Company Establishment in Iraq

Company establishment in Iraq presents unique opportunities, especially for foreign investors.

Iraq is the fourth most populous country in the Middle East and has the world’s fifth largest proven oil reserves. Iraq, widely known with its rich heritage as the “Cradle of Civilisation”, is predominantly a desert. This desert is made fertile by the Euphrates and Tigris rivers. The official languages of Iraq are Kurdish and Arabic.

Iraq is highly dependent on oil and gas sectors. Oil accounted for 43% of the GDP, 92% of the government budget revenues, and 96% of the country’s exports in 2019. Iraq is highly dependent on oil. In 2021, this constituted 37% of Iraq’s GDP, 84% of government revenue and 96% of exports.

The political and security situation remains fragile in Iraq. Despite this, commercial opportunities are huge as the country rebuilds its infrastructure and main institutions.

Furthermore, company establishment in Iraq presents unique opportunities, especially for foreign investors. Our article is intended to provide an introduction to company establishment and legal aspects of doing business in Iraq, particularly from the perspective of the items an inbound investor will have in mind.

Types of Companies Available for Foreign Investors

Iraq’s company law, as outlined in Law No. 21 of 1997, amended by Law No. 17 of 2019, governs the formation of legal entities. Foreign companies may establish a presence in Iraq in the following forms:

1. Limited Liability Company (LLC) – Foreign ownership restrictions apply.
2. Branch Office of a Foreign Company – No foreign ownership restrictions.
3. Joint Stock Company (JSC) – Foreign ownership restrictions apply.
4. Holding Companies – Foreign ownership restrictions apply.

It’s important to note that joint ventures are not recognized as separate legal entities under Iraqi company law.

In practice, the most common form of entities for foreign investors are the limited liability company (LLC) and branch office. A limited liability company (LLC) can be established with a minimum capital of $860 and just one director and shareholder, both of whom can be foreign nationals. The entire process can take up to eight months. However, branches are the preferred entity type for most foreign firms, and they can be registered within five months or as quickly as three months with expedited fees.

Limited Liability Company Establishment in Iraq

Amendment No. 17 of 2019 to Iraq’s company law removed the previous allowance for foreigners to own 100% of shares in Iraqi companies. Now, it is mandatory to have at least 51% of shares owned by an Iraqi shareholder. This shift often necessitates a corporate restructuring to address management rights, signing authorities, and other governance matters. Foreign shareholders are strongly advised to consult a local law firm to ensure that their interests are protected. This will also help them to properly navigate the restructuring process.

An LLC in Iraq can be formed with up to 25 shareholders and requires a minimum share capital deposit of IQD 1,000,000 in an Iraqi bank before registration. It can have one director, who may be a non-resident foreign national. Foreign shareholders must undergo security clearance from the Ministry of Interior. This process typically lasts about six weeks but potentially longer. Required documents for registration include the company name, intended business activities, founder details, share capital, office address, memorandum of association, and the appointment of both an auditor and a manager.

Branch Office Establishment in Iraq

Foreign companies are allowed to open branch offices in Iraq. Although a branch office’s activities are restricted to the scope defined by the parent company, it can still perform essential business functions like invoicing local customers, signing sales contracts, and receiving income within Iraq, providing significant operational flexibility.

Further to the issue of new foreign branches regulation No.2 of 2017, it is now possible for entities that do not have contracts with the government to register a branch in Iraq. It is difficult to predict the time taken to register a legal entity in Iraq, but a time frame of 6 to 12 months would be typical. It is generally faster and more straightforward to register a branch of a foreign company than an LLC in Iraq.

General Manager Appointment

Each entity must appoint a manager or director who is resident in Iraq. If required, and until our Client has secured a work and residence permit in Iraq, Injaz Company will be happy to supply our Client with a professional, passive nominee Iraqi branch manager for 12 months.

Company Registration in Kurdistan Region of Iraq

In the Kurdistan Region of Iraq (KRI), the Federal Companies Law No. 21 of 1997, as amended, applies. Additionally, Regulation No. 5 of 1985 governs the registration of branches and representation offices of foreign companies. The registration process begins at the General Directorate of Company Registration under the Ministry of Trade, with branches located in Erbil, Dohuk, or Sulaymaniyah, depending on the area of operation. If a company operates in multiple governorates, registration must be completed in each relevant location. Moreover, we will provide more detailed information about company registration in Kurdistan in a separate article.

Advantages of Company Establishment in Iraq

Taxes

• There is no VAT, withholding tax on dividends or royalties, and corporate tax exemptions for dividends between Iraqi companies. Free zone companies benefit from 100% tax exemptions and unrestricted currency transfers. Moreover, Iraq has bilateral investment agreements with countries such as the USA, UK, and Japan. Also it has free trade agreements with countries including Egypt, Lebanon, Qatar, and UAE.

• National Investment Commission (NIC) Benefits

  • NIC projects with investments over $250,000 benefit from a 10-year tax exemption, which can be extended for 15 more years if Iraqi participation increases to 50%.
  • NIC projects are exempt from customs duties for asset imports, and foreign workers can be directly hired without advertising for local labor first.

  These incentives, combined with Iraq’s export-oriented economy, make Iraq an attractive destination for businesses in sectors such as petroleum, gold, agriculture, and more. However, legal and procedural complexities require careful planning and expert consultation.

• At Injaz Company, we specialize in helping businesses establish themselves in Kurdistan and Iraq. With our comprehensive company formation services, we guide you through each step of the process—ensuring smooth, hassle-free entry into the Iraqi and Kurdish markets. Injaz Company is here to make your expansion a success. Let us help you unlock the full potential of Iraq’s growing economy.