The income tax treaty between Iraq and Turkey was signed on 17 December 2020. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Iraqi income tax, real estate tax, and income tax on income of foreign contracting companies in Iraq. It covers Turkish income tax and corporate tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating 6 months or more within any 12-month period.

Withholding Tax Rates

• Dividends - 10%
• Interest - 10%, with an exemption for:
  • interest arising in Iraq and paid to the Government of Turkey or to the Central Bank of Turkey (Türkiye Cumhuriyet Merkez Bankasi) or Turkish Eximbank (Türkiye Ihracat Kredi Bankasi A.S.); and
  • interest arising in Turkey and paid to the Government of Iraq or to the Central Bank of Iraq
• Royalties - 5%

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

• Gains from the alienation of immovable property situated in the other State;
• Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
• Gains from the alienation of shares or other corporate rights in a company at least 50% of the assets of which directly or indirectly consist of immovable property situated in the other State.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Entitlement to Benefits

Article 28 (Entitlement to Benefits) provides that a benefit under the treaty shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.