as energy, agriculture, construction, telecommunications, logistics and healthcare. Its domestic market of more than 46 million people offers significant potential for businesses selling goods and services locally. Iraq also has a young workforce and remains a strategically important market for companies that can navigate regulatory, security and operational requirements carefully.

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Doing Business in Iraq

Iraq remains heavily dependent on oil, but there are also opportunities in infrastructure, healthcare, telecommunications, agriculture, logistics and professional services. Investors should review licensing, sector-specific ownership rules, tax registration, labor compliance and immigration requirements carefully before operating. The National Investment Commission continues to promote investment opportunities, and an investment license may provide access to certain incentives depending on the project.

Entity Registration and Incorporation Requirements

Setting up a new business or expanding an existing one in Iraq requires choosing the appropriate legal structure and completing registration, licensing and tax formalities with the relevant authorities. Foreign investors often operate through locally registered entities or branches, depending on the nature of the activity and sector-specific rules.

Banking

Banking hours vary by institution and branch, but many banks commonly operate from Sunday to Thursday during daytime business hours.

Working Week

The standard working week is generally from Sunday to Thursday, with normal working time commonly capped at 40 hours per week under Iraqi labor rules.

Labor Law

Iraqi Labor Law No. 37 of 2015 applies to employees working in Iraq, including foreign nationals working locally, subject to applicable immigration and work authorization requirements. The law governs employment contracts, working time, leave, termination, health and safety, and employee rights.

Main Industries

Oil and gas, chemicals, construction materials, food processing, transport, trade, telecommunications and agriculture

GDP Growth

-1.5%

Dates & Numbers

dd/mm/yyyy

Official State Name

Republic of Iraq

Population

46.04 million

Capital

Baghdad

Major Languages

Arabic and Kurdish

Currency

Iraqi dinar (IQD)

Internet Domain

.iq

International Dialing Code

+964

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Iraq
Baghdad, IQ
6:13 am, June 8, 2026
29°C
clear sky
23 %
Wind Gust: 14 mph
Clouds: 0%
Sunrise: 4:52 am
Sunset: 7:10 pm

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Payroll

Employees should be properly documented and payroll records should clearly capture wages, deductions and net pay. Wages are generally paid in Iraqi dinars unless otherwise agreed. Employers must comply with minimum wage, leave, overtime, tax withholding and social security registration obligations, and must pay employees for unused accrued annual leave where required on termination.

It is acceptable to provide employees with online or electronic payslips

Payslip

Monthly

Reports

Employees are entitled to 21 days of paid annual leave after one year of service

Annual Leave

The employee is entitled to 30 days of paid sick leave

Sick Leave

There are 14 weeks of paid maternity leave available but there are no statutory provisions for paternity leave

Maternity & Paternity Leave

30 days’ notice is generally required for terminating an employee

Employee Termination

A 13th month salary is not mandated by law

13th month salary

IQD 350,000 per month

Minimum Wage

Employees must be compensated for overtime with an additional 50% of their regular salary for daytime overtime, with higher compensation in certain cases such as night work or work on rest days

Overtime

End of service entitlements depend on the basis of termination and the employee’s length of service

Severance Pay

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Tax and Social Security

The concept of tax residence is generally not the primary basis for Iraqi employment taxation. Income generated from work performed in Iraq is generally taxable in Iraq, whether the employee is based in Iraq or not. Employees must generally be registered with the social security authorities where applicable.

Tax

Personal income tax on employment income is progressive, with rates ranging from 3% to 15% depending on income level and available exemptions. Iraq does not operate a general VAT system, but certain goods and services are subject to specific sales taxes.

15%

Corporate Income Tax

15%

Personal Income Tax

Varies

Sales Tax

N/A

VAT

Social Security

Social security contributions are imposed on salaries and benefits of local and expatriate employees, after deducting allowances, subject to the applicable rules and contribution base.

17%

Social Security Rate

12%

Social Security Rate for Employers

5%

Social Security Rate for Employees

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Employment Law

Iraq recognizes the right of employees to form and join trade unions, and collective bargaining is recognized under the labor law framework.

Employment Agreement

Employment agreements may be oral or in writing, although written contracts are strongly recommended in practice. Changes to key employment terms should be agreed by both parties, and employers should ensure contractual terms comply with Iraqi labor law.

Working condition

For work performed during the day, the overtime pay rate is generally 50%. Where the work is done at night or on rest days, higher compensation rules may apply. Overtime is subject to statutory limits under Iraqi labor law.

Leaves

Employees are entitled to full pay for feast days and official holidays that do not fall on a weekly rest day. After one year’s service, employees are entitled to 21 days of fully paid annual leave, which increases incrementally according to labor law. Iraqi law also provides for special paid leave, including bereavement leave in specified cases.

Employment termination

Termination, when permitted, generally requires 30 days’ notice. Employees are also generally required to give notice on resignation. Employers should ensure that any dismissal is legally justified and follows the required process, as employees may challenge unlawful termination before the competent bodies or labor courts.

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30 days

Minimum notice period for terminating an employee

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Varies

Total number of public holidays

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40

Working hours per week

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5 days

Total number of days for Compassionate and Bereavement Leave

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Immigration

Foreign entities may establish branches or other permitted business vehicles in Iraq, subject to sector-specific rules. Foreign nationals are generally not allowed to work in Iraq without a valid work permit and residency authorization, and employers must complete the required sponsorship and registration steps with the relevant authorities.

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Residency permits

A foreign employee must obtain a work permit and residency permit in order to work legally in Iraq. After entry, the employer typically completes the work permit and residence formalities with the competent labor and immigration authorities. Processing times and documentary requirements may vary depending on nationality, employer profile and work location.

Work Permit validity

Typically one year, subject to approval and renewal

Required Documents

Completed visa application form

Color passport photographs

Copy of the applicant’s valid passport

Official employment or sponsorship letter

Supporting employer registration and approval documents, where required

Compliant, reliable, error-free and touchless payroll in Iraq

Build the best team and hire top talent compliantly in Iraq. Get in touch with Iraq payroll outsourcing & PEO specialists for a free consultation!

This document was prepared for informational purposes only. As local laws & regulations keeps on changing. Please consult your tax & legal advisors as well.
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    FAQs

    What is an Employer of Record (EOR) in Iraq and how does it help foreign companies?

    An Employer of Record in Iraq legally becomes the employer of your team in the country. It takes care of employment contracts, payroll, tax and social security contributions and compliance with Iraqi labour laws, enabling your company to hire talent in Iraq without establishing its own entity.

    Why should businesses use an EOR instead of setting up a legal entity in Iraq?

    Using an EOR allows your business to begin operations in Iraq quickly and cost-effectively. It avoids the time, complexity and expense of local company formation while providing full employment compliance from day one and reducing administrative risk.

    How does payroll outsourcing in Iraq ensure compliance with labour and tax laws?

    Payroll outsourcing in Iraq ensures that salaries are processed in accordance with local requirements, that tax and social security contributions are correctly withheld and submitted, and that employment records align with regulations. This helps prevent legal or financial penalties.

    Can an Employer of Record in Iraq hire employees and manage work permits for international companies?

    Yes. The EOR in Iraq can hire both local and expatriate employees on your behalf and support the work permit and residence processes for non-local staff. It handles the HR, payroll and immigration aspects so you can focus on your core business.

    What are the main benefits of using EOR and payroll services in Iraq for global expansion?

    The main benefits include rapid market entry, reduced setup and operational costs, compliance with local employment and payroll regulations, access to local workforce and expertise, and flexibility to scale operations while your company concentrates on strategy and growth.

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