This document provides an overview of doing business and investing in Iraq, including the regulatory framework and challenges. It discusses Iraq's opportunities for growth and investment needs. Key points covered include Iraq's investment environment and laws, procedures for starting a business as a limited liability company or branch office, structuring joint ventures, agency and distribution agreements, taxation including for oil and gas companies, and options for enforcing contracts locally or through arbitration and foreign courts. Challenges include Iraq's low ranking in ease of doing business and complex administrative requirements.

1. Doing business in Iraq
Overview of business and
investment regulatory framework
Tawfiq Tabbaa
Partner, Baghdad and Erbil
13 February 2014

2. Presentation outline
•
•
•
•
•
•
•
Iraq challenges and opportunity
Investment environment
Investment law
Starting a business
Structuring joint ventures
Agency & distribution
Taxes

3. Iraq: the opportunity
• Growth Rate 12% in 2012 and 10% in 2013 (WB/IMF)
• Budget increased by 35% to $100 billion
– based on an av oil price of $85 per barrel and 2.6
million bpd in crude exports (=95% of budget)
– One third earmarked for capital projects (35% increase)
• National Plan (2012 to 2014) calls for $186 billion in
investment, create 3.5 million new jobs and cut
unemployment to 7.5% (currently 15%)
• More than 115 bbl proven reserves oil reserves
– aims to reach 8.5 million bpd in 2017

4. Iraq: the challenge
• Iraq is ranked 165 out of 185 countries in World Bank’s
Ease of Doing Business (2013)
– 177our of 185in starting a business
• Investment related Laws are generally good
but lack details
– Distorted by complex procedures
and administrative requirements
• Security
• Economy in Transition so is
Regulatory Framework

5. Investment environment
• 100% foreign ownership is permitted in all sectors
(except agency and distribution activities)
• Since 2004 various laws have been passed to improve Iraq’s
business environment:
– Banking Law
– Law on Securities
– Amendment to Companies
Law
– Insurance Regulatory
Laws
– Amendment of IP Laws
– Amendment to Income
Tax Law
– Communications and
Media Commission Law
– Investment Law

6. Investment law
• First issued in 2006 and amended in 2010
• Applies to investments of no less than $250,000 that obtain
an Investment License
• All sectors except oil and gas, banking and insurance
• Permit ownership of land and real estate for the purpose of
the establishment of housing projects (for Iraqi nationals)
• National Investment Commission + 15 provincial Investment
Commission
• Kurdistan Investment Law
– Kurdistan Investment Board

7. Investment law
• Incentives and Guarantees under Investment Law:
– Repatriation in hard currency of profit and capital
brought into Iraq.
– Leasing land for term not exceeding period of 50 years
(renewable)
– Exemption from fees and taxes for 10 years and custom
duty exemption
• Period can be renewed and extended up to 15 years
in case of min 50% of Iraqi Participation.

8. Establishing a business
in Iraq

9. Establishing a business in Iraq
• Companies Law enacted in 1997 amended in 2004
• Companies Registry plays a significant role in the
establishment and monitoring of companies and
branches in Iraq.
• Not simply a registry of information but plays central
role for approval of various company secretarial acts
• There are two Registrars: in Baghdad
and Erbil
• Apply the same Companies Law but
with significant procedural differences

10. Establishing a business: the options
Option 1: Limited Liability Company (LLC)
• Minimum Capital is IQD 1 million
– Higher for some sectors: (e.g. IQD 2 billion oil and gas, IQD
1 billion for finance company)
• Arabic names only
– No applicable in Kurdistan
• LLC is not managed by a Board of Directors but a General
Manager
• Requires pre approval of Ministry of Interior and competent
department in case sector specific (e.g. Ministry of Oil)
– Procedures change frequently (often unpublished)

11. Establishing a business: the options
Option 2: Branch Office
• Allowed only in case of implementation of Government
Contract or a contract with a prime contractor of the
Government
• Must present letter of support from contracted government dept
and the public sector entities illustrating the nature of the
contract and other relevant details.
• Appoints Branch Manager to undertake day-to-day management
• Registration in Kurdistan has no requirement for
Government or other contract (except Oil and Gas)

12. Establishing a business: the options
Option 3: Representative Office
• Allows company to only do business development and
marketing. Cannot conduct any business
in the country
• Can convert registration from
Rep Office to Branch if
government or prime
contract is secured

13. Structuring joint ventures
• Iraqi Companies Law has mandatory provision that apply to LLC
and other forms of companies. Therefore, Articles of Association
of company cannot have:
– Preferred shares or difference classes of shares
– Tag and drag along right
– Any variation on right of first refusal
– Dividends distributions
• Shareholders Agreements may be enforced as contractual
obligations but largely untested in the JV context
• One solution is to have holding structure outside Iraq

14. Structuring joint ventures
Offshore Co
Shareholders
(Iraqi and Foreign)
SH Relationship
governed by
appropriate law
and jurisdiction
100%
Iraqi LLC

15. Agency and distribution agreements
•
•
•
•
Governed by Commercial Agencies Law of 2000
Wide application/definition: agent, broker, distributor etc
Has to be Iraqi and registered agent with Ministry of Trade
Substantially different from other ME countries in that it
offers little protections to agents
– Does not mandate exclusivity
– No mandatory compensation in case of non renewal or expiry
• Compensation is left to Iraqi Civil Code
– Claim for compensation by agent in an inopportune moment
and without just cause

16. Business tax
Permanent establishment
• There is no definition of “permanent establishment” set out in the
Iraq tax law
• Instructions No. 2 of 2008 set out relevant provisions
Trading “in” vs. Trading “with” Iraq
• Non-resident considered to be “trading in” Iraq where contracts are
concluded in Iraq, payments for the services are made into an Iraq
bank account, or services are physically provided in Iraq
• A contractor “trading in” Iraq will need to be registered in Iraq, and
obtain a tax clearance from the Iraq authorities
• Goods or services provided outside of Iraq should not be subject to
corporate taxes in Iraq on the basis that you are considered to be
trading “with” as opposed to trading “in” Iraq

17. Business tax
Tax rates
• Under the Federal Income Tax Law (“FITL”) the current tax rate for all
industries is a flat rate of 15%
• New Iraq oil and gas tax law was passed in February 2010 and applies
to oil and gas companies operating in Federal Iraq. The new law
provides for a corporate income tax rate of 35% applicable to oil and
gas companies (including subcontractors and supporting industries)
Compliance requirements
• Annual tax filings supported by audited financial statements prepared
under Uniform Accounting Standards
• Filing deadline of 31 May
• Accounts profits vs. Deemed profit

18. Oil and gas tax
Law #19 for the year 2010, imposing income tax law on
foreign oil companies (“Oil & Gas Law”)
• Oil & Gas Tax Law was passed in February 2010 and applies to
oil and gas companies operating in Federal Iraq
• Law provides for:
“An income tax of 35% of the income generated in Iraq shall be
imposed on contracts with foreign oil companies contracted to work in
Iraq… and its subcontractors in the field of oil and gas production and
associated industries.”
• Oil and Gas Tax Law is only a few lines long, and is supported
by Instructions #5 of 2011 – “Oil & Gas Instructions”

19. Latest developments: others laws
• Hydrocarbon Law
• The following Laws are currently before Parliament or in last
approval stages:
– Labor Law
– Telecommunications Law
– Comprehensive IP Law
– WTO Compliant Laws
• Technical Barriers
to Trade
• Customs
• Services

20. Doing business in Iraq
Enforcement of contracts
John Kemkers
Partner, UK and Middle East
13 February 2014

21. Key legislation/treaties
•
•
•
•
•
Civil Code
Civil Procedure Code (“CPC”)
Investment Law (“IL”)
New York Convention (“NYC”)
Riyadh Convention (“RC”)

22. Jurisdiction options
•
•
•
•
•
Local courts
Local arbitration
Foreign arbitration
Foreign courts
Permitted by IL (Art 27(4))

23. Local courts
•
•
•
•
Reasonably quick and efficient
Court appointed experts
Not for complex/high value disputes
Enforcement:
– Straightforward in Iraq
– Difficult to enforce abroad

24. Local arbitration
• No arbitration law
• No recognised arbitration
centres
• Enforcement
– Difficult to enforce in Iraq
(Art 273 of CPC –
“substantial error”)
– Difficult to enforce
internationally (signatory to
RC; not NYC)

25. Foreign arbitration
• Enforcement difficult in Iraq:
– Not signatory to NYC; signatory to RC
– CPC: no express reference to foreign
arbitration
• Ease of international enforcement

26. Foreign courts
• Enforcement issues in Iraq
– Reciprocity/treaties
– UK - Iraq treaty
– RC: “public order” exception
– Easier than foreign arbitration
awards
• Enforcement internationally
– Can be difficult to enforce

27. Preferred options
• DIFC/LCIA arbitration seated in the DIFC
– Enforcement outside Iraq (under NYC/RC)
– Should be enforceable in Iraq (ratify
award in DIFC Courts, then enforce
judgment under RC)
• Untested in Iraq
• UK Courts?

28. Questions

29. www.eversheds.com
Eversheds LLP 2014© Eversheds is a limited liability partnership.
EINH032