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Doing Business In Iraq
IraqITIC.com - Doing Business In Iraq:

Doing Business In Iraq (download)

Iraq's company law, the CPA Order 64 facilitates business by simplifying the registration process and procedures for both foreign and Iraqi investors. All new companies i.e. local and foreign are to register with the Registrar of Companies (Ministry of Trade), and the Registrar is required either to approve or disapprove an application in writing within 10 days.

A foreign person or legal entity may become a founder, shareholder or partner in any type of company with unlimited level of participation; and a foreign business organization may invest using freely convertible currencies or Iraqi legal tender.

Major Features of Company Law:

Foreign investors may establish completely foreign owned entities including subsidiaries. They may enter into joint venture agreements with domestic investors, acquire an existing investment or open branch offices.

Foreign investors are fully authorized to possess, use, transfer or dispose of their investment; and may manage or participate in managing a business organization. All funds as given below which are associated with the investment are transferable abroad:
  • Shares, Profits or Dividends
  • Proceeds from the sale or disposal of an investment or a portion thereof
  • Interest, Royalty Payments, Management Fees, or any other Fees and Payments made under a contract and
  • Any other transfers approved by the Ministry of Trade
Types of Companies

There are three types of companies that may be established, which are as follows:
  • State Companies
  • Mixed Companies
  • Private Companies
State Companies: Law No. 22/1997

State companies are government owned entities, registered with the Ministry of Trade.

Mixed Companies: Law No. 21/1997

There are 2 types of Mixed Companies:

1. The mixed joint-stock company: shall be formed by not less than five persons, who will participate in it by owning shares through public subscription and will be responsible for the company's debts in so far as the nominal value of the shares to which they have subscribed.
2. The mixed limited liability company: shall be formed by no more than 25 natural or legal persons, who will subscribe to its shares and will be responsible for the company's debts in so far as the nominal value of the shares to which they have subscribed.

The mixed company shall be formed by the agreement between one or more persons from the state sector and one or more persons from outside this sector. The state sector's share in the mixed company's capital must not initially be less than 25 percent. A mixed company may also be formed by two or more persons from the mixed sector. When the state sector's share falls below 25%, the company shall be treated as a private company.

The mixed company must have a unique name and must be registered with the Ministry of Trade. It must be competitive in its business operations as the Government will not compensate it any losses.

Most existing mixed companies are joint stock companies. The founders shall subscribe by not less than 30 percent and not more than 55 percent of its nominal capital and this must include the minimum 25 percent fixed for the state sector. The remaining shares shall be offered for public subscription within 30 days from the date of the approval of the establishment of the company. The nominal value of the share shall be one Dinar.

Private Companies: Law No. 21/1997

There are 5 types of Private Companies:

1. The private joint-stock company: shall be formed by not less than five persons, who will participate in it by owning shares through public subscription and will be responsible for the company's debts in so far as the nominal value of the shares to which they have subscribed.
2. The private limited liability company: shall be formed by no more than 25 natural or juridical persons, who will subscribe to its shares and will be responsible for the company's debts in so far as the nominal value of the shares to which they have subscribed.
3. The joint liability company: shall be formed by not less than two and not more than 25 persons, each owning a quota of its capital. They shall jointly assume personal and unlimited responsibility for all of its obligations.
4. The sole owner enterprise: is a company formed by one person, who owns the one quota in it and assumes personal and unlimited responsibility for all of its obligations.
5. The simple company: shall consist of several partners, who are not less than two and not more than five and who have contributed shares to the capital. In such a company one or more may contribute services with the others offering funds.

The private company must have a unique name and must be registered with the Ministry of Trade.

The founders in the private joint-stock company shall subscribe by not less than 20 percent in its nominal capital. The remaining shares shall be offered for public subscription within 30 days from the date of the approval of the establishment of the company. The nominal value of the share shall be one Dinar.

In the case of the joint-stock company and the limited liability company, the shareholder may transfer ownership of his/her shares to another shareholder or outsiders, while bearing in mind the following considerations:
  • The lapse of at least one year since the establishment of the company.
  • The distribution of dividends that are not less than five percent of the paid up nominal capital.
  • The shareholder from the private sector cannot transfer ownership of his or her shares:
    1. If they are mortgaged, seized, or sequestered under a court decision.
    2. If their certificate is lost and a replacement has not been issued.
    3. If the shares to be transferred owe debts to the company.
    4. If the transferee is prohibited to own shares in the company under a law or a decision issued by a competent quarter.
How to Establish a Company

The founders (domestic, foreign or mixed) shall prepare a contract for the company which is signed by them or their legal representative.

The contract shall contain at a minimum:
  • The company's name and corporate form, with the word "mixed" added if it is a mixed sector company, and any other acceptable elements.
  • The company's head office, which must be in Iraq.
  • The purposes for which the company is established and the general nature of the business to be transacted.
  • The company's capital divided in quotas and shares.
  • The method of distributing profits and losses in the joint liability company.
  • The number of elected members in the board of directors of the private joint-stock company.
  • The names of the founders and their nationalities, professions, permanent addresses, and the number of shares they own as well as their percentage of the capital.
The founder of a limited liability company when there are no other founders, or the founder of a sole owner enterprise shall prepare a statement, which shall serve the purpose of a company contract and shall be subject to the provisions that are applicable to the contract whenever they occur in this law.

The founders of the company shall subscribe to the company's capital in accordance with their agreed to contributions.

The founders shall deposit the amounts of the company's capital with one or more banks authorized to operate in Iraq. It is permissible for the company's capital to include contributions in kind.

The application for establishment shall be submitted to the Ministry of Trade / Registrar of Companies with the following attachments:
  • The company's contract.
  • The subscription document of the joint-stock company signed by the founders.
  • A statement from the bank or banks proving that the capital required in Article 28 has been deposited.
  • The technical and economic feasibility study on the joint-stock company.
An Application for the registration mentioned above (including all required information and documents) may be filed in either the Arabic or English language. Translations shall be provided of home country documents not in the English or Arabic language.

The company acquires corporate status from the date of the issuance of its establishment certificate; the certificate being considered as proof of this status.

A company which is established in Iraq in accordance with the provisions as described above is considered an Iraqi company.

For more details on Registration, Online Registration, Commercial Laws & Regulations and Registration Application Forms, please visit the Iraq Registrar of Companies (Ministry of Trade): http://www.br-iraq.com/English/default.htm

Foreign Direct Investment:

Iraq considers foreign direct investment as vital to its industrial and development policy. In this regard all restrictions have been removed in order to encourage the flow of capital, technology and management expertise; and to encourage strategic partnerships between foreign and Iraqi investors.

Procedures have been simplified and a specialized Investment Promotion Agency (IPA) has been established for offering investment opportunities and the facilitation of foreign investors.

Major Features of Foreign Direct Investment Law are: The new investment law, CPA Order No.39 (as amended by the CPA Order No. 46) , has opened all sectors except natural resources involving primary extraction to foreign investment, with 100% ownership and management of business entities. Full protection is given to the rights and property of investors and they are entitled to equal terms as Iraqi investors. Foreign investors may open trade representation offices or branch offices, and can lease property for renewable terms of forty years. There are provisions for dispute settlement and it gives precedence to the terms of international agreements that Iraq may be party to.

For more details please see the section on Foreign Direct Investment.

For details on investment in Iraq please visit the Iraq Investment Promotion Agency (IIPA) at: http://www.iraqipa.com

Taxation:

According to CPA Order No. 49 there is an income tax of 15% on corporations and individuals including non-residents. However foreign employees, contractors and sub-contractors are not liable to pay any tax on income from foreign sources, or income paid by or on behalf of Multi National Forces -Iraq (MNF-I)or foreign governments. MNF-I, foreign governments, international organizations, and NGOs registered pursuant to CPA Order 45 are also exempt from income tax. The CPA Order 49 has also suspended the 25% levy on company profits.

According to CPA Order No. 84 there is a 15% tax on expatriated dividends, a flat sales tax of 10% on hotels and restaurants, a 10% tax on real property and a limited fee chargeable on vehicle sales.

Also liable to tax are state employees including employees of State Owned Enterprises (SOE). All employees are liable to pay 5% of their salary as a mandatory contribution to social security, with the employers' contribution at 12% of the same salary base (employer withholds the employee?s contributions). The administrative requirements established in 1982 with regard to collection, appeals and penalties for late or non-payment of income taxes remains in force.

For details on taxation please see CPA Order No. 37, CPA Order No. 49, and CPA Order No. 84. And Visit the Republic of Iraq, Ministry of Finance, General Commission on Taxes at: http://www.iraqtax.org/

Tax Withholding:

All employers including foreign employers of Iraqi workers are obliged to withhold tax from the salary paid to their Iraqi employees. For details and tax forms please Click Here.


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