IRAQ: An Introduction to General Business Law
Navigating Iraq’s Construction Sector and Investment Hurdles
While Iraq’s oil and gas industry continues to remain active, with productions remaining stable and the oil ministry planning capacity increases this year, the construction industry in Iraq has also been booming in recent years and on the rise as the government addresses affordable housing needs though mega investment projects. The surge in construction comes as a result of several factors – one of which being the Iraqi government’s desire to streamline and implement regulatory reforms aimed at improving the business environment and attracting foreign investment.
The contract signed by the Iraqi government on 31 January 2024 with Egyptian businessman Naguib Sawiris’ Orascom Investment Holding is perhaps the biggest residential project to date. The new city project, named after renowned Iraqi sociologist Ali Al-Wardi, is set to include 120,000 housing units in Baghdad. The Iraqi government has also signed several other large construction projects amid its plans to address the country’s inadequate infrastructure, further exacerbated by the cities’ influx of migrants from the provinces as a result of difficult economic conditions and high unemployment in rural areas as well as climate change-related challenges (eg, water shortages). Local and foreign developers alike have been offered contracts for investment in new city projects in Baghdad, Karbala, Babylon, Al-Anbar and Nineveh governorates. Such projects will include not only housing units, but schools, commercial centres, healthcare and other facilities.
Real estate development on such large scales opens the doors for investment in many other sectors, all of which face similar challenges in navigating the often complex and bureaucratic ins and outs of doing business in Iraq. Despite the Iraqi Investment Code No 13 of 2006 contemplating a one-stop-shop at the National Investment Commission for all investors’ licensing needs, in practice investors must go door to door to obtain their licences and authorisations from each individual ministry with authority for operational and business licences. This often means that no operations can actually begin until all licences are obtained, which can take from several months to more than a year.
Among the current challenges facing foreign investors in Iraq is the Iraqi government’s recent “de-dollarization” policy, which has had far-reaching economic consequences for all business in Iraq. For the past 20 years, the US dollar had become a de facto acceptable currency in Iraq, with most – if not all – commercial transactions and investment relying heavily on the US dollar. In 2023, the Iraqi government and the Central Bank of Iraq implemented several measures under the policy of enhancing confidence in the Iraqi dinar, including imposing severe restrictions on the use of the US dollar in Iraq and strict conditions for foreign currency transfers abroad and repatriations of profits. These measures have increased the gap between the Central Bank of Iraq official exchange rate and parallel market exchange rates, which has resulted in a dollar shortage in Iraq.
Other recent requirements imposed by the Companies Registrar pursuant to the state policy and included in the Federal Budget Law for the years 2023, 2024 and 2025 is the registration of an Iraqi website with an Iraqi top-level domain (.iq) and leasing an Iraqi Post Office Box (PO Box). This is required for all companies registered in Federal Iraq and must be carried out within a 60-day grace period starting from 16 January 2024. Failure to comply will result in a suspension of the company’s corporate files until evidence of the domain and PO Box is presented to the Companies Registrar. Although the government is trying to ensure a smooth process with the Registrar, the fact remains that such requirements only present more obstacles for companies by suspending their files and potentially hindering the licensing process.
On the other hand, there are ongoing legislative proposals aiming to facilitate the investment process and investment climate. Iraq has recently acceded to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “New York Convention”), giving foreign investors some comfort that their disputes can be resolved and enforced against Iraqi entities in Iraq – although it has yet to be tested in Iraq. In addition, Iraq has signed several bilateral investment treaties and double-tax treaties, including a double-tax treaty with Turkey and an investment treaty with Saudi Arabia and one with the UAE; however, these have yet to be ratified by parliament and enter into force. The housing fund law is also under review in order to facilitate financing for Iraqis to purchase housing in new residential compounds.
Some of the other laws and regulations currently on the table are related to digitalisation of the company registration process and streamlining government procedures, including tax and customs processes and access to information law. There have also been talks to repeal the 2019 law amending the Iraqi Companies Law, which imposed restriction of foreign ownership of Federal Iraqi companies to 49%. Currently, foreign investors must find an Iraqi partner or opt for different corporate governance strategies (such as a nominee director arrangement) in order to retain control of their business in Iraq.
While it is clear that the Iraqi government seeks to attract further foreign investment in the country and has already taken steps to initiate infrastructure development, unless legislative reforms to change or streamline processes are passed by Parliament and thereby implemented, the construction sector and other sectors attractive to foreign investment will continue to present both opportunities and challenges for investors. Furthermore, corruption and security risks persist in the cities and remain an impediment to investment. Real estate has become a prominent sector for the money laundering business that has run rampant for years. The Iraqi bureaucracy continues to present challenges and hinder business opportunities in its opaque environment. It is therefore important that such risks are mitigated through a nuanced understanding of the practices and frameworks within which the sector operates. By staying abreast of the legal and economic developments and adhering to the enforceable regulatory requirements, investors should adapt their strategies and capitalise on opportunities in Iraq’s booming sectors.