2. Bilateral Investment Agreements and Taxation Treaties
Iraq does not have a Bilateral Investment Treaty (BIT) or a bilateral taxation treaty with the United States. The United States and Iraq signed an Agreement for Economic and Technical Cooperation on July 11, 2005 and it entered into force December 18, 2013. The U.S.-Iraq Strategic Framework Agreement (SFA) (available at the following website: ) provides intergovernmental forums to address impediments to investment and trade. There was a bilateral Higher Coordinating Committee (HCC) meeting on January 28, 2018 under the auspices of the SFA. At the HCC both sides committed to reinvigorate the Trade and Investment Framework (TIFA) process and to the formation of two bilateral working groups: 1) to simplify Iraq’s visa and residency permit process and 2) to resolve commercial disputes between American companies and the Government of Iraq. The existing TIFA between the governments of Iraq and the United States entered into force in 2013 and the inaugural TIFA Council meeting took place in March 2014 in Washington, D.C. The TIFA provides a framework for dialogue to increase trade and investment cooperation between the two countries.
Iraq is a signatory to investor protection agreements or memorandums of understanding with 35 bilateral partners and nine multilateral groupings. The agreements include arrangements within the Arab League, as well as arrangements with Afghanistan, Armenia, Bangladesh, France, Germany, India, Iran, Japan, Jordan, Kuwait, Mauritania, the Republic of Korea, Sri Lanka, Syria, Tunisia, Turkey, the United Kingdom, Vietnam, and Yemen.
Iraq currently has bilateral investment treaties with Armenia, France, Germany, Japan, Jordan, and Kuwait. Only the BITs with Japan and Kuwait are in force. Iraq’s investment agreements include general provisions on promoting and protecting investments, including clauses on profit repatriation, access to arbitration and dispute settlements, fair expropriation rules, and compensation for losses. However, the Iraqi government’s ability and willingness to enforce such provisions remains untested.
Iraq joined the Greater Arab Free Trade Area (GAFTA) in 1998 to better integrate economically with other Middle Eastern countries. However, Iraq withdrew from GAFTA on November 17, 2016, choosing instead to implement tariffs on all the goods coming into the country.
U.S. companies have raised concerns about the Ministry of Finance Tax Commission’s use of the “deemed tax” method to calculate corporate taxes, which can be disadvantageous for firms generating less than 20percent profit, the standard percentage applied to every company, regardless of the firm’s actual profit. U.S. investors also complain about the application of the social tax, equivalent to 5percent of employees’ pay and a 12 percent employer contribution, to third country national employees who do not participate in or benefit from the Iraqi health or pension system, which the taxes are used to fund.
6. Financial Sector
Capital Markets and Portfolio Investment
Iraq remains one of the most under-banked countries in the Middle East. The Iraqi banking system includes seven state-owned banks, with the three largest, Rafidain, Rasheed, and TBI, accounting for roughly 85 percent of Iraq’s banking sector assets. Rafidain and Rasheed offer standard banking products but primarily provide pension and government salary payments to individual Iraqis. As of early 2018, 17 foreign banks either have licensed branches in Iraq or have strategic investments in Iraqi banks and three additional foreign banks are in the process of establishing licensed branches. By law, the Central Bank may only exchange currency to be used for purchases of legitimate goods and services.
Iraq’s economy remains primarily cash-based, with many banks acting as little more than ATMs. Credit is difficult and expensive to obtain. Most trade-based letters of credit are with external banks. Iraq ranks 186 out of 190 in terms of the ease of getting credit on the World Bank’s 2018 Doing Business Report. Although the volume of lending by privately-owned banks is growing, most privately-owned banks do more business providing wire transfers and other fee-based exchange services than lending. Businesses are largely self-financed or obtain credit from individuals in private transactions. State-owned banks mainly make financial transfers from the government to provincial authorities or individuals, rather than business loans.
The main purpose of the Trade Bank of Iraq (TBI) is to provide financial and related services to facilitate trade, particularly through letters of credit (LCs). In 2009, the Ministry of Finance opened the government LC market by granting private banks permission to issue LCs below $4 million. The ceiling was later raised to $10 million. Virtually all government LCs are processed by the TBI, which has stated that it transfers a number of LCs under $5 million to private banks.
The NIL allows foreign investors to purchase shares and securities listed in the Iraqi Stock Exchange (ISX) and the GOI welcomes foreign portfolio investment.
Money and Banking System
The GOI has had little success reforming its two largest state-owned banks, Rafidain and Rasheed, however banking sector reform is a priority of Iraq’s IMF and World Bank programs. Private banks are mostly active in currency exchanges and wire transfers, though activity supporting SMEs increased from 2016 to 2017. The CBI is Iraq’s central bank, headquartered in Baghdad, with branches in Basrah and Erbil. The Iraqi Kurdistan Region has two regional government-owned banks that will connect to the CBI system once CBI’s Erbil branch is reconnected.
Foreign Exchange and Remittances
Foreign Exchange Policies
The currency of Iraq is the Dinar (IQD). Iraqi authorities confirm that in practice there are no restrictions on current and capital transactions involving currency exchange as long as underlying transactions are supported by valid documentation. The NIL allows investors to repatriate capital brought into Iraq, along with proceeds. Funds can be associated with any form of investment and freely converted into any world currency. The NIL also contains provisions that allow investors to maintain accounts at banks licensed to operate in Iraq and transfer capital inside or outside of the country.
The GOI’s monetary policy since 2003 has focused on ensuring price stability primarily by maintaining a de facto peg between the IQD and the USD while seeking to maintain exchange rate predictability through supplying USD to the Iraqi market. Banks may engage in spot transactions in any currency but are not allowed to engage in forward transactions in Iraqi Dinars for speculative purposes. There are no taxes or subsidies on purchases or sales of foreign exchange.
There have not been any recent changes to Iraq’s remittance policies. Foreign nationals are allowed to remit their earnings, including U.S. dollars, in compliance with Iraqi law. Iraq does not engage in currency manipulation. Iraq is listed as a jurisdiction with strategic deficiencies according to the Financial Action Task Force (FATF).
Sovereign Wealth Funds
Iraq does not have a sovereign wealth fund.
14. Contact for More Information
Embassy Baghdad Economic Section
Al-Kindi Street, International Zone, Baghdad
Office: +1-301-985-8841 x3013