Iraq: law and taxes review

Hadeel Hassan, senior attorney, based in Baghdad, and Nadia Salem, Iraq team leader, based in Doha, met with UME to put the record straight.

Have you maintained a presence in Iraq?

Nadia Salem: Al Tamimi has had an operational office in Iraq since 2003. In 2006 the security situation took a turn for the worse, so our lawyers remained, but worked from home. That way we kept our physical presence there. Now the situation is better, so we’ve relocated and the office is up and running again.

In terms of dealing with international clients, telecommunications from Baghdad can be troublesome. Largely because of the communication issues, I work out of Doha, but represent our lawyers in Iraq to clients globally.

 What sectors are attracting the most attention?

Hadeel Hassan: Construction and oil are the two sectors where we are already seeing the most growth, and I don’t think that will change for a while. Real estate and infrastructure projects are on the drawing board, but there are still issues with electricity supplies, which are hampering their progress, for example there are no still no functioning traffic lights.

However, the government is working on that, and the fundamental issues that need fixing are getting attention.

NS: Everyone wants to participate in the reconstruction of Iraq, even now when the global economy is facing negative growth, there is a massive interest to invest and rebuild in Iraq.

 Which countries are most active in their enquiries?

NS: We represent clients from the US and UK, but it’s a generally global mix. The potential across many sectors and industries is huge there. Now that the security situation is improving these development projects are back in focus.

People aren’t constantly worried about the safety of their lives, so now they can focus on bringing back the quality of their lives. People want air conditioning back in summer, and functioning telephones, which again, is
getting better.

 What legal framework is the country working under?

NS: The legal framework still exists from before the invasion, so it’s not a lawless country by any stretch. In many ways it is very similar to the legal system in other countries in this part of the world, and because of that continuity it is actually well developed.

In my experience companies have typically appointed an arbitration court outside Iraq too, but this is fairly typical with major international deals where companies operate in a third-party or host country, or where firms from several countries are involved.

 Are there any significant barriers to business?

HH:Until now big companies have not been able to get into Iraq because of the security situation. However, that is improving, and power, infrastructure, and energy projects are all on the radar now.

There are clear signs of improvement all over the country. It’s not just the security zones around Baghdad where business can operate now. It wasn’t that long ago that Fallujah was basically off limits. It was very dangerous even for Iraqi’s, but now that’s not the case, travelling around is much better.

It’s relatively simple to get a visit visa for someone to come to Iraq. The Ministry of Interior is working with embassies to streamline the process as much as possible for contractors, so visa issues shouldn’t be seen as a barrier to business.

Big companies need relationships with the citizens in and around the areas they work in, and that can be hard to do without any local knowledge. What we can do is more than just legal services, by putting them in touch with local companies and services, we can facilitate the relationships that businesses need to get off the ground and be comfortable. Being in Iraq we have an extensive network of colleagues and firms we do business with which is invaluable to our clients, especially with regard to government ministries.

 How safe is the working environment for foreign nationals in and around Baghdad?

HH:Most international companies are located in the Green Zone and around the airport in Baghdad because these are very safe and well protected areas, plus there are all the services companies need around there. Although the situation is improving, it is still a little risky for foreigners to travel around Baghdad.

 Are companies fairly free to come and set up in Iraq?

NS: Until recently there hasn’t been a defined framework on this, but as of January 1st 2009, the Status of Forces Agreement came into place. Essentially this ushered in a new era of Iraq self-governance and giving rise to a plethora of questions regarding its impact on foreign contractors, which were previously granted immunity from Iraqi legal process in 2004 by order of the Coalition Provisional Authority.

The SOFA is silent on the status of foreign contractors, leaving the question open as to whether foreign contractors and companies doing business in Iraq must – for the first time in five years – pay taxes or formally register their company’s presence.

We recommend international companies register their presence through SOFA, which will cover entry and exit procedures, vehicle registration and the licensing of security companies, as well as
other issues.

The agreement is part of a piecemeal process, but it is encouraging, because it’s a first step towards getting incorporated as a local business, and that is a process that can take a few months. Currently, the timeframe in which it takes to incorporate foreign companies or nationals is between one and three months, so we’re recommending to all of our clients to begin all of these processes as early as possible.

What’s the situation regarding taxation in Iraq?

HH: Until 2009 there were no taxes. Right now it is 15%, which is even lower than other Middle Eastern countries. The overriding aim at the moment is to encourage foreign direct investment, so I don’t expect that taxation, even if it does come more into play, will be very high.  

Signs of opportunity

In early April Iraq signs a US $128 million oil refinery contract with Foster Wheeler.

Late March and Emirates International Investment Company ‘pre-announces’ potential investments in Iraq.

Rehabilitation works completed on rainwater drainage and sewage networks in Basra at a cost of over US $750,000, at the end of March.

Several months work lead to irrigation technicians completing works to dig canal in Missan, a province south of Baghdad, at a value of US $3.5 million.

Wassit Water Department finalises 16 projects worth a total of US $7.4 million. They include drinking water networks in al-Kut city. Kut, the capital of Wassit province, is 180 km southeast of Baghdad.