A. Update
The Government of Iraq has recently promulgated Social Security Law No. 18 of 2023 (referred to as "the Law"). This comprehensive legislation introduces several significant modifications in the realm of social security and pension contributions. The key provisions of this new legal framework are summarized below.
1. Social Security and Pension Contributions (SSPC) Rates
One notable change pertains to the introduction of an additional contribution rate of 8% for individuals not employed by oil and gas companies. This adjustment involves two distinct scenarios:
a. For local Iraqi employees: The government will contribute the additional 8% on behalf of local Iraqi employees.
b. For expatriate employees: Employers are obligated to contribute the same 8% on behalf of expatriate employees if they are registered in Iraq for SSPC purposes.
2. Salary Subject to SSPC
The Law redefines the salary base subject to SSPC, encompassing the basic salary, whether disbursed in cash or in-kind, along with all allowances provided to an employee. This marks a departure from the previous practice, where only fixed allowances exceeding 30% of the basic salary were considered.
The legislation also introduces minimum and maximum salary requirements for calculating social security contributions. Article 15.1 of the Law prescribes the minimum salary, which must not fall below the annual minimum wage set by the Iraqi Government. As of 2023, this minimum wage stands at IQD 350,000 (equivalent to USD 265). The maximum acceptable salary for the purpose of calculating SSPC is capped at five times the minimum wage, amounting to IQD 1,750,000.
It is worth noting that there is currently some ambiguity surrounding the calculation of SSPC based on the minimum and maximum salary, pending further clarification.
3. New Joiners and Leavers
Under the previous system, SSPC was not required to be remitted for employees who left their jobs before the end of the month. For new joiners, contributions were calculated for the entire month, regardless of their actual start date.
In accordance with Article 15.2 and 15.3 of the Law, the calculation of SSPC for new employees joining a company remains unchanged. However, for existing employees leaving their employment, SSPC should now be calculated and remitted proportionate to the period worked during that month. This aspect is subject to further discussion with the Pension and Social Security Organization (PSSO).
Note:
Further clarification: PSSO has verbally clarified that for mid month leaver, SSPC for whole month needs to be paid irrespective the date of termination.
4. Late SSPC Filing Penalty
The Law extends the grace period for late SSPC payments. Article 17.1 of the Law stipulates that a penalty is incurred if SSPC is not paid within 120 days (equivalent to 3 months) of the payment due date. This is a departure from the previous practice, where penalties were imposed if SSPC was not paid within 1 month of the deadline. The penalty amount is set at 1% of the SSPC due for each month of delay, with a cap of 100% of the original SSPC amount due. This represents a reduction in the penalty percentage, ultimately benefiting businesses.
5. Deadline for Remitting SSPC to the PSSO
The deadline for remitting SSPC remains unchanged, with payments due at the end of the month following the month in which salaries are disbursed.
Note: As per Article no. 109, the new law should be enforced 90 days from its issuance date in the official gazette. According to this, given the law was issued on 28 August, therefore the proposed changes would be effective by the end of November 2023.
Note:
Further clarification: PSSO has verbally clarified that the new law be effective from 1st December 2023.
Note: Until now, the Law has not been approved by the presidency of the Kurdistan Region and still under review. Thus, its applicable only in Federal Iraq.
