Iraq Withholding Tax on Contracts, Services and Subcontractors

Iraqi rules require a contracting party to withhold tax on payments made under contracts and on certain services, and to account for the amount to the General Commission for Taxes. In the oil sector, Law No. 19 of 2010 works through collection at source: the Ministry of Oil deducts the 35% charge from revenue due to foreign oil companies and transfers it to the Commission as a deposit, and those companies in turn withhold from subcontractor payments.

Instructions No. 5 of 2011 and Instructions No. 2 of 2013 define the covered contracts and set the subcontractor rates, including the reduced rate for contracts outside the covered oil activities. Because the statute delegates the detail to instructions, the working answer to 'what rate applies' depends on the classification of the contract, not on the identity of the supplier alone.

A single project can contain three different tax treatments: a covered oil-related subcontract, an ordinary service contract, and a supply of goods. Goods supplied and delivered without an Iraqi service element generally sit outside the withholding net, while installation, maintenance, training and technical services performed in Iraq do not. We classify each line of the contract before computing anything.

Misclassification is expensive in both directions. Withholding too little leaves the payer exposed to the shortfall plus penalties; withholding too much ties up the supplier's cash until a refund or set-off is granted, which in practice takes time.

Every deduction should produce a deposit receipt and a withholding certificate that the supplier can use in its own computation and, where applicable, in a foreign tax credit claim. We build the register that connects contract, invoice, deduction, deposit and certificate, so an examiner can follow the chain without reconstructing it from bank statements.

We also reconcile withholding against the supplier's own tax account, because a deposit recorded under the wrong taxpayer file creates a mismatch that blocks a clearance certificate later.