Running Payroll in Iraq: Employment Taxes & Setup

Payroll in Iraq centers on four main obligations: monthly salary tax withholding, social security contributions to the Social Security and Pensions Authority, any applicable local levies, and periodic payroll reporting to the General Commission for Taxes. Your team must calculate and withhold employee income tax, compute employer and employee social security on covered earnings, and submit returns and payments on time to avoid penalties and interest. Rules can differ between public and private sectors, by income thresholds, and for certain exempt categories such as foreign experts or employees of specific projects, so you need to map your workforce against the correct regime.

Non-compliance can trigger tax audits, back assessments with surcharges, blocked tax clearance certificates, and serious trust issues with employees if net pay is miscalculated or paid late. This guide walks you through how to calculate Iraqi payroll taxes, structure your payroll calendar, file and pay through the correct authorities, and set up compliant processes whether you operate via your own entity or an Employer of Record. By the end, you will understand the key rates, deadlines, documentation, and controls needed to run payroll in Iraq confidently in 2026.

In Iraq, payroll taxes revolve around salary income tax, mandatory social security contributions, and withholding on certain allowances or benefits, all overseen primarily by the General Commission for Taxes and the Social Security and Pensions Authority. You are responsible for calculating these items on monthly earnings, withholding the employee share, adding the employer share, and remitting everything within the statutory deadlines.

Salary Income Tax (Pay-As-You-Earn)

Salary income tax is a progressive tax withheld at source by the employer on employment income, including base salary, regular allowances, and most cash benefits. For resident employees, rates typically range from 3% to 15% on taxable income after personal allowances, and you must withhold monthly and remit to the General Commission for Taxes, which can impose fines and late-payment interest if you under-withhold or miss deadlines.

The employer is fully liable for correct calculation and timely remittance, even though the tax is economically borne by the employee. Persistent non-compliance can lead to audits, reassessments for prior years, and difficulties obtaining tax clearance for tenders or cross-border payments.

Social Security Contributions

Social security contributions finance pensions, disability, and other social benefits and are administered by the Social Security and Pensions Authority. In the private sector, employers typically contribute around 12%–25% of covered wages (commonly approximated at 17% in many sectors) while employees contribute about 5%, calculated on gross salary up to a prescribed ceiling where applicable.

Contributions are due monthly, and you must register both the company and each employee with the social security office, submit periodic reports, and pay via bank transfer or at designated collection points. Under-reporting wages or failing to register employees can result in back contributions, penalties, and potential disputes if employees later claim pension rights that your records do not support.

Withholding On Allowances And Benefits

Certain allowances and in-kind benefits, such as housing, transport, or hardship allowances, may be fully taxable or partially exempt depending on Iraqi tax regulations and sector-specific rules. Where taxable, these amounts are added to monthly earnings and subject to the same progressive salary tax rates of 3%–15%, with the employer responsible for withholding and reporting.

Some reimbursements that are clearly business-related may be non-taxable if properly documented, while flat allowances without receipts are usually treated as taxable income. Misclassifying taxable benefits as non-taxable can lead to assessments for unpaid tax, penalties, and the need to correct historic payroll records, so your payroll team should maintain clear policies and documentation for each allowance type.

Employees in Iraq are most commonly paid via local bank transfer in Iraqi dinar (IQD), although cash payments are still used in some sectors and regions. Salaries are typically paid monthly, often at the end of the month or within the first few days of the following month, and you should align your payroll cut-off so that tax and social security can be calculated and remitted on time.

If you do not have a local entity, you can use an Employer of Record to hire and pay staff compliantly, or you can register a local entity and engage a payroll provider to handle calculations and filings. Payslips should clearly show gross salary, taxable allowances, employee income tax, employee social security, other deductions, employer contributions for reference, and net pay, along with the pay period and employee identifiers.

• Payment Method: Use Iraqi bank transfers wherever possible to ensure traceability and easier reconciliation.
• Currency: Pay salaries in Iraqi dinar unless a specific contract and local rules allow a foreign currency arrangement.
• Pay Frequency: Set a consistent monthly pay date and communicate it clearly in employment contracts and HR policies.
• No-Entity Hiring: Engage an Employer of Record if you need to hire quickly without establishing a local company.
• Payslip Content: Include gross pay, itemized allowances, all deductions, net pay, and statutory IDs for both employer and employee.
• Bank Account Setup: Support employees in opening local bank accounts to avoid delays and cash-handling risks.
• Record Keeping: Retain payroll records, payslips, and proof of payment for at least the minimum statutory retention period in Iraq.

Getting payroll set up correctly in Iraq is critical because tax and social security registrations are tied to your ability to pay staff, invoice clients, and repatriate profits. Running payroll through your own entity gives you more control but requires full registration with the General Commission for Taxes and the Social Security and Pensions Authority, while using an Employer of Record lets you operate without a local company but shifts compliance execution to your partner.

Your setup decisions affect how quickly you can hire, how you fund payroll in IQD, and who is legally responsible for filings and audits. A clear checklist helps your HR and finance teams avoid missed registrations, incorrect tax IDs, and misaligned employment contracts that can create downstream compliance issues.

• Decide Hiring Model: Choose between setting up a local entity or using an Employer of Record based on headcount, timeline, and long-term plans.
• Register The Entity: If using your own company, complete commercial registration and obtain a tax identification number from the General Commission for Taxes.
• Social Security Registration: Register the company and all eligible employees with the Social Security and Pensions Authority before the first payroll run.
• Open Bank Accounts: Set up an IQD corporate bank account dedicated to payroll funding and statutory payments.
• Collect Employee Data: Gather contracts, IDs, tax residency details, bank information, and social security numbers for each employee.
• Configure Payroll Software: Implement payroll software or a provider that supports Iraqi tax brackets, social security rates, and local reporting formats.
• Define Pay Policies: Document pay dates, overtime rules, allowances, and benefits in line with Iraqi labor law and market practice.
• Map Reporting Calendar: Build a monthly calendar for salary tax and social security filings, including internal cut-offs and approval steps.
• Internal Controls: Establish review and approval workflows for payroll calculations, payments, and statutory submissions.
• Audit Trail: Ensure you can produce historical payroll reports, payment proofs, and filings for inspections or audits.

Example Of Salary Tax Calculation

Assume an employee in Baghdad earns a monthly gross salary of 2,000,000 IQD and is fully subject to Iraqi salary tax and social security. You would first calculate the employee social security contribution on gross salary, then determine taxable income after any allowable deductions, apply the progressive tax rates, and finally arrive at net pay.

The employer would also calculate its own social security contribution on the same salary and plan to remit both the employee and employer portions, along with the withheld income tax, to the relevant authorities by the statutory due dates. This structured approach ensures that each component of payroll is transparent and reconcilable.

• Step 1 – Determine Gross Pay: Confirm the monthly gross salary, including fixed allowances, as 2,000,000 IQD.
• Step 2 – Calculate Employee Social Security: Apply the employee rate of about 5% to gross salary to determine the social security deduction.
• Step 3 – Compute Taxable Income: Subtract employee social security and any allowable deductions from gross pay to arrive at taxable income.
• Step 4 – Apply Tax Brackets: Apply the progressive salary tax rates (for example 3%, 5%, 10%, 15%) to the relevant income bands to calculate total income tax.
• Step 5 – Derive Net Pay: Subtract income tax and social security from gross salary to obtain net pay and record employer social security as an additional cost.

Submitting Employee Tax In Iraq

In Iraq, employers typically submit salary tax and social security through designated tax and social security offices or via approved electronic and banking channels. You will need your company tax ID, social security registration number, payroll period details, employee lists, and the calculated amounts for income tax and contributions before initiating payment or filing.

• Tax Office Submission: File monthly salary tax returns with the General Commission for Taxes using the prescribed forms and attach supporting schedules.
• Social Security Office: Submit employee contribution reports to the Social Security and Pensions Authority, listing wages and contributions for each worker.
• Bank Transfer: Pay assessed income tax and social security via bank transfer using the correct reference numbers to match payments to filings.
• Electronic Portals: Where available, use electronic portals to upload payroll data and generate payment orders for faster processing.
• Third-Party Provider: Coordinate with your payroll provider or Employer of Record to ensure filings are submitted under the correct registrations and on time.

Payroll Tax Due Dates In Iraq

Understanding the tax obligations for both employers and employees is crucial when operating in Iraq's business landscape. This section explains how taxes and statutory fees affect payroll and individual earnings in Iraq.

Employer Tax Contributions

Employer payroll contributions are generally estimated at an additional 17%–25% on top of the employee salary in Iraq. The exact percentage depends on sector, social security scheme, and whether any special incentives or exemptions apply, so you should confirm the applicable rate with the Social Security and Pensions Authority for each establishment.

Employee Payroll Tax Contributions

In Iraq, the typical estimation for employee payroll contributions cost is around 5%. This mainly reflects the employee share of social security plus the progressive salary income tax withheld at source, which together significantly influence net take-home pay.

Individual Income Tax Contributions

Individual income tax in Iraq is generally imposed on employment income at progressive rates, with employers responsible for withholding and remitting on behalf of employees. Taxable income is calculated after social security and allowable deductions, and the brackets are applied to the remaining amount.

Pension in Iraq

Pension in Iraq is primarily funded through mandatory social security contributions that cover old-age, disability, and survivors' benefits for eligible employees. Both employers and employees contribute, and entitlements depend on contribution history, age, and specific rules of the scheme covering the worker.