Doing Business in Iraq: A Legal Guide for Business in Iraq
INTRODUCTION
Embarking on a business venture in Iraq presents a distinctive set of challenges and opportunities.
While it's true that Iraq is positioned towards the lower end of the World Bank's ease of doing business report, this ranking only scratches the surface of what the country has to offer. As one of the globe's richest nations in terms of natural resources, Iraq boasts significant hydrocarbon reserves that form the backbone of its economic potential. Coupled with a large and youthful population, the country is a burgeoning market with immense prospects for growth and development.
However, navigating the intricacies of company formation, employment laws, taxation, and arbitration in Iraq requires a nuanced understanding of its legal and business environment. The landscape is marked by complex regulations that can vary significantly from one region to another, making it imperative for international companies and investors to grasp the local legal nuances to avoid pitfalls and capitalize on opportunities.
This guide, "Iraq Business Guide: A Legal Guide for Company Formation, Employment, Taxation, Arbitration Success in Iraq" aims to serve as a comprehensive resource for international entities looking to establish or expand their operations in Iraq. It delves into the essential aspects of doing business in this dynamic market, offering insights into the legal frameworks governing company formation, the recruitment and management of local and expatriate talent, navigating the tax regime, and resolving disputes through arbitration. By providing a detailed overview and practical advice, this guide seeks to demystify the process of entering and thriving in the Iraqi market.
As Iraq continues to open its doors to international investment and seeks to diversify its economy beyond oil and gas, understanding the legal and regulatory environment becomes crucial. From leveraging the country's strategic geographic location to tapping into its vast human and natural resources, the opportunities for growth and success are substantial. This guide is designed to equip businesses with the knowledge and strategies needed to make informed decisions and to thrive in Iraq's complex yet rewarding market landscape.
BUSINESS ENVIRONMENT
The economy in Iraq is mixed and cash-based. The public sector dominates some sectors, while the private sector dominates others. Banking and healthcare are two industries that are impacted by both sectors. The oil industry dominates their economy, accounting for the majority of the country’s GDP. It does, however, also feature various other developing industries like e-commerce.
There is a positive attitude toward foreign investment in Iraq. Their gas industry will undoubtedly generate significant additional earnings as well as the nation’s proven oil reserves. Iraq also has yet to begin mining the immense mineral wealth that lies beneath the country’s deserts and mountains, such as gold and platinum.
Additionally, UK Export Finance is underwriting significant projects in the electricity sector. Telecommunications and agriculture, as well as health care, construction, and professional services, all have untapped prospects and will remain so for many years.
RECENT DEVELOPMENTS
In March 2021, Iraq’s parliament voted to ratify the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958. Iraq joins the Convention as the 169th State Party. The Convention took effect for Iraq earlier this year. In the same month, their government waived pre-arrival visa restrictions for 37 countries, including the UK, the US, China, Canada, Australia, and more.
Furthermore, Iraqi company legislation was revised in September 2019 to require at least 51% Iraqi ownership for prospective joint-stock or limited liability firms to be registered. They also provided statutory provisions to COVID-19 vaccine manufacturing companies in March 2021.
In 2023, the Government of Iraq established the Iraq Development Fund (IDF) through Regulation No. 3 of 2023, published in the Official Gazette (Issue No. 4731) on August 7, 2023. This initiative aims to enhance the investment climate and promote sustainable economic and social development across the country.
Legal Foundation and Structure
The IDF is instituted under the authority of Article 80(Third) of the Iraqi Constitution and Article 42 of the Federal General Budget Law No. 13 of 2023, covering fiscal years 2023–2025. It operates as a financially and administratively independent entity linked directly to the Council of Ministers. Headquartered in Baghdad, the Fund is authorized to establish branches both within Iraq and internationally.
Objectives
The primary goals of the IDF include:
Enhancing the investment environment to attract and mobilize private sector capital.
Diversifying Iraq's economy by developing non-oil sectors.
Addressing economic, social, and environmental challenges through strategic investments.
Promoting technological advancement and modern management systems.
Creating employment opportunities via funded investment projects.
Developing human capital and aligning skills with market demands.
Governance
The IDF is governed by a Board of Directors comprising seven members:
The Prime Minister, serving as Chairman.
Three government representatives appointed for renewable three-year terms.
Three private sector representatives appointed for non-renewable three-year terms.
An Executive Director, appointed by the Council of Ministers upon the Board's recommendation, manages the Fund's administrative, financial, legal, and operational affairs.
Functions and Activities
The IDF is empowered to:
Invest in projects addressing economic, environmental, and social issues.
Establish or invest in companies and funds, including increasing capital and investing in securities.
Obtain credit facilities, issue bonds, and utilize other financial instruments.
Manage assets, including buying, selling, leasing, and exploiting movable and immovable properties.
Provide guarantees for companies associated with the Fund.
Engage in agreements with domestic and international entities and participate in specialized funds.
Organize and sponsor conferences and exhibitions to attract grants, aid, and donations.
Financial Resources
The Fund's resources consist of:
Allocations from the federal general budget.
Financial and in-kind aid, grants, and donations from domestic and international sources.
Internal and external loans.
Other sources as stipulated by applicable laws and regulations.
Transparency and Accountability
The IDF is committed to international best practices in governance, transparency, and compliance. Its financial statements are subject to audits by the Federal Financial Control Bureau and an international audit firm, with results published on the Fund's official website.
The establishment of the Iraq Development Fund represents a strategic move to diversify the nation's economy, attract investment, and foster sustainable development, aligning with Iraq's broader economic reform agenda.
Key Business and Legal Developments in Iraq – 2025
In 2025, Iraq has enacted several significant legal and regulatory reforms aimed at enhancing its business environment, attracting foreign investment, and aligning with international standards. These developments span various sectors, including taxation, labor, digital transformation, and banking.
Tax Reforms and Adoption of International Financial Reporting Standards (IFRS)
Iraq initiated comprehensive tax reforms in 2025, restructuring corporate tax policies and aligning financial reporting with IFRS on a trial basis. These changes aim to enhance transparency, attract foreign investment, and ensure compliance with international accounting standards.
Labor Law Updates and Social Security Reforms
Recent amendments to labor laws have strengthened employee rights and clarified employer obligations, particularly concerning social security contributions, minimum wage adjustments, and contract regulations. Additionally, a new law mandates increased employer contributions and extends coverage to previously excluded workers, such as freelancers and informal sector employees. Companies are now required to register and upload necessary data on a digital platform to ensure compliance.
Digital Transformation in Business Registration and Transactions
On March 6, 2025, the Iraqi government issued directives to streamline business registration processes and promote digital transactions. Key measures include:
Mandatory opening of bank accounts in licensed Iraqi banks for company owners.
Simplification of contract authentication procedures, especially for SMEs.
Promotion of electronic transactions and digital payment systems in coordination with the Central Bank of Iraq.
Provision of financial facilities and incentives to companies, including loans and banking services.
Banking Sector Restructuring
In April 2025, Iraq commenced a comprehensive restructuring of its banking sector with the assistance of international consultancy firms. The Central Bank of Iraq aims to enhance the sector's resilience, transparency, and alignment with global practices. Key objectives include strengthening capital adequacy, improving liquidity ratios, and enhancing transparency in reporting and auditing.
Amendments to the Federal Budget Law
In February 2025, the Iraqi Parliament ratified an amendment to Article 12 of the Budget Law, guaranteeing that international oil companies operating in the Kurdistan Region will receive compensation of USD 16 per barrel, to be paid in advance. This amendment aims to facilitate the resumption of oil exports from the region and ensure fair compensation for production and transportation costs.
Legal Reforms Published in the Official Gazette
In January 2025, several significant legal reforms were published in the Iraqi Official Gazette, including:
Law No. 1 of 2025: Amending the Personal Status Law No. 188 of 1959, allowing Muslim couples to select the Jaafari Shiite school of jurisprudence for their marriage and family matters.
Law No. 2 of 2025: Second amendment to the General Amnesty Law No. 27 of 2016, revising interpretations related to affiliations with terrorist organizations.
Law No. 3 of 2025: Cancelling decisions of the dissolved Revolutionary Command Council, facilitating the return of properties to their original owners.
LEGAL SYSTEM
The Iraqi legal system is civil law-based. Their Civil Code was based on the Egyptian Civil Code and has some Sharia Law features. However, Sharia Law only has a minor impact on Iraqi law. This includes crucial aspects of business, such as Islamic banking, which aren’t impacted in Iraq. They are governed under a federal system. Kurdistan, however, is the sole semi-autonomous territory. Many of Kurdistan’s laws are shared with the remainder of Iraq.
Even if certain products are allowed to be imported and supplied, firms will have to comply with regulatory regulations that may appear strange. Almost every industry is extensively regulated, meaning investors will need to secure licenses and then sub-licenses from a slew of government agencies.
For example, they will need a license from the Ministry of Trade to work in the security industry, but they won’t be registered as a firm until they have the green light from the Ministry of Interior. A license for firearms, a license from the telecoms regulating body for radio frequencies, and a license for vehicular GPS trackers are all required before you are allowed to operate.
All of the licenses must be obtained at different times, putting huge administrative strain on the investor because they’ll have to keep track of which ones are about to expire and which ones are still valid.
EMPLOYMENT
Iraqi labor law extends to all employees in Iraq regardless of their nationality and does not extend beyond the borders of Iraq. Irrespective of the legislation choice in their work contracts, Iraqi labor law applies to all foreign and domestic employees who work in Iraq. Iraqi courts have sole authority over all labor laws.
Furthermore, contracts of employment are not required to have any minimum terms. It is also not necessary to have written agreements. The business relationship is governed and defined by law. Unless extra rights are provided under contract, all minimal rights under employment law are assumed into contractual arrangements by default.
Iraqi Labor Law prohibits the termination of work contracts by imposing restrictions on the manner in which a business relationship can be ended. When an employer terminates an employee, they must give notice to the employee. In some limited circumstances, the employer has the right to terminate the contract. This is conditional on the employee receiving at least 30 days of written notice prior to the date of termination.
Unfair dismissal is defined as any termination that does not strictly follow the statute’s reasons for termination. In such cases, the worker is eligible to double the standard severance pay and can also request reinstatement to their previous post.
In Iraq, all workers must register with the Ministry of Social Security. The proportion of monthly social security contribution is 5% of the worker’s basic salary to be deducted from the worker and 12% of the basic salary to be paid by the employer, which form a combined monthly payment of 17%. The oil and gas sector has its own social security payment rates, which vary based on the type of activity performed by the employer.
FOREIGN INVESTMENT
Iraqi tax exemptions are available with an investment license from the local investment commission, but it is not required to operate a business in Iraq. Even if the businesses are entirely controlled by foreigners, foreign companies can open subsidiaries in Iraq and conduct business. A minimum of 51% Iraqi ownership is necessary to form a limited liability firm and joint stock firm. There are a few industry-specific rules that necessitate complete or partial national ownership to obtain specific types of licenses and approvals, such as pharmaceutical companies.
Investment Law No.13 of 2006 was enacted and published in the Official Gazette in 2007. In 2009, the Investment Law was amended by issuing Investment Law No. 2 of 2010 to include foreign land ownership rights concerning a foreign company’s investment. In 2015 it was amended again by issuing Investment Law No.50 of 2015. In the latest amendment of the law, the investors were given many benefits and legal protection to be encouraged to invest in Iraq.
This law aims to encourage investments and transfer modern technologies to contribute to the process of improving and developing Iraq and extending backgrounds and attracting foreign investments to the country and diversifying them, as well as for the advancement of the private sector by providing facilities to establish investment projects and the competitiveness of projects by the virtue of this law. Among a large number of leverages that the Investment Law grants to the investors, the main benefits are the duration of the investment is set to be for a period of up to (50) renewable years.
In addition, the Investment Law prohibited the expropriation or nationalization of an investment project or the revocation of its ownership, whether in part or whole, except for public interest, and in which case, the investor shall be entitled to fair compensation. The law also offers an exemption from customs duties, liberty to market investors’ products, the right to establish branches and commercial offices in Iraq, the right to establish a joint commercial entity with an Iraqi or foreign investor and lifting restrictions on transferring funds to and from Iraq, including the invested funds and the profits.
Further, the Investment Law facilities for the entry and exit visas, residence, and permits for expatriates by obtaining supporting official letters from the competent Investment Commission. The law authorized and granted the right of ownership of the Iraqi or the foreign investor over lands allocated for residential and industrial projects belonging to the state or the public sector solely or in partnership with the public sector provided that the use of the same shall not conflict with the principally intended purpose.
The Iraqi or foreign investor may purchase land belonging to the private or mixed sector to establish housing projects exclusively. In terms of dispute resolution, The law contains several provisions on dispute resolution mechanisms and the applicable law. These include disputes between the investor and the Investment Authority, the investor and its employees, and with different authorities involved in the licensing process. In many instances, the Investment Law expressly allows for Iraqi and international arbitration
Incentives
Iraq has huge investment potential mainly because of its low starting point. Any amount or duration of stability can make a significant difference, and investors will witness substantial progress in a short amount of time. It’s difficult to put a time limit on when investors will see returns, but you can look at the growth of other post-conflict communities and compare.
While no investment subsidies are available, and investors must contribute capital or run the risk of losing investor status, there are investment incentives from Iraqi taxation reductions and customs exemptions. Land allocation is also sometimes available. Foreign investors receive a lot of the same benefits as domestic investors.
Although the country is currently disadvantaged, it has the potential to rapidly rise into the realms of middle-income nations and eventually become wealthy. The nation has been isolated from the rest of the world and lacks international connections as a result of this.
Opportunities for Investors
Iraq’s infrastructure is considerably inadequate and much of it is now in ruins, particularly in the western part of the country. The World Bank predicts that $88 billion will be needed for reconstruction, which many consider to be a modest estimate.
Attracting foreign direct investment is critical to Iraq’s reconstruction, especially given the absence of domestic financing. The country’s investment atmosphere, on the other hand, is only appealing to investors with a high-risk tolerance, a difficult proposition outside of the country’s rich oil industry that’s attracted large sums of money.
Iraq’s National Investment Commission (NIC) announced a list of 157 projects for foreign investment a year after the victory declared by the Iraqi government in 2017. Since then, little private funding has been secured, leaving room for more opportunities.
Reconstruction in Western Iraq is also on the list, with projects including the repair and redevelopment of Mosul International Airport, as well as the reconstruction of trains, roadways, and ports throughout the country. A Baghdad subway project was also mentioned, and manufacturing, agriculture, and new technology are among the prospects emphasized by NIC in Iraq’s four economic zones.
Additionally, Iraq decided to establish 12 new residential communities in 2021, to address the country’s housing shortage, which has been exacerbated by war destruction and increasing population. The housing project aims to accommodate around 600,000 individuals and will include 100,000 homes.
TAXATION IN IRAQ
Iraq’s current tax law is set out in Law No. 113 of 1982 (as amended) (the Income Tax Law). Under the GCT’s current interpretation and application of tax laws and instructions in Iraq, the factors that would create a taxable presence for a non-resident in Iraq can be summarized as follows, whereby meeting any one of the below factors causes a non-resident company to be ‘doing business in Iraq’ and, therefore, taxable in Iraq; whereas, avoiding all four factors means that a company is ‘doing business with Iraq’ and should, therefore, avoid taxation in Iraq:
The place of signing the contract by the party executing work under the contract (vendor or service provider) is in Iraq;
The place of execution of work is in Iraq;
The place of delivery of goods or services is in Iraq; or
The place of receiving the payment for the work is in Iraq.
All registered entities inside of Iraq must register with the GCT, and obtain a tax identification number ‘TIN’
There are three different type of taxes applicable in Iraq:
Corporate Income Tax
In Iraq, corporate income tax (CIT) is imposed on taxable profits from all sources arising, or deemed to arise, at a flat rate of 15% (a 35% CIT rate is applicable only in Iraq for oil and gas companies).
Any revenues and expenses related to any services rendered in Iraq should be booked and reported locally by the Iraqi entity. The Iraqi entity would need to prepare local financial statements (prepared in Arabic under the Iraqi Unified Accounting System (local Iraqi GAAP) (IUAS) and CIT return, and file them with the GCT on an annual basis.
The net income reported in the locally prepared financial statements and CIT return would then become the basis for the GCT in assessing the due CIT on the Iraqi entity. It should be noted that the GCT reserves the right to reject a company’s reported net profits and instead impute a deemed profit if the actual profit, as reflected in the IUAS financial statements, is less than the deemed profit percentage as communicated in the GCT’s indicators. If the actual profit as reflected in the financial statements is more than the deemed profit percentage, the tax will most likely be based on actual profit.
Withholding Tax
To the extent that the Iraqi entity is a customer under a contract for ‘doing business in Iraq’ (a taxable contract), the Iraqi entity would be required to act as a withholding agent and retain tax from payments made to its vendors/service providers who are undertaking work and generating income in Iraq and then remit the retentions to the GCT.
The retention rates vary and are dependent on the nature of activities carried out under each contract (which typically range from 1.8% to 10%, as per the GCT’s income tax law and indicators).
Recently, Iraq issued new regulations to include SOMO oil contracts under the withholding tax regulations. Therefore, oil companies dealing with SOMO or Ministry of Oil have to comply with withholding tax regulations and complete necessary procedures at the General Commission of Taxes in Iraq.
Employee Income Tax
Employee income tax in Iraq must be withheld by the Employer at rates that graduate from 3%-15%. The Iraqi entity must then remit the withheld amounts to the GCT’s Direct Deductions Department (DDD) by the 15th day of each month which follows the month of deduction.
An annual employee income tax filing is also required by 31 March of each year. After the annual employee income tax filing is made, the DDD would undertake an audit of the filing and assess the employer’s compliance with its employee income tax obligations and may impose an additional employee income tax liability if the DDD concludes that the employee income tax paid is less than the required minimum tax obligation.
In addition, the Iraqi entity would be obligated by law to operate payroll and maintain records of salaries, allowances, and wages for all of its employees (Iraqis and non-Iraqis) who are working in Iraq. By law, employees of the Iraqi entity must have local employment contracts that include details of basic salary and allowances. Salaries of foreign employees seconded to Iraq by a non-resident party are subject to income and social security taxes in Iraq in the same manner as Iraqi employees.
FRANCHISES
Furthermore, while the government of Iraq has huge purchasing power and attractive tenders, it has recognized that the nation needs to diversify its sources of finance and reduce its dependence on oil. With a surge in new franchisees coming into the country, there are already hints of change.
There is huge potential for franchise business operators. While some may be skeptical of establishing a potential franchise in Iraq, there is great scope for the possibility. Although retail is declining in most places around the world, Baghdad has seven malls with a remarkable number of visitors. Everyone wants to go out after times of hardship.
The responsibility to register a commercial agency is on the agent, not the principal, and any penalties to be imposed for failing to register a commercial agency fall on the agent. For a commercial agent/distributor to register agencies under its name, a commercial agent/distributor is generally required to submit a duly notarized and certified copy of the commercial agency/distribution agreement to the Registrar of Companies\Commercial Agencies Department.
Technology
Following a succession of high-profile departures, the Middle East private investment sector is booming. There is an emerging start-up sector in Iraq that is seeking to overcome the hurdles as investors hurry to uncover the country’s most promising initiatives.
The spotlight has shifted to the Middle East’s expanding technology sector. Following several success stories, there’s been a surge in curiosity among high-net-worth people, investment institutions, and middle-class experts, all of whom see fresh opportunities. A rising proportion of angel investors and regional firms putting up venture units have broadened finance sources available, enhancing these prospects — a significant development in the current investment climate.
The Middle East only had three venture capital companies a few years ago and maybe a couple of corporate venture capital arms. There were a few notable exits involving area firms, but it couldn’t be described as a particularly productive or active ecosystem.
All of that changed once Amazon made headlines with its $580 million acquisition of Souq, the Dubai-based e-commerce site, in 2017. Then, Uber paid $3.1 billion for Dubai-based transportation service provider Careem in 2019, representing the Middle East’s biggest tech start-up exit to date. Now, money is pouring into this space, and the web is being stretched further to countries such as Syria, Egypt, and Iraq.
In terms of media and telecommunications, Order No. 65 established the Iraqi Communication and Media Commission (the CMC). According to the Iraqi constitution and Order No. 65, the CMC is an independent entity and non-profit administrative institution, and it has the sole authority to regulate and issue licenses for telecommunications, broadcasting, information services, and other media in Iraq, and shall be committed to the principles of objectivity, transparency, non-discrimination, proportionality and due process in carrying out its duties.
In contrast to the financial status under the previous regime, which was virtually nonexistent, and employment prospects were restricted to those made available by the Iraqi Telecommunication and Post Company (ITPC) – the only organization entrusted with managing and regulating the country’s communications infrastructure – Order No. 65 will place the communications industry as the growth driver of the Iraqi economy. It is hoped that this segment will be among the country’s growing employment prospects in Iraq.
The CMC and the Ministry of Communications (MoC) are the two governmental bodies with the authority to oversee telecommunications licenses in Iraq. The State Company for Internet Services (SCIS) and the ITPC are two state-owned businesses that are run by the MoC. While the SCIS manages internet subscribers and digital communication in Iraq by offering wireless connectivity for government agencies, DSL and Dial-up VOIP services, and internet protocol (IP) address registration, the ITPC is in charge of the fiber-optic network, the microwave backbone, and the limited Fixed Wireless Local Loop (WLL) CDMA network.
The official policy of spectrum management made by CMC in line with the national frequencies distribution table in Iraq, as well as ITU rulings and recommendations, governs all frequency allocations, service distribution, frequency bands applications, license granting for communications services and telecom systems, and quality approval certifications.
All government organizations, private and public sector businesses, and private individuals who would like to use spectrum, operate a communications system, or engage in the sale and purchase of telecommunications equipment used in the spectrum procedure must obtain the necessary fundamental authorization and licensing for their Iraqi operations.
The main licenses granted by the CMC are as follows:
Permits to Import Telecommunication Devices in the Republic of Ira
Satellite network operators and service providers’ licenses (GMPCS)
License for using private mobile communications networks across satellites (GMPCS)
Frequency license
AES & GSM service license
A permit to sell and trade communications equipment.
VSAT License
In 2025, the Communications and Media Commission (CMC) in Iraq introduced a new regulatory category known as the "Usage License for Telecommunication and GPS Devices." This license is now required for companies and individuals operating or utilizing telecommunication equipment and GPS-based technologies within Iraq, including but not limited to tracking systems, fleet management solutions, and satellite communication tools. The aim of this regulatory development is to enhance oversight, ensure national security compliance, and regulate the importation, installation, and use of such devices across the country.
HEALTH & PHARMACUETICAL SECTOR
Iraq’s Ministry of Health is in charge of policing medical procedures. The Iraqi Pharmacist Syndicate and the State Company for Marketing Drugs and Medical Appliances (KIMADIA) are the two main organizations to work with when it comes to the commercial side of the pharmaceutical industry in Iraq.
Depending on the Federal Iraqi buyer, pharmaceutical products may adhere to several business models. The buyer may either be KIMADIA or a customer from Iraq’s private market to name two options. In terms of government procurement, KIMADIA is the sole institution permitted to acquire pharmaceutical products for Iraq’s federal government.
Pharmaceutical goods must only be imported into Iraq via Iraqi registered third parties, or ‘scientific bureaus,’ under Pharmaceutical Law (Federal Law No. 40 of 1970) and associated instructions (Instructions No. 4 of 1998), which govern scientific bureaus engaged in the business of promoting pharmaceutical products.
The only exception to this is if KIMADIA determines that direct product importation is necessary. KIMADIA prefers to operate through Iraqi authorized scientific offices wherever possible even though it can deal with non-Iraqi suppliers or marketers directly (as agents for the exporting companies). The only option to market pharmaceutical items while working with the private sector in Iraq is by engaging with a scientific bureau.
The rules and legislation governing the pharmaceutical industry in Iraq apply to the exchange of drugs and medical supplies as well as the importation of those products into Iraq through the private market. The following entities are permitted to do such business, within the bounds set for each firm by the applicable laws and regulations:
Pharmacy: a facility that manufactures and retails drugs, prepared prescription drugs, chemicals, and other ready-made formulas approved for use in Iraq.
Scientific Bureau: an authorized location where drugs, medical equipment, and raw materials can be advertised, imported, and sold to pharmacies. It is also authorized to represent five businesses that manufacture and distribute drugs and medical products before the Ministry of Health and to register those businesses with the ministry.
Drug Store: a location with a license to store and distribute medications only to pharmacies and other authorized locations.
The Licensed Entities
Licensed Entities’ business practice is limited to Iraqi pharmacists who have been granted licenses by the Syndicate of Iraqi Pharmacists. Additionally, according to Iraqi legislation, a corporation cannot be granted a license to establish a pharmacy until all of its stakeholders are Iraqi pharmacists and the firm’s shares are intended to be sold solely to pharmacists.
Any arrangement of a different sort, such as the possession of a pharmacy’s stock, capital, or assets by a person who is not a pharmacist, shall be regarded as void. Even while all requirements are satisfied, no company has received a license to conduct the same as of yet.
A manufacturer or drug store may be granted a license under Article 9 (2) of the Practicing Pharmacy Profession Law No. 40 of 1970 (the Law), provided that Iraqis control at least 51% of the relevant organization’s shares. The permit is valid for as long as the aforementioned criterion is met (and vice versa). However, the incorporation of such firms has not been approved by the Registrar of Companies. Noting that passing on the license of the scientific bureau to another party is against the Law.
Comprehensive Guide to Company Formation in Iraq:
PROCEDURES FOR STARTING A BUSINESS:
Iraq has indeed become one of the top choices of global investors and companies to invest in and launch their business ventures. One such reason is the country’s improving economic growth and standing. If you are planning to register an LLC in Iraq or a branch, we’d say it’s a great idea. However, as a law firm in Iraq with decades of experience, we’d advise you to read this guide first before you begin. We say this because the laws for registering and launching a business in modern-day Iraq witnessed many changes in the past few years.
The Changing Dynamics
Published in Gazette 4554, the Iraqi Companies Law No 21 of 1997 was amended with Iraqi Law 17 of 2019. It came into effect on 9th September 2019. Various changes were made in the Iraqi Companies Law. These include the following:
The first amendment was the introduction of the holding company.
The law stated that a legal or foreign natural individual could acquire membership in his capacity as the founder or a shareholder of a limited company or joint-stock only if the contribution percentage of the Iraqi person is more than 51% (fifty-one percent) of the invested capital. Also, in addition to the managing director, the company should appoint a deputy managing director for practicing the powers of the managing director in case of his absence.
The license of the holding company shall be suspended or canceled if they are unable to establish their activities in Iraq within two years from the date of registration.
Moreover, if the company does not issue the liquidation recommendation in conformance with Article 147, and two months (sixty days) have lapsed, then by law, the company liquidation decision will be issued by the registrar.
Company shall be penalized for carrying out business activities in Iraq if it doesn’t have a registration certificate. The penalties have increased, including a minimum of three months’ imprisonment and fines of not more than five million Iraqi Dinars.
Also, by law, the government will prioritize Iraqi companies for governmental contracts if they have foreign companies as partners.
LLC Registration—Understanding the Essential Steps
Under Iraqi law, an LLC (Limited Liability Company) can be established between two and twenty-five shareholders. However, under the Companies Law, there is an exception to the Iraqi general rule. It allows a single person, judicial or natural, to form a Limited Liability Company. Furthermore, when registering an LLC in Iraq, foreign investors must have Memorandum of Association (“MoA”). This works as a foundation document between the shareholders. However, if one founder creates the LLC, you must prepare a statement with the same requirements as the Memorandum of Association as per Commercial law. Foreign natural individual could acquire membership in a capacity as the founder or a shareholder of a limited company or joint-stock only if the contribution percentage of the Iraqi person is equal to or more than 51% (fifty-one percent) of the invested capital.
As per the Companies Law, the items to be included in the MoA are:
The company’s proposed name, along with the company form
The company’s proposed location (it should be in Iraq)
The proposed company’s purpose of establishing in Iraq and the nature of activities it will engage in
The capital of the proposed company, such as the number of shares and the value of the shares
Founder names with their professions, nationalities, permanent addresses, percentage of capital owned.
The Companies Law sets forth the minimum share capital requirement. This requirement must be paid in full and nominal values of one Iraqi dinar, and it can be withdrawn upon completion of company registration. Furthermore, when registering your LLC in Iraq, you must:
Reserve your company’s name with the Baghdad Chamber of Commerce and Federation of Chambers of Commerce. You need to make sure that the name is unique to get approval.
Next, deposit your share capital in the proposed LLC. The deposit must be in an Iraqi bank. Once you deposit the amount, you will receive a deposit receipt letter. This letter should then be submitted to the Ministry of Trade in Iraq. The Ministry of Trade will provide you with a deposit letter.
Now, from the General Commission for Taxes, you will have to apply for and receive tax clearance certificates. These are no objection letters addressed to the Registrar of Companies.
Next, make sure to submit the following documents to the Registrar of Companies: The MoA duly signed by the founders with names and objectives of the company, business address and contact details, and complete details of the shareholders and directors along with the ownership structure.
Moreover, you must also furnish:
Legalized and notarized passport copies of the directors and shareholders
Notarized and legalized registration certificate copies of the corporate shareholders
A bank statement that certifies the deposit of the share capital
In a situation where the founder of the new business entity in Iraq is a company, the application should include the following information:
The resolution of the board of directors or shareholders of the founding company planning to launch the LLC in Iraq.
Copy of the founder’s constitutional documents.
The lease agreement and title deed copy of the proposed LLC head office in Iraq.
The letter issued by the Iraqi bank shows that the share capital has been received as well as deposited in the bank.
Tax clearance letter in respect to the founder.
Power of attorney issued by the founder appointing a local lawyer to undertake the procedure of setting up the LLC in Iraq.
It is important to note that in some situations, steps may vary depending on legal complexities or business structure. But don’t worry, our lawyers are here to help. We can provide you with quality assistance unique to your situation, ensuring that registering an LLC in Iraq for you is simple, smooth, and stress-free.
Branch of a Foreign Company
The governmental entity responsible for regulating and establishing foreign branches and granting the certificates of regulation is the Ministry of Trade/Registrar of Companies Department. A new law, Regulation No. 2 of 2017 was issued to regulate the registration of foreign companies in Iraq.
According to the law:
If the foreign companies that intend to set up a branch in Iraq have established their operations for at least two years in the country of their origin, they will be permitted to conduct business in Iraq if they obtain any of the following:
A governmental contract or a sub-contract with an entity that is contracted with the Iraqi government, or a contract with either a state or mixed sector companies.
Have investor license as per the applicable investment laws.
Have a business license that is granted from an authorized Iraqi governmental entity, or
Is conducting business in a private sector in a project or contract value is not less than 1 million US dollars.
It is important to note that you shall not be granted a license to carry out commercial activities in Iraq, even if you have a certificate of registration. At times, the sector-related license requirement is pronounced by the RoC after the registration certificate issuance. It is subject to the activities that are listed in the AoA (Article of Association) if the RoC declares the license acquisition necessary.
Litigation In Iraq
Litigation in Iraq is primarily governed by the Civil Procedure Law (83/1969), which outlines the rules for civil and commercial disputes. For criminal cases, the Penal Code (111/1969) and the Criminal Procedure Law (23/1971) apply. Additionally, the Evidence Law (107/1979) governs how evidence is presented in court.
Pursuant to Article 14 of the Civil Code (40/1951), the Iraqi courts have jurisdiction over cases where one of the parties is an Iraqi national, even if the obligations were entered into outside Iraq. With respect to foreigners, the Iraqi courts exercise jurisdiction if:
the foreign party is domiciled in Iraq; or
the case pertains to:
immovable or movable property within Iraq;
a contract concluded or performed within Iraq; or
an event that occurred within Iraq.
Iraq is bound by various bilateral and multilateral agreements that significantly influence litigation within its jurisdiction. These instruments pertain to areas such as judicial cooperation, criminal law, human rights and international trade.
Bilateral agreements: Iraq has signed numerous bilateral treaties with neighbouring and regional countries, focusing on areas such as extradition, mutual legal assistance and judicial cooperation. These agreements facilitate the handling of cross-border legal matters, including the enforcement of foreign judgments. Notably, Iraq has agreements with countries such as Jordan, Turkey and Iran, promoting cooperation in civil and criminal litigation.
Multilateral treaties: Iraq is also a party to several key multilateral conventions, including:
the United Nations Convention against Corruption, which encourages international cooperation in anti-corruption efforts, investigations and legal proceedings;
the United Nations Convention against Transnational Organized Crime, which promotes collaboration in combating cross-border crimes such as human trafficking and drug smuggling; and
the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which ensures the enforcement of international arbitration awards in Iraq, supporting the use of arbitration in resolving commercial disputes.
Riyadh Arab Agreement for Judicial Cooperation: Iraq is a signatory to the Riyadh Agreement, which facilitates extensive judicial cooperation among Arab countries. This agreement covers:
mutual recognition and enforcement of judgments;
extradition; and
legal assistance in civil, commercial and criminal matters.
Human rights conventions: Iraq is a signatory to various international human rights conventions – such as the International Covenant on Civil and Political Rights and the Convention Against Torture – which can be invoked in litigation involving civil liberties and human rights violations.
These agreements reinforce Iraq’s commitment to international legal norms, ensuring cooperation in litigation matters across borders and supporting the enforcement of international standards in both civil and criminal cases.
Arbitration and Foreign Judgment Enforcement
A foreign judgment is a decision made by a court that is not located in Iraq. Foreign verdicts were not upheld or acknowledged in Iraq before 1928 because, at the time, it was believed that doing so would violate their sovereign rights.
The maintenance of rights protected by international judgments and the significance of protecting people’s business interests became more crucial as opinions started to shift. Many nations, including Iraq, started to respond to this by allowing the incorporation and execution of foreign judgments rendered by non-national authorities either through statute or through numerous multinational treaties.
Enforcing Foreign Judgments in Iraq
Foreign judgments rendered by international courts cannot be enforced in Iraq unless otherwise determined by a particular law, according to Article 16 of the 1951 Iraqi Civil Code. We must thus examine the Foreign Enforcement Law, which is the primary law addressing the subject, to comprehend the execution of foreign judgments in Iraq.
Anyone seeking to have a foreign judgment enforced in Iraq needs to make a request to the Court of First Instance in line with Article 3 of the Foreign Enforcement Law. The appropriate court must be chosen based on its proximity to either the accused’s dwelling or the property subject to claim, whichever is closer.
A ruling enforcing an international judgment may be made by the Court of First Instance. If the accused can show that the decision was obtained unfairly or that the international court did not follow justice, then the court may also decline to execute the foreign judgment.
Foreign Arbitration
Iraq is a country whose economy is heavily dependent on its dealing with foreign investors, especially in the oil & gas field. Many of these foreign investors prefer arbitration as an alternative dispute resolution method due to the advantages it provides, such as a less rigid structure to litigation and the ability to choose a governing law they are more familiar with. Iraqi law has expressly endorsed the use of arbitration by investors (see Article 27 of Federal Investment Law Number 13 of 2006), as well as the use of arbitration in relation to government contracts (see Article 11 of Regulations Number 1 of 2008 for Implementing Government Contracts).
Arbitration in Iraq is not codified in one separate law. Instead, relevant legal provisions could be found in many laws, such as Federal Law Number 30 of 1928 in respect of Enforcement of Foreign Judicial Awards and the Riyadh Convention on Judicial Cooperation of 1983 (the “Riyadh Convention”). This differs somewhat from the United Nations Commission on International Trade (UNCITRAL) Model Law on International Commercial Arbitration, which is adopted by many other countries. Recently the Iraqi government has taken a giant leap in respect of arbitration by signing the New York Convention for Arbitration (the “New York Convention”). The New York Convention’s principal aim is that foreign and non-domestic arbitral awards will not be discriminated against, and it obliges disputing parties to ensure international awards are recognized and generally capable of enforcement in their jurisdictions in the same way as domestic awards.
What is the current legal position in Iraq?
Iraq's accession to the New York Convention On 31 May 2021. Iraq's recent ratification of the law of accession to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards marks a pivotal shift in its legal framework towards international arbitration. This momentous step underscores Iraq's commitment to fostering a pro-business environment and aligning its arbitration laws with global standards. By joining the New York Convention, Iraq has opened new avenues for international businesses operating within its borders, offering a more reliable and efficient mechanism for the enforcement of arbitral awards. This development is particularly significant for foreign investors and companies, as it provides a heightened sense of legal security and predictability in dispute resolution. The accession to the convention signals Iraq's readiness to integrate into the international business community, enhancing its attractiveness as an investment destination. It ensures that arbitration awards made in other member states can be recognized and enforced in Iraq, thus strengthening the country's position as a viable and competitive market for global business operations.
Here are a few points regarding the New York Convention worth mentioning:
The New York Convention will not have a retrospective effect. This means that it will apply only to foreign arbitral awards made after the publication date of the Law.
The New York Convention deals only with commercial awards, so in other cases, such as a probate award, for example, existing arbitration laws apply.
The New York Convention will facilitate the enforcement of foreign arbitral awards in Iraq. Currently, the enforcement of a foreign arbitral award is mostly dependent on the Riyadh Convention. The Riyadh Convention demands conditions that often delay the enforcement process, such as the requirement for a statement from the local judicial authority certifying that the award is final. Under the New York Convention, no separate certification is required, and enforcement may be sought against state entities.
Through its accession to the New York Convention, Iraq can assure potential foreign investors that, if a dispute arises, they will have access to a neutral venue with a highly enforceable award mechanism system. It is hoped that this will make Iraq more appealing to future investors.
CONCLUSION
Iraq stands on the precipice of a transformative era, poised to turn the page on decades of adversity. A history marred by dictatorship, repression, foreign interventions, terrorism, and civil strife has not only tested the resilience of its people but has also primed the nation for resurgence. With a population of 40 million yearning for renewal, Iraq presents an unparalleled market opportunity for investors willing to navigate its complexities.
The challenges of entering the Iraqi market—ranging from nascent supply chains to the hurdles of securing insurance—speak less to insurmountable barriers and more to the untapped potential awaiting savvy investors. The lure of significant returns for those prepared to undertake calculated risks is undeniable. Yet, the importance of armed with comprehensive legal and strategic advice cannot be overstated, as navigating the intricacies of the Iraqi business landscape demands expertise and foresight.
The promise of Iraq's market is not just in its recovery but in the vast economic opportunities that peace and reconstruction herald. For early investors, the rewards could be substantial, reflecting the substantial peace dividend that awaits as Iraq transitions from conflict towards prosperity. The journey ahead is fraught with challenges, but for those willing to invest in Iraq's future, the potential for impactful gains—both financial and societal—is immense. In embracing this new chapter, Iraq and its international partners can forge a path towards lasting growth and development.
Muayad & Associates LLC
If you are looking for investment options or doing business in Iraq and in need for legal services, setting up a presence, compliance requirements, foreign judgment enforcement or taxation advisory, get in touch with Muayad & Associates. We are a reputable and reliable law firm in Iraq with over a decades of business experience. For more information about our firm, practice area, and our lawyers, please visit our website at www.muayadandassociates.com
By: Muayad & Associates | شركة المـؤيـد للخدمات القانونيـة
www.muayadandassociates.com
Mustafa Muayad
Managing Partner
E: [email protected]
T: +964 7805010222
