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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.

Remittance Policies

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


2. Bilateral Investment Agreements and Taxation Treaties

Vietnam maintains trade relations with 200 countries, and has 65 bilateral investment treaties (BITs) and 26 treaties with investment provisions. It is a party to five free trade agreements (FTAs) with ASEAN, Chile, the Eurasian Customs Union, Japan, and South Korea. As a member of ASEAN, Vietnam also is party to ASEAN FTAs with Australia, New Zealand, China, India, Japan, South Korea, and Hong Kong. Vietnam finalized an FTA with the European Union in 2015, but the agreement has neither been signed nor ratified. In addition, Vietnam is a member of the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP), which was signed on March 8, 2018. Vietnam is a participant in the Regional Comprehensive Economic Partnership (RCEP) negotiations, which include the 10 ASEAN countries and Australia, China, India, Japan, South Korea, and New Zealand, and it is negotiating FTAs with other countries, including Israel. A full list of signed agreements to which Vietnam is a party is on the UNCTAD website: .

Vietnam has signed double taxation avoidance agreements with 77 countries, listed at . The United States and Vietnam concluded and signed a Double Taxation Avoidance Agreement (DTA) in 2016, but the agreement is still awaiting ratification by the U.S. Congress.

There are no systematic tax disputes between the government and foreign investors. However, an increasing number of U.S. companies disputed tax audits resulting in retroactive tax assessments. These cases may stem from Vietnam’s chronic budget deficits and the need to find sources to fill the revenue gap left from falling tariffs and falling oil revenues. These retroactive tax cases against U.S. companies can obscure the true risks of operating in Vietnam and give some U.S. investors pause when deciding whether to expand operations.

In February 2017, the government released Decree 20/2017/ND-CP, effective since May 2017, which introduced many new transfer-pricing reporting and documentation requirements, as well as new guidance on the tax deductibility of service and interest expenses.

6. Financial Sector

Capital Markets and Portfolio Investment

Although Vietnam welcomes foreign portfolio investment, Morgan Stanley Capital International (MSCI) still classifies Vietnam as a Frontier Market, which precludes some of the world’s biggest asset managers from investing in its stock markets. Vietnam is working to meet the criteria necessary to attain “emerging market” status and attract greater foreign capital inflows.

While the government has acknowledged the need to strengthen both the capital and debt markets, there has been no substantial progress, leaving the banking sector as the primary capital source for Vietnamese companies. Challenges to raising capital domestically include insufficient transparency in Vietnam’s financial markets and non-compliance with internationally accepted accounting standards.

Vietnam has two stock exchanges, which are the HCMC Stock Exchange (HOSE) and the Hanoi Stock Exchange (HNX). The State Securities Commission (SSC) regulates both. As of February 2018, HOSE and HNX had total market capitalization of approximately USD 220 billion, surpassing 110 percent of Vietnam’s GDP. Government bonds account for one fifth of the total market capitalization traded on the HNX. A trading floor for unlisted public companies (UPCOM) operates at the Hanoi Securities Center, where many equitized SOEs first list their shares (due to lower transparency requirements) before moving to HOSE or HNX. Roughly 90 percent of the combined market capitalization is in HOSE.

Vietnam complies with International Monetary Fund (IMF) Article VIII. The government notified  the IMF that it accepted the obligations of Article VIII, Sections 2, 3, and 4, effective November 8, 2005.

Banks charge relatively high interest rates for new loans because they must continue to service existing non-performing loans (NPLs). Domestic companies, especially small and medium enterprises (SMEs), often have difficulty accessing credit. Foreign investors are generally able to obtain local financing.

Money and Banking System

The State Bank of Vietnam (SBV) estimates that around 70-80 percent of the total population are underbanked or do not have bank accounts, due to an inherent distrust of the banking sector, the engrained habit of holding assets in cash, foreign currency, and gold, and the limited use of financial technology tools. Since recovering from the 2008 global downturn, Vietnam’s banking sector has been stable. However, despite various banking reforms, Vietnam’s banking sector continues to be concentrated at the top and fragmented at the bottom.

By the end of 2017, state-owned or majority state-owned banks accounted for over 46 percent of total assets, and over 40 percent of equity capital in the banking sector. The estimated total assets in the banking system is USD 454.6 billion. In addition, 31 private joint-stock commercial (private) banks, all smaller than the state-owned banks, are gradually gaining market share. There were also nine foreign-owned banks (HSBC, Standards Chartered, Shinhan, Hong Leong, Woori Bank, Public Bank, CIMB Bank, ANZ and United Overseas Bank), 49 branches of foreign banks, 47 representatives of foreign banks, and two joint-venture banks (Vietnam-Russia Bank and Indovina Bank).

Vietnam has made some progress on reducing its NPLs, but most domestic banks remain under-capitalized with high NPL levels that continue to drag on economic growth. Accurate NPL data is not available and the central bank frequently underreports the level of NPLs. Other issues in the banking sector include state-directed lending by state-owned commercial banks, cross-ownership, related-party lending under non-commercial criteria, and preferential loans to SOEs that crowd out credit to SMEs. By law, banks must maintain a minimum chartered capital of VND 3 trillion (roughly USD 134 million).

Currently, the ceiling for total foreign ownership in a Vietnamese bank remains at 30 percent, with a 5 percent limit for non-strategic individual investors, a 15 percent limit for non-strategic institutional investors, and a 20 percent limit for strategic institutional partners. In early 2017, the Prime Minister promised to increase the limits of foreign ownership in local banks, though he did not specify the new ceiling. Prudential measures and regulations apply the same to domestic and foreign banks.

We are unaware of any lost correspondent-banking relationships in the past three years. However, after the SBV took over three failing banks (Ocean Bank, Construction Bank, and Global Petro Commercial Bank (GP Bank)), and placed Dong A Bank under special supervision in 2015, correspondent-banking relationships with those banks may have been limited.

Vietnam has begun studying blockchain technologies in financial services and SBV established a steering committee on financial technology (fintech) in March 2017.

Foreign Exchange and Remittances

Foreign Exchange Policies

There are no restrictions on foreign investors converting and repatriating earnings or investment capital from Vietnam. However, funds associated with any form of investment cannot be freely converted into any world currency.

The SBV has a mechanism to determine the interbank reference exchange rate. In order to provide flexibility in responding to exchange rate volatility, the SBV now announces the interbank reference exchange rate daily. The rate is determined based on the previous day’s average interbank exchange rates, taking into account movements in the currencies of Vietnam’s major trading and investment partners.

Remittance Policies

Vietnam allows foreign businesses to remit profits, capital contributions, and other legal investment activity revenues in hard currency. There are no time constraints on remittances or limitations on outflow remittances of profits or revenue. However, outward foreign currency transactions require certain supporting documents (such as audited financial statements, import/foreign-service procurement contracts and proof of tax obligation fulfillment, and approval of the SBV on loan contracts etc.).

Sovereign Wealth Funds

The State Capital Investment Corporation (SCIC) technically qualifies as a sovereign wealth fund (SWF), as its mandate is to invest dividends and proceeds from privatization in assets outside of the state-owned sector. It was estimated at USD 2.8 billion in June 2016 (an updated estimate is not available.) However, the SCIC does not manage or invest balance-of-payment surpluses, official foreign currency operations, government transfer payments, fiscal surpluses, or surpluses from resource exports. SCIC’s primary mandate is to manage the non-privatized portion of SOEs. By July 2017, the SCIC managed a portfolio of 141 equitized SOEs, including 134 joint-stock companies, and three limited companies in various sectors. The SCIC invests 100 percent of its portfolio in Vietnam, and the SCIC’s investment of dividends and divestment proceeds does not appear to have any ramifications for U.S. investors. The SCIC budget is reasonably transparent, audited, and can be found at . In addition, the SCIC is working toward membership in the IMF-hosted International Working Group on SWFs.

14. Contact for More Information

Economic Section
U.S. Embassy
7 Lang Ha, Ba Dinh, Hanoi, Vietnam

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