DOING BUSINESS IN IRAQ IN 2023
For over a decade, Healy Consultants Group PLC has assisted our Clients with business registration in Iraq. Our services include i) Iraq company incorporation ii) license registration iii) business bank account opening iv) employee recruitment assistance v) visa strategies and vi) office rental solutions.
|Compare different Iraq entities||Tax resident LC||Tax resident JSC||Commercial Agency||Representative office||Branch company|
|Best use of company?||Startup solution||Stock ex. listing||General trading||Marketing and research||Most activities|
|Legally tax exempt if properly structured?||No||No||No||Yes||No|
|Corporate bank account location?||Industrial Bank of Iraq||Trade Bank of Iraq||Rafidain Bank||Rasheed Bank||ADIB|
|Client must travel to Iraq for company setup?||No||No||No||No||No|
|Can secure trade finance?||Yes||Yes||No||No||Yes|
|Limited liability entity?||Yes||Yes||No||No||No|
|VAT payable on sales to local customers?||Yes||Yes||No||No||Yes|
|WH tax on dividend payments to overseas s/holders?||0%||0%||0%||N/A||0%|
|Average total engagement costs (in US$)||31,925||30,800||27,300||19,550||31,925|
|Average total engagement period||6 months||4 months||4 months||4 months||4 months|
|Statutory corporation tax payable?||15%||15%||15%||0%||15%|
|Must file an annual tax return?||Yes||Yes||No||Yes||Yes|
|Must file annual financial statements?||Yes||Yes||Yes||Yes||Yes|
|Access to double taxation treaties?||Yes||Yes||No||No||Yes|
|This entity enjoys Government incentives?||Yes||Yes||Yes||No||Yes|
|VAT reporting to Government every quarter?||Yes||Yes||No||No||Yes|
|Legally tax exempt entity?||No||No||No||Yes||No|
|Dividends received are legally tax exempt?||No||No||NA||NA||No|
|Company registration||Tax resident LC||Tax resident JSC||Commercial Agency||Representative office||Branch company|
|Iraq resident director required?||Yes||Yes||Yes||Yes||Yes|
|Appointment of local lawyer and accountant required?||Yes||Yes||Yes||Yes||Yes|
|Minimum number of shareholders\partners?||1||5||1||Parent company||Parent company|
|Minimum number of directors/managers?||1||5||1||1||1|
|Minimum paid up share capital in US$?||860||1,720||NA||None||None|
|Shelf companies available?||No||No||No||No||No|
|Time to incorporate a new entity?||12 weeks||12 weeks||8 weeks||9 weeks||12 weeks|
|Can easily convert to a local PLC company?||Yes||Yes||No||No||No|
|Can have preference shareholders?||Yes||Yes||No||No||No|
|Business considerations||Tax resident LC||Tax resident JSC||Commercial Agency||Representative office||Branch company|
|Can invoice local customers?||Yes||Yes||Yes||No||Yes|
|Can hire local staff?||Yes||Yes||Yes||Yes||Yes|
|Can rent local office space?||Yes||Yes||Yes||Yes||Yes|
|Secures a residence visa for business owner?||Yes||Yes||Yes||Yes||Yes|
|Good entity for trademark registration?||Yes||Yes||No||No||Yes|
|Iraq has signed free trade agreements?||Yes|
|This country is a member of WIPO?||Yes|
|This country is a member of TRIPS?||No|
|The country is a member of the ICSID?||Yes|
|Average customs duties suffered?||5%|
|Govt foreign investment approval required?||Yes|
|Average monthly office rental? (US$/sq m)||4|
|Minimum statutory annual salary in US$?||102|
|Average monthly US$ salary for local staff?||340|
|US$ deposit interest rate(year average)?||4%|
|Overseas remittance currency controls?||Yes|
|Public register of shareholders and directors?||Yes|
|Multi-currency bank accounts available?||Yes|
|Corporate visa debit cards available?||Yes|
|Quality of e-banking platform?||Moderate|
|Crowd funding available in this country?||No|
Iraq business setup summary
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Benefits of Iraq company registration
- Our Clients can incorporate a limited liability company in Iraq with 1 director and 1 shareholder and minimum paid up share capital of US$860 (IQD1,000,000). Furthermore, both the director and the shareholder can be non-resident foreign nationals. Lastly, our Client will not be required to travel to Iraq to complete the registration process. Unfortunately, it takes 8 months to register an Iraq LLC;
- Unlike other countries in the world, the most used type of entity is the branch. Our Clients can register a branch in Iraq in only 5 months. That said, those Clients with time constrains may pay expedited Government fees, to have the branch registered within 3 months!
- Certain business incentives exist for resident Iraqi companies including:
- All Iraqi companies will be completely exempt from paying i) value added tax (VAT) on goods & services ii) withholding tax on dividend payments and iii) withholding tax on royalty payments. Furthermore, dividends received by Iraqi companies from other resident companies will also be exempt from corporate tax;
- Companies investing in the Iraqi free zones will receive additional benefits: i) 100% exemption from corporate tax, custom duties (for both exports and imports) and capital gains tax ii) no foreign exchange restrictions and iii) permission to buy/sell foreign currency within the zone without any restrictions;
- Iraq has signed multiparty agreements with 9 countries in the Arab League and bilateral agreements with 32 countries including Japan, Germany, South Korea, UK and USA to i) reduce withholding tax on repatriated profits; ii) provide for fair treatment of investors and appropriate compensation in case of expropriation; and iii) settlement of business disputes in accordance with internationally established norms;
- Iraq has signed free trade area (FTA) agreements with 11 countries including Egypt, Lebanon, Oman, Qatar and UAE to reduce (or eliminate) trade barriers between the countries.
- The National Investment Commission (NIC) of Iraq licenses projects with capital investments of at least US$250,000 which boost the Iraqi economy. All such projects will enjoy additional benefits including:
- NIC licensed projects will be completely exempt from all taxes and fees for a period of 10 years from the date of commencement of operations. These benefits can be renewed after 10 years for another 15 years if the Iraqi participation in the project increases to 50%;
- There will be no restrictions on capital account and current account transactions, if such transactions are supported by proper documentation. Hence, Iraqi resident companies will be allowed to i) transfer capital in and out of the country and ii) remit their annual profits to their home countries;
- All assets imported into Iraq for the development of a certain project will be exempt from all custom duties provided they are imported within 3 years from the licensing date. Similarly, assets imported for further expansion of the project will also enjoy the same exemption if the imports are made within 3 years of notifying the NIC;
- Companies engaging in projects involving hotels, hospitals, clinics, educational and research institutions will be allowed to import assets custom free once every 4 years for the sole purpose of modernising these establishments;
- Resident companies with NIC licensed projects will be allowed to lease land in Iraq for up to 50 years. Also, companies which wish to engage in construction of residential property will be allowed to buy and sell land specifically for that purpose;
- Unlike other projects, companies will not be required to give preference to local Iraqi employees when hiring new employees. Companies will be allowed to directly approach foreign workers without initially advertising for local qualified workers or requesting for permission from the authorities. Furthermore, new foreign employees will be allowed easy access to residence permit for working in Iraq;
- Resident companies engaging in NIC licensed projects will be allowed to fully insure their investment though an Iraqi or non-Iraqi institution of their choice.
- Iraq is predominantly an export-oriented economy with the combined value of its imports and exports contributing to 72% of its GDP. In 2017, Iraq had a positive trade balance of US$31.1 billion. The major export sectors of the economy are i) crude petroleum; ii) gold; iii) tropical fruits; and iv) recovered paper.
- Based on Healy Consultants Group PLC’s knowledge and experience in this market, the following sectors offer the greatest opportunities for foreign companies looking to establish a presence in Iraq: i) agriculture and processed foods ii) clean technologies iii) defence and security iv) education v) information and communications technologies vi) infrastructure development vii) life sciences and viii) oil and gas.
Problems of Iraq company registration
- Our Clients’ investments in Iraq are not secure because:
- The judicial system in Iraq is highly inefficient, with the World Bank negatively ranking the country as 147th best in the world for enforcing contracts. Furthermore, the courts are likely to favour local entrepreneurs over foreign entrepreneurs in case of disputes. Consequently, our Clients will not be able to depend on the law for resolving business disputes;
- Iraq was ranked as the 23rd most corrupt country in the world by Transparency International in their 2021 Corruption Perception Index. As a result, working with the authorities is likely to cost our Clients a lot of money (bribes) and time;
- There is recurrent political violence in Iraq due to i) Sunni Islamic group ISIS taking over 1/3rd of the country ii) lack of trust between the Shia-dominated Iraqi Government and the Sunni population including the Kurds and iii) flow of Sunni refugees from neighbouring Syria, another war torn country. This has led to massive upheavals in the country with civil strife, bomb blasts and brutal killings becoming the norm. This makes Iraq a very dangerous place to start a new business.
- While the Iraqi Government is opening the economy to foreign investors, it will still be very cumbersome to do business in the country because:
- The banking system in Iraq is seriously under-developed. Local private banks are extremely undercapitalized which discourages people from making deposits in these banks. Furthermore, the international private banks like Standard Chartered Iraq and T.C. Ziraat Bank are not-well established which limits basic services like issue of debit and credit cards; and presence of ATMs. Furthermore, internet banking facilities and customer care service will be poor for foreign entrepreneurs;
- Despite recording economic growth of 6% in 2014, the Iraqi economy is overwhelmingly dependent on the oil & gas sector as it is the source of 90% of the government revenue. In 2019, IMF named Iraq as one of the most oil dependent country in the Middle East and North Africa. As a result, the Iraqi economy is very perceptible to global shocks to the oil industry;
- For all the reasons listed above, the World Bank negatively ranked Iraq as the 172nd best country in the world in their annual Doing Business survey.
- There is a severe shortage of qualified labour in Iraq because:
- Iraq has lost more than two decades to wars and civil strife. As a result, there is a massive shortage of educated or qualified individuals amongst the current labour force. Our Clients will be affected by this shortage when they start operating in Iraq;
- Iraqi companies outside the free zones must give preference to Iraqi citizens and nationals for employment before considering other individuals. Legally, at least 50% of the labour force in a company must be Iraqi citizens and nationals;
- While English is the most commonly spoken Western language in Iraq, the level of conversational English skills remain poor, even among the educated elite. According to the US Department of Commerce, there is lack of training in conversational English at the school and university level which will make it harder for our Clients to work with local suppliers, employees and customers;
- The education system in Iraq is severely affected by the devastating wars that have taken place over the years and led to dislocation of people and ruined all the necessary infrastructure. By 2005, almost 84% of the higher education institutions were either burnt, looted or destroyed. The nation has come a long way and recovered from the same, however, a major proportion of the population still does not have access to basic education.
- It takes 8 months to register a new wholly foreign owned Iraqi LLC. However, Healy Consultants provides our Client fast turnkey solutions (click link).
- Although the Iraqi business environment is improving, numerous challenges remain, such as heavy bureaucracy, a private sector that is only marginal and continuing insecurity that disrupt daily government and private operations.
- Iraq ranks as the world’s 19th most corrupt country, according to the 2020 corruption perception index. High levels of corruption in both the public and private sector hinder the establishment and running of businesses in the country.
- Because of ongoing insurgencies in Iraq, finding and establishing a banking partnership with a quality bank can be challenging. Problems related to banking transactions are common in Iraq, so a solid banking partner is critical to doing business in the country. Banks suffer from decayed infrastructure, inadequate human resources and frequent power cuts.
- Iraq ranks 172 out of 190 global jurisdictions on the World Bank’s Ease of Doing Business ranking. To successfully do business in Iraq, it is imperative that foreign entrepreneurs find good local partners in their relevant industry that can help navigate the country’s political, legal and business environments.
- Our Clients’ investments in Iraq are not secure because:
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Useful links for Iraq