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Hiring in Iraq

Iraq, officially known as the Republic of Iraq, is a country in Western Asia. Baghdad is the capital and the largest city of Iraq. Arabic and Kurdish are the official languages. The official currency is the Iraqi Dinar. Iraq is rich in oil; thus, oil sector dominates Iraq’s economy. Iraq’s main trading partners are China, United Arab Emirates, and South Korea. Global PEO or Employer of Record (EOR) play a pivotal role in providing companies with services related to hiring employees, and ensuring compliance with Iraq’s legal and tax regulations. Employment regulations including probation, holidays and termination are covered by the Labor Code. Labor Code stipulates that employees are entitled to 20 days of annual leave. All income derived from Iraq is subject to tax in Iraq regardless of the residence of the recipient. Global PEO’s or Employer of Record (EOR) facilitate companies by ensuring compliance with Iraq’s Labor Code and tax laws.

statutory labor requirements

Probation Period

  • The Labor Law gives employers the right to hire employees on a probationary basis for a period of up to three months.

Annual Leave

  • Employees are entitled to annual leave after a period of one full year of employment. 
  • The annual holiday is 20 days per year and is increased by two days for every five years of employment.
  •  According to Article 71 of the Labor Law any agreement to waive or abandon the annual holiday, in whole or in part, for compensation or other advantage, is null and void.

Public Holidays

  1. New Year's Day (1st January)
  2. Army Day (6th January)
  3. Nowruz (21st March)
  4. Labor Day (1st May)
  5. Eid al-Fitr
  6. Republic Day (14th July)
  7. Eid al-Adha
  8. Islamic New Year
  9. Ashura
  10. National Iraqi Day (3rd October)
  11. Prophet's Birthday
  12. Victory over Daesh (10th December)
  13. Christmas Day (25th December)

Maternity Leave

  • An employee is entitled to at least 14 weeks of paid maternity leave per year. 
  • Up to eight weeks may be taken before the expected due date, subject to a medical certificate. 
  • The employee is entitled to take the remaining days of maternity leave after the delivery; the period of maternity leave taken after the delivery should be at least six weeks.
  • The 14 weeks of maternity leave can be extended to up to nine months, subject to a decision of the competent medical authority, in the event of a difficult childbirth, a multiple birth or pre or post-natal complications.
  • With the employer's consent, an employee can take unpaid maternity leave for up to one year to provide care for her child, provided that the child is under one year of age.

Paternity Leave

  • The Labor Law does not grant fathers paternity leave.

Sick Leave

  • Employees are entitled to fully paid sick leave of 30 days for every year of service, up to a total of 180 days. 
  • If a sick employee exhausts this period of sick leave without recovering, he or she shall be subject to the Social Security Law. 
  • The retirement and social security fund shall reimburse the employer for any wages paid to the insured employee for that period of sick leave exceeding 30 days per year of service.

Work Hours

  • As a general rule, employees should not work longer than eight hours per day for six days per week.

Overtime

  • The working hours may be increased in exceptional cases. 
  • The increase is treated as overtime, for which the wage must be increased by 50% to 100%, depending on the type and nature of the work

Notice Period

  • Where termination notice is required, it must be served on the employee at least 30 days prior to the termination date. 
  • Otherwise, the employer will be liable to pay the employee compensation equivalent to the wages that would have been due during the notice period.
  • In case of termination of the contract during the probation period, the employer must serve the employee with at least seven days' notice.

Severance

  • In principle, an employee whose service is ended is entitled to an end of service gratuity equivalent to two weeks' pay for each year of service, except in any of the following circumstances, in which case no severance pay will be due:
    • The employee is sentenced by a final court judgment to imprisonment for more than one year
    • The employee assumes a false identity or submits forged documents
    • The employee commits a breach of his or her obligations under the contract; or
    • The employee commits a serious error causing material damage to the work, workers or production.

13th / 14th Month Pay

  • No
  • There is no statutory requirement to pay the 13th or 14th month salary.
  • Government officials did have bonus benefits but the new prime minister is slashing the bonuses.

income tax

  • All income derived from Iraq is subject to tax in Iraq regardless of the residence of the recipient.
  • In addition, income that is realized outside Iraq by Iraqi and other residents, including interest, commissions, investment returns, and profits from trading in currencies, valuable metals, and securities, is taxable if such income arises from funds and deposits held in Iraq.
  • Tax rates for individuals are levied according to the following scale:

Exceeding (IQD)

Not exceeding (IQD)

Excess (%)

0

250,000

3

250,000

500,000

5

500,000

1,000,000

10

1,000,000

 

15

deductible expenses

Under the tax law, deductible annual allowances for salaries received are as follows:

    • An amount equal to 100% of salaries received from the government, public institutions, and local authorities.
    • Contributions to a social security system.
    • 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.
  • Under the tax law, deductible annual allowances for salaries received from the private sector for income tax purposes are as follows:

Deductible allowance

IQD

Personal allowances for bachelor

2,500,000

Personal allowances for a married person

4,500,000

Age allowance (if over 63 years old)

300,000

Child allowance (not restricted, provided the child has no income, is less than 18 years old, and engaged in full-time academic studies)

200,000

 immigration

  • All foreign nationals who intend to visit Iraq (including the Kurdistan Region of Iraq) must obtain an entry visa. 
  • The most common form is a single-entry visit visa from the Iraqi Ministry of Interior. 
  • The typical single-entry visit visa allows the visitor to enter Iraq within three months of the visa’s issuance. 
  • A visa typically allows the person to remain in Iraq for 30 days. 
  • Multiple entry visas are also available. 
  • The procedures for entry into the Kurdistan Region of Iraq may vary
  • Work permits are required for foreigners to work in Iraq. 
  • The Ministry of Labor and Social Affairs issues work permits in accordance with Article 30 of the Iraqi Labor Law No. 37 of 2015 and the procedures set forth in Labor Instructions No. 18 of 1987, which are still in force and provide specific rules for the employment of foreigners in Iraq.
  • For the employer to apply for work permits with respect to its foreign employees, it must ensure that its foreign employees have valid entry visas for Iraq (evidenced by a sticker affixed to each employee’s passport or any other valid alternative method acceptable to the Iraqi authorities) and that it meets Iraq’s minimum local employment threshold, among other requirements. 
  • A work permit is valid for a period of one year, subject to renewal. 
  • The renewal of the work permit must be initiated a month in advance of its expiration date. 
  • The renewal process requires the employer to follow the same procedure as the procedure used for applying for the initial work permit with the Ministry of Labor and Social Affairs.
  • Noncompliance with the work permit requirement carries a risk of the employees and their employers being subject to monetary penalties and legal action. 
  • The procedures for work permits in the Kurdistan Region of Iraq may vary.

    Type of Visa/Permit

    Documentation

    Validity

    Eligibility

    Tourist Visa

    • Valid passport
    • Photos
    • Completed application form
    • Travel itinerary
    • Copy of birth certificate

    30 days

    • Foreigners travelling to Iraq on a short term basis are eligible for a single entry tourist visa

    Work Permit

    • Visa application form.
    • Two color photographs of the applicant.
    • Color copy of the passport with at least 6 months’ validity.
    • Official letter from the employer inviting the foreigner to work in Iraq.

    1 year (can be renewed)

    • Work permits are required for foreigners to work in Iraq.
    • For the employer to apply for work permits with respect to its foreign employees, it must ensure that its foreign employees have valid entry visas for Iraq (evidenced by a sticker affixed to each employee’s passport or any other valid alternative method acceptable to the Iraqi authorities) and that it meets Iraq’s minimum local employment threshold, among other requirements. 

value added tax

  • A new sales tax law was issued in early 2015 whereby a sales tax of 300% will be imposed on alcohol and tobacco (cigarettes), 15% on travel tickets, 15% on cars, and 20% on mobile recharge cards and internet. 
  • This is in addition to services rendered by deluxe and first class restaurants and hotels, which were already subject to a 10% sales tax.

Sales Tax

Alcohol and Tobacco

300%

Travel Tickets

15%

Cars

15%

Mobile Recharge Cards and Internet

20%

First Class Restaurants and Hotels

10%

withholding tax

    • Iraq does not levy withholding tax on Dividends, Royalties and Fees for Technical Services
    • Interest paid to a nonresident company is subject to withholding tax of 15% of the gross payment
  • There is no withholding tax on interest paid to nonresident individuals or to residents.

 

Type of Payment

Residents

Nonresidents

 

Company

Individual

Company 

Individual

Dividends

0%

0%

0%

0%

Interest

0%

0%

15%

0%

Royalties

0%

0%

0%

0%

Technical Service Fee

0%

0%

0%

0%

termination

  • The Labor 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%; 
    • decline in the establishment’s business provided that the Labor Minister has been informed.
  • Where termination notice is required, it must be served on the employee at least 30 days prior to the termination date. 
  • Otherwise, the employer will be liable to pay the employee compensation equivalent to the wages that would have been due during the notice period.
  • In case of termination of the contract during the probation period, the employer must serve the employee with at least seven days' notice.
  • In principle, an employee whose service is ended is entitled to an end of service gratuity equivalent to two weeks' pay for each year of service, except in any of the following circumstances, in which case no severance pay will be due:
    • The employee is sentenced by a final court judgment to imprisonment for more than one year
    • The employee assumes a false identity or submits forged documents
    • The employee commits a breach of his or her obligations under the contract; or
    • The employee commits a serious error causing material damage to the work, workers or production.

 statutory benefits

  • These are mandatory benefits as postulated by law
  • These include probationary period, annual leave, public holidays, sick leave, maternity leave, overtime pay, notice period, and severance pay
  • Statutory benefits also include social security benefits

Statutory Benefits

Probationary Period

Annual Leave

Public Holidays

Maternity Leave

Sick Leave

Overtime Pay

Notice Period

Severance Pay

Social Security Benefits

payments and invoicing

  • The system in Iraq is similar to that of a pay-as-you-earn (PAYE) regime, whereby a monthly statement has to be filed at the Direct Deduction Division of the tax authorities. 
  • The employer is responsible for deducting the staff income tax from their salaries, and forwarding that amount to the General Commission of Taxes/Direct Deduction Division within a period not exceeding the first 15 days of the next month in which the assessment was incurred.
  • 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.

ease of doing business

  • The ease of doing business index is an index created by Simeon Djankov, an economist at the Central and Eastern Europe sector of the World Bank Group.
  • Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.
  • According to the World Bank Iraq ranked 172nd in the World in 2019 in terms of ease of doing business.

employee accruals

   
Christmas Bonus%


0%

Christmas Bonus Over Vacations %

0%

Severance per Year %

Employees are entitled to severance pay that equals two weeks of pay after one year of service (2.74% of annual salary)

Vacations % The annual holiday is 20 days per year and is increased by two days for every five years of employment (5.47% of annual salary)
Notice %

Employees are entitled to 30 days of notice period for one year of service or more (8.24%)

Christmas Bonus Over Notifications% 0%
Vacations Plus% 0%
Total percentage of Salary (yearly) The total employment accruals as a percentage of salary per anum are equal to 16.74%

employer accruals

Additional information (Country Accruals)

   
Social security 12.00%
Maternity leave 72 days
Vacations 5.48%
Description The system of welfare and benefits in Iraq is known for being complex and unclear, particular for foreign employers. Contributions are as follows:
12% of the employee’s salary is paid by the employer to cover health insurance, work injuries and pension collectively
5% is deducted directly from the employee’s salary
For the oil and gas industries, the employer contributes 25%.

 

Employer Accruals Additional information

    Employment Accruals
Annual Leave The annual holiday is 20 days per year and is increased by two days for every five years of employment. This equals 5.47% (20/365 days) of annual income
Maternity Leave An employee is entitled to at least 14 weeks of paid maternity leave per year. This equals 26.9% (14/52 weeks) of annual income
Sick Leave Employees are entitled to fully paid sick leave of 30 days for every year of service, up to a total of 180 days. This equals 8.22% (30/365 days) of annual income
Overtime The increase is treated as overtime, for which the wage must be increased by 50% to 100%, depending on the type and nature of the work Depends on the number of overtime hours worked
Severance In principle, an employee whose service is ended is entitled to an end of service gratuity equivalent to two weeks' pay for each year of service This equals 3.84% (2/52 weeks) fo annual income
Social Security The general rates of social security in Iraq (including the Kurdistan Region of Iraq) are 12% for employers. For oil and gas companies in Iraq, the rates for social security contributions are 25% This equals 12% of annual income

 

 

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