Legal and Regulatory framework for companies in Kurdistan Region Governorate
Type of Companies in Iraq
Pursuant to Law No. 21 of 1997 (as amended in 2004), the types of companies that can be incorporated in Iraq are the following:
  • The mixed or private joint-stock company: constituted by not less than five persons, who will participate in it by owning shares through public subscription and will be responsible for the company's debts in so far as the nominal value of the shares to which they subscribed;
  • The mixed or private limited liability company: constituted by no more than 25 natural or juridical persons, who will subscribe to its shares and will be responsible for the company's debts in so far as the nominal value of the shares to which they subscribed;
  • The joint liability company: constituted by not less than two and not more than 25 persons, each owning a quota of its capital. They shall jointly assume personal and unlimited responsibility for all of its obligations; and
  • The sole owner enterprise: constituted and owned by one person that assumes personal and unlimited responsibility for all of its obligations.
Please note that Joint Stock Companies are not commonly used in Iraq since they require prior public offering and the incorporation process is complex and requires nearly 3 months. Joint stock companies structures are usually limited to banks, financial institutions and insurance companies.

Capital Minimum Required
  • Minimum Capital required for a Limited Liability Company: 1,000,000 IQD (approximately 850 USD).
  • Minimum Capital required for a Joint Stock Company: 2,000,000 IQD (approximately 1700 USD).
  • All Investment Companies with the exception of Financial Investment Companies, require a minimum capital of 200,000,000 IQD (approximately 166,500 USD).
  • Minimum Capital required for a Contracting Company (Limited) is 200,000,000 Iraqi Dinars (approximately 166,667 US Dollars).
Registration Requirements
The Company shall:
  • Register the Trade name before the relevant trade chamber;
  • Submit the Articles of Association of the company;
  • Deposit the minimum capital for the company in Iraqi Dinars at an authorized bank in Iraq
  • Have a location and secure a Lease Agreement;
  • Pay all the fees required to register the company before the Companies Registrar;
  • Obtain approval from the Ministry of Interior for all foreign shareholders;
  • Appoint a legal advisor (attorney) for the company from the Kurdistan Bar Association;
  • Appoint a chartered accountant from the Chartered Accountants and Auditors Association; and
  • Appoint a Managing Director who shall get his residency before the company’s set up.
Important Remarks
  • The company can be fully owned by foreigners;
  • There are no restrictions on foreign currencies and transfer of currencies in and out of Erbil;
  • There are however restrictions on the exchange of currencies. Each exchange of currency shall be justified; and
  • There is no problem invoicing in foreign currencies.
Should tax exemptions not be applicable, you should note that:
  • New established companies are exempted from corporate taxes during the first year;
  • Joint stock and limited liability companies are subject to a flat tax rate of 15%;
  • As for foreign companies registered in Iraq or having a branch working regularly in Iraq, only their profits accomplished inside Iraq will be subject to a tax at the rate of 15%;
  • There is no tax on the distribution of dividends;
  • Should the Investment Law be applicable, the company shall be exempted from the foregoing as previously stated; and
  • As for tax issues, we may provide you to some extent with a discount on your tax payments.
  • New Income Tax Law imposes income tax of 35% on foreign Oil and Gas companies.
Labor law is regulated under the Labor Code numbered 71 and dated 27 July 1987 and the relevant legislation, in Iraq. This legislation is also applicable in Kurdistan Region Governorate.
Term of the Employment Agreement
Employment agreements may be executed for definite or indefinite terms (Article 32). Temporary or seasonal works shall be regulated under the employment agreements of definite period whereas the works which are permanent in nature shall be regulated under the employment agreements of indefinite period. A probation period of maximum three months may be agreed in the employment agreement (Article 31).
The currency of the salary shall be Iraqi Dinars. Benefits, allowances provided to the employees are considered as the part of the salary.
Working Period & Leave of Absence
As a basic rule, the daily working period is eight hours, at the utmost. In case of exceeding of such 8 hours, 50%-100% of the normal salary is paid to the employee, as overtime payment. Weekly leave day is one day in a week, which is generally Friday. Paid annual leave is 20 days within a year. For hazardous works, such period is extended to 30 days per year. 2 days are added to such periods, for every 5 years of service in the same workplace. The period of paid sick leave is 30 days within a year. Paid Maternity leave period is six months and there is an additional six months with half payment.
Working Period & Leave of Absence
As a basic rule, the daily working period is eight hours, at the utmost. In case of exceeding of such 8 hours, 50%-100% of the normal salary is paid to the employee, as overtime payment. Weekly leave day is one day in a week, which is generally Friday. Paid annual leave is 20 days within a year. For hazardous works, such period is extended to 30 days per year. 2 days are added to such periods, for every 5 years of service in the same workplace. The period of paid sick leave is 30 days within a year. Paid Maternity leave period is six months and there is an additional six months with half payment.
Foreign Employees and Investors Work Permit
Foreigners can work in Iraq with a valid work permit. The Labor Law and the relevant regulation in force are also applied to such foreigner employees. According to the Article 23 of the Labor Code; “No foreign worker may be engaged before having received a work permit in accordance with the requirements and procedures laid down in directives issued by the Minister of Labor and Social Affairs.” The requirements for obtaining work permit may vary, depending on the nationality of the employee. In general, there shall be a pre-drawn employment agreement with an Iraq-based employer and sufficient proof of transfer, position or employment shall be presented to the relevant authority. The general features of work permits are as follows;
  • Foreigners shall first apply for the work permit in their home country, before arriving in Iraq;
  • Work permits are provided for one year and renewable; and
  • Employees with work permit can apply to residence permit for their family.
Foreign Investors
There are also provisions regarding employment, under the Investment Regulations of Iraq. According to such regulations, in case an investment license is obtained by an international investor for a particular project, at least 50% of the employees shall be Iraqi citizens. Besides, it is stipulated that Iraq citizens shall have priority in respect of employment by such investors obtained foreign investment license.
Employees’ income tax
Further to Iraqi legislation, personal income is subject to income tax at progressive rates ranging from 3% to 15%. Nevertheless, in KRG the authorities have been imposing a 5% flat tax rate on income greater than 700,000 IQD (approximately 590 US Dollars) per month.
The ownership of Government land depends on many factors. A large proportion of the land is owned by the Ministry of Finance but certain Ministries control certain types of land. In this area, the roles of the Governorates and Municipalities are important and must be considered by the investor.
Who Can Own A Land?
Iraqi nationals have the right to own real property rights anywhere in Iraq without any restriction. UAE and other Arab countries nationals may acquire real property rights in Iraq subject to the approval of the competent authority. However, Kuwaiti nationals are exempted from obtaining such approval, except when acquiring agricultural lands.

Nationals of other countries may acquire real property rights in Iraq, but only under the following conditions:
  • A reciprocity measure must exist between Iraq and the foreigner’s home country;
  • The property must be at least 30 km from Iraq’s international borders;
  • There should be no administrative or martial objection to this property ownership;
  • The approval of the Ministry of Interior Affairs must be obtained; and
  • The foreigner may only possess one residential property and one property affected to his/her work.
However, it shall be noted that, under current practice, the approval of the Ministry of Interior Affairs is rather hard to obtain.
  • Companies incorporated in Iraq are considered as Iraqi companies notwithstanding the nationality of their shareholders, and shall therefore have the right to acquire property rights in Iraq without any restriction.
  • Branches and representative offices of foreign companies may acquire real property rights in Iraq subject to the approval of the Ministry of Interior Affairs.
Purchasing or Leasing Land from the Private Property Market
Iraqi investors have the right to buy and/or lease property from the private real estate market for residential, commercial, or agricultural use, while foreign investors may only lease property from the private real estate market.
According to the current Investment Law, investors have the right to lease lands and real estate from the Iraqi Government for the purpose of investment projects for no more than fifty years. This term is renewable depending on the nature of the investment and its feasibility.
The most significant difference between the Kurdistan Investment Law and the Federal Investment Law is that the Kurdistan law allows foreigners to own land. According to the said Law, the investors may purchase and lease lands and real properties necessary for the establishment, expansion, diversification and development of the project.
Property Tax
According to Real Estate Law No 162 of 1959 and its amendments, the rent from real estate is subject to property tax on a flat rate of 9% (10% of 90% of all rent income of all real estate leased by the taxpayer).
Investment Law Provisions
Potential investors in Iraq face complex procedures under various laws, regulations and administrative requirements. However, the government intends to begin a program to reduce such difficulties and to encourage investments in the region, and the new investment law was the first step in that direction. In addition, Iraq intends to improve and simplify various procedures for obtaining investment licenses and project establishment licenses and permits.

You can benefit from the provisions of the Investment Law and be granted a License from the Kurdistan Investment Board should you invest in a given project in one of the following sectors:
  • Manufacturing industries, electric power and related services;
  • Agriculture, whether crop growing farms or animal farms, forestry and related services;
  • Hotels, tourist and recreational projects, funfairs, and amusement parks;
  • Health and environment;
  • Science and technology research, and information technology;
  • Modern communication and transport;
  • Banks, insurance companies, and other financial institutions;
  • Infrastructure projects, including construction, reconstruction and housing projects, roads and bridges, railways, airports, irrigation and dams;
  • Free zones, modern commercial markets, and relevant advisory services;
  • Education at all levels, within the framework of the educational policy of the Region; and
  • Any project in any other industry which the Council agrees that it is covered by the provisions of the Investment Law.
Nevertheless, you should note that residential construction projects are not being granted Investment Board licenses anymore.


Investor’s Advantages & Exemptions
The Investment Law of KRG provides for exemptions and advantages to be granted for the Investors. However, for the purpose of benefiting from said exemptions and advantages, the Investor must first obtain a license issued by the Investment Board in the Region for establishing the Project.

Once the license is granted, the Investor shall benefit from the following advantages and exemption:
Land Allocation
Should an Investor obtain the required license, the relevant departments in the Region, in coordination with the Board, shall pinpoint and allocate the needs and the requirements of the Project such as the lands, within the basic designs inside and outside the towns either by lease or Musattaha (i.e. long-term lease) with encouraging prices according to the regulations set by the Board and exceptionally deviating from the provisions valid in the Region on selling or renting state properties. In addition, the Investor has the right to purchase and rent the needed areas of land and estate to establish, enhance, diversify and develop the Project within the boundaries of the area and period of time, which are estimated in the light of the Project's aims and real needs. The investor also has the right to purchase or rent for the benefit of his Investment Project housing plots and non-productive vehicles that the Project requires. This shall only occur according to the prior approval of the Board and as per the regulations set by the Board for this purpose.
Tax and custom tariffs exemptions

The Project is exempted from all the taxes and custom tariffs for a period of 10 years as of the effective production date or the date on which the Project starts providing its services. Should a local investor be part of the Project, the latter would be exempted from all taxes and custom tariffs for a period of 15 years.

Vehicles, tools apparatus, equipment and machinery imported from abroad for the Project’s needs shall be exempted from taxes, dues and stipulations for getting importation licenses, provided that they are brought in through the Region's border crossing points within two years as of the date of the approval of the Board's Chairman of their lists and provided that they are only used for the Project's purposes. Otherwise, they shall not be included within these exemptions and the Investor shall be obliged to pay the taxes and shall be penalized by paying a forfeit twice as much as the incurred tax.

Spare parts imported for the Project shall be exempted as well from taxes and dues, provided that their value does not exceed 15% of the value of the devices, tools, equipment and machinery they are related to.

Vehicles, apparatus, machinery and tools, needed for enhancing, developing or modernizing the Project, shall be exempted from taxes and dues.

Raw materials imported for production are exempted from customs tariffs for five years provided that the types and quantities of such material are specified by the Board - giving priority to using the local and available material - and are quantitatively and qualitatively proper for the Investment Project.

Additional exemptions

The Board, for the requirement of the public interest in the Region, has the right to grant the licensed Investment Projects additional incentives and facilities, whenever the Projects are characterized by one of the following aspects:

  • The Projects which are established in the less developed areas in the Region;
  • The joint Projects between national and foreign Investors.
The Board also has the right to grant serviceable licensed Projects, especially Projects such as hotels, hospitals, tourist towns, universities and schools, additional exemptions from the dues for purchasing furniture, carpets and other requisites needed for modernization and renovation purposes once every three years, provided that they are imported to the Region and used specifically for the Project’s purposes within one year as of the date of the approval of the Board's Chairman of the procurement list and quantities.

Other Major Provisions
  • An investor shall not sell wholly or partially its stake in the Project to another investor before the Project is completed.
  • An investor may request, once 30% of the Project has been completed, to be enabled to mortgage the land, wholly or partially, in order to secure loans, provided that the monies borrowed are disbursed solely on the Project.
  • An investor shall only sell fixed assets related to his Project once the Project is completed and after an authorization is granted by the Investment Board.
  • Also, in order to benefit from the dispositions of the Investment Law in relation to land allocation, tax exemptions and other exemptions, the amount invested in the project shall be more than 1,000,000 USD.
Iraqi social security law passed in 1971. It regulates benefits or payments for
• disability • maternity • unemployment • sickness • funerals.

Social insurance system is funded by employee contributions of 5% of their wages, employer contributions of 12% of payroll and resulting in a total payment of 17% to the Social Security Authority. According to Law No 19 of 2010 “Tax on Foreign Oil & Gas companies”, social security is 30% (Employer’s contribution: 25% and employee’s contribution: 5%).

The cost for social security registration depends on the number of employees in an establishment. Any company employing more than three employees has to enroll their employees to the social security insurance program. After working for 20 years, men may retire at the age of 60 and women may retire at the age of 55.
In accordance with Orders No. 38 and 54, as amended by Order No. 70 the government of Iraq collects a 5% reconstruction levy on the total taxable invoiced value of all goods imported into Iraq from all countries, effective April 15, 2004. Exceptions to the levy are food, medicines, clothing, books, humanitarian goods, Coalition forces, reconstruction contractors, NGOs, international organizations, diplomats and Coalition governments, and goods imported under the Oil-for-Food contracts.

All other customs tariffs, duties, import taxes and surcharges remain suspended; the only exception is the vehicle entry inspection fee of $30 per truck. The new Law on customs tariff, ratified by the Iraqi Council of Representatives on 12/1/2010 contained schedule of fees on imported goods according to the rates set forth in the tariff schedules and agricultural calendar thereto.
The law applicable to exports are contained in Iraq’s Customs Law Number 23 (1984) and CPA Order 54. Exports must be by license issued by the Ministry of Trade, Department of Planning, Import-Export Section.

There are no export tariffs other than a $35 per ton levy on scrap metal.
As all customs duties are presently suspended, no duties are applicable to goods in transit. Furthermore, according to CPA Order 54, the Reconstruction Levy does not apply to goods in transit.
Source: Airut Law Firm