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ME PoV Fall 2018 issue

With an urgent need for housing and other infrastructure projects, we look at the various business models international companies are adopting to invest in Iraq.


As the largest country implementing the Extractive Industry Transparency Initiative (IETI) with proven reserves in the Rumaila and the West Qurna fields in excess of the entire proven reserves of the United States, and a projected US$5 trillion in Oil & Gas revenues between 2013 – 2035,1 Iraq is quickly becoming an increasingly attractive place for many international companies from various industry sectors.

Iraq’s GDP reached US$192.7 billion in 2017 with approximately 50 percent spent on household goods and 18.8 percent on government consumption, while the highly dilapidated infrastructure received only 23.5 percent in fixed capital investment.

Iraq’s budget, on the other hand, is highly dependent on one source of revenue, 85 percent of which is derived from the oil sector.2 This brief expenditure/revenue picture depicts the consumption character of the Iraqi society, with a fiscal year 2017 GDP per capita (PPP) of US$17,000.3

Business models

Apart from the strictly regulated industries in Iraq, such as Oil & Gas, Telecommunications and Financial Institutions, standardized business models have been adopted by most international companies operating in the country. These models and entity structures came with reduced bureaucratic requirements, flexibility in the registration process, and somewhat simplistic exit strategies.

Foreign companies can now own 100 percent of the shares of a newly registered Iraqi limited liability company (LLC) with ease of reassignment and without impacting the legal structure of the parent company.

The common foundational block in the limited liability model is a reduced legal liability exposure along with the following pivotal drivers:

  • Foreign persons (individuals and entities) based outside Iraq can now register and own 100 percent of an Iraqi limited liability company.
  • Relatively low share capital requirements, such that Iraqi LLCs could be registered with as little as IQD1 million (approximately US$850) in legal capital. Different capitalization rules apply to construction contractors (see below.)
  • Relief from complying with the gearing ratio of 60 percent debt to equity that is imposed on joint stock companies, per article 28-2 of the Companies Law.
  • A competitive flat corporate income tax rate of 15 percent is levied on the reported net earnings of the entity. In practice, however, the taxing authorities might apply assessments based on deemed profit schedules per industry sectors. The only exception to the flat 15 percent corporate income tax is the Oil & Gas sector, where a 35 percent income tax rate is levied.

The following chart presents the simplest model adopted by many foreign companies:


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In addition to the model drivers highlighted above, one other characteristic of this model is that it directly links the local entity registered in Iraq to the ultimate parent entity. This gives clear visage of ownership control of the local entity, whereby the latter benefits from the credentials and the reputation of the ultimate parent company.

Construction contractors (or exception to the rule)

Registration requirements for construction contractors wishing to operate under the limited liability structure must also follow capital requirements based on project values.  In 2009, Instruction #3 was issued and published later in 2010, which introduced classifications for construction contractors operating in Iraq as LLCs.

The chart below illustrates the capital requirements per project value.

The second model adopted by some international companies in setting up an Iraqi limited liability company includes a multi-level structure (as depicted in the two charts below) intended to maintain total ownership and control, as well as limit liability. Tax implications on such structures are fairly complicated, seeking professional tax advice is highly recommended.

Both models mentioned above (direct ownership or an SPV structure) provide for limited liability and ease of transfer of funds in and out of the country. This transfer of funds can be in the form of management fees, technical support fees, and/or dividends. In all cases, particular attention is required to obtaining tax and administrative clearances.

One caveat to setting up an Iraqi limited liability company in Federal Iraq is that a newly registered entity must use an Arabic commercial naming scheme and cannot utilize the global brand name in its registration documents. This regulation is not mandatory in the Iraqi Kurdistan Region of Iraq.

An alternative model, which is common among large international companies (such as Oil & Gas and related services, and construction contractors) is to establish a foreign branch that does not require capital investment inside Iraq. This is depicted in the two charts below: 

Construction contractors and foreign branch registrations

Registering a foreign branch is often used to evade the legal capital requirements imposed on limited liability company registrations, and is often used by international construction contractors. It is also advisable where the foreign brand name is linked to the trade/activity and where history and credentials of the parent company are vital. Although this approach would relieve international companies of having to deposit large sums of initial capital, it does increase exposure to legal liability.


It is evident that the focus of the current and future governments in Iraq will be on infrastructure projects and the urgent need for new housing, roads and bridges, and power, water and sewage plants. The geopolitical scene in Iraq is changing, and the coming months could represent a turning point for perspective businesses and investors wishing to participate in the reconstruction and rehabilitation of Iraq.

It is anticipated that the reconstruction pool will be funded by different stakeholders including international non-governmental bodies. The US$400 million recently approved by the World Bank for the rehabilitation and reconstruction of Mosul and the newly liberated areas in Iraq, follows a first sum of US$350 million approved in 2015 for an ongoing emergency operation development project.4

This clearly offers many opportunities and a huge potential for prospective investors as the National Board of Investment in Iraq has affirmed and highlighted over US$80 billion in infrastructure projects over the coming years.


by Ayad Mirza, Country Managing Partner, Iraq and Bahaa Arnouk, Senior Manager, Audit, Deloitte Iraq


  1. EITI – Overview of Iraq –


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