Wage%20Withholding%20Tax

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Wage Withholding Tax

• Re-introduction
• May 2004
• Speaker Mr Ihsan Shamran
• Dir. of Corporations Dept.

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• All income taxes (personal and corporate) were
  suspended from January 1st of year 2003 to April
  30th of year 2004.
• (Reference Policy Orders issued by the CPA 37,
  45 and 84)

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Employers

• Private sector
• Mixed sector
• State-owned enterprises

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Employee definition

• Any person who has performed or is performing
  work for a wage and works under the
  administration and direction of the party
  employing him.
• Reference Instructions No. 3 of 1983

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Income subject to withholding tax

• Salaries, wages
• Allowances (subject to 30 rule for specific
  allowances)
• Bonuses

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Principal exemptions

• Allowances for
• Clothing
• food
• lodging
• transportation
• Not taxable if lt 30 of the total wage of the
  employee
• Other Allowances fully taxable

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Principal Exemptions (cont)

• Are exempted from tax
• All income earned by foreign employees of
  foreign contractors and subcontractors of the
  CPA, Coalition Forces, forces of countries acting
  in coordination with the Coalition Forces
  governments that are providing assistance to
  Iraq.

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Principal Exemptions (cont)

• Are exempted from tax
• All income earned by foreign employees of
  foreign contractors and subcontractors of foreign
  governments, international organizations and non
  governmental organizations registered pursuant to
  CPA Order 45, that are providing assistance to
  Iraq.

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Principal Exemptions (cont)

• Are exempted from tax
• Salaries and allowances paid by United Nations
  from its own budget to its officials and
  employees.

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Preparation of Reports, Forms and Schedules

• A Employees Report
• B Forms Dhad.D\4A
• C Income Tax Deductions Schedule
• Must be filed and submitted to the Direct
  Deduction Section in the main office of the
  General Commission for Taxes (Baghdad) or to the
  branches of the General Commission for Taxes
  (hereinafter GTC).
• All forms, reports, schedules and
  correspondence sent to the GTC should be in the
  Arabic Language.

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Preparation of Reports, Forms and Schedules
(cont)

• A Employees Report
• List of name and job title of all employees
• Salary or monthly wage for each of the employees
• Hiring date
• Serially numbered starting with 1
• Limit date for submission July 1, 2004
• Report should be prepared for new hires, every
  three months.

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Preparation of Reports, Forms and Schedules
(cont)

• A Employees Report (cont)
• For confidentiality and security reasons
• Foreign companies may remit the employees report
  at the same time than Forms Dhad.D/4A (no later
  than March 31st 2005) to the head officer of
  Direct Deduction Section in Baghdad.

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Preparation of Reports, Forms and Schedules
(cont)

• B Form Dhad.D\4A
• Page 1
• 1) To be distributed among the employees.
• 2) Employees complete page 1 and sign.
• 3) Remit quickly to the employer
• 4) Employer verify employees information
• If employer does not receive completed Form
  Dhad.D\4A from the employee, employee shall be
  entitled to only bachelors allowance for the
  year.

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Preparation of Reports, Forms and Schedules
(cont)

• B Form Dhad.D\4A
• Page 2
• To be completed by employer and submitted to the
  GTC before March 31st of the following year.
  (Foreign companies may submit to the head officer
  of Direct Deduction Section in Baghdad)

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Preparation of Reports, Forms and Schedules
(cont)

• C Income Tax Deductions Schedule
• To be completed by the employer at the end of
  every year in duplicate showing all the income,
  allowances and deductions, which are brought
  from page 2 of Form Dhad.D\4A
• To be completed by employer and submitted to the
  GTC before March 31st of the following year.

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Method of deducting income tax and its payment
dates

• A special register should be kept wherein shall
  be entered salaries, allowances and wages of
  their employees who are subject to income tax.
• Tax withheld shall be remitted to either the
  Direct Deduction Section at the GTC or the unit
  of Wage Withholding Assessment at the branches of
  the GTC.

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Method of deducting income tax and its payment
dates (cont)

• Tax withheld may be paid in either cash or by
  certified checks, together with a list showing
  the names of the employees from whose income the
  tax was deducted, and the amount deducted from
  each of them, and the related period of the year.
• Address in Baghdad Jamal Abdlnasar Street,
  second building after Iraqi Museum.

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Method of deducting income tax and its payment
dates (cont)

• About the form shown on the previous slide, for
  confidentiality and security reasons, foreign
  companies may do the following
• Keep the names of employees secret and use only
  the ID nationality number or the employee ID
  number.

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The withheld tax is to be paid in 4 installments
as follows

• The amounts due for January, February and March
  1st day of April
• The amounts due for April, May and June 1st day
  of July
• The amounts due for July, August and September
  1st day of October
• The amounts due for October, November and
  December 2nd day of January.

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Penalties and Interests

• If the tax is not settled as indicated before on
  the fixed dates, an additional percentage of 5
  shall be imposed after the lapse of 21 days from
  the fixed date.
• An additional percentage of 10 shall be imposed
  if the amount is not paid within 21 days after
  the expiration of the first period.
• Interest to be charged according to Resolution
  307 of 1984.

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Penalties (cont)

• Other penalties may apply when the employer fails
  to carry out the duties imposed on him under the
  Income Tax Law 113 or the regulations issued
  there under, or refusing or delaying to submit to
  the Financial Authority any statement or
  information he was obliged or called upon to
  submit under the provisions of the Income Tax
  Law.

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Legal allowances

• The income subject to income tax by direct
  deduction is reduced by the legal allowances
  granted to the resident individuals
• Bachelor person ID 208,333 / month
• Married employee ID 375,000 / month
• Widow or divorcee ID 266,667 / month
• State-Owned Enterprise
• employee (for 2004 only) ID 441,667 / month

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Legal allowances (cont)

• Additional allowances
• For every child ID 16,667 / month
• If gt 63 years old ID 25,000 / month
• No additional allowances for State-Owned
  Enterprises employees (ID 441,667 / month even if
  they have more than 4 children)
• So, no tax to withhold on income of a single
  employee working in the private sector if he
  earns less than ID 208,333 for a particular month.

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Tax Rates

• Rate Annual income
• (after allowances)
• 3 Up to ID 250,000
• 5 Over ID 250,000 and up
• to ID 500,000
• 10 Over ID 500,000 and up
• to 1,000,000
• 15 Over ID 1,000,000

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Tax rates (cont)

• The amount delineating the tax-bracket amounts
  above are divided by 12 months in order to
  determine the amount of tax to withhold for every
  month.

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Tax rates (cont)

• Rate Monthly income
• (after montly allowances)
• 3 Up to ID 20,833
• 5 Over ID 20,833 and up
• to ID 41,667
• 10 Over ID 41,667 and up
• to ID 83,333
• 15 Over ID 83,333

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How to calculate the monthly tax amount to
withhold

• Use of a work chart provided in the brochure
• Use of withholding tables available at the office
  of the GTC

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Use of the work chart (brochure)

• First step
• Calculate the monthly salary, monthly wages and
  monthly taxable allowances
• Minus monthly deductions provided in Article 8 of
  the Income Tax Law 113 paid by the employee such
  as
• Pension and contributions as determined by
  Pension and Social Security Laws (Private
  sector 5 on gross wage)

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Use of the work chart (brochure)

• Second step
• Subtract from the amount of the last slide the
  monthly legal allowance to which the employee is
  entitled
• Bachelor person ID 208,333 / month
• Married employee ID 375,000 / month
• Widow or divorcee ID 266,667 / month
• State-Owned Enterprise
• employee (for 2004 only) ID 441,667 / month

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Use of the work chart (brochure)

• Second step (cont)
• Additional monthly legal allowances
• For every child ID 16,667 / month
• If gt 63 years old ID 25,000 / month

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Use of the work chart (brochure)

• If after the deduction of the monthly legal
  allowance which the employee is entitled, there
  is still a positive amount, that means there is
  income tax to withhold.
• This monthly income tax to withhold can be
  determined by using the workchart provided in the
  last page of the brochure.

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Use of Withholding tables

• A second method is provided for the employers in
  order to determine the monthly income tax to
  withhold for each of their employees
• The employer can use Tax Tables called
• Tax Withholding Table Single and Married
• Tax Withholding Table Widow or Divorcee

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Use of Withholding tables (cont)

• First step
• Calculate the monthly salary, monthly wages and
  monthly taxable allowances
• Minus monthly deductions provided in Article 8 of
  the Income Tax Law 113 paid by the employee such
  as
• Pension and contributions as determined by
  Pension and Social Security Laws
• Example monthly salary of ID 703,000

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Use of Withholding tables (cont)

• First step (cont)
• Example Single employee
• Monthly salary ID 703,000
• Social security and
• pension contributions
• (private sector 5) ID 35,150
• Taxable income before
• Legal Allowance ID 667,850

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Use of Withholding tables (cont)

• Second step
• Depending on the particular status of the
  employee, select one of the two tax tables which
  is applicable to the employee.
• Determine the code allowance which the
  employee is entitled for the month
• For example, single employee O

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Use of Withholding tables (cont)

• Third step
• Under the column Taxable income per month
  (before any applicable legal allowance) of the
  selected Tax Table, you determine the taxable
  income per month bracket attributable to the
  employee.
• For this example ID 660,000 to ID 669,999

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Use of Withholding tables (cont)

• Fourth step
• The number in ID that corresponds in the
  applicable code allowance column is the amount of
  monthly income tax to withhold.
• For this example ID 61,833

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For More Information

• See the Users guide for the wage withholding
  tax and all other related documents at
• http//www.iraqcoalition.org/arabic/taxes/
• http//www.iraqcoalition.org/taxes/