Taxation of Foreign Suppliers in Iraq

By Anthony V Raftopol.

This article was originally edited by, and first published on, - the Official Online Media Partner to the International Bar Association, and International Online Media Partner to the Association of Corporate Counsel, and European Online Media Partner to the European Company Lawyers Association. Register for a free subscription at



Numerous companies located outside Iraq, but providing goods and services into the country (either on a single project basis or through a consistent stream of business), are grappling with the idea that Iraq may tax at least some of their business profits. This is true even where such companies are not registered in Iraq or do not maintain a local office or local employees. The Iraqi authorities are managing this by applying a tax to the value of the supply contract upon entry of goods into the country, as a kind of guarantee deposit. This is released only once the foreign supplier has submitted a tax clearance letter, issued by the General Commission for Taxes, confirming settlement of its tax liability on the supply contract in question.

The fact that Iraq permits the taxation of business profits of foreign-registered entities should be of no surprise. This practice is employed by many countries, provided that a sufficiently close nexus exists between the taxing jurisdiction and the foreign entity. In developed countries, especially, this 'nexus' is crystallised under the 'permanent establishment' analysis, subject to numerous tax treaties and the Organisation for Economic Cooperation and Development (OECD) Model Tax Convention. However, the Iraqi authorities have adopted a much simpler formula for determining which foreign suppliers should be taxed, by considering whether suppliers are doing business in Iraq or doing business with Iraq. Given the significant distinctions between the approach under the OECD model and that adopted by Iraq, companies supplying goods and services into the country should familiarise themselves with the Iraqi approach in order to limit their tax exposure while doing business.

Permanent establishment under the OECD Convention

One Response to Taxation of Foreign Suppliers in Iraq

  1. Thaqalain 14th April 2011 at 05:03 #

    Hi Mr. Anthony

    Nice article read today. Its so much hard to understand intricacies of jurisdiction and I believe its causing main delays to projects. As by the time product or gigantic equipments are at ports, its hard to determine , is it with Iraq or in Iraq?

    What's your opinion about Technical Service Contracts in the oil sector especially which are being signed for oil fields in southern Iraq, like Ahdab , which is being ratified or modified in 2009.
    Are logistics to install, consume for Iraq's oil infrastructure, facilities exempted from tax?