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EXECUTIVE SUMMARY

The formation of a government in October 2022, a year after elections were held, initiated a new stage in the evolution of Iraq’s investment climate. The Government of Iraq (GOI) continues to dominate Iraq’s economy, with oil exports serving as the basis of Iraq’s GDP. Prime Minister Mohammed Shiaa al-Sudani has stressed his government’s openness to doing business with U.S. and other Western firms and has taken some positive steps in that regard. Nevertheless, the Iraqi bureaucracy, legal and regulatory obstacles, and corruption—investment climate features that persist despite changes in government leadership—pose many obstacles to doing business in Iraq. Additionally, officials who favor commercial relations with Iranian, Chinese, or other non-Western companies or governments are found in positions of authority throughout the GOI.

The security environment, including the threat of resurgent extremist groups, remains an investment impediment in many parts of the country. Many militia groups that participated in the fight against ISIS remain deployed and are only under nominal government control. Militia groups have been implicated in a range of criminal and illicit activities, including extortion, in commercial sectors.

Investors in Iraq face challenges resolving contract disputes and receiving timely payments from Iraqi partners, including GOI entities. Difficulties with corruption, business registration, customs regulations, irregular and high tax liabilities, unclear visa and residency permit procedures, arbitrary application of regulations, lack of alternative dispute resolution mechanisms, electricity shortages, and lack of access to financing remain common complaints for local and foreign companies operating in Iraq. Shifting and unevenly enforced regulations that often change with each new government create additional burdens for investors.

Despite these challenges, the Iraqi market offers potential for U.S. exporters.  Iraq regularly imports rice, wheat, and other agricultural commodities, as well as machinery, consumer goods, and defense articles. Iraq imported $949.9 million in goods from the United States in 2022.  Government contracts and tenders are the source of most commercial opportunities in Iraq in all sectors, including the significant oil and gas contracts, and have been financed almost entirely by oil revenues.  Increasingly, the GOI has asked investors and suppliers to provide financing solutions and allow for deferred payments.

Water scarcity and management challenges are significant concerns, and the salinization of water and soils, desertification, and the disappearance of arable land are existential environmental concerns connected to poor resource management and climate change. These challenges also represent economic opportunities in Iraq, which needs investments in green and renewable energy, modern irrigation systems, and the infrastructure to capture flared gas.

In part because of the Russia-Ukraine war, Iraq has sold oil at a stable price of over $70 per barrel for the past year. The supply shock provoked by the blockade of Ukrainian exports, coupled with record price levels for basic commodities, caused several nations to adopt export restrictions, fueling market shocks and speculative operations and leading to unpredictability in global food supply. Those shocks have affected Iraq’s economy, including by increasing inflation of basic consumer goods.

Iraq’s oil industry needs investment to maintain production. The GOI has not made significant investments in the oil and gas sector in much of Iraq for over 30 years. There are immediate opportunities to improve Iraq’s electricity sector and to supply sufficient natural gas to power plants to meet the ever-growing demand for power. Iraq has the potential to become energy independent if it follows this path. In the Iraqi Kurdistan Region (IKR), tensions with the central government in Baghdad put development of the hydrocarbons sector at risk. Resolution of those issues would open significant opportunities for additional investment, especially with respect to extensive gas deposits.

Higher oil prices have supported Iraq’s economic recovery, but the recovery of Iraq’s oil-dependent economy remains vulnerable to shocks from market volatility. Inflation hovered around five percent throughout most of 2022.

While investors in the semi-autonomous IKR face many of the same challenges as investors elsewhere in Iraq, the IKR’s more stable security situation, investment-friendly legal framework, and relative openness have historically resulted in a more permissive investment environment for U.S. firms and franchises. However, ongoing disputes with the central government over revenue sharing and the hydrocarbons sector, tensions between the IKR’s main political factions, domination of the economy by politically powerful families, and significant payment arrears to foreign companies on public contracts are all causes for concern. IKR oil, which in recent years the Kurdistan Regional Government (KRG) has exported via the Iraq-Turkey Pipeline (ITP) independent of GOI oversight, typically sells at below prevailing market prices, due to uncertainty relating to the legality of these sales. On March 24, the International Chamber of Commerce International Court of Arbitration (ICC ICA) issued a decision declaring Turkey’s facilitation of independent KRG oil exports to have violated an Iraq-Turkey treaty, resulting in suspension of exports via the ITP. On April 3, the GOI and KRG signed a temporary deal to restart oil exports through the ITP. The IKR-based American Chamber of Commerce – Kurdistan is growing and developing its capacity to advocate for improvements to KRG business processes and transparency.

Trade data resources in addition to Table 1 Key Business Metrics and Rankings include:

Table 1: Key Metrics and Rankings 
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2022 157 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2020 172 of 190 http://www.doingbusiness.org/en/rankings 
Global Innovation Index N/A N/A https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) N/A N/A https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita N/A N/A http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

Policies Towards Foreign Direct Investment (FDI)

The GOI has repeatedly stated its desire to attract foreign investment as part of national plans to strengthen local industries but has yet to follow through reforming the processes and regulations that hinder investment.

Iraq administers foreign direct investments (FDI) under its 6 National Investment Law (Investment Law, 2006), amended in December 2015, which outlines improved investment terms for foreign investors, the purchase of land in Iraq for certain projects, and an investment license process.  The purchase of land for commercial or residential development remains extremely difficult.

Foreign investors continue to encounter bureaucratic challenges, corruption, and a weak financial services sector, making it difficult to conclude and implement investment deals. State-owned banks in Iraq serve predominantly to settle financial payments, with the GOI’s vast public sector payroll dominating the small market for depositors. A small number of government-owned banks dominate Iraq’s banking sector, accounting for 80 percent of the market. Iraq’s more than 60 private commercial banks, which compete for less than 20 percent of the market, have historically served almost entirely as currency exchange businesses, except for a handful of mostly regionally owned private commercial banks. Iraq’s economy is based on cash, with many Iraqis distrusting private banks. Some privately owned banks have commercial lending programs, but Iraq’s insufficient legal guarantees for lenders, limited correspondent connections to international banks, and lack of a credit monitoring system hinder commercial lending. The financial sector in the IKR suffers from similar issues.

Recently, the GOI has been exploring multi-year financing options to pay for large-scale development projects—a change from its general practice of funding investments entirely from current annual budget outlays. However, even basic private bank-provided project finance models are virtually non-existent.

Iraqi law limits foreign ownership of a business to 49 percent. Additionally, Iraq’s Investment Law limits foreign direct and indirect ownership of most natural resources, particularly the extraction and processing of natural resources.  It does allow foreign ownership of land to be used for residential projects and co-ownership of land to be used for industrial projects when an Iraqi partner is participating.

The GOI reserves the right to screen FDI.  The screening process is vague, although it does not appear that the GOI has used it to block foreign investment.  Still, bureaucratic barriers to FDI, such as a requirement to place a significant portion of the capital investment in an Iraqi bank prior to receiving a license, remain significant.

The GOI established the National Investment Commission (NIC) in 2007, along with its provincial counterparts, the Provincial Investment Commissions (PICs), as provided under the Investment Law 13 (2006).  This cabinet-level organization provides policy recommendations to the Prime Minister and support to current and potential investors in Iraq.  The NIC’s “One Stop Shop” https://investpromo.gov.iq/one-stop-shop/  is intended to guide investors through the investment process, though investors have reported challenges using NIC services.

The IKR operates under a different investment law, implemented in 2006, and its supporting regulations.  Under KRG law, foreign investors may be entitled to incentives, including full property ownership, capital repatriation, and 10-year tax holidays. The KRG’s Board of Investment (KBOI) has responsibility for licensing and promoting investment projects in sectors identified by the KRG as “strategic,” including agriculture, manufacturing, and tourism. The KBOI’s Foreign Direct Investment Unit has a mandate to help foreign investors navigate the KRG’s bureaucracy and resolve problems. An updated investment law, first drafted in 2010, has failed to pass the Iraqi Kurdish Parliament after numerous amendments. In 2020, the KRG Ministry of Planning (MOP) published a framework for creating public-private partnerships in the region but has not drafted legislation to codify it. Legislation to amend the investment law to broaden its reach to potential investors remains pending in the Iraqi Kurdistan Parliament (IKP).

Limits on Foreign Control and Right to Private Ownership and Establishment 

The GOI generally favors state-owned enterprises (SOEs) and state-controlled banks in competitions for government tenders and investment.  This preference discriminates against both foreign and private local investors.

Foreign and domestic private entities can establish and own business enterprises. Parties seeking to establish businesses in Iraq must apply through the Ministry of Trade.

Under Iraqi law, foreign ownership of a business is limited to 49 percent. Additional restrictions may apply for “strategic businesses.”

In January 2022, the IKR Companies Law was amended to allow foreigners to own 100 percent of companies incorporated in the IKR. The IKR’s Industry Law was amended in January 2022 to allow 100 percent foreign ownership of factories and other industrial facilities.

Special Issues Relating to the Hydrocarbons Sector

Iraq has produced oil for many years but has generally considered natural gas a waste product to be flared. Recognizing the potential of flared gas to help Iraq become energy-independent and contribute to production of the 30 gigawatts of electricity that Iraq demands, the GOI has reevaluated that position. The GOI is negotiating with international energy companies on new gas-capture projects, and major companies are expanding existing gas-capture projects.

Some international oil companies have abandoned their oil production in Iraq, and others are considering leaving Iraq because of the lack of contract sanctity in the country. The Ministry of Oil is beginning to use production sharing agreements (PSAs) rather than technical service contracts (TSCs) for oil and gas field operations. PSAs hold the potential for a larger profit margin for oil and gas companies than TSCs. This move improves the investment climate for oil and gas and is a positive signal for the overall investment climate.

The KRG enacted its own Oil and Gas law in 2007, under which it offered PSAs to incentivize investment in the semi-autonomous IKR’s hydrocarbons sector, estimated to hold up to 45 billion barrels of oil and 25 trillion standard cubic feet (scf) of natural gas. Under that framework, numerous international oil companies (IOCs), including U.S. firms, invested tens of billions of dollars in the IKR, which now accounts for about 10 percent of Iraq’s total oil exports. In February 2022, the Iraqi Federal Supreme Court (FSC) issued a ruling declaring the IKR’s 2007 Oil and Gas Law unconstitutional and clarifying that oil exports fall under federal government control. Subsequent litigation declared invalid many of the PSAs under which IOCs have been operating, introducing significant uncertainty into the sector. Citing the FSC decision, the GOI’s Ministry of Oil required some oil services companies operating in both federal Iraq and the IKR to “pledge” to stop or limit their IKR work or be disqualified from contracts in federal Iraq. Also in early 2022, the GOI stopped making monthly fiscal transfers to the KRG, as long-standing disputes over revenue-sharing and the budget came to a head. Currently, the KRG and the GOI are negotiating a new budget law and a comprehensive federal hydrocarbons law that could clarify the status of the IKR’s budget share and oversight of the IKR’s oil and gas sector.

In the wake of the FSC decision, IOCs in the IKR have continued to operate under their PSAs, and the KRG has continued to honor those contracts. As a result of risks associated with these legal uncertainties, however, IKR oil currently sells at a steep discount on international markets, limiting the KRG’s main source of revenue and impeding its ability to pay IOCs their revenue share on a timely basis. Until these issues are resolved, the investment attractiveness of the IKR’s hydrocarbons sector will continue to suffer.

On March 24, the ICC ICA determined that Turkey violated a bilateral treaty with Iraq by facilitating independent exports of IKR oil via the Iraq-Turkey Pipeline. As a result, on March 25, the KRG’s pipeline operator suspended its pipeline operations, halting the KRG’s export of oil via Turkey. At the time of this report, the GOI, KRG, and Government of Turkey were reportedly nearing an agreement that would allow resumption of IKR oil exports via the pipeline, with additional oversight by the GOI. Until such an agreement is finalized, significant additional uncertainty over the future of the IKR’s oil sector remains.

The IKR’s natural gas sector, which boasts an estimated 25 trillion scf of reserves, holds tremendous investment potential, provided the legal framework for development can be clarified in the wake of the 2022 FSC decision. The U.S. International Development Finance Corporation (DFC) has supported development of the IKR’s Khor Mor natural gas project, led by UAE firm Crescent Petroleum, which currently fuels approximately 80 percent of the IKR’s electricity generation. Additional gas distribution infrastructure is needed to fully tap the IKR’s natural gas production capacity.

Other Investment Policy Reviews 

In the past three years, the GOI has not conducted any investment policy reviews through the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO), or the UN Conference on Trade and Development (UNCTAD).

Business Facilitation 

Foreign investors interested in establishing an office in Iraq or bidding on a public tender are required to register as foreign businesses with the Ministry of Trade’s (MOT) Companies Registration Department. The procedure costs and time to obtain a business license can be found at  https://business.mot.gov.iq . Many international companies use a local agent to assist in this process due to its complexity.

The GOI uses UNCTAD’s business registration platform for the Online Single Window program, launched in September 2021, which is an important step toward minimizing delays in business registration and reducing corruption, showing Iraq’s willingness to modify its processes to attract international investors. Through the Online Single Window, at https://business.mot.gov.iq/ , Iraqi businesses can now execute the business registration process
online. With continued UNCTAD support, the online business registration process should become available to foreign businesses in 2023.

Procedures to obtain investment licenses from the NIC can be found at: https://baghdad.eregulations.org/procedure/60?l=en  and https://baghdad.eregulations.org/procedure/51/step/230?l=en&reg=0 .

The KRG offers business registration for companies seeking to conduct business only in the IKR; however, companies seeking to do business in both the IKR and greater Iraq must follow both GOI and KRG requirements.  Business registration remains within the jurisdiction of IKR’s local chambers of commerce, which are quasi-governmental organizations that represent the local business communities in the IKR’s four provinces: Erbil, Duhok, Halabja, and Sulaymaniya. Brand name registration is under the KRG’s Ministry of Trade and Industry. Reforms to reduce bureaucracy and red tape to implement a “single window” in the IKR for company registration remain unimplemented.

Iraqi laws give the NIC and PICs authority to provide information, sign contracts, and facilitate registration for new foreign and domestic investors.  The NIC offers investor facilitation services on transactions including work permit applications, visa approval letters, customs procedures, and business registration.  Investors can request these services through the NIC website: http://investpromo.gov.iq/ .  The NIC does not exclude businesses from taking advantage of its services based on the number of employees or the size of the investment project.  The NIC can also connect investors with the appropriate provincial investment council.

These official investment commissions struggle to operate amid unclear lines of authority, budget constraints, and the absence of regulations and standard operating procedures. Importantly, the investment commissions lack the authority to resolve investors’ bureaucratic obstacles with other Iraqi ministries.

The Kurdistan Board of Investment (KBOI) manages an investment licensing process in the IKR that can take from three to six months and may involve several KRG ministries or entities, depending on the sector of investment.  Due to oversaturated commercial and residential real estate markets, the KBOI has moved away from approving licenses in these sectors but may still grant them on a case-by-case basis.  In line with current KRG policy, the KBOI has prioritized tourism, light manufacturing, and agricultural projects. Businesses have reported some difficulties establishing local connections, obtaining qualified staff, and meeting import regulations.  Some businesses have reported that the KRG did not provide the promised support infrastructure such as water, electricity, or wastewater services, as required under the investment law framework.  Additional information is available at the KBOI’s website:  https://gov.krd/boi-en/ .

Outward Investment 

Iraq does not restrict domestic investors from investing abroad.

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, which was approved by the Council of Representatives (COR) in December 2012.

The U.S.-Iraq Strategic Framework Agreement (SFA) provides for bilateral mechanisms to address trade and investment issues. In 2012, the COR approved the bilateral Trade and Investment Framework Agreement (TIFA), which became effective the following year. The U.S. and Iraqi governments subsequently established the Trade and Finance Joint Coordination Committee and held the first TIFA meeting in Washington in March 2014. A second meeting was held in June 2019, with special emphasis on visa facilitation, customs, and taxes.  The two governments have agreed to hold a third TIFA meeting in 2023.

Iraq is a signatory to investor protection agreements or MOUs with 35 bilateral partners and nine multilateral groups.  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 BITs 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.  The GOI’s ability and willingness to enforce such provisions is unclear.

U.S. companies raise significant concerns about the Ministry of Finance’s (MOF’s) General Commission for Taxes (GCT) and the “deemed tax” method to calculate corporate taxes, which applies a standard deduction to every company, regardless of the firm’s profits.  U.S. investors also complain about the application of the social tax, equivalent to five percent of employees’ pay and a 12 percent employer contribution, to third country national employees who cannot legally receive Iraqi health and pension benefits.

Transparency of the Regulatory System 

Iraq’s overall regulatory environment remains opaque, and the Investment Law does not establish a full legal framework governing investment.  Corruption, unclear regulations, and bureaucratic bottlenecks are major challenges for companies that bid on public procurement contracts or seek to invest in major infrastructure projects.  The KRG procurement reform measures, beginning in 2016, sought to address these problems, but with little result.  Iraq’s commercial and civil laws generally fall short of international norms.

The GOI’s rulemaking process, especially regarding commercial activity and investments, can be opaque and lends itself to arbitrary application.  To illustrate, while ministries must publish regulations imposing duties on citizens or private businesses in the official government gazette, internal ministerial regulations have no corresponding requirement.  This loophole allows officials to create internal requirements or procedures with little or no oversight, which can result in additional burdens for investors and businesses.  Furthermore, the lack of regulatory coordination between GOI ministries and national and provincial authorities can result in conflicting regulations, which makes it difficult to interpret the regulatory environment accurately.  In addition, accounting and legal procedures are opaque and inconsistent and generally do not meet international standards.  Draft bills, including investment laws, are not available for public comment.  The promulgation of new regulations with little advance notice and requirements related to investment guarantees have also slowed projects.

The GOI encourages private sector associations, but these associations are generally not influential, given Iraqi SOEs’ dominant role in the Iraqi economy.  In the IKR, private sector associations have some influence and many, such as the contractors’ union, very actively advocate with the KRG.  However, unions (or “syndicates”) often act as barriers to foreign entry into markets.

Publicly available budgets do not include expenditures by ministry or revenues by source and type.  The budget provides limited details regarding allocations to, and earnings from, SOEs. Financial statements for most SOEs are generally not publicly available.  Limited information on debt obligations is available on the Central Bank and MOF websites.

Businesses operating in the IKR report similar challenges, including demands for bribes for regulatory approvals; unclear or unevenly enforced regulations; difficulty and delays in obtaining government services, including electricity and gas connections; opaque or corrupt enforcement related to the importation of goods at border points; and a generally heavy bureaucratic burden that raises the cost of doing business. The KRG has made some progress digitizing government services, including customs services, which may reduce these challenges. The KBOI’s FDI unit has a mandate to help foreign investors resolve investment-related challenges but lacks capacity to do so in many cases.

Some investors in the IKR also raise concerns over a perception — widely shared by the IKR public — that one must have political connections to succeed in business. Politically powerful individuals and groups are extensively involved in the IKR’s economy, and there is a sense that businesses owned by, affiliated with, or controlled by those groups have an inside track in some sectors and on some projects.

The GOI does not promote or require companies to produce environmental, social, and governance (ESG) disclosures to facilitate transparency or help investors and consumers distinguish between high- and low-quality investments.  In the IKR, the Kurdistan Board of Environment requires some investment projects to submit an Environmental Impact Statement.

International Regulatory Considerations 

Iraq is not a member of the WTO. With donor assistance, Iraq has taken some preliminary steps toward WTO accession.

Legal System and Judicial Independence 

Iraq has a civil law system, although Iraqi commercial jurisprudence is relatively underdeveloped. Over decades of war and sanctions, Iraqi courts did not keep up with developments in international commercial transactions. Corruption remains a significant problem because illegitimate gains are not consistently or successfully prosecuted. As trade with foreign parties increases, Iraqi courts have had to deal with rising numbers of complex commercial cases.

Laws and Regulations on Foreign Direct Investment (FDI) 

Information on FDI in Iraq can be found in “A Legal Guide to Investment in Iraq: http://cldp.doc.gov/programs/cldp-in-action/details/1551 .

Competition and Anti-Trust Laws 

The COR passed a Competition Law and a Consumer Protection Law in 2010.  However, the GOI has yet to form the Competition and Consumer Protection Commissions authorized by these laws.  The COR has also amended Iraqi law several times to promote fair competition and “competitive capacities” in the local market (2010, 2015).

The COR has also issued many recommendations regarding the amendments of investment licenses and improvements to the investment and businesses environment in Iraq.  Resolution 245, issued in August 2019, announced investment opportunities provided through the NIC.

Corruption and preferential treatment for SOEs undermine the competitive landscape of Iraq’s economy.

Expropriation and Compensation 

The Iraqi constitution prohibits expropriation, unless done for the purpose of public benefit and in return for just compensation.  The Constitution stipulates that expropriation may be regulated by law, but the COR has not drafted specific legislation regarding expropriation.  Article 9 of the Investment Law guarantees non-seizure or nationalization of any investment project that the provisions of this law cover, except in cases with a final judicial judgment.  The law prohibits expropriation of an investment project, except in cases of public benefit and with fair compensation. Iraq’s Commercial Court is charged with resolving expropriation cases. In recent years, there have not been any government actions or shifts in government policy that would indicate possible expropriations in the foreseeable future.

In the IKR, the KBOI can impose fines and potentially confiscate land if it determines that investors are using land awarded under investment licenses for purposes other than those outlined in the license or if the project was not started during the specified time limits.  Article 17 of the IKR investment law outlines an investor’s arbitration rights, which fall under the civil court system, as the IKR lacks a commercial court system.  Arbitration clauses should be written into local contracts to facilitate enforcement in the event of a dispute.

In the IKR, U.S. companies and their local agents and distributors have raised serious concerns over large payment arrears for goods and services provided to KRG facilities under public tenders, some of which go back to 2014, when the ISIS insurgency triggered a major fiscal crisis in the region. The KRG generally acknowledges these arrears but claims it is unable to bring them current due to fiscal challenges related to tensions with Iraq’s central government in Baghdad over the budget and hydrocarbons sector. Mission Iraq engages with companies and the KRG on these issues regularly. The KRG has expressed its intention to pay these debts when budget disputes with the GOI are resolved.

Dispute Settlement 

ICSID Convention and New York Convention 

Since 2015, Iraq has been a party to the International Convention on the Settlement of Investment Disputes between States and Nations of Other States (ICSID). On February 18, 2017, Iraq joined the Investor-State Dispute Settlement (ISDS) process agreement between investors and states.

In March 2021, the COR voted to ratify the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention); it entered into force on February 9, 2022.

Investor-State Dispute Settlement 

In November 2010, Iraq’s Higher Judicial Council established the First Commercial Court of Iraq—a court of specialized jurisdiction for disputes involving foreign investors—as part of a national strategy to improve Iraq’s investment climate.

In the IKR, commercial disputes are handled through the civil court system. Additional
information can be found in “A Legal Guide to Investment in Iraq:”   http://cldp.doc.gov/programs/cldp-in-action/details/1551 .

International Commercial Arbitration and Foreign Courts 

Iraq is a signatory to the League of Arab States Convention on Commercial Arbitration (1987) and the Riyadh Convention on Judicial Cooperation (1983).

Bankruptcy Regulations 

Under Iraqi law, an Iraqi debtor may file for bankruptcy, and an Iraqi creditor may file for liquidation of the debtor.  Bankruptcy is not criminalized.  Iraq’s Companies Law regulates the process for the liquidation of legal entities.  Nevertheless, the mechanism for resolving insolvency remains opaque.

In the IKR, there are no independent laws for resolving companies’ bankruptcies. Courts use the Iraqi Commercial Law 49 of 1970 (article 715-729) to settle bankruptcy claims, which can be cumbersome and costly.

Iraq ranked 168 of 190 economies in the Resolving Insolvency category of the World Bank’s 2020 Doing Business Report.

Investment Incentives 

The Iraqi Investment Law offers foreign investors several exemptions for qualified investments, including a 10-year exemption from taxes, exemptions from import duties for necessary equipment and materials throughout the period of project implementation, and exemption from taxes and fees for primary materials imported for commercial operations.  The law allows investors to repatriate capital brought into Iraq, along with proceeds.  Foreign investors can trade in shares and securities listed on the Iraqi Stock Exchange.  Hotels, tourist institutions, hospitals, health institutions, schools, and colleges enjoy additional exemptions from duties and taxes for the import of furniture, tools, equipment, machinery, and means of transportation, but foreign companies that sell goods or services to any entity in Iraq may be subject to Iraqi taxes.
Foreign and domestic companies may have tax-exempt profits if their project is with the GOI and the project is listed in the National Investment Plan, which the Ministry of Planning prepares annually.  The GOI ministries overseeing investment projects provide updates to the list of investment contracts to the Ministry of Finance, including its tax commission, also known as the General Commission for Taxes (GCT).  Foreign and domestic companies that have registered businesses to execute contracts outside the national investment plan do not receive tax exemptions.  Companies have reported difficulties obtaining favorable tax treatment after deals are struck.  However, in some cases, GOI entities have negotiated partial or short-term tax exemptions for companies as part of a project contract.

Income tax language pertaining to oil projects is included in GOI petroleum contracts with the Ministry of Oil and applies to each consortium and its partners.  The Council of Ministers (COM) ratified the contract language, which supersedes the Tax Code.  Secondary contracts that a consortium issues are treated differently.  The consortium is required to withhold seven percent from secondary contracts for remittance to the GOI.  Companies pay a profit tax of 15 percent unless they operate in the oil sector, which has a 35 percent tax rate on profits.  The definition of “petroleum activities” is subject to interpretation.  Any business or individual considering doing business in Iraq should obtain competent advice from a private accountant and attorney.

Under the IKR’s investment law, foreign and national investors are treated equally and are eligible for the same benefits.  Foreign investors may choose to invest in the IKR with or without local partners, and full repatriation of profits is allowed.  While investors have the right to employ foreign employees in their projects, priority is given to awarding projects that employ a high share of local staff and involve significant knowledge transfer.  As discussed in more detail above, the KRG is implementing a new policy requiring that 75 percent of the employees of investment projects be local, although complaints from the business community may result in changes to its implementation. Additionally, the law allows investors to transfer their investment totally or partially to another foreign investor with the approval of the KBOI.

Foreign Trade Zones/Free Ports/Trade Facilitation 

Free Trade Zones (FZs) are permitted under Iraqi law per Free Zone Authority Law No. 3/1998, for industrial, commercial, and service projects.  The MOF’s Free Zone Commission administers the law but lacks a specific mandate to develop the FZs.  Under the law, capital, profits, and investment income from projects in an FZ are exempt from all taxes and fees throughout the life of the project.  Goods entering Iraq’s market from FZs are subject to normal import tariffs; no duty is levied on exports from FZs.

Activities permitted in FZs include industrial activities such as assembly, installation, sorting, and refilling processes; storage, re-export, and trading operations; service and storage projects and transport of all kinds; banking, insurance, and reinsurance activities; and supplementary and auxiliary professional and service activities.  Prohibited activities include weapons manufacture and environmentally polluting industries.

Iraq currently has four FZs with tax exemptions and other incentives for the transportation, industrial, and logistics sectors.  The largest is the Basrah/Khor al-Zubair FZ, comprising 18 square kilometers and located southwest of Basrah at the Khor al-Zubair seaport.  Operational since June 2004, it hosts a number of local and foreign companies. The Ninewa/Falafel Free Zone is located in the north.  Plans to develop an FZ in Fallujah are ongoing.  The Fallujah zone is located in a formerly ISIS-held area, and the possibility of continued political instability makes further development in the near future unlikely.  There is also an FZ in Baghdad.

In May 2019, Iraq and Kuwait announced a new joint FZ project in Safwan port, pending approvals. More information can be found at the MOF website: http://www.mof.gov.iq/pages/ar/FreeZonesInIraq.aspx .

There are no FZs in the IKR, although the KRG has approved plans for zones in all IKR provinces. According to the Duhok Chamber of Commerce and Industry, plans are underway to develop a large FZ near Duhok.

Performance and Data Localization Requirements 

Iraqi labor law describes two categories of workers, which are local Iraqis and foreign workers whom the GOI and other Iraqi entities employ.  The Investment Law stipulates that  foreign workers may be hired for investment projects, after priority has been given to Iraqi workers.  At least 50 percent of an investment project’s workers must be Iraqi nationals. International companies have noted that Iraq lacks skilled labor, and it can be a challenge to meet this requirement. Foreign investors are expected to help train Iraqi employees to increase their efficiency, skills, and capabilities.

In the IKR, a foreign applicant for the residency permit required for legal employment must obtain a security clearance from the KRG MOI, a medical clearance which includes an HIV test, and a work permit from the KRG’s KMOLSA.  Companies report prolonged delays in obtaining necessary residency permits for foreign workers.  In 2020, the KRG significantly increased its fees for foreign residency permits.

The appointment of foreign nationals as managers of foreign-owned limited liability companies requires additional clearances.  Residency permits are only one year in duration. Companies operating in the IKR report that they are often unable to find local employees with the skills and experience needed to conduct their businesses and are therefore required to hire some foreign workers.

The GOI does not follow any forced localization policy that would mandate foreign investors use domestic content in their goods and technology.  There are no requirements for IT providers to turn over source code and/or provide access to surveillance.

The GOI strongly resists offering ownership or profit sharing with any potential foreign investor. The GOI prefers to structure foreign investments as contracts by which it agrees to pay for services or equipment at a price that a clause in the annual budget law guarantees, as opposed to a price based on profits or returns.  The KRG, in contrast, has employed “build-own-operate” project structures and production sharing contracts in its management of the energy, oil, and gas sectors.

Real Property 

Since 2009, Iraqi law has allowed foreigners to own land. The amended Investment Law expressly provides foreigners the right to own land for the purpose of developing residential real estate projects.  It also allows foreign investors to own land for industrial projects if they have an Iraqi partner.  Additionally, foreign investors are permitted to rent or lease land for up to 50 years, with an option to renew.  The GOI approved implementing regulations in 2010 that allow investors to obtain land for residential housing projects free of charge on the condition that land value is excluded from the sales price.  The land registration can be revoked if the domestic or foreign investor does not carry out the obligations of their agreement.

For non-residential, commercial investment projects—including agriculture, services, tourism, commercial, and industrial projects—without an Iraqi partner, foreign investors can lease government land.  The terms and duration of these leases vary by project type and the result of negotiations between the parties.  Land for non-residential projects will be leased free of initial down payment, and compensation will be either a percentage of pre-tax revenue or a specified percentage of the “rent allowance” for the land.  These smaller percentages of the “rent allowance” rate, ranging from one percent to 25 percent, amount to significant rent reductions for leased land.

In the IKR, foreign land ownership is allowed under Law Number 4 (2006).  The KBOI initially awarded more than half of all investment licenses to housing projects, but that percentage has declined in favor of priority sector development in agriculture, industry, and tourism. Delays in the transfer of land titles have sometimes slowed projects.

Mortgages and liens exist in Iraq, and there is a national record system.  However, mortgages are not common.  Iraq ranked 121 of 190 countries in the Registering Property index of the World Bank’s 2020 Doing Business report.

Intellectual Property Rights 

Iraq does not appear in USTR’s 2023 Special 301 Report List, but is referenced several times in the first section of the Report for notable levels of piracy, formalities for filing IP documents, and extreme delays in processing trademark applications. In addition, two Iraq-based markets were listed in the 2022 Review of Notorious Markets for Counterfeiting and Piracy.

Legal systems that protect intellectual property (IP) rights in Iraq are inadequate, and infringement is common.  Counterfeit products, including pharmaceutical products, are widespread in the Iraqi marketplace. According to a 2018 study (latest data available) by the Business Software Alliance on self-reported piracy, 85 percent of Iraq’s software was unlicensed in 2017, consistent with the levels found in each survey since 2009.

Responsibility for IP rights enforcement is spread across various ministries. The Ministry of Culture handles copyrights. The Ministry of Industry and Minerals (MIM) houses the Trademarks Office.  The Ministry of Trade manages commercial names. The Central Organization for Standardization and Quality Control, an agency under the MOP, handles the patent registry and the industrial design registry.  The MOP’s patent registry office has occasionally included Arab League Israel Boycott questionnaires in the patent registry application, which U.S. companies are not allowed to complete under U.S. law.  IP infringement cases are primarily heard in commercial courts, although infrequently transferred to criminal courts.

Iraq’s State Council forwarded draft IP legislation, which would consolidate all IP responsibilities under a single body, to the Council of Ministers (COM) in February 2023. After reviewing and approving the bill, the COM will forward it to the COR.

In 2018, the COM Secretariat reviewed IP forms and processes for simplification.  As a result, the patent application is now based on World Intellectual Property Organization (WIPO) standards.  However, the application processes for all classes of IP protection favor domestic applicants through requirements for Iraqi-national agents and optional, but advantageous, in-person review committee meetings.

Iraq is a signatory to several international intellectual property conventions and to regional and bilateral arrangements, including:  1) the Paris Convention for the Protection of Industrial Property (1967 Act), ratified by Law No. 212 of 1975; 2) the WIPO Convention, ratified by Law No. 212 of 1975 (Iraq became a member of the WIPO in January 1976); 3) the Arab Agreement for the Protection of Copyrights, ratified by Law No. 41 of 1985; and 4) the Arab Intellectual Property Rights Treaty (Law No. 41 of 1985).  GOI approved joining the Patent Cooperation Treaty (PCT) in March 2021, law no.15 has been issued on July 01, 2021, to be enforced on May 01, 2022.

The 2022 Notorious Markets List is available online at:

https://ustr.gov/about-us/policy-offices/press-office/press-releases/2023/january/ustr-releases-2022-review-notorious-markets-counterfeiting-and-piracy 

Resources for Intellectual Property Rights Holders:

Aisha Salem-Howey
Patent Attorney
Intellectual Property Attaché for the Middle East & North Africa
U.S. Embassy Abu Dhabi | U.S. Department of Commerce U.S. Patent & Trademark Office
Tel: +965 2259 1455; aisha.salem-howey@trade.gov 

A public list of local lawyers can be obtained by emailing BaghdadACS@state.gov .

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at  http://www.wipo.int/directory/en .

IPR in the IKR

In the IKR, the KRG Ministry of Culture has a mandate to enforce Iraq’s national Copyright Law, but it does not actively do so, and infringement of copyrights occurs frequently. The Trademark Directorate of the KRG Ministry of Trade and Industry registers and monitors trademarks in the IKR according to Iraq’s national Trademarks and Descriptions Law, but its enforcement capacity is also limited. The Directorate has generally been responsive to specific requests of rights holders to protect their trademarks, for example, in stopping specific shipments of counterfeit or gray market goods from entering the IKR via border posts.

Capital Markets and Portfolio Investment 

Iraq remains one of the most under-banked countries in the Middle East. The Iraqi banking system includes around 70 private banks and seven state-owned banks.  As of early 2022, 20 foreign banks have licensed branches in Iraq, and several others have strategic investments in Iraqi banks.  The three largest banks in Iraq are Rafidain Bank, Rasheed Bank, and the Trade Bank of Iraq (TBI), which account for roughly 85 percent of Iraq’s banking sector assets.  Iraq’s economy remains primarily cash based, with many banks acting as little more than exchange houses in a heavily U.S. dollarized economy. Rafidain and Rasheed offer standard banking products but primarily provide pension and government salary payments to individual Iraqis. The banking system faces great challenges, as paper-based banking is still common in some of Iraq’s largest state-owned banks, where approximately 90 percent of the country’s financial assets are held.  Iraq’s numerous private banks lack opportunity, such as attaining correspondent relationships, because of an over-reliance on state-owned banks. A number of private banks in the IKR are licensed by the Central Bank of Iraq (CBI) and have correspondent relationships with banks throughout the Middle East; however, no IKR-based bank has a direct U.S. correspondent banking relationship.

Credit is difficult to obtain and expensive.  Iraq ranked 186 of 190 in on the Ease of Getting Credit in the World Bank’s 2020 Doing Business Report.  Although the lending volume of privately owned banks is growing, most privately owned banks do more wire transfers and other fee-based exchange services.  Businesses are largely self-financed or “between individuals” private transactions.  State-owned banks mainly make financial transfers from the government to provincial authorities or individuals, rather than business loans.

The CBI introduced a small and medium-sized enterprise lending program in 2015, in which 47 private banks have reportedly participated.  In early 2020, the CBI launched a real estate lending initiative and an Islamic finance consolidation program. The initiative received an enthusiastic response from private banks, as it increased their liquidity.

The TBI’s main purpose is to provide financial and related services to facilitate trade, particularly through letters of credit.  Although CBI granted private banks permission to issue letters of credit below $50 million, TBI continues to process nearly all government letters of credit.

Money and Banking System 

Although banking sector reform was a priority of Iraq’s IMF Stand-By Arrangement, the GOI has had only incremental success reforming its two largest state-owned banks, Rafidain and Rasheed.  Private banks are mostly active in currency exchanges and wire transfers.  CBI is headquartered in Baghdad, with branches in Basrah and Erbil.  CBI’s Erbil branch and the IKR’s state-owned banking system are now electronically linked to the CBI system.  The CBI now has full supervisory authority over the financial sector in the IKR, including the banks and non-bank financial institutions.

The Finance Action Task Force (FATF) recognized Iraqi’s anti-money laundering and counter finance terrorism progress towards best practice standards in June 2018, removing Iraq from FATF’s monitoring process. FATF will conduct a Mutual Evaluations visit to Iraq in August 2023 to assess Iraq’s implementation of FATF recommendations.

Foreign Exchange

In November 2022, the CBI implemented regulatory changes for international transfers through the USD wire auction mechanism. These changes allowed for improved identification and prevention of suspicious USD transactions between Iraqi banks and foreign beneficiaries and sought to bring Iraq’s banking standards in line with international standards. The regulatory changes, which have prevented millions of dollars in abuse of the Iraqi financial system, resulted in an increase in the spread between the official and parallel market exchange rate due to currency speculation, manipulation, and other factors. On February 7, 2023, the Council of Ministers approved the decision of the CBI Board of Directors to appreciate the official exchange rate of the Iraqi dinar against the U.S. dollar from 1,450 dinar per dollar to 1,300.

Sovereign Wealth Funds 

Iraq does not have a sovereign wealth fund.

SOEs are active across all sectors in Iraq.  GOI ministries currently own and operate over 192 SOEs, a legacy of the state planning system.  The GOI’s continued support of unprofitable entities places a substantial fiscal burden on Iraq, as many SOEs are unproductive.  These firms employ over half a million Iraqis, many of whom are underemployed.  The degree to which SOEs compete with private companies varies by sector; SOEs face the most competition in the market for consumer goods.  The GOI had expressed a commitment to reforming the SOEs and taking steps toward privatization as part of its previous international financing programs.

Iraqi law permits SOEs to partner with foreign companies.  When parent ministries wish to initiate a partnership for an SOE under their purview, they generally advertise the tender on their ministry’s website.  Partnerships are negotiated on a case-by-case basis and require the respective minister’s approval. Iraq does not have a centralized ownership entity that exercises ownership rights for each of the SOEs.  SOEs are required to seek their parent ministry’s approval for certain categories of financial decisions and operation expansions. However, in practice, SOEs defer to the parent ministry for most decisions.  SOEs submit financial reports to their parent ministry’s audit departments and the Board of Supreme Audit.  These reports are not published and sometimes exclude salary expenses.

The MIM, which oversees the largest number of Iraq’s SOEs, established the following requirements for partnerships:  minimum duration of three years, the foreign company’s registration of an office in Iraq, and the foreign company’s participation in the production of goods. Foreign companies have faced challenges in partnerships because the GOI has, at times, cut subsidies to SOEs after partnerships were formed and due to conflicts between the parent ministry and the GOI’s official policy.  In addition, the MIM has often required that the foreign investor pay all SOE employees’ salaries regardless of whether they are working on the agreed project.

GOI entities are required to give preferential treatment to SOEs, under multiple laws.  A 2009 COM decision requires all Iraqi government agencies to procure goods from SOEs unless SOEs cannot fulfill the quality and quantity requirements of the tender.  A Board of Supreme Audit decision requires government agencies to award SOEs tenders if their bids are no more than 10 percent higher than other bids.  Furthermore, some GOI entities, including the MIM, have also issued their own internal regulations requiring tenders to select Iraqi SOEs, unless Iraqi SOEs state that they cannot fulfill the order.  Sometimes a foreign firm must form a partnership with an Iraqi firm to fulfill SOE-promulgated tenders.  Further, SOEs are exempt from the bid bond and performance bond requirements that private businesses are subject to.

Iraq is not a party to the Government Procurement Agreement within the framework of the WTO. SOEs do not adhere to OECD guidelines.

Iraqi law supports a degree of autonomy in the selection process of an SOE’s board of directors.  For example, it requires that a minister’s sole appointment to a board of directors receive the approval of an “opinion board.”  Nevertheless, in practice, most board members have close personal and political connections to their parent ministry’s leadership.

SOEs sell to the domestic market and bid in public tenders, in which government ministries are required to procure their goods and services regardless of their prices. However, SOEs do not compete in tenders for goods they do not produce domestically or internationally. Iraq’s SOEs have no investments in the United States.

Privatization Program 

The GOI has repeatedly announced that it plans to reorganize failing SOEs across multiple sectors.  Additionally, the GOI seeks to modernize Iraq’s financial and banking institutions. There are, however, no concrete timelines for these initiatives, and entrenched patronage networks tying SOEs to ministries remain a stumbling block.

The IOCs active in Iraq are required to observe international best practices in corporate social responsibility (CSR) as part of their contracts with the GOI.  Nevertheless, the GOI does not have policies in place to promote Responsible Business Conduct (RBC) or raise awareness of environmental and social issues among investors.  The concept of RBC is not widely recognized in Iraq.

Investors are required to protect the environment and adhere to quality control systems. Requirements include testing soil on the land designated for the project and conducting an environmental impact study.  In practice, the GOI lacks a mechanism to enforce environmental protection laws, and implementation is limited.

Iraq became a member of the Extractive Industries Transparency Initiative (EITI) in 2009.  The GOI established a 15-person committee to work on EITI, including several directors general within the Ministry of Oil (MOO), four representatives from NGOs, and oil company executives.  The committee provided required reports through 2013. In November 2017, the EITI Board suspended Iraq’s membership for lack of progress, but the Board restored Iraq’s membership in October 2019 after Iraq provided the required information.

The GOI has not instituted or proposed requirement for businesses to conduct due diligence or reporting regarding human rights or other business conduct issues.

Additional Resources

Department of State

Department of the Treasury

Department of Labor

Climate Issues

Iraq ratified the Paris Agreement in 2021, and it entered into force on December 1, 2021. Iraq pledged to voluntarily cut one to two percent in CO2-equivalent emissions from industry in its Nationally Determined Contribution (NDC). It endorsed the Global Methane Pledge, but it has not committed to achieving net-zero emissions by 2050. Iraq enacted Protection and Improvement of the Environment Law No. 27 of 2009. However, the law is lightly enforced and lacks regulatory incentives such as tax credits or biodiversity offsets to promote compliance. Public procurement and construction regulation require environmental and pollution impact certifications. Outside the IKR, Iraq has negligible land that qualifies as forest. Iraq has not developed policies targeting particular commodities or supply chains as drivers of deforestation.

The GOI is considering multiple gas capture projects with the goal of meeting Iraq’s Nationally Determined Contribution to reduce gas flaring and increase energy efficiency. These gas projects, if fully implemented, will make Iraq energy independent and will help develop and diversify the economy. Iraq is considering financing gas capture projects with carbon credits.

Iraq ranked 157 of 180 in Transparency International’s 2022 Corruption Perception Index. Public corruption is a major obstacle to economic development and political stability. It is pervasive in government procurement, the awarding of licenses or concessions, dispute settlement, and customs for imports and exports.

While large-scale investment opportunities exist in Iraq, public corruption and private corruption remain a significant impediment to conducting business. Foreign investors can expect to contend with corruption in many forms, at all levels.  While the GOI is trying to reduce procurement corruption in sectors such as electricity, oil, and gas, credible reports of corruption in government procurement are widespread, with examples ranging from bribery and kickbacks to awards involving companies connected to political leaders. Investors may come under pressure to take on well-connected local partners to avoid systemic bureaucratic hurdles to doing business. Similarly, there are credible reports of corruption involving large-scale problems with government payrolls, ranging from “ghost” employees and salary skimming to nepotism and patronage in personnel decisions.

Importing and exporting goods remains difficult, and bribery of or extortion by port officials is commonplace. Iraq ranked 181 of 190 economies in the Trading Across Borders index of the World Bank’s 2020 Doing Business report.

U.S. firms frequently identify corruption resulting from Iraq’s opaque business regulatory environment as a significant obstacle to FDI, particularly in government contracts and procurement, as well as performance requirements and performance bonds.  U.S. companies are obligated to follow U.S. laws such as the Foreign Corrupt Practices Act (FCPA).

Several institutions have specific mandates to address corruption in Iraq.  The Commission of Integrity (COI), initially established under the Coalition Provisional Authority (CPA), is an independent government agency responsible for pursuing anti-corruption investigations, upholding the enforcement of laws, and preventing crime.  The COI investigates government corruption allegations and refers completed cases to the Iraqi judiciary.

After an unsuccessful Inspector General program, the GOI attempted several anti-corruption initiatives from 2004–2022. However, anti-corruption oversight remains with the Board of Supreme Audit (BSA), established in 1927. BSA is an analogue to the U.S. Government’s General Accountability Office.  It is a financially and administratively independent body that derives its authority from Law 31 of 2011, the Law of the Board of Supreme Audit.  It is charged with fiscal and regulatory oversight of all publicly funded bodies in Iraq and auditing all federal revenues, including any revenues received from the IKR.

The Kurdistan Board of Supreme Audit is responsible for auditing regional revenues with IKP and GOI oversight.  The IKP established a regional commission and increased its jurisdiction in 2014 to include other branches of the KRG and money laundering.  In 2021, the IKP ordered the establishment of a Kurdistan Anti-Corruption Court. However, the KRG has not implemented the order, which falls to the Judicial Council.

Iraq is a party but not a signatory to the UN Anticorruption Convention.  Iraq is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Resources to Report Corruption 

According to Iraqi law, any person or legal entity has the right to submit corruption-related complaints to the Commission for Integrity and the inspector general of a GOI ministry or body.

Commission for Integrity
Department of Complaints and Reports
Email: hotline@nazaha.iq 

ISIS has maintained safe havens that allow its members to hide and train in some centers of the Syrian desert and some Iraqi governorates. Despite its territorial defeat, ISIS continues to conduct operations on a smaller scale, particularly in the north and west of Iraq, including rural areas with limited presence of the Iraqi Security Forces (ISF). ISIS sought to reestablish footholds in Anbar, Diyala, Kirkuk, Ninewa, and Salah al-Din provinces, especially in areas between those frequently patrolled by the KRG and by the GOI.

The ISF continues to carry out counter-terrorism operations against ISIS cells throughout the country. Terrorist attacks within the IKR occur less frequently than in other parts of Iraq, although the KRG, U.S. Government facilities, and western interests remain targets. Additionally, Iran-aligned militias threaten U.S. citizens and companies throughout Iraq.

The State Department has issued a Level 4 Travel Advisory “Do Not Travel” for Iraq: https://travel.state.gov/content/travel/en/traveladvisories/traveladvisories/iraq-travel-advisory.html.

Some U.S. and third-country businesspeople travel to Iraq. They generally restrict their travel to certain areas and travel with security advisors and protective security teams.  Embassy Baghdad and Consulate Erbil maintain an active branch of the Overseas Security Advisory Council.

Iraq continues to face high unemployment, a large informal sector, lack of satisfactory work standards, and an unskilled labor force.  Domestic and foreign investors often cite the lack of skilled Iraqi labor as one of the major impediments to investing in Iraq, as political instability and violence led many highly educated Iraqis to leave the country in recent years.

Foreign investors tend to rely on foreign workers, especially in fields where Iraq’s workforce lacks training and capacity, although at least 50 percent of an investment project’s workers must be Iraqi nationals.  International companies have noted that it can be challenging to meet this requirement.

The Iraqi constitution states that citizens have the right to form and join unions and professional associations.  Iraq is a party to both International Labor Organization conventions related to youth employment, including child labor.  Iraqi labor laws also regulate working conditions and prohibit all forms of forced or compulsory labor, including by children.  However, the GOI has not effectively monitored or enforced the law, which has resulted in unacceptable working conditions for many workers, including children.

Iraqi’s labor law, revised in 2016, is more consistent with current international standards than previous laws and allows for collective bargaining, further limits child labor, and provides improved protections against discrimination at work.  The law addresses sexual harassment at work and provides protection against it. It also enshrines the right to strike, which had been banned since 1987.  The GOI no longer limits workers’ affiliation with more than one union or federation, and coverage has been expanded to include all workers not covered by Iraq’s civil service law.  The IKR did not implement the new labor law and continues to operate under the 1987 statute.

The Ministry of Labor and Social Affairs (MOLSA) sets a minimum monthly wage for unskilled workers.  The private sector sets wages by contract, and the GOI sets wages for those working in the public sector.  The COM last approved changes to the public sector pay scale in January 2015, reducing the pay gap between low- and high-ranking employees.  In addition, employers must provide some level of transport, accommodation, and food allowances for each employee, but the law does not fix these allowance amounts.  In December 2013, the GOI launched a Social Safety Net program to assist the unemployed and persons with disabilities in gaining access to financial aid and benefits from the government; as of April 2018, MOLSA’s Directorate of People with Disabilities and Special Needs reported the program covers approximately 4 million individuals.

Iraqi law stipulates that 50 percent of a project’s workers must be Iraqi nationals for the project to obtain an investment license (National Investment Regulation No. 2, 2009). Investors must prioritize hiring Iraqi citizens before hiring non-Iraqi workers.  The GOI pressures foreign companies to hire local employees and has encouraged foreign companies to partner with local industries and purchase Iraqi-made products.  The KRG permits full foreign ownership under its 2006 investment law.

In December 2022, the KRG Ministry of Labor and Social Affairs (KMOLSA) issued guidance to employers operating in the IKR aimed at increasing job opportunities for local Kurdish workers. This guidance was in response to a September 2022 KRG Council of Ministers directive and included the following elements:

  • Private employers operating in the IKR must give priority to local employees, with the goal of reaching 75 percent local.
  • Foreign workers should not exceed 25 percent of total workforce in the IKR.
  • Employers should develop programs to mentor local employees in order to develop skills needed to reach the 75 percent threshold.
  • Companies should not recruit foreign workers who do not already hold a work permit.
  • Foreign employees who arrived in the IKR prior to this directive will have their permits reviewed.

The policy does not include a formal phase-in period or waiver process. Nevertheless, KMOLSA contacts have assured the business community that KMOLSA will be accommodating in cases where there is justification, such as when a company needs workers with skills not widely available in the IKR market. KRG officials encourage potential investors to communicate directly with the Ministry of Trade and Industry to obtain exceptions to this policy.

In August 2020, the U.S. International Development Finance Corporation (DFC) signed a memorandum of understanding (MOU) with the Government of Iraq (GOI) to strengthen cooperation in support of private sector-led development across Iraq. Through enhanced collaboration with GOI, DFC aims to invest $1 billion over four years in private sector projects that promote prosperity and stability across the country. DFC and the GOI will focus on investments that advance mutual development goals, including investments in energy, financial services, health, housing, and agriculture. DFC’s current investments in Iraq surpass $280 million across sectors such as energy and financial services. The agency has invested more than $700 million in the country since 2004.

The GOI collects and publishes limited statistics with which to compare international and U.S. investment data.  The NIC and PICs granted 1,067 licenses between 2008 and 2015 (latest statistics available) with a total potential value of $53.9 billion.

In the IKR, the KBOI granted licenses to 166 projects from the period of January 2019 to March 2021, with a total potential value of $5.11 billion. This represented a capital increase of $1.98 billion (163 percent) compared to 2018.

 Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy 
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2021 $166.757  2020 $234,094 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2016 $5,911 2019 $1,928 BEA data available at https://apps.bea.gov/international/factsheet/ 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A N/A N/A BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data 
Total inbound stock of FDI as % host GDP 2016 3.5% N/A N/A UNCTAD data available at  https://unctad.org/topic/investment/world-investment-report 

* Source for Host Country Data: http://cosit.gov.iq/en/ 

Table 3: Sources and Destination of FDI
Data not available.

Embassy Baghdad Economic Section
Al-Kindi Street, International Zone, Baghdad
Office: +1-301-985-8841 x3013
USIraqTrade@state.gov 
https://iq.usembassy.gov/business/getting-started-iraq/

On This Page

  1. EXECUTIVE SUMMARY
  2. 1. Openness To, and Restrictions Upon, Foreign Investment 
    1. Policies Towards Foreign Direct Investment (FDI)
    2. Limits on Foreign Control and Right to Private Ownership and Establishment 
    3. Special Issues Relating to the Hydrocarbons Sector
    4. Other Investment Policy Reviews 
    5. Business Facilitation 
    6. Outward Investment 
  3. 2. Bilateral Investment and Taxation Treaties  
  4. 3. Legal Regime 
    1. Transparency of the Regulatory System 
    2. International Regulatory Considerations 
    3. Legal System and Judicial Independence 
    4. Laws and Regulations on Foreign Direct Investment (FDI) 
    5. Competition and Anti-Trust Laws 
    6. Expropriation and Compensation 
    7. Dispute Settlement 
      1. ICSID Convention and New York Convention 
      2. Investor-State Dispute Settlement 
      3. International Commercial Arbitration and Foreign Courts 
    8. Bankruptcy Regulations 
  5. 4. Industrial Policies 
    1. Investment Incentives 
    2. Foreign Trade Zones/Free Ports/Trade Facilitation 
    3. Performance and Data Localization Requirements 
  6. 5. Protection of Property Rights 
    1. Real Property 
    2. Intellectual Property Rights 
    3. IPR in the IKR
  7. 6. Financial Sector 
    1. Capital Markets and Portfolio Investment 
    2. Money and Banking System 
    3. Foreign Exchange
    4. Sovereign Wealth Funds 
  8. 7. State-Owned Enterprises 
    1. Privatization Program 
  9. 8. Responsible Business Conduct 
    1. Additional Resources
    2. Climate Issues
  10. 9. Corruption 
    1. Resources to Report Corruption 
  11. 10. Political and Security Environment  
  12. 11. Labor Policies and Practices 
  13. 12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs 
  14. 13. Foreign Direct Investment and Foreign Portfolio Investment Statistics 
  15. 14. Contact for More Information 
2023 Investment Climate Statements: Iraq
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