A guide to doing business in IRAQ -...

A guide to doing business in

IRAQA guid

e to doin

g busin

ess in Iraq

$100

Sponsored by

Financing Iraq-based, private sector, small and medium size companies since 2005

For more information please contact:Jorge R. Vila | General Manager | [email protected] | David O’Hara | Portfolio Origination Manager | [email protected]+964-750-735-2798 (Erbil) | +964-066-256-9980 (Erbil) | +962-6-586-4960 (Amman) | [email protected]

The Iraq Middle Market Development Foundation (IMMDF) was created in 2004 by Global Communities (www.globalcommunities.org), with the support of Overseas Private Investment Corporation (www.opic.gov), to finance Iraqi private sector small and medium enterprises (SMEs) and thus generate employment and economic growth in Iraq.

Since 2005, we have disbursed over US $70 million in about 50 long term loans to SMEs to finance acquisitions of local and foreign equipment, factory expansions and working capital for manufacturing, industrial, agricultural and services projects.

In the process, we have introduced stronger, cash-flow based lending and borrowing practices in Iraq, including insurance to cover business risks, registration of liens on equipment and corporate shares, compliance with international standards on human resources, environmental and other policies; complete and regular financial and other reporting; and generally improved internal accounting and corporate governance at borrowers. We also learned from this process, developing an understanding of various Iraqi industries that gives our team of loan officers, the majority of which are Iraqis, a unique capacity to carry out credit assessments and risk analysis of projects.

We continue to focus our credit analysis on the SMEs’ capacity to repay, not just on the collateral they can provide. IMMDF is today the only organisation in Iraq that provides medium and long term financing to Iraqi SMEs.

If you are an SME with a manufacturing, industrial, services or agricultural project that generates employment or economic growth, or an Iraqi top tier company that outsources the supply of goods or services to SMEs; or, if you are a foreign company that wants to sell equipment to SMEs or to start a joint venture in Iraq, and you believe that you may qualify for an IMMDF loan, please contact us at any of our offices in Iraq or at our office in Amman.

FINANCING THE IRAQI PRIVATE SECTORJorge R. Vila – General Manager, IMMDF

A guide to doing business in

IRAQ

4 Doing business in Iraq

Published by

MEED Media FZ LLC

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Editorial DirectorRichard Thompson

EditorElizabeth Bains

Supplements EditorAustyn Allison

Production EditorKen Campbell

Sub EditorAnanda Shakespeare

Sub EditorSneha Abraham

Art EditorMartin Staniszewski

ContributorsDominic Dudley

James Gavin

Nancy el-Khoury

Digby Lidstone

Marianne Makdisi

Adal Mirza

This book has been prepared as a general guide. It is not a substitute for professional advice, which would necessarily

have to take account of particular circumstances. The information and opinions given are liable to change without notice.

5Doing business in Iraq

Seize the Iraq opportunity This April, Iraq will hold its third round of parliamentary elections since the overthrow of Saddam Hussein’s regime in 2003. The elections will be free and they will be multi-party. And, despite the many challenges facing the country, they symbolise the progress made in Iraq over the past decade, and the potential that lies in one of world’s great oil-producing giants.

Iraq is the world’s fifth-biggest oil producer, with 150 billion barrels of proven oil reserves and production of 2.4 million barrels a day. With a growing population of 33 million people, chronically underdeveloped infrastructure, and GDP growth of 3.7 per cent in 2013, it offers huge poten-tial for investors and businesses alike.

Iraq at the start of 2014 is one of the world’s fastest-growing emerging mar-kets, offering huge opportunities for those fast and flexible enough to gain a foothold. The semi-autonomous northern region of Iraqi Kurdistan has long been an outpost of stability and prosperity. Its capital, Erbil, has become the first stop for many foreign firms looking to establish a presence in Iraq.

To the south, federal Iraq is rapidly rebuilding after decades of repression, sanctions and war. In the coming months, a raft of new legislation will be introduced. This will including vital new hydrocarbons and infrastructure laws that will substantially boost the redevelopment of the country. Follow-ing the introduction in 2006 of Iraq’s Investment Law, which established the National Investment Commission to streamline processes for establishing businesses in Iraq, there are now a host of local firms looking for partners.

Even rampant corruption, which has become endemic in Iraq over the past decade, and which has put off many potential investors, is being addressed. Recently introduced anti-corruption laws have cracked down on bribery, although the issue remains a major barrier to investors.

Any international company that establishes itself in Iraq at this stage is sure to win many allies that will provide a valuable first-mover advantage for long and fruitful business in the years ahead.

On-the-ground contacts, advice and local knowledge are essential in Iraq and it is my hope the information contained in MEED’s Guide to Doing Business in Iraq will be a valuable resource for your business as you seek to grow in this exciting market.

Richard Thompson

Editorial directorMEED

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IN CONTEXT Map of Iraq 10

Basic information 11

History 13

People and culture 15

Government 16

Economy 18

Kurdistan region 20

Projects market 22

DOING BUSINESS Setting up a company 24

Taxation 31

Anti-corruption 35

Contract law 37

Doing business in Iraqi Kurdistan 39

INVESTING National Investment Commission 44

Economic zones 46

Key ministries 49

Provinces 53

PRACTICAL GUIDE Security 58

Transport 59

Accommodation 60

Telecoms 61

Healthcare 62

DIRECTORY Government ministries 64

Information providers 65

Iraq at a glance 66

Contents

The definitive guideto the Iraq’s $140bn-plus oil and gas projects market A comprehensive overview of Iraq’s upstream oil and gas, downstream refining and petrochemical sectors, with a particular focus on the projects market Access more than 200

individual graphs charts,tables and maps packed full of

exclusive data researchand analysis

Identify key project opportunities in Iraq’s$140bn-plus oil sectorQuantify the upstream, midstreamand downstream marketsAccess macroeconomic and political data Understand the challenges facing the sectorGain in-depth understanding and win work in Iraq

Iraq Oil and Gas Projects Market Report 2013

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2010

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

(MMBPD)

High production scenario (including KRG)

Oil production maximum target of 6.9 mmbpd

Oil production maximum target of 4.5 mmbpd

Iraq crude oil production scenarios

2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Medium production scenario (including KRG)Low production scenario (including KRG)

4.5 million b/d to 12

million b/d in 4 years

Totalling more than 255 pages and 72,000 words, this report is a valuable guide for any company involved in the Iraq oil and gas projects market

In Context


IN CONTEXT


Samawah

Najaf

Nasiriyah

Kirkuk

Suleimaniyah

Erbil

Baiji

Karbala

Tikrit

Haditha

RamadiFallujah

Khanaqin

Baquba

Kut

MosulNinevah

Dohuk

Basra

Faw

Baghdad

MUTHANNABASRA

THIQAR

MISAN

WASIT

NAJAF

BABIL

KARBALA

ANBAR

SALAHADDIN

KIRKUKSULEIMANIYAH

ERBIL

NINEVAH

DOHUK

QADISIYAH

BAGHDAD

DIYALA

IRAQ

TURKEY

SYRIA

JORDAN

SAUDI ARABIAKUWAIT

IRAN

Map of Iraq

Arabian Peninsula

Major road

Airport

Provincial borders


Official nameRepublic of Iraq

Head of statePresident Jalal Talabani

CapitalBaghdad

Area 437,072 square kilometres

Geographic locationBordered by Turkey to the north, Iran to the east, Syria and Jordan to the west, and Saudi Arabia and Kuwait to the south – with a small sea outlet on the Gulf – Iraq has a basin-like shape. The main population centres are on the Great Mesopotamian alluvial plain between the Tigris and Euphrates rivers (Mesopotamia means the land between two rivers in Greek).

FlagIraq’s flag comprises horizontal red, white and black stripes rep-resenting Arab liberation, with a green Arabic text inscription of the phrase ‘God is Great’ (the Takbir) in the middle. The semi-autonomous Kurdistan region has its own flag, with a golden sun between red, white and green horizontal stripes.

Language The official languages are Arabic and Kurdish. Turkmen and Syriac are recognised as regional languages. English is widely spoken in business and official circles.

PopulationIraq’s population was estimated at 34.8 million in 2013. About 80 per cent are Arabs, 15-20 per cent Kurds, with significant minorities of Turkmen and Assyrians.

TimeIraq is three hours ahead of Greenwich Mean Time. It does not adjust its clocks in summer.

CurrencyThe Iraqi dinar, issued by the Central Bank of Iraq, is pegged (unofficially) to the US dollar, with $1 worth about ID1,161.

Country code(+964)

Internet country code.iq

Gross domestic productIraq’s real gross domestic product was estimated by the IMF in 2013 at $221.8bn.

Basic information


Business hoursThe working week is Sunday to Thursday, with government offices open from 8am to 2pm.

ReligionThe constitution recognises Islam as the official religion, and mandates that Islam be consid-ered a source of legislation. How-ever, the constitution also pro-vides for religious freedom and the practice of religious rights.

According to statistics pro-vided by the government, 97 per cent of the population is Muslim. Shia Muslims are estimated to constitute a majority, concen-trated in Baghdad and the south of the country. The remaining 3 per cent comprise Christians, Yazidi, Shabaks and other minor-ities. The Christian population has declined significantly in the past 10 years.

The main holidays are Eid al-Fitr, at the end of Ramadan, and Eid al-Adha, which follows the Hajj pilgrimage.

Climate The climate is varied, with the mountainous north experiencing more rain than the rest of the country. About 90 per cent of annual rainfall occurs between November and April, most of it in the winter months from December through March. Iraq experiences hot and dry sum-

mers, and cooler winters. In the south, summer temperatures can exceed 40 degrees Celsius.

National airlineIraqi Airways runs a 21-plane fleet of Airbus and Boeing air-craft, and six Canadair CRJ-900s. Its network includes five Euro-pean destinations, Jordan, Egypt, Lebanon, Syria, Iran, Kuwait, Bahrain and the UAE, as well as China, India, Malaysia and Georgia. Domestic flights link Basra, Baghdad, Najaf, Erbil, Mosul, Suleimaniyah and Kirkuk.

Resources and economyOil was first discovered in the northern city of Kirkuk in 1927 and the reservoir – containing as much as 9 billion barrels – remains in production today. The bulk of Iraq’s oil fields are in the south, where five giant fields account for 60 per cent of the country’s proven oil reserves.

Iraq overtook Iran in 2012 as Opec’s second-largest crude oil producer, and in 2013 pumped in excess of 3 million barrels a day. It also sits on significant nat-ural gas reserves, of an estimated 126.7 trillion cubic feet.

The economy is dominated by hydrocarbons, although agri-culture, services, construction, real estate and retail have grown in importance in recent years.

AVERAGE TEMPERATURE

Source: World Bank

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec5

10

15

20

25

30

3535

30

25

20

15

10

5

(DEGREES CELSIUS)

AVERAGE RAINFALL

Source: World Bank

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec0

5

10

15

20

25

30

3535

30

25

20

15

10

5

0

(MILLIMETRES)


HistoryIraq’s modern history has been a turbulent one, reflecting its creation in 1920 from the remnants of the Babylonian and Mesopotamian out-posts of the Ottoman Empire. Under British control, the country was made a kingdom headed by King Faisal I. The monarchy lasted until 1958, when a coup on 14 July led by General Abdul Karim Kassem seized control of Baghdad and proclaimed a republic.

Within five years, Kassem’s regime was itself overthrown by the Arab nationalist Baath Party, which installed Colonel Abdul Salam Arif as president, heralding a period of uncertainty while a series of coups took place. By 1968, a semblance of stability returned, when Major General Ahmad Hassan al-Bakr became president and purged his opponents. His young deputy, Saddam Hussein, soon emerged as a powerful figure at the heart of government.

In 1979, Saddam assumed full control of the government, ousting Al-Bakr and further centralising power in a regime that was largely based on a cult of personality. Provincial powers were constrained and Kurdish demands for autonomy were ruthlessly suppressed. The Baathist state tolerated no political dissent, and soon started looking beyond its borders for new enemies.

Saddam embarked on a fateful military assault on Iran in 1980, which mired Iraq in eight years of war, and the country spent much of its substantial economic bounty, founded on its large oil reserves. Iraq was forced to solicit donor funds from Arab countries fearful of a newly powerful Islamic Republic of Iran.

Throughout this period, Saddam quelled domestic opposition and hollowed out remaining political institutions. By the time an exhausted regime signed a peace agreement with Tehran in 1988, Iraq was a war-ravaged state, with an undercurrent of anti-regime violence centered in the Shia and Kurdish communities. This drew a predict-ably harsh response from Saddam, culminating in the genocidal Anfal campaigns against the Kurds, that resulted in at least 50,000 deaths.

The invasion of Kuwait in August 1990 proved to be a fateful act of hubris for Saddam, after the humiliating retreat from the neighbouring state in March 1991, although his survival instinct ensured his embat-tled regime continued for another 12 years under intense international sanctions. The Kurdish region, insulated from Saddam’s violence by a UN-imposed no-fly zone, created the foundations for an autonomous


mini-state in the north. The rebellious southern Shia communities were afforded no such protection.

The Bush administration’s exercise in regime change in March 2003 finally put an end to 40 years of Baathist rule, but failed to craft a via-ble alternative. Fatal decisions, such as the disbanding of the Iraqi army, were seen to have undermined Iraq’s stability, fostering the cre-ation of a violent and effective insurgency.

In May 2003, President George W Bush appointed Ambassador Paul Bremer to head a Coalition Provisional Authority (CPA), recognised by the UN as an occupation authority. In June 2004, an interim Iraqi gov-ernment was appointed and a roadmap for elections was set out.

The first free elections were held on 30 January 2005, for the 275-seat Council of Representatives and provincial councils covering all 18 provinces, as well as a Kurdistan regional assembly with 111 seats. A permanent constitution was passed in October 2005 by a national referendum, with 78 per cent in favour. However, the Sunni boycott of the political process meant the new political structures struggled for legitimacy from the outset. Iraqis largely voted along ethnic or sectar-ian lines, hampering attempts to forge truly national institutions.

As the insurgency intensified, Iraq descended into a civil war waged between Sunni and Shia. Worse was to come in February 2006 when the bombing of a shrine in Samarra revered by Shia Iraqis trig-gered an upsurge in violence. The next two years saw the body count rise enough to prompt the US military, under General David Petraeus, to reconfigure strategy with a 30,000-strong “surge” that – in concert with the Iraqis’ own efforts to coopt Sunni tribal leaders – finally suc-ceeded in reducing violence.

By 2008, Prime Minister Nouri al-Maliki was becoming an increas-ingly confident figure, and he began to confront the Kurdish leadership over the management of oil and gas resources. However, national elec-tions in April 2010 failed to deliver a decisive victory to Al-Maliki’s Shia-dominated State of Law coalition, in competition with the West-ern/Sunni-backed Iraqiyya block led by Iyad Allawi.

Though Al-Maliki eventually mustered enough support among MPs to form a new government with himself as prime minister, Sunni Iraqis continued to resist his rule. An upsurge in violence in 2013 led to the town of Fallujah falling into the hands of jihadi militants associ-ated with Al-Qaeda, an example of the Syria conflict spilling over into Iraq. How this conflict is resolved will go a long way to determining Baghdad’s chances of making progress in 2014 and beyond.

“As the insurgency intensified,

Iraq descended into a civil

war waged between Sunni

and Shia”


People and cultureDemographically, Iraq reflects the patchwork of ethnicities and reli-gions that have settled the country since Mesopotamian times. Arabs account for about 80 per cent of the population, but they have long lived cheek by jowl with substantial minorities. These include Kurds, Turkmen – the descendants of the Ottoman armies – Assyrian Chris-tians, Yazidi and Shabaks, alongside Bedouin and Marsh Arabs.

Prior to 2003, minorities made up as much as 15 per cent of Iraq’s population. Major cities such as Mosul and Kirkuk in the north are particularly ethnically and religiously mixed, even if the insecurity of the post-2003 period has led to a reduction in this diversity. Many Christians have fled Mosul and found refuge in the Kurdistan Regional Government area. In Erbil’s Christian quarter, Ainkawa, the population has increased significantly as a result of this movement. Many Arabs who fled Baghdad in the mid-2000s, when sectarian vio-lence was at its peak, have also settled in the Kurdish north.

Baghdad has always had large numbers of Kurds, although the capi-tal’s cosmopolitan mix has declined in the past 10 years. By 2006, Baghdad had become the main theatre for a violent confessional con-test, as communities were evacuated from neighbourhoods in which they were not a majority. Shia militias effectively removed most of the Sunnis to a western strip of the capital.

According to Iraqi government statistics provided in 2010, 97 per cent of Iraq’s population is Muslim, with Shia Muslims constituting a 60 to 65 per cent majority. The Shia community is mainly Arab and based in the south, but also includes Turkmen and Kurds. Sunni Mus-lims are estimated to constitute 32 to 37 per cent of the population.

Culturally, Iraq is more conservative than in the past. Many Sunni Arab residents reflect fondly on the old Baghdad, with its bookshops, restaurants and parties. In those days, Iraq had a reputation as the best educated of the Arab countries.

The removal of Saddam Hussein and the resulting emergence of the long-suppressed Shia population have changed the character of the country, with the increased conservatism of public life reflecting this shift. Although Kurdistan is more liberal – in particular the second city of Suleimaniyah – there is also a growing conservatism within the Kurdish community. In 2012, there were attacks on shops serving alcohol in the northern city of Dohuk.


GovernmentIraq’s current political structure can trace its roots back to 1920, when British colonial forces forged the modern state of Iraq out of three provinces of the Ottoman Empire: Baghdad, Basra and Mosul. The turbulent modern history of Iraq since then has yielded a diffi-cult political legacy, with weak institutions and a culture of authori-tarian governance.

Saddam Hussein’s ousting in March 2003 heralded a new political dispensation under the guidance of the US-led occupying forces, who were determined to prevent the recreation of a dictatorship under a different guise. This provided for a substantial devolution of powers to provincial level – and in the case of the Kurds, to a supra-provincial level of autonomy – while maintaining the territorial integrity of the post-1920 Iraqi state, with its capital in Baghdad.

The post-Saddam political structure reflects the need to balance the country’s diverse ethnic and sectarian mix. Power is therefore dis-persed under a federal system, reinforced by checks and balances and the separation of executive, legislative and provincial branches.

The executive level of government comprises the president, cur-rently the veteran Kurdish leader Jalal Talabani, and two vice-presi-dents, along with the council of ministers. There are 29 ministries and a prime minister’s office that includes three deputy prime ministers.

The 2005 constitution invests legislative authority in the Council of Representatives (CoR) – the parliament – which comprises 325 elected members (to be increased to 328 from April 2014), who must stand for office every four years. The CoR is responsible for passing federal leg-islation and holding the executive to account, and approving the nom-inations of senior officials. The prime minister is chosen from the leg-islature, which also elects the president.

The other branch of federal government is the judiciary, composed of a Judicial Council and a Federal Supreme Court, which has the authority to settle disputes between the federal and provincial govern-ment levels. Judicial power is in law separated from the executive.

The provincial level of government is made up of 18 councils, encompassing Iraq’s governorates (including the semi-autonomous Kurdish provinces). Each province elects a local council, which appoints governors, imposes taxes and is responsible for the provision of local services. The provincial councils enact provincial legislation

Prime Minister of Iraq Nouri al-Maliki (left) and President of Iraqi Kurdistan Massoud Barzani (right)


“The Iraqi constitution has yet to resolve the tensions between the centre and the provinces”

and choose each province’s governor and two deputy governors. There are also sub-provincial level governments within each prov-ince, with mayors who are responsible for the delivery of services at local level. In 2008, a provincial powers law was adopted, which gave provincial councils enhanced powers.

The national budget provides the funding for the governorates, who are also mandated to implement federal policies. Some central govern-ment funds are given as grants directly to provincial administrations.

The three northern provinces of Dohuk, Erbil and Suleimaniyah constitute a separate region administered by the Kurdistan Regional Government (KRG), which has its own elected president and parlia-ment under Article 113 of the Iraq constitution. In practice, the KRG enjoys a high level of autonomy, although it is funded by its 17 per cent share of Iraq’s total oil revenues.

Nouri al-Maliki, named prime minster in 2006, was re-elected in a close run-off in 2010. Since then, Al-Maliki has centralised power, assuming greater control of the security forces and key economic agen-cies. This has caused controversy, with some Iraqis criticising that he has grown too powerful. The arrest warrant issued in December 2011 for Iraq’s Sunni Arab vice-president, Tariq Hashemi, accused of involvement in terrorist activity, heightened tensions and was seen by many opponents as a step too far.

The constitution, though ratified by a public referendum in 2005, has yet to resolve the tensions between the centre and the provinces. Political strife has also undermined the effectiveness of the govern-ment apparatus, and key ministerial posts remained unfilled after the 2010 election. Iraq has not had a permanent minister of defence or of the interior since 2010, due to disagreement over who should occupy these seats.

As Iraq gears up for parliamentary elections scheduled for 30 April 2014, amid continued strife in the Sunni-dominated area of Anbar province, political stability remains frustratingly elusive. Sectarian violence worsened in 2013, with the UN reporting the killing of at least 7,818 civilians, making it the deadliest year since 2008. There are concerns that the persistent violence could disrupt the elections, and plunge Iraq into protracted political uncertainty.

The reduction of violence in 2008-11 showed that Iraq has the capac-ity to see beyond the ethno-sectarian divide. The question remains whether Iraq’s constitution is robust enough to ensure the survival of the country’s institutions, and provide a platform for better governance.

IRAQ PARLIAMENT

Source: Iraq High Electoral Commission, 2010

32591

8970

43

Iraqiyya

Al-Maliki bloc

Minority reserved 8

Kurdistan Alliance

Iraq National Alliance

Other Kurdish 14Accordance 6

Unity (Bolani) 4


EconomyIraq’s economy has made significant strides in recent years. When US invasion forces arrived in Baghdad in 2003, they found the central bank was cleaned out, and just two of government-owned Rafidain Bank’s branches were open for business. Iraq’s private sector had been hollowed out, state-owned enterprises were mothballed and there was little productive activity as the oil industry – the bedrock of Iraq’s economy – ground to a halt. Iraq’s per capita GDP had sunk to just $1,300, more akin to an emerging economy than a major oil producer.

In 2014, the picture is transformed, even if Iraq’s full economic potential is still far from being fully tapped. Despite the recent upsurge in violence, improvements in security since 2007 have provided investors with more confidence to commit to projects in areas such as energy, construction and retail. Oil production rises have delivered a five-fold increase in GDP per capita in the past 10 years, reaching about $7,000 today.

The economic fruits of growth have filtered down to the poorest Iraqis. According to the World Bank’s poverty rate – a measure of the proportion of the population living on less than $1.25 a day – this has more than halved, from 54 per cent to 23 per cent over the past 10 years.

Foreign investment is starting to make a mark, and is not just con-centrated in the Kurdistan region. According to UN Conference on Trade & Development figures, foreign direct investment (FDI) inflows nearly doubled in the two years between 2010 and 2012, reaching $2.55bn that year. The total stock of FDI now stands at $12.6bn, which is only just below Kuwait in the regional rankings. International blue-chip firms such as Citigroup of the US and Leba-nese financial institutions have announced plans in the past year to establish branches in Iraq.

The maintenance of a fixed exchange rate has provided an anchor for the tackling of inflation, which declined from 6 per cent at the end of 2011 to just 2.7 per cent in November 2013. Real GDP growth accelerated from 5.9 per cent in 2010 to more than 8.4 per cent in 2012, and the Washington-based IMF estimates 2013 growth to have averaged 9 per cent.

The improved economic performance reflects the increase in oil sales, with crude oil export revenues estimated at $117.9bn in 2013, compared with just $59.9bn in 2010. Oil production has increased

IRAQ GDP

e=Estimate; f=Forecast. Source: IMF

2010

2010

2010

2011

2011

2011

2012

2012

2012

2013e

2013e

2013e

2015f

2015f

2015f

2014f

2014f

2014f

0

50

100

150

200

250

300300

250

200

150

100

50

0

($bn)


REAL GDP GROWTH

0

2

4

6

8

1010

8

6

4

2

0

(ANNUAL CHANGE, %)


GDP PER CAPITA

0

1000

2000

3000

4000

5000

6000

7000

80008

7

6

5

4

3

2

1

0

($ THOUSAND)


from an average of 1.8 million barrels a day (b/d) to 3 million b/d in 2013, boosted by multibillion-dollar investments from oil majors such as the UK’s BP, ExxonMobil of the US and UK/Dutch Shell Group. Crude exports by the end of 2013 had reached 2.4 million b/d.

Rising oil earnings have furnished a dividend for Iraq’s finances, with the Central Bank of Iraq’s international reserves rising from $61bn at the end of 2011 to an estimated $91bn at the end of 2013. Meanwhile, Iraq’s external debts, which were once as high as $127bn, have been more than halved after a series of renegotiations.

Although oil exports remain the font of Iraq’s wealth, there is evi-dence of economic diversification, with the relative contribution of oil to total GDP decreasing from 70 per cent in 2004 to 43 per cent in 2012 as other sectors grew more rapidly.

However, there remain numerous other challenges confronting Iraq’s economy, from a weak business environment – bound by red tape, poor governance standards and inconsistent regulations – to per-sistent violence and insecurity. Fiscal discipline has weakened in the past couple of years, warned the IMF in its July 2013 assessment of the Iraq economy, with poor budget planning and execution, large off-budget spending, low investment execution rates and serious defi-ciencies in fiscal reporting.

Iraq’s economy remains excessively dependent on the state, with non-oil activity reliant on government spending. About 40 per cent of the Iraqi workforce is employed in the public sector.

More needs to be done to strengthen the private sector and make it the engine of job creation. The financial sector needs an overhaul, with total banking assets at 77 per cent of GDP compared with a Middle East and North Africa average of 13 per cent. The state-owned banks Rafidain and Rasheed still hold more than two thirds of the system’s deposits. With a rapid increase in oil revenues expected in the next few years, the government must ensure that the looming windfall is put to productive use.

Harnessing the country’s oil wealth would allow for sustained high growth and, in turn, facilitate an enhanced role for the private sector. With the massive oil field spend under way, ancillary businesses are creating opportunities for oil field services, equipment supply and maintenance. Catering, construction, engineering and logistics pro-vide ample scope for Iraqi and foreign firms to contribute more actively to an economy that, for all its challenges, offers enormous growth potential.

“Oil production rises have delivered a five-fold increase in GDP per capita in the past 10 years”

OIL REVENUES

0

30

60

90

120

150150

120

90

60

30

0

(ID trillion)


2010

2011

2012

2013e

2015f

2014f


Iraqi KurdistanTravellers disembarking at the shiny arrival hall at Erbil International airport could be forgiven for not realising they have set foot on Iraqi territory. The stamp in their passports does not bear the imprint of the Iraqi republic but of the Kurdistan Regional Government (KRG). The flags on display are the red, green and white of Iraqi Kurdistan, not the red, black and white of Iraq’s national flag, and the large framed photo-graphs staring down are those of KRG President Massoud Barzani and his nephew, Prime Minister Nechirvan Barzani.

The KRG has much of the edifice of independence: an independent parliament; ministries that deliver public services; its own armed forces – the fabled Peshmerga; and its own security forces, the Asayash. It has a board of investment, with its own investment regime, offering foreign companies full ownership of property. The KRG grants full production-sharing agreements to international oil compa-nies, rather than the service fees provided in federal Iraq.

Despite all this, Iraqi Kurdistan is not an independent state but an autonomous region. It has been granted this status under the constitu-tion, with the three Kurdish-controlled provinces of Dohuk, Erbil and Suleimaniyah constituting a legal region, which is administered by the KRG and comprises 4.5 million people. Under Article 113, the Kurds are allowed their own elected president and parliament.

The difference between autonomy and independence is significant. The KRG’s budget is derived not from the taxes it levies on foreign companies, but from a 17 per cent allocation from the Iraq central bud-get. And for all the KRG’s success at striking deals with foreign oil companies, it still must negotiate with Baghdad in order to ensure that its oil can be exported.

Discord remains between the KRG and Baghdad over the so-called “disputed territories”, a buffer zone separating the Kurdish region from the rest of Iraq. Many of these areas are governed as de facto KRG areas, with Peshmerga forces patrolling them.

The brittle relations with the government of Iraqi Prime Minister Nouri al-Maliki attest to the difficulty of the KRG operating as an autonomous region, landlocked and dependent on maintaining good relations with its neighbours.

Iraq’s Kurds are nonetheless significant players in Iraqi politics. President Jalal Talabani, the veteran leader of the Patriotic Union of

“The KRG grants full

production-sharing

agreements to international

oil companies”

KRG President Massoud Barzani

KRG Prime Minister Nechirvan Barzani


Kurdistan, has been a pivotal figure in Baghdad, building bridges between factions and smoothing over the tensions that have set the country’s communities apart. The joint Kurdish bloc of MPs in the Iraqi parliament – a building that is protected by a contingent of Pesh-merga – has a strong voice in pushing Kurdish interests on the national stage. While many Kurds may yearn for independence, there is a hard-headed realisation that this is unlikely to arrive imminently.

Much of the KRG’s success in the past 10 years has been predi-cated on its positioning as the “other Iraq”. Its strong security and stability have made it a comfortable place for foreigners to do busi-ness. Investors have been attracted by a liberal investment climate and a booming economy that has transformed the once dowdy capi-tal, Erbil, into the Dubai of the north. The easy-going atmosphere in the KRG-controlled region is one of its strongest pulling points, along with round-the-clock electricity provision. Many Arab Iraqis lack these basic essentials.

But there are challenges the KRG must overcome. The KRG was not immune to the protests that sprouted across the Arab world in early 2011, and many young Kurds remain disillusioned with the political set-up. The rise of the Gorran (Change) movement in recent years highlights a desire to challenge the existing hierarchy, dominated by President Barzani’s Kurdistan Democratic Party.

The KRG’s success in building a secure and robust economy in a short space of time does not mean that Iraq’s Kurds can look into the future with unalloyed confidence. The establishment of close ties with Turkey has afforded an opportunity to escape Baghdad’s close embrace, but even KRG-friendly Ankara is reluctant to burn its bridges with Iraq’s government. Erbil must still negotiate with Baghdad and balance its relations with neighbouring Iran and Syria, the latter’s con-flict leading to an influx of some 200,000 refugees into KRG territory.

The question of who ultimately controls Iraqi Kurdistan’s vast oil and gas resources lies at the core of the simmering power struggle between Erbil and Baghdad. With their own investor-friendly hydro-carbons regime, the Kurds have attracted 50 foreign oil companies and created one of the world’s fastest-growing oil and gas economies. Yet this achievement has drawn Iraqi Kurdistan into a bitter conflict with Baghdad that has yet to be resolved. If a solution is ever found, the KRG may have more reason to feel secure about its future.

KRG PARLIAMENT

GDP BY SECTOR

*=Kurdistan Democratic Party and Patriotic Union of Kurdistan; **=Kurdistan Islamic Union, Islamic Group in Kurdistan, Kurdistan Socialist Democratic Party, Future Party. Source: KRG

Source: Kurdistan Board of Investment

111

%

59

22

25

20

13

16

19

7

11

15

Kurdistan*

Housing

Reserved minorities

Reform and Services**

Trade

Agriculture

Services 1

Other

Change

Tourism

Islamic Movement 2Freedom and Social Justice 1

Industry

IN CONTEXT


Projects marketThere were $518.31bn-worth of projects planned or under way in Iraq at the end of January 2014, according to MEED’s Gulf Projects Index. In the region, only Saudi Arabia with $1.05 trillion and the UAE with $713.15bn have larger projects markets.

While the value of the projects sector in the Gulf as a whole has risen 22.2 per cent year-on-year, Iraq is currently the fastest-growing market, with its index up 83.8 per cent from the same period in 2013. Despite the risks involved in operating in Iraq, there is plenty of potential to win work in several sectors as the country’s post-war reconstruction accelerates.

Baghdad has outlined plans to spend $357bn on new infrastructure schemes as part of efforts to rebuild the economy. Announced by Planning Minister Ali al-Shukri in September 2013, the second National Development Plan (NDP) covers the period 2013-17 and focuses on energy, agriculture, education and infrastructure.

Of the projects that are planned and under way, 49 per cent are in the construction sector. Lack of housing is an acute problem in Iraq. To meet rising demand an estimated 2.5 million homes need to be built by 2016, while 1 million houses need major repair work. In 2010, Baghdad announced a massive housing programme. The Con-struction Ministry said it would budget about $13bn a year until 2020 to build 200,000 houses annually.

The oil sector is the other key focus for projects, making up 28 per cent of schemes planned and under way, reflecting efforts to revital-ise Iraq’s war-damaged hydrocarbons industry.

Oil production is targeted to rise to about 9.5 million barrels a day (b/d) by 2017, from about 3 million b/d currently. Exports are expected to rise to 6 million b/d, from 2.5 million b/d. Assum-ing average oil prices of $85 a barrel, exports should bring in approximately $659bn over this period, helping to fund Iraq’s projects boom.

PROJECTS BY SECTOR*

*=Planned and under way. Source: MEED Projects

% 49

6

28

9

Construction

Oil

Gas

Transport

Power 3 Water 2Chemical 2

Industrial 1

IRAQ PROJECT AWARDS

f=Forecast. Source: MEED Projects

200920

0720

08201

5f201

3201

0201

1201

4f201

2201

6f0

50000

100000

150000

200000

250000250

200

150

100

50

0

($bn)

Doing Business



“Under the Companies

Law, all economic

projects must take the

form of a company”

DOING BUSINESS

Setting up a companyAddleshaw Goddard’s Hussein Damirji and Rafi Sajian explain the process of establishing a presence in Iraq

Trading and business in the land between the Tigris and the Euphrates is thousands of years old. The laws for setting up a business in modern-day Iraq are subject to a developing legal framework and business environment consisting of established laws and administrative practices. The primary law regulating establishing companies in Iraq is the Companies Law No. 21 of 1997, as amended by the Coalition Provisional Authority’s Order No. 64 of 2004 (the Companies Law) and its associated regulations (Regulations).

The Companies Law provides a detailed framework for entities and individuals, both Iraqi and foreign, to conduct lawfully commercial activities in Iraq. Similar to other jurisdictions, the applicable laws require individuals and entities conducting business in Iraq to be legally registered in the country.

Under the Companies Law, all economic projects must take the form of a company. The Companies Law provides for a range of incor-poration options for setting up a business in Iraq. Options available include a joint stock, joint liability or simple company, or a sole owner enterprise. However, the most common options adopted by non-Iraqi foreign investors doing business in Iraq are:■ Representative Trade Office (RTO) ■ Foreign branch office (branch)■ Limited liability company (LLC)

Anyone who carries out business in Iraq without first registering and obtaining a licence from the Registrar of Companies at the Minis-try of Trade in Iraq (Registrar of Companies) is in breach of Iraqi law and subject to a fine, with the amount dependent on the severity of the violation. Similar fines are also enforced against any person carrying on business in the name of a branch of a foreign company or economic establishment without obtaining the requisite licence. Failure to rec-tify the violation of the Companies Law may also lead the authorities to take other measures.

REPRESENTATIVE TRADE OFFICEAn RTO is the easiest way to register a commercial entity in Iraq. However, an RTO is only permitted to engage in business ‘develop-


Foreign investors: Individuals and entities conducting business in Iraq must be legally registered in the country

ment activities’ so as to secure work in Iraq. Once an RTO either secures a contract with the government of Iraq on behalf of its for-eign parent company or begins to engage in commercial activities, it must convert itself to one of the other recognised commercial entities in Iraq.

Approval to open an RTO must be obtained from the Registrar of Companies, which reviews all applications submitted by foreign com-panies for completeness. A fee is payable. Three scenarios may occur after turning in an application:■ An application may be deemed to be incomplete. In this instance,

any fee that has been submitted will be returned to the applicant. An explanation of why it is incomplete will be given and the appli-cation may be resubmitted once it has been completed.

■ An application is completed and accepted. In this case, the Regis-trar of Companies will provide a signed checklist to the applicant showing that all required documentation has been received. On approval, the Registrar of Companies will issue the applicant with a registration licence. This has a permanent and unique identification number.


■ An application is complete, but is rejected for some reason, in which case the applicant is notified in writing, with the rea-son for the rejection. The applicant then has the right to petition the Minister of Trade for a review of the application within 30 days of the date of the rejection. A review is carried out within 30 days of the submission date of the appeal. If the minis-ter upholds the rejection, the applicant has the right to appeal this outcome at the competent court of law within 30 days of the decision.

FOREIGN BRANCH OFFICETo establish a branch in Iraq, the regulations require the foreign company to have a contract in place with the government of Iraq (or be a subcontractor of a company that has a contract with the government). Moreover, the regulations require that such a contract be of both a minimum duration and amount to enable the foreign company to register in Iraq.

Forming a foreign branch office has the benefit of allowing the foreign parent company to use its brand name in Iraq, rather than being required to conform to strict Iraqi entity naming guidelines. However, a branch does not limit its parent company’s potential liability exposure to the amount of the capital contribution by the shareholders, unlike an LLC.

Setting up a branch requires the applicant to file an application with the Registrar of Companies using the appropriate ministry form. The following supporting documents are also required:■ Authenticated copies of the applicant company’s constitutional

documents■ Authenticated copy of the power of attorney appointing the

branch office manager■ Authenticated copy of the applicant company’s accounts for the

previous year■ Authenticated copy of a power of attorney appointing a locally

licensed lawyer to process the foreign branch office registration with the local authorities

■ Authenticated copy of the branch manager appointment letter■ Authenticated and legalised undertaking signed by the applicant

company to bear legal and financial responsibilities of the for-eign branch office in Iraq

■ A letter of support from the contracting government party

“Forming a foreign branch office has the

benefit of allowing the

parent company to use its

brand name”


addressed to the Ministry of Trade in Iraq to allow the registra-tion of the foreign branch office. The registration of a branch, similar to all non-Iraqi applications,

is subject to obtaining a no objection letter from the Ministry of Inte-rior. The no objection letter is addressed to the Registrar of Compa-nies, which, pursuant to obtaining the letter, will complete the reg-istration and issue the relevant registration certificates.

Following the registration of the branch, the locally registered branch office is required to fulfil a number of criteria, from enter-ing into a lease agreement for office space within a commercially designated area to appointing a locally licensed accountant and lawyer.

Branches are required to display their full names and office addresses in Iraq on all papers and documents they issue.

LIMITED LIABILITY COMPANYUnder Iraqi law, the general rule is that a company is a contract binding two or more persons, and an LLC is established between a minimum of two and a maximum of 25 shareholders. However, the Companies Law does provide an exception to the general rule and permits a single person, natural or judicial, whether foreign or local, to form an LLC.

As with most common law jurisdictions, each LLC shareholder’s liability is limited to an amount equal to their capital contribution in the company. There is no requirement under Iraqi law to distrib-ute equally the shares between multiple shareholders, although each shareholder should hold shares proportional to their capital contribution in the company.

An LLC must have as its foundation document a Memorandum of Association (MoA) between its shareholders. In the case of an LLC formed by one founder, the Companies Law requires the founder to prepare a statement, which is deemed to be, and subject to the same requirements as, the MoA. The Companies Law requires the follow-ing items to be included in the MoA: ■ The name of the proposed company along with the form of the

company, which in this case is limited liability company■ The location of the proposed company’s head office, which must

be in Iraq■ The purpose of the proposed company and the nature of its busi-

ness activities


■ The proposed company’s capital, including the number of shares and the value of each share

■ The names of the founders along with their nationalities, profes-sions, permanent addresses, and the number of shares and percent-age of capital each owns.The MoA must indicate the company’s capital. The Companies Law

has minimum share capital requirements that must be paid in full with shares in equal, indivisible and nominal values of one Iraqi dinar.

Establishing an LLC in Iraq requires an applicant to complete a par-ticular registration process and to satisfy certain requirements. According to the applicable law, including the Companies Law and certain ministerial instructions, an applicant must:■ Obtain approval from the Baghdad Chamber of Commerce for the

proposed name of the LLC■ Deposit the share capital of the proposed LLC in an Iraqi bank;

obtain a receipt letter for the deposit; submit the receipt to the Min-istry of Trade; and obtain a deposit letter from the Ministry of Trade

■ Obtain no objection letters from the tax authority and the Ministry of Interior addressed to the Registrar of Companies

■ Submit the following documents to the Registrar of Companies: the MoA, duly signed by the founder(s) of the proposed LLC; and the completed application to create an LLC, on the form prescribed by the Registrar of Companies.

Commerce: Trade in the land between the Tigris and Euphrates rivers started thousands of years ago

“Each LLC shareholder’s liability is limited to an amount equal to their capital contribution”


If the founder is a company, the application must include the fol-lowing information in respect of the founding company: ■ Resolution of the shareholders/board of directors of the founding

company resolving to establish the LLC in Iraq■ Copy of the founder’s constitutional documents■ Copy of the title deed or lease agreement of the proposed LLC’s head

office in Iraq■ Letter issued by the Iraqi bank that holds the share capital declaring

that the share capital has been received and deposited at that bank■ Tax clearance letter in respect of the founder(s) ■ Power of attorney issued by the founder(s) appointing a local lawyer

to undertake the procedure of establishing the LLC.All foreign documents must be in Arabic or translated into Arabic

by translators officially recognised by the Iraqi authorities. They must then be legalised by a notary public in the country of origin, certified by the Ministry of Foreign Affairs and consularised by the Iraqi Embassy or consulate.

On submission of all of the required documentation, the Compa-nies Law requires the Registrar of Companies to review and either accept or reject the application within 10 days of receipt of the com-pleted application.

If the Registrar of Companies rejects the application, then the Companies Law requires it to state in writing the provisions of the law violated and the reasons giving rise to each violation. The appli-cant has the right to contest the rejection before the minister of trade within 30 days from the date of notification of such rejection. The Companies Law provides for a review of the appeal by the minister of trade within 30 days of its submission.

If the minister of trade also rejects the application, then the appli-cant has the right to appeal the minister’s decision before a court of competent jurisdiction within 30 days from the date of notification of the rejection.

ABOUT THE WRITERSHussein Damirji (top) is a partner at Addleshaw Goddard (GCC) and a member of the Iraqi Bar. Rafi Sajian is a managing associate at the firm. They can be contacted at: [email protected] and [email protected]


TaxationThomas Donovan of Iraq Law Alliance discusses the rules governing taxation in Iraq and Iraqi Kurdistan

The recent growth of investments and contracts involving interna-tional companies in Iraq has raised several questions regarding their tax liabilities in the country. The following article is a general over-view of the main conceptual points involved in the payment of cor-porate tax, personal tax, social security contributions and double-tax treatment. Please note that every tax situation is an inherently fact-specific examination, and all individuals and corporations are advised to seek independent tax assistance from a licensed Iraqi (and/or Kurdish) professional prior to initiating investment in Iraq.

INCOME TAXAccording to Coalition Provisional Authority (CPA) Order No. 49 as amended, Order No. 100, and Income Tax Law No. 113 of 1983, the income of an entity is taxed at a progressive rate from 3 per cent up to 15 per cent for individuals. Corporate income tax rates are set at 10 per cent. According to Income Tax Law No. 113 of 1983, all enti-ties are responsible for directly deducting their employees’ taxes and sending the deductions to the tax authorities on a monthly basis. In addition, the entity is responsible for sending 17 per cent of the employee’s salary to the Social Security Agency. This 17 per cent was established by Iraqi Social Security Law No. 39 of 1971, and includes a contribution of 5 per cent deducted from the employee and 12 per cent from the employer.

Currently, the payment of social security contributions on behalf of foreign workers is not accepted by the government of Iraq, but is nonetheless often required for compliance reasons by other agencies. This creates a tenuous situation for foreign companies and poten-tially subjects any company to a litany of non-compliance fines and sanctions for factors that may be outside their immediate control.

DOUBLE-TAXATION TREATIESIraq has only entered into double-taxation agreements with certain countries, including Egypt, Jordan, Libya, Somalia, Sudan, Syria, Tunisia and Yemen. However, CPA Order 49 contains a tax credit provision by which, subject to certain provisos, “income tax paid to

“All entities are responsible for directly deducting their employees’ taxes“


a foreign country on income earned in that country may be credited against tax paid to Iraq.” However, notwithstanding this provision, the General Commission for Taxes (GCT) does not adhere to exemp-tion. This provision shows that Iraqi law does, in theory, alleviate the double taxation concerns of a non-Iraqi investor. It is the application of the law that is often not reliable.

As with many issues in the federal Iraq system, taxation is dealt with slightly differently in the semi-autonomous northern region of Kurdistan. Specifically, expatriate employees in Iraqi Kurdistan must first qualify as tax residents in Iraq in order to be taxed in Iraq. Accord-ing to the Kurdish Income Tax Law, a resident is “any person residing in Iraq during the year in which the income arose, for a total period of not less than six months, or he/she resides in Iraq for a period of not less than four consecutive months.” The same defines a non-resident as “a person who does not meet the residence qualifications … even if income has arisen for him/her in Iraq from any source.”

SOCIAL SECURITY AND PENSION CONTRIBUTIONSSocial security and pension contributions are governed by Pension and Social Security Law No. 39 of 1971, as amended and applied in all regions of Iraq. As a general rule, employers operating in Iraq are required to remit these contributions for their Iraqi employees work-ing in Iraq to the Ministry of Labour and Social Affairs (MoL). The contributions are paid as follows: an amount of 12 per cent of the employee’s salary is paid by the employer to the Health Insurance, Work Injuries and Pension departments of the MoL, while another 5 per cent is deducted directly from the employee’s salary. All contri-butions are made monthly by certified cheque from any Iraqi bank. Prior to making a payment, an employer must register its employees at the Labour and Social Security Department of the MoL. All employers and employees, including foreign employees, must be registered. Failure to register exposes the employer to civil and crim-inal penalties.

There is no specific exemption under Iraqi legislation permitting non-Iraqis to be excluded from paying the contributions. Indeed, Article 3 of the Pension and Social Security Law No. 39 of 1971 states that: “The provisions of this law shall apply to all workers cov-ered by the Labour Code No. 71 of 1987.”

Furthermore, the Labour Code covers both Iraqi and non-Iraqi employees and it applies to all workers in Iraq, including Arab and


non-Arab foreigners. However, we are aware that current practice amongst employers in Iraqi Kurdistan is to ignore the registration requirement for expatriate employees. Indeed, the MoL branches in the region have, until now, turned a blind eye to this practice.

The rationale for this is most likely that some or most expatriate employees pay some kind of equivalent social security or pension contributions in their home countries, and that payment of similar amounts in Kurdistan is not justified. Although it is questionable whether a significant number of expatriate employees actually make equivalent payments in their home countries, it seems that the authorities in Iraqi Kurdistan do not require any proof that these pay-ments are actually being made. Accordingly, a presumption of pay-ment by the employee is applied unless the expatriate individual notifies the MoL that he/she is not making such payments abroad and wishes to pay his/her contributions in Kurdistan. Not surpris-

Kurdish law: Expatriate employees living in Iraqi Kurdistan must first qualify as tax residents in Iraq


ingly, very few employers (if any) register their expatriate employees for the purposes of making the contributions, although there appears to be no legislative justification for this.

Companies employing expatriate employees are advised to antici-pate any change in this practice, which is not subject to any pub-lished regulation or statute, and which may take place at any time and without notice.

HOW TO BENEFIT FROM TAX EXEMPTIONThe general rule under Iraqi tax law is that tax exemption requires a specific law. Foreign companies must qualify under such a law in order to benefit from tax exemption. For example, the Iraqi Invest-ment Law of 2006 exempts investors from taxes and fees. Companies are advised to consult with their local attorneys and local accoun-tants to determine if they qualify for tax exemption under existing Iraqi laws.

Another option is to encourage your own government to sign an investment treaty with the government of Iraq and include tax exemptions to companies from your country in Iraq. In December 2012, Iraq ratified a treaty with the US to exempt US entities and per-sonnel from taxes in Iraq. The treaty focuses on economic and tech-nical cooperation. It is our understanding that the treaty provisions provide tax exemption for economic, technical and human support to Iraq paid for by the US, but this will require further clarification in the near future.

ABOUT THE WRITERThomas Donovan is managing partner at the Iraq Law Alliance in Baghdad.Web: www.iqlaw.com


Anti-corruptionThe Iraq Law Alliance’s Thomas Donovan explains the legislation around bribery and influencing officials

In addition to the US’ Foreign Corrupt Practices Act and other non-Iraqi legislation that governs anti-corruption issues, foreign corporations active in Iraq must adhere to Iraqi legislation regulat-ing such issues.

The Iraqi Penal Code (Law No. 111 of 1969) governs issues of cor-ruption and bribery in the country. Put simply, it prohibits confer-ring gifts or benefits to Iraqi public officials. The Penal Code pun-ishes any public official or agent who seeks or accepts, for himself or for another, a gift, benefit, honour or promise thereof to carry out any duty of his employment or to refrain from doing any such duty. This provision extends to such acts that are outside of the authority of the public official, and the penalty is applicable whether or not the pub-lic official or agent intended to carry out or refrain from carrying out the specified act.

The Penal Code criminalises the activity of the offeror, the offeree and any intermediary to the same extent. Under the Penal Code, any person who gives or offers a public official a gift, benefit, privilege or promise is considered to be offering a bribe, and this person, or any intermediary on their behalf, is subject to the same penalty as the person who accepts such bribes. Though not defining a ‘bribe’ as such, the law demonstrates that bribes are gifts, benefits, honours or promises thereof to public officials or agents, regardless of value, provided they are made with an intent to induce the public official or agent to carry out or refrain from an act, whether or not such an act is within their jurisdiction. Under the Penal Code, bribes are consid-ered only in the public context.

The application of the above noted provisions of the Penal Code extends to situations where the public official or agent accepts the gift, benefit, honour or promise thereof for himself, or for someone else, thus criminalising the situation where a relative, or any third person, is the beneficiary of the bribe.

In applying the terms of the Penal Code, the term ‘public official’ is broadly defined, and generally includes any person who works in the public service, either paid or unpaid. As such, employees of gov-ernment-controlled enterprises may be considered public officials,


so long as the government has some financial interest in the entity. It is possible that the employees, directors, etc, of any mixed corpo-ration (a corporation that has joint private and public ownership), could be considered public officials, in terms of the Penal Code. Hence, the ownership and management of a corporation must be closely scrutinised when determining whether it is a government entity or a private entity, and whether certain gifts or benefits may be conferred.

The Penal Code does not specify a value when considering what constitutes a bribe. However, the more valuable the gift or advantage, the more likely it is to raise scrutiny and be considered a bribe. Given the current state of the Iraqi economy and considering prevailing gov-ernment salaries, even benefits or advantages of $30 or less may be deemed valuable enough to attract scrutiny as a bribe. As such, there is very little that can be considered socially acceptable and legally unproblematic in this regard, and even minor gifts, such as business courtesies, will be scrutinised and may lead to prosecution.

Corruption regulations in the Penal Code apply to both domestic and foreign business entities. In addition to acts committed on Iraqi territory, the law also includes, as “offences committed in Iraq”, acts that have consequences that are realised, or intended to be realised, in Iraq. Consequently, corruption regulations apply both to domestic and foreign business entities, and acts undertaken outside Iraq, if intended to have an effect in Iraq, such as improperly influencing an Iraqi government official, may be prosecuted in Iraq.

Under the Penal Code, corporate entities may be held criminally liable. Sanctions may include fines, confiscation or precautionary measures, such as closure of the business premises or the suspension and winding up of a corporate body. There is also the potential that managers or directors of a company may be held vicariously liable for the criminal actions of their employees, as the courts may pre-sume manager/director involvement in the bribery, as the likely ben-eficiary of the bribes will be the company and/or its directors, and not the employee himself. Beyond the liability of corporate bodies for the acts of their employees, however, vicarious liability is not fully addressed in regards to this issue in the Penal Code.

Foreign entities conducting business in Iraq must adhere to the provisions set forth in the Iraqi Penal Code concerning anti-corrup-tion. Failure to follow these regulations could lead to prosecution and/or the winding down of their operations in Iraq.

ABOUT THE WRITERThomas Donovan is the managing partner at Iraq Law Alliance, which specialises in investment and business in Iraq.Tel: (+964) 771 358 6705Web: www.iqilaw.com


Contract lawThomas Donovan of the Iraq Law Alliance explains how contracts are enforced in Iraq

The contract law of Iraq is contained in the Iraqi Civil Code (Law No. 40 of 1951, as amended). Iraqi contractual principles are mainly based on the Egyptian Civil Code, which was inspired by European civil law.

The Iraqi Civil Code is divided into a short introduction and two main sections. The introduction deals with general issues, such as applicable legal sources, the distinction between individuals and legal entities, the rules of application of laws and certain classifications.

The first main section regulates the law of obligations, and con-tains general provisions of the laws of contract, tort and some spe-cific types of contract, such as sales, barter transactions, gifts, part-nerships, loans, leases, agency and insurance. The second part addresses property rights and related issues.

The Iraqi Civil Code adopts the principle of freedom of contract, with only some limits and mandatory provisions generally enacted in order to protect weaker parties. Under the code, a contract is formed by offer and acceptance. The common law concept of consideration is not required. A contract does not need to be reduced to writing pro-vided it can be proven that the parties intended to be mutually bound. The subject matter of the contract must be defined and not be illegal or “prejudicial to public order and morals”. In a Muslim country, this means the contract must not be contrary to sharia (Islamic law).

FORCE MAJEURE The code provides that a party is not liable to pay damages for non-performance or delay in performance of a contract if the cause was beyond its control. However, although Iraqi law makes provision for the effect of a force majeure event, it is recommended that parties entering into commercial contracts also include standard force majeure provisions. Iraqi courts have been reluctant to construe force majeure clauses to cover civil unrest or war in favour of a contracting party against the Iraqi government or government entities.

CONTRACTUAL REMEDIESThe Iraqi courts can order specific performance for a breach of con-tract, but in the event that performance of the obligation would be


too onerous on that party, damages may be awarded instead. Alter-natively, a party may request that the contract is cancelled and claim compensation in the form of damages.

Generally, the courts will aim to put the parties into the position they would have been in had the contract been performed. Unless the claim involves fraud or gross negligence, the damages awarded will not exceed the loss suffered or the amount of lost profit that was foreseeable at the date of entering into the contract. It is open to the parties to agree the amount of damages payable in the contract, but the amount may be subject to review and equitable adjustments by the courts if the original agreement was excessive. The parties may also agree limitations on liability in the event of a breach under the contract, and may thus exclude, for instance, indirect damage.

Damages may include the lost gain of the creditor, provided it is a natural result of the non-performance or delay in performance of the obligation. However, damages may not exceed the loss suffered, except in cases of fraud or gross negligence. Damages fixed by agree-ment are not due if the debtor establishes that the creditor has suffered no loss, and a court may reduce the amount agreed upon if it is grossly excessive or the principal obligation has been partly performed.

The code also provides for an interest rate of 4 per cent on delayed payment in respect of civil matters (payments due in a personal capac-ity or unsecured loans) and 5 per cent for commercial matters (transac-tions in the course of a business or secured loans) from the date that a claim is filed with the courts for payment. The parties may, however, choose a different interest rate, provided it does not exceed 7 per cent.

LIMITATION PERIODGenerally, the contractual limitation period is 15 years, other than in certain circumstances in which it is less. These include where the right is a recurring one, such as the right to receive rent or salary for which a five-year limitation period applies. In a number of cases, the Iraqi courts have applied the 15-year limitation period to cases of recurring claims where the transaction was concluded in writing. Claims for unjust enrichment are barred after three years. A one-year limitation period applies to the rights of certain professionals and employees to be reimbursed for their work. It is not permitted to amend the limitation period contractually.

“The code provides for an interest rate of

4 per cent on delayed

payment in respect of civil

matters”


Taxation and compliance in the Kurdistan regionAllan Fowlie, CEO of consultancy Tiller, explains the differences between federal Iraq and the Kurdistan region

BUSINESS ENVIRONMENTThe Kurdistan Regional Government (KRG) has wholeheartedly encouraged development in the semi-autonomous northern region of Kurdistan through, among other things, the passing of two signif-icant pieces of legislation: a business-friendly investment law in 2006 and a petroleum law based on production sharing in 2007. These laws, combined with the developments outlined below, have proved important to the development of the Kurdistan region, which as a result is experiencing significant and rapid growth.

By 12 January 2014, the investment board had approved 642 projects with a capital value of $36.4bn, which encourages schemes in the following sectors: manufacturing, power genera-tion, agriculture, tourism, health, environment, science and tech-nology research, education, information technology, communica-tions, transport, banking, insurance, housing, roads and bridges, irrigation and dams.

The Ministry of Natural Resources’ website lists 41 production-sharing contracts signed by 28 January 2014. The small pioneer oil companies are now being joined by supermajors.

The Kurdistan region is a friendly and business-minded place in which to work and live. A sign of the open-for-business approach is that citizens of Europe, Australia, New Zealand, the US and Canada are issued with a two-week visit visa stamp on arrival, with no requirement to arrange a visa before departing from their home country.

SETTING UP A BUSINESSAnyone carrying out business in Iraq must do so through a regis-tered corporate entity. The most common corporate forms used are branch offices (of foreign-registered companies) and limited liabil-ity companies. In practice, separate registrations are required in both the Kurdistan region and in federal Iraq.

KEY CONTACTSKurdistan Board of Investment Tel: (+964) 66 253 1559Web: www.kurdistaninvestment.orgMinistry of Natural Resources Web: www.mnr.krg.orgMinistry of Labour and Social Affairs Web: www.molsa-krg.com (Arabic only)


INCOME TAXIncome tax is applied to all types of income arising in Iraq, regardless of where payment is made and where contracts are signed. In the Kurdistan region, a corporate tax registration can commence irre-spective of whether corporate registrations (at Companies Registry) are up to date or not. Unlike in federal Iraq where a power of attorney (POA) is required, an authorisation letter is all that is needed in order for the tax registration to begin. The authorisation letter need not be notarised or legalised, as would be the case with the POA. A signa-ture from a duly authorised officer and a corporate seal is sufficient to validate the letter.

The corporate income tax (CIT) rate is currently a flat 15 per cent on the net income of all companies. The deadline for filing CIT returns in Kurdistan is one month later than in federal Iraq, on 30 June. Petro-leum companies that have signed a production-sharing agreement have been given a contractual assurance that the KRG will pay their CIT liability, rather than receiving an explicit CIT exemption.

Open for business: Visitors to the Kurdistan region from certain countries do not need to prearrange a visit visa


Corporate tax losses can, in law if not always in practice, be car-ried forwards for a maximum of five consecutive years, with the following provisos:■ No more than half of any year’s taxable income can be offset■ Any loss is only deducted from the same source of income from

which it is being offset. There are currently no specific transfer-pricing guidelines.

However, the Iraqi tax authorities reserve the right to adjust the taxable profits of an entity if they consider the amounts recorded to be unreasonable.

PERSONAL INCOME TAX AND SOCIAL SECURITY TAXIn the Kurdistan region, the official personal income tax (PIT) is 15 per cent, but in practice the tax authorities usually apply a reduced flat rate of 5 per cent based on an exemption applicable to specific personnel. There is also a monthly tax-free allowance of ID1,000,000 ($850). In addition, tax-free allowances can be given to cover food, transportation, clothing, hardship, hazard and reloca-tion. Unlike in federal Iraq, there is no guide on the portion of total remuneration that can be paid in allowances, but most firms follow the federal Iraq model of 30 per cent. Another difference is that there is no requirement to register for PIT and it is paid only annually by employers as part of their yearly account submission.

Upon hiring its first employee, generally at formation, a company must register for social security and pension contributions (SSPC) at the General Directorate for Labour and Social Security (affiliated to the Ministry of Labour and Social Affairs) in the Kurdistan region. SSPC rates are the same as in federal Iraq with the major exception being that in federal Iraq, there is a higher rate of 25 per cent for oil firms. Expatriate staff can gain an exemption from SSPC, which is currently 12 per cent employer and 5 per cent employee. Employers must register non-Iraqi workers and apply for an exemption, rather than simply not declaring them.

OTHER TAXESThere is no capital gains tax in the Kurdistan region; gains are taxed as regular income. Also, there is currently no withholding tax applied to contract payments, unlike in federal Iraq, where there is a top rate of 7 per cent for oil companies. Moreover, there is no sales tax, value-added tax (VAT) or goods and services tax.

“The Kurdistan region is a friendly and business-minded place in which to work and live”Allan Fowlie, Tiller

DOING BUSINESS


TAX INCENTIVESThere are several tax breaks offered to investment schemes approved by the Kurdistan Board of Investment. The key features of these are:■ Project income is exempt from tax for 10 years from the start of ser-

vice provision or production;■ An exemption from import duties, taxes and licences on vehicles

and equipment is available, provided they are imported within two years of approval;

■ Raw materials and equipment used in production get relief from customs duty – up to 15 per cent of project costs;

■ The government allocates free or reduced-price land to investment schemes, with foreign and local investors equally entitled to buy and completely own land, although investors may not own land containing oil, gas or mineral resources;

■ Projects can be fully foreign-owned and foreign investors are free to repatriate profits in full.

ABOUT THE WRITERAllan Fowlie is CEO of Tiller, which has been operating for more than 10 years, spe-cialising in tax, accounting, compliance and advisory services in Iraq, including the Kurdistan region.Email: [email protected]: www.tillerandco.com DISCLAIMER

The contents of this article, current at 25 January 2014, are for reference purposes only. They do not constitute legal or tax advice and should not be relied on as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.

The Kurdistan Board of Investment (BOI) helps drive investment in the region, both domestically and from abroad. Using a one-stop-shop concept, it provides assistance to firms wishing to set up in the region and helps them liaise with ministries and other government bodies. It publishes guides to investment highlighting not only existing projects, but also sectors and subsectors where development is encouraged.

The BOI is responsible for issuing investment licences that grant benefits such as cheap land, tax exemptions and provision of public infrastructure to projects. It also evaluates project proposals, decides on eligibility and facilitates land allocation. However, it does not offer direct financial support.

There is a six-stage process for investors wishing to gain a licence:■ Submission of an investment proposal at a BOI office■ First assessment of submitted proposal for eligibility to receive public benefits■ Land allocation for approved projects and submission of detailed plans■ Second assessment and licensing■ Construction commencement and completion in compliance with BOI licence■ Commencement of operations in compliance with BOI licence

KURDISTAN BOARD OF INVESTMENT

Investing



INVESTING

National Investment CommissionEstablished in 2007, the National Investment Commission (NIC) aims to entice investors into Iraq and help them make the most of the privi-leges and incentives afforded to them by Investment Law 13 of 2006. It oversees projects at a federal and strategic level, with a particular emphasis on housing schemes.

The NIC operates as a one-stop shop to process investment licence applications, issue licences, allocate land, secure tax exemptions, and facilitate the entry and exit of investors and their employees.

The 2006 investment law also created provincial investment com-missions. It gives regions and provinces the right to form commis-sions, to grant investment licences, undertake investment planning, encourage investment and open branches under the NIC.

The NIC produces an ‘Investment Map’, which lists and expands on the opportunities within each province, and also publishes an inves-tor guide to the investment law and the often-changing entry and exit procedures for Iraq.

To obtain an investment licence, an investor should submit:■ A request to invest in a project in Iraq, including the proposed sector

and region for the investment. This can be done through a form available on the NIC website

■ A financing plan supported by a letter from a bank to show the investor is able to implement the project and complete it on time

■ A preliminary economic feasibility study of the project and techni-cal details of how it will be implemented

■ A timetable for the project■ A list of similar completed projects, either inside or outside Iraq.

If all submissions are in order, the NIC should gain approval to grant the licence from the relevant authorities within 45 days. Once issued, the investor must notify the NIC in writing of the date the project is started, and must maintain accounting records approved by a licensed Iraqi accountant. They must keep a record of any imported items that are exempt from import fees. They are also required to adhere to envi-ronmental and quality standards and Iraqi labour laws, and must com-mit to sticking to a schedule of work. They are also encouraged to train Iraqi employees.

KEY CONTACTNational Investment Commissionwww.investpromo. gov.iq


Baghdad Web: www.baghdadic.gov.iq

Babylon Web: www.bic.gov.iq

DiyalaWeb: www.dic.gov.iq

SalahaddinWeb: www.investsalahaddin.org

Wasit Web: www.wasitic.gov.iq

Kirkuk Web: www.investkirkuk.com

Ninevah Web: www.mosulinvestment.org

Anbar Web: www.anbarinvest.net

Karbala Web: www.krinves.com

Najaf Web: www.investnajaf.net

Maysan Web: www.miciq.com

Diwaniya Web: www.investdiw.gov.iq

Relevant sector author-ities and land-owning

authorities

Reply and answer from the relevant authorities to the National Investment Com-mission within a period of

15 days

Reply and answer from the National Investment Commission to the inves-

tor within a period of 45 days

National InvestmentCommission

Investor

■ Study the project’s economic and technical feasibility ■ Issue an opinion on the establishment of the investment project

■ Study the application of the investor ■ Study the economic feasibility ■ Make sure legal issues are in order■ Obtain the approval of the relevant authorities for the establishment of the investment project ■ Assist the investor in obtaining a land allocation for the project

■ Fill out an application form to obtain an invest-ment licence■ Provide preliminary economic feasibility study, financing plan and a list of similar works

PROCEDURES FOR GRANTING AN INVESTMENT LICENCE

PROVINCIAL INVESTMENT COMMISSIONS

Source: National Investment Commission


Economic zonesIraq is home to three official free zones, located in the southern Basra province, the northern province of Ninevah and the western Anbar province. All three operate under a free zone law passed in 1998 and are regulated by the Free Zone Authority, which was set up as part of the Finance Ministry. Under the free zone law, imported and exported goods from the zones are exempted from all taxes and duties. Capital, profits and investment income from projects in the free zones are also exempt from taxes and fees for the life of the project.

The process of applying for a free zone licence is relatively simple. Investors submit an application to the General Commission for Iraqi Free Zones setting out the profile of the project to be established, along with a fee of $100, and are then required to sign a lease within 30 days of receiving approval.

The free zone law permits all industrial, trade and services activities in the free zones with the exception of those deemed to be environ-mentally polluting, toxic or detrimental to health. It also prohibits the minting of coins, coining blocks, printed and inscribed money, as well as books, pamphlets or tapes.

Basra’s Khor al-Zubair Free Zone (KAZFZ) has attracted significant investment since its establishment in 2004. Last year, the free zone authority reportedly signed an investment contract for public trans-port and civil aviation facilities. A Turkish firm has also invested $700m in a steel plant within the 1 million square metre (sq m) zone.

Free zone activity at the Flaifil zone in Ninevah is spread over 400,000 sq m, with road and rail links to Turkey, Syria and Jordan. The zone currently includes several concrete warehouses, roofed stores and offices, in addition to a truck park.

The Al-Qaem Free Zone lies near the border with Syria in the west-ern Anbar province. It is being developed in two stages with phase one limited to commercial and service activities. Activity at the Al-Qaem zone is slow though, due to the ongoing conflict in nearby Syria.

A fourth, private zone was announced by the General Commission for Iraqi Free Zones in March 2013, planned for Baghdad, following an agreement with the City Centre for Vehicles Services Company. The free zone will focus on transports and logistics, aiming to promote the local economy and move business away from oil-based ventures. The new free zone will accommodate industry and manufacturing, along


with warehousing and banking services. While completion and launch dates have yet to be announced, it is expected to be up and running in the next few years.

Two further free zones are also planned: a joint zone at the interna-tional border area in the northern province of Dohuk, between the Kurdistan region and Turkey; and a zone in the city of Babil, just 60 miles south of Baghdad, which will facilitate the transportation of goods between the two cities. No further details have been announced.

KAZFZ AND BIOGHThe KAZFZ is located at Basra’s Khor al-Zubair port, which is to be rebuilt with a $1.2bn loan from Japan. A new oil and gas international free zone within KAZFZ’s limits is being developed by the Basra Inter-national Oil & Gas Hub (BIOGH) and is slated for completion in 2025.Benefits■ No customs duties or taxes on imports or exports■ No value-added tax (VAT)■ No capital gains or corporation tax■ Offshore banking is permitted■ No foreign exchange restrictionsIndustries■ Production, sales, assembly, manufacturing (currently petrochemi-

cals, fertiliser, iron, steel and gas) and re-packing■ Warehousing (re-export and trade)■ Transport and logistics■ Banking, insurance and re-insurance■ Professional support services for industrial activities

FLAIFILThe 400,000 sq m zone in Ninevah in northern Iraq started operating in 2010 and provides access to Turkey, Syria and Jordan.Benefits■ No customs duties or taxes on imports or exports■ No VAT■ No capital gains or corporation tax■ Offshore banking is permitted■ No foreign exchange restrictionsIndustries■ Transport and logistics■ Import/export

ANNUAL RENTS■ Khor al-Zubair: From $3 a sq m■ Flaifil: From $1.50 a sq m

Source: Iraq Embassy, Washington DC, US

INVESTMENT CONTRACTS AVAILABLE■ Renting of offices: 3 years■ Renting of land for trade services projects: 15 years (renewable)■ Renting of land for indus-trial projects: 25 years (renewable)

Source: Iraq Embassy, Washington DC, US


AL-QAEM FREE ZONEFacilities■ Stage 1 covers 70,000 sq m; stage 2 planned to cover 200,000 sq m■ Road and rail links to Turkey, Jordan and BasraIndustries■ Commercial/services

BASRA LOGISTICS CITY (BLC)Unlike the three government-run free zones, BLC is a limited liabil-ity company that provides legal services to help establish compa-nies. It also offers services, space and facilities at its 3 million sq m facility next to Umm Qasr sea port near Basra.

Zone A of the $245m project, which was developed by Iraq-based Kufan Group, is already up and running and offers open storage and warehouse facilities as well as offices. Zone B was begun in March 2013 and is due to open in early 2014, with residential buildings, an office park, amenities and a hospital.

BLC is located 50km from Basra International airport and 20km from the Kuwait border. The Zubair oil field is 25km away, and it is within 70km of the Rumaila oil field. Based 45km from Basra city, it aims to help create a multi-modal logistics corridor.Facilities■ BLC Trucks City will streamline road transport into and out of

Umm Qasr, becoming a one-stop shop for paperwork and import and export documents after it opens early in 2014

■ Office space, meeting rooms and training facilities■ Labour camps with 1,500 rooms■ Executive accommodation■ High security, including fences, vehicle search bays and 16 armed

guard towersBenefits■ 1.8km from Umm Qasr port■ Helicopter access and a planned runway for fixed-wing aircraft■ Reliable electricity, high-speed internet and telecommunications■ On-site water and wastewater treatmentIndustries■ Trading■ Light industrial■ Supply services

KEY CONTACTSGeneral Commission for Iraqi Free Zones601 Emerat Mansour, Baghdad, IraqTel: (+964) 145 1982Basra Logistics CityWeb: www.blc-iraq.comKufan GroupTel: (+964) 790 190 9064Web: www.kufan-group.com


Key ministriesOIL MINISTRYSince 1979, Iraq’s Oil Ministry has been both the operator and regu-lator of the country’s entire oil and gas sector, with the exception of the Kurdistan region. The Oil Ministry operates through a network of 14 subsidiaries, which took over the work of the Iraq National Oil Company (INOC) when it was merged with the ministry in 1987.

Iraq has been struggling for the past four years to pass a series of laws to regulate the oil sector, including ones to restructure the industry and revive the INOC, which would take over responsibility for operations from the Oil Ministry, leaving the ministry with a purely strategic and regulatory role.

The Oil Ministry is currently led by Abdulkarim al-Luaibi, a techno-crat who has risen through the ranks since the 1980s and was appointed in December 2010. Al-Luaibi replaced Hussain al-Shah-ristani, who had been oil minister since 2006. During that time, Al-Shahristani successfully ran Iraq’s first two oil licensing rounds and secured the return of international oil companies. After leaving the ministry, he was handed the role of deputy prime minister for energy affairs, with considerable authority over all oil and gas-related matters.

Upstream oil operations are carried out by four companies, with responsibility split by region. The largest of these is the Basra-based South Oil Company (SOC), which is responsible for the bulk of Iraq’s oil production in the south of the country.

The Missan Oil Company was split off from SOC in 2008 to take responsibility for fields along Iraq’s eastern border with Iran.

The North Oil Company is based in Baghdad and has responsibil-ity for the Kirkuk, Ninevah, Erbil, Baghdad, Hilla and Kut governor-ates. The newest operating company, Midland Oil Company, was established in April 2010 to oversee the development of oil fields in central Iraq. Production from this region has so far been minimal.

There are also a series of refining companies, such as South Refin-eries Company and Midland Refineries Company. In addition, there are numerous service providers, such as Iraq Drilling Company, Oil Exploration Company, State Company for Oil Projects and State Oil Marketing Organisation.

Along with the development of a dozen of its oil fields by interna-tional oil companies, Iraq plans to build five new grassroots refiner-

KEY CONTACTS Oil MinistryWeb: www.oil.gov.iqSouth Oil CompanyWeb: www.soc-basrah.comNorth Oil CompanyWeb: www.noc.oil.gov.iqMissan Oil CompanyWeb: www.moc.gov.iqNorth Refineries CompanyWeb: www.nrc.oil.iqMidland Oil CompanyWeb: www.mdoc.oil.gov.iq (Arabic only)


ies, as well as to expand and rehabilitate its existing facilities. It has already awarded a $6bn contract to a South Korean consortium led by Hyundai Engineering & Construction for the Karbala refinery and hopes to award contracts in 2014 for another facility at Nasiriyah.

CONSTRUCTION & HOUSING MINISTRYThe Construction & Housing Ministry is responsible for roads, hous-ing and public buildings, making it one of the most important organ-isations in Iraq’s infrastructure sector. The ministry is led by Moham-mad al-Daraji, who was appointed in 2010.

More than 70 per cent of Iraq’s population now lives in cities and towns, and the country is suffering from an increasing housing short-age, estimated at more than 1.5 million units. It also struggles with crumbling infrastructure and poor services, the result of years of war and neglect due to sanctions and underinvestment. Iraq has a current total housing stock of just over 2.8 million units, well below the required minimum. Along with the shortages, according to the UN, only half the population has access to safe drinking water, and out-side the capital only 9 per cent of Iraqis are provided with sewage collection and treatment services. Iraq’s cities embody the country’s most pressing development challenges, including the proliferation of slums, unemployment and a widening wealth gap.

Beyond its long-standing housing shortage, Iraq also has a rela-tively new problem: refugees from Syria and Iraqis returning to their home country settling in illegal areas. In Baghdad alone, there are an estimated 250 makeshift settlements housing 1 million people. In some cases, this is on land earmarked for development.

Iraq needs to build about 2.5 million new housing units by 2016 to meet the requirements of its growing population. Private sector partic-ipation in the sector remains limited due to constraints on land availa-bility and inadequate services, along with poorly developed financial markets. Government attempts to promote the Iraqi private sector have been limited to seeking foreign investment and have not been matched by the creation of legislation and policy to encourage it.

The largest of Iraq’s housing schemes have been passed over to the National Investment Council to deliver. The organisation is responsi-ble for securing international and private participation in the coun-try’s infrastructure and has begun to make progress on some major housing projects. It aims to build 1 million houses by 2015 and, although no one expects this target to be met, work is under way.

KEY CONTACTConstruction & Housing MinistryWeb: www.imariskan.gov.iq


TRANSPORT MINISTRYThe responsibility for transport infrastructure in Iraq is split between two government entities: the Transport Ministry and the Construc-tion & Housing Ministry. The Construction & Housing Ministry is in charge of the road system; port, railway and airport infrastructure is the responsibility of the Transport Ministry.

The Transport Ministry is led by Hadi Farhan al-Amiri. It has 13 divisions in charge of various aspects of the transport network, including the Iraq Civil Aviation Authority, the General Company for Ports of Iraq (GCPI), Iraqi Republic Railways and the Department of Planning and Follow-up.

To date, the ministry has been focused on the short-term emer-gency repair and rehabilitation of Iraq’s existing infrastructure.

Although the long-term strategy has yet to be determined, Baghdad has outlined general objectives. Its ambition is to offer an alternative transport corridor for logistics and trade from the East into Europe. Most ships currently sail around the Arabian Peninsula and through the Suez Canal. Iraq wants to offer a world-class port at Faw on the country’s southern tip, which will be connected to a regional rail net-work. Grand Faw is the biggest priority for the GCPI and involves the construction of a 17-metre deep port, allowing the world’s largest ves-sels to dock, and 7,000 metres of quayside. Cargo will then be moved via a rail link to the improved north-south railway, which will eventu-ally extend into Jordan, Syria, Kuwait and Iran, as well as along the existing line to Turkey. The plan is still in the design stage.

Another area where private involvement is much sought after is aviation. Iraq is keen to capitalise on the international trend to priva-tise airport operations and wants private investment to play a role in its many planned airport schemes.

ELECTRICITY MINISTRYThe Electricity Ministry is working to a masterplan that aims to pro-vide a substantial boost in generation capacity. However, it is strug-gling to meet the timetable and has repeatedly been forced to revise down targets, which sometimes bear little relationship to reality.

The ministry is led by Abdulkarim Aftan. Underneath him are four directorates: production; distribution; transmission; and projects, along with offices for contracts, planning and studies.

Tasked with delivering a huge increase in generating capacity, the ministry has considered various options to ensure a smoother con-

KEY CONTACTElectricity MinistryWeb: www.moelc.gov.iq

KEY CONTACTSTransport MinistryWeb: www.motrans.gov.iq/enGeneral Company for Ports of IraqWeb: www.scp.gov.iqIraqi Republic RailwaysWeb: www.scr.gov.iqIraq Civil Aviation AuthorityWeb: www.iraqcaa.com


tracting process. It has faced criticism over its handling of the tender-ing process, which compares unfavourably with that of the Kurdis-tan Regional Government (KRG). The northern provinces enjoy near 24-hour supply.

In 2008, the ministry bought 72 turbines from the US’ GE and Ger-many’s Siemens, but the first was only successfully installed in April 2013. These are supposed to run on natural gas, but Iraq currently lacks the infrastructure to capture and process enough gas, so they are fuelled by oil, which reduces output and degrades the equipment faster. The ministry either tenders most power plant contracts or invites selected engineering, procurement and construction firms to implement them. For the final remaining plants in the GE/Siemens megadeal, it is assumed that companies will be invited rather than engaged through open tender.

In November 2013, the electricity ministry said it was looking to resurrect its previously cancelled independent power programme, with plans to build several plants around the country.

AGRICULTURE MINISTRYThe Agriculture Ministry oversees one of Iraq’s most critical economic sectors, which employs some 20 per cent of the workforce and con-tributes 8 per cent of the country’s GDP. However, inefficiencies have hampered performance, prompting the ministry to take an active role in promoting crop and livestock production.

Much of Iraq’s agricultural activity is undertaken at provincial governor level, reflecting the federal structure of Iraq. The regional development fund that finances the provinces includes agricultural activities, and that has limited the ministry’s room for manoeuvre.

The government established the Agricultural Initiative in 2008. It is chaired by the prime minister and operates as a sub-unit of the ministry. The unit has its own budget and mainly extends loans to farmers. The ministry also includes the State Company of Agricul-ture Supplies, which distributes agricultural products.

The ministry’s main policy thrust is aimed at supporting farmers with the provision of seed, fertiliser and water. It cooperates closely with donors, prominently the UN Food & Agriculture Organisation, and bilateral donors such as the Australian government, which is working with the ministry on a national programme to develop the cultivation of wheat.

KEY CONTACTAgriculture MinistryWeb: www.zeraa.gov.iq (Arabic only)


ProvincesThe Republic of Iraq is a federal system made up of the central gov-ernment, along with the semi-autonomous northern region of Kurd-istan. The country is split into 18 governorates or provinces, with three under the authority of the Kurdistan Regional Government, and 251 municipalities. The Iraqi Constitution, which was signed in 2005, provides for a model of decentralised political and administra-tive government, with authority devolved to the governorates.

BAGHDADThe Baghdad province is the capital governorate of Iraq, and includes the city of Baghdad and the wider metropolitan area. Although it is the smallest of the provinces, at just 4,555 square kilo-metres (sq km), it is the most densely populated with nearly 7 mil-lion people. It is also one of the most dangerous, with almost 20 per cent of attacks in 2013 occurring in the city.

Baghdad is suffering from a serious shortage of housing, with more than 860,000 new units required in the city. The ad-hoc man-ner of reconstruction work carried out since the US-led invasion in 2003 has made developing the city complicated. A masterplan for Iraq as a whole was sponsored by the Italian government in 2004, but with no specific provision for the capital. Instead, government min-

Population: The Baghdad province is home to almost 7 million people

KEY CONTACT National Investment CommissionTel: (+964) 790 197 0107Web: www.investpromo.gov.iq


istries and the Baghdad Mayoralty, assisted by multinational forces and international institutions such as the World Bank, have launched projects in a piecemeal fashion according to immediate needs and available funds.

It is only since 2009 that a masterplan for Baghdad has been devel-oped. Among the more ambitious schemes included in the plan is the $3bn Baghdad metro project, which will involve two lines cross-ing the city on a 39 kilometre route, linking sectarian areas that were in conflict at the height of the insurgency.

BASRAThe Basra Investment Commission was established in 2006 under the Iraqi Investment Law, as part of the National Investment Com-mission. The commissions are tasked with granting investment licences, and promoting and securing strategic investments.

The province has been at the centre of Iraq’s oil and gas indus-try since the discovery of the Rumaila oil field in 1953. It houses the headquarters of the South Oil Company, which handles upstream exploration, production and transport in the south of the country.

Along with oil, Basra is also home to petrochemicals and fertiliser plants that are owned and operated by the State Company for Petro-chemical Industries. The Petrochemicals Complex One (PC-1) unit at Khor al-Zubair, near Basra, was built in 1976, and is still opera-tional, although war and sanctions have taken their toll on the plant’s productivity.

The National Investment Commission is seeking foreign invest-ment in the expansion and modernisation of Iraq’s petrochemicals sector, in particular at Basra. In the years since the US-led invasion, the Oil Ministry and the Industry & Minerals Ministry have held talks with several integrated energy and petrochemicals firms over new investments, including US companies ExxonMobil Chemical and Chevron, and UK/Dutch energy firm Shell Group over the reha-bilitation of the Basra complex.

As the only province with access to the Gulf, Basra also contains all six of Iraq’s ports, the largest being Umm Qasr, which has a deep-water quay with 22 berths. Umm Qasr also has warehouses covering an area of more than 175,000 square feet. The other ports, including Al-Maakal and Abu Flus, all require significant investment to become operational or reach capacity.

“As the only province with access to the

Gulf, Basra also contains all six of Iraq’s ports”

KEY CONTACT South Oil CompanyWeb: www.soc-basrah.com


ANBARAt 138,228 sq km, Anbar in the west of Iraq is the largest of the coun-try’s 18 provinces, but is also one of its smallest in terms of popula-tion, with only 1.4 million residents. Since the end of 2012, the prov-ince has become one of the most violent in Iraq, with near daily security incidents.

In terms of oil and gas resources, the province is largely unex-plored. However, the Akkas gas field, which was discovered in the 1990s, is now being developed by a consortium led by South Korea’s Kogas. The group plans to increase production to 400 million cubic feet a day by the end of 2017. Engineering, procurement and con-struction contracts for the field’s gas processing plants were awarded to South Korea’s Daewoo Engineering.

The government hopes the development of the field will spur greater economic activity in the province, which is comparatively hydrocarbons poor. It has planned gas exploration across Anbar, but no international firms bid for the blocks in the last round. The gov-ernment is also planning a major crude oil export pipeline that will run through the province to Jordan. The city of Haditha will be the starting point of the pipeline, housing pumping stations and crude oil storage facilities. Further pipelines from Haditha are planned for Syria and Turkey.

Basra: The southern province is the focal point of Iraq’s oil and gas industry

KEY CONTACT Anbar Investment CommissionTel: (+964) 780 039 0060Email: [email protected]: www.anbarinvest.net

ANBAR INVESTMENT OPPORTUNITIES ■ Industrial■ Commercial■ Power■ Housing■ Agriculture

INVESTING


The Anbar Investment Commission is seeking investors for a diverse range of projects including shopping malls, cement and glass plants, fertiliser production and power generation. The region has reserves of limetone, sulphur, phosphate, silicate and magnesium to name just a few.

KARBALA AND NAJAF The provinces of Karbala and Najaf house two of the holiest sites for Shia Muslims. Karbala is the site of the martyrdom of the Prophet Muhammad’s grandson, Hussain, and is venerated by Shias, who make annual pilgrimages to the city.

Najaf, which is just to the south, is another holy city for Shias as the burial site of Ali, the cousin of the Prophet Muhammad and father of Hussain. The Najaf seminary is the centre of Shia political power in Iraq and one of the most important centres of Shia teaching in the world.

Expanding religious tourism is a particular focus of the govern-ment as it looks to foster growth in the non-oil sector. Several new airports are planned to cope with the anticipated rise in the number of pilgrims. The Transport Ministry is looking to build the Middle Euphrates airport between the cities of Karbala and Najaf.

Once completed, the new airport will be vying for passengers with the existing airport in Najaf, which opened in 2008 and has an annual capacity of 3 million passengers. The government estimates that more than 35 million people will visit the two cities each year.

As a result of the huge influx of tourists and pilgrims, the two cit-ies have witnessed a dramatic rise in real estate prices. Hotels located near the Imam Hussain Mosque in Karbala now draw so many visitors that real estate prices for hotels have exceeded $4,000 a square metre (sq m) and are expected to increase as the expansion of the shrines is completed. By comparison, Baghdad prices are just over $2,000 a sq m. Investment is also being sought in industrial, housing and power projects.

“Expanding religious tourism

is a particular focus of the government as it looks to

foster non-oil growth”

KEY CONTACT Karbala Investment CommissionWeb: www.krinves.com

Practical Guide



PRACTICAL GUIDE

SecurityTravel around the country, with the exception of the Kurdistan region, including to and from airports, can be dangerous and busi-ness visitors should consider hiring specialist security personnel. These can cost $3,000-6,000 a day and embassies in Baghdad main-tain a list of recommended firms.

Local security firms include Al-Burhan Group, which offers a secure accommodation facility in the grounds of Baghdad airport as well as transport services. International security firms operating in the country include the UK’s Control Risks, which has facilities at the Carmen Business Centre inside the International Zone in Bagh-dad, a secure and restricted area in the centre of the city. Aegis, also of the UK, is another well-established security firm and offers weekly security reports. Similar accommodation facilities are on offer from security companies in Basra. International oil companies operating there also maintain their own secure compounds.

Territories administered by the Kurdistan Regional Government have largely been much quieter than the rest of Iraq, but most interna-tional firms operate with a country-wide approach of high alert.

The UK’s Foreign & Commonwealth Office recommends employing a professional security company for travel to all parts of Iraq apart from Iraqi Kurdistan, as well as arranging secure accommodation and considering specialist training before going to Iraq.

Seek local advice, especially when travelling to remote areas bor-dering Turkey, where there have been reports of shelling, unex-ploded ordnance and mines. Armed groups also operate along the Syrian border. Embassies can help provide travel advice, and some – including the UK embassy – can provide secure accommodation and services for first-time visitors. It is advisable to keep a low pro-file: arrange transport in advance and, when filling in forms that ask for an address, use a work address rather than a personal one.

Insurance companies such as Jordan’s Anglo-Arab Insurance Brokers (AAIB) provide specialist insurance for Iraq.

KEY CONTACTSAegisTel: (+44) 207 222 1020Web: www.aegisworld.com AKE GroupTel: (+44) 143 226 7111Web: www.akegroup.comAl-Burhan GroupTel: (+964) 1 541 1320Web: www.alburhangroup.comControl RisksTel: (+44) 207 993 4414 (for Baghdad)Tel: (+44) 203 318 9595 (for Basra)Tel: (+964) 750 456 8281 (for Erbil)Web: www.controlrisks.com Anglo-Arab Insurance Brokers (AAIB)Tel: (+962) 6 550 3222Web: www.aaib-insurance.com


TransportBusiness visas for travel to federal Iraq must be applied for in advance. This can be done at the nearest Iraqi consulate and will require a supporting letter of invitation from Iraqi authorities or a let-ter of introduction from the applicant’s Ministry of Foreign Affairs, Chamber of Commerce or similar. The process generally takes two to six weeks to complete as applications need to be referred back to Baghdad for approval. Alternatively, you can apply via email to the National Investment Commission.

The entry point for most visitors is Baghdad International airport, which is about 16 kilometres west of the city. It is served by a small but growing number of international carriers. Most of them are from the surrounding region, including Egypt Air, Emirates, Etihad Air-ways, FlyDubai, Gulf Air, Qatar Airways, Middle East Airlines, Turk-ish Airlines and Royal Jordanian. Some European airlines also offer flights, including Austrian Airlinesand Lufthansa. Security at Bagh-dad airport is provided by G4S, a UK-based security company.

There is a more limited range of international flights to five other airports around the country, including Basra in the south, Najaf in the centre and Erbil, Mosul and Suleimaniyah in the north. Of these, Basra and Erbil have the most connections.

The national carrier Iraqi Airways has scheduled flights to some major cities in the region as well as a small number in Asia and Europe, and its domestic network includes flights to Najaf and Basra.

Iraq’s main cargo port is at Umm Qasr, which sits on the coun-try’s short stretch of Gulf coast. Major shipping lines that call in include Swiss-based Mediterranean Shipping Company, Taiwan’s Yang Ming Marine Transport and Singapore’s APL. The busiest cargo route is to Jebel Ali in Dubai.

Travel around the country should not be attempted without gaining up-to-date information on the security situation in the areas in which you will be travelling. In general, the use of public transport is not rec-ommended, except in the KRG region. There is a rail network connect-ing many parts of Iraq, but it is old and poorly maintained.

For travel insurance you may need to approach a company that specialises in providing cover for high-risk countries, such as Anglo-Arab Insurance Brokers (AAIB), which has an office in Baghdad.

KEY CONTACTSMediterranean Shipping ServicesAl-Jazaer Commercial Square, BasraTel: (+964) 780 103 4859Sharaf Shipping (for Yang Ming Marine)Palestine Street, BaghdadTel: (+964) 780 986 9040Saba Marine ServicesAl-Amirat Road, BaghdadTel: (+964) 1 541 3462Al-Khoura Street, BasraTel: (+964) 4 061 9940National Investment CommissionEmail for visas: [email protected] Web: www.investpromo.gov.iqG4STel: (+44) 207 963 3100Web: www.g4siraq.com


AccommodationRents in Iraq not only vary according to the size of a property, but more importantly, they are also influenced by the level of security. In Erbil, for example, guarded compounds or new developments – such as Royal City, Italian Village, English Village, Naz City or the American Village, which is out of town – charge monthly rents from about $1,700 to as much as $5,000 for a luxury stand-alone villa. These prices are expected to fall as new accommodation is built in the next few years. Housing is available at much lower costs in other parts of the city, but this is not advisable for expatri-ates. Many western companies will not permit employees to move outside secure locations such as compounds or malls without accompanying security.

Compounds tend to offer few amenities besides security and small mini-markets, although many allow villas to be converted into commercial space. In effect, the cost of office and residential space is the same across most of Iraq, with many companies choos-ing to rent villas for work purposes.

Due to limited availability of apartments, most expatriates live in villas and employees of the same company often share larger prop-erties. The supply of new housing is growing rapidly, however.

Across Iraq, properties are typically let unfurnished and most foreign arrivals will have to ship, buy or rent the contents of their house or office. There are several companies that can assist with this, including Home Essentials, the largest furniture rental busi-ness outside the US, which operates from Baghdad.

Expatriates often use a single company to provide security, cleaning and landscaping services for a bundled monthly fee. Alternatively, full-time help can also be contracted from abroad via a staffing company. Compound utility fees are usually paid in addi-tion to rent and may be included in a single service charge. Elec-tricity costs can be high due to the use of communal generators, which kick-in during the frequent blackouts. Workers moving to Iraq should check with their employers which costs are covered by their contract.

KEY CONTACT Home EssentialsTel: (+964) 790 191 9772Web: www.homeessentials.net


TelecomsIraq’s telecoms sector has grown rapidly since 2003, when mobile services were unavailable. The country now has some 27 million mobile phone subscribers, compared with fewer than 2 million fixed-line telephone users. Even so, penetration rates remain fairly low compared with other parts of the Middle East. Internet services are a particular headache for individuals and businesses, with high prices and limited access and bandwidth.

The three main mobile service providers are market leader Zain Iraq, which had about 12.5 million mobile subscribers in 2013, Asi-acell, which has 8.7 million, and Korek Telecom, the main operator in the Kurdistan region, which has about 3 million subscribers. Operators are currently competing to build nationwide networks and to introduce third and fourth generation (3G and 4G) services.

The availability of the internet is hampered by poor infrastruc-ture. The state-run Iraqi Telephone & Postal Company and others have been working to extend networks and improve bandwidth, but the state’s insistence on control of the fibre-optic backbone has stifled private investment and prices are among the highest in the region. While the government has placed a priority on connecting Iraq to its neighbours – the high-capacity Gulf International Bridge undersea cable made landfall in late 2011 – the ramshackle state of the national fibre grid will continue to inhibit internet use.

As a result, Iraq has only a few million internet users, many of whom use local shops and cafes to go online. The three main ser-vice providers – Omnnea, Itisaluna and Kalimat – operate in the cities through wireless local loop (WLL) services connected with small satellite dishes. Businesses and those with higher incomes can subscribe to WLL, asymmetric digital subscriber line (ADSL) and other services.

With most reliable telecoms services limited to urban areas, users working in remote parts of Iraq, such as oil and gas compa-nies and non-governmental organisations, often opt for bespoke telecoms systems. Houston-based Vizocom is among those private operators providing satellite, microwave and fibre-optic links and voice and data systems for their clients.

KEY CONTACTSCommunications & Media CommissionWeb: www.cmc.iqMinistry of Communications:Web: www.iraqimoc.net

MOBILE OPERATORSZain IraqWeb: www.iq.zain.comAsiacellWeb: www.asiacell.comKorek TelecomWeb: www.korektel.com

BROADBAND OPERATORSItisaluna Abr al-IraqWeb: www.etisaluna.comKalimat TelecomWeb: www.kalimattele.comOmnnea Web: www.omnnea.com

PRIVATE TELECOMS OPERATORVizocomWeb: www.vizocom.com


PRACTICAL GUIDE

HealthcareThe state of Iraq’s healthcare system is a far cry from the 1970s, when the country boasted more than 1,200 primary healthcare cen-tres and the lowest infant mortality rates in the region.

The deterioration of public healthcare in the past four decades means that expatriate workers, and those Iraqis who can afford to, tend to rely on private clinics, many of which are run by medical specialists who also work in the state system. There are about 90 small, privately run hospitals, clinics and dental surgeries as well as about 3,400 privately owned pharmacies. Those who can afford it also travel abroad for treatment – private Iraqi hospitals tend to be small, with an average of only 25 beds. Most admissions are for sur-gery and deliveries and few provide general hospital care.

While government spending on healthcare remains low at $250 per capita, the state has been investing heavily in rehabilitating the sector in recent years. Besides rebuilding physical infrastructure – some $4.7bn of hospital projects are under way or about to begin – Iraq has been attempting to reverse a decades-long exodus of trained staff. There are only 0.7 doctors per 1,000 people, compared with 2.8 in Egypt and 3.5 in Lebanon, according to the World Health Organisa-tion. Even in the private sector, there are shortages of doctors, consul-tants, anaesthetists and nurses.

As a result, private medical treatment can be expensive and pay-ment is often required in advance. Expatriates are advised to buy medical insurance before travelling to Iraq. No health insurance programmes exist within Iraq, meaning that all private healthcare is met out-of-pocket. No ministry guidelines or regulations cur-rently exist for private hospitals and clinics, which are largely out-side the national health information and supervision systems.

Foreign provision of medical facilities, training and equipment is expected to help rehabilitate the sector in the coming years. The government has set a target of 80 per cent of patients being treated in primary care facilities – from about 60 per cent at present – with the aim of focusing the attention of the main hospitals on specialist care. The expected growth of the private healthcare industry will, however, require regulatory reform at a government level.

SELECTED MEDICAL FACILITIESRMSI Hospital, Baghdad (Emergency medical care; affiliated to International SOS)Web: www.rmsi-medicalsolutions.comAl-Moosawi Private Hospital, BasraWeb: www.almoosawi-hospital.comHawler Private Hospital, Erbil (Cardiac, orthopaedic and spinal specialists)Web: www.hawlerhospital.comEuropean Dental CentreWeb: www.europedentalcenter.comRizgary Teaching HospitalWeb: www.rizgaryhospital.orgWest Eye HospitalWeb: www.westeyehospitalerbil.comSoran HospitalWeb: www.soranmedicalservices.comEmergency Hospital, ErbilTel: (+964) 66 227 3883

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