Iraq’s legal system is civil law-based and uses a three-level civil court system, which comprises the courts of first instance, courts of appeal and a court of cassation. The judiciary is regulated by Judicial Organisation Law No 160 of 1979. A separate judiciary exists for the Kurdistan Region, which instead applies Judiciary Authority Law No 23 of 2007. Unless otherwise expressly indicated, references to any law, instruction or regulation in this guide are to statutes as applied in Federal Iraq.

The civil courts have jurisdiction over all natural and juristic persons as well as the government, unless otherwise provided by law. Cases in the courts of first instance are presided over by one judge and may be appealed at a court of appeal, subject to certain exceptions. The court of cassation is the highest court and is located in Baghdad. The Kurdistan Region has its own court of cassation, located in Erbil, which follows the same structure as that of Baghdad.

In addition to the above courts, the Iraqi Constitution established a Federal Supreme Court to determine the constitutionality of laws, interpret the constitution and rule in disputes between the federal and regional governments, as well as other constitutional matters.

Foreign companies looking to invest in Iraq may benefit from tax breaks and other privileges under Investment Law No 13 of 2006 by applying for an investment licence. The law does not contain a list of activities eligible for the licence, but it does exclude certain sectors, such as oil and gas extraction and production, banking and insurance, which are regulated by different laws. However, it is worth noting that it is not necessary to obtain an investment licence in order to operate a business in Iraq.

The Kurdistan Region of Iraq passed a separate Investment Law No 4 of 2006 on Investment in the Kurdistan Region and has its own investment authority.

The application for obtaining an investment licence contains the following:

• a request form from the Investment Authority;
• a confirmation letter from an accredited bank regarding the investor’s financial situation;
• a list of projects inside or outside of Iraq;
• details of the investment project and economic feasibility; and
• a timeframe for project completion.

The Investment Authority will review the application and, if approved, will authorise all the required licences and permits to be issued. Only a limited number of investment licences have been granted since the enactment of the Investment Law, partly due to the fact that the investment licence is not required in order to do business in Iraq.

The authorities require foreign investors to meet certain conditions, such as a higher minimum capital for certain sectors and a minimum percentage of locals to be hired. Investors must also keep proper audited records in accordance with Iraqi laws, and records of the investment project’s duty-free imported materials, specifying their depreciation value. Furthermore, investors are expected to comply with the timeline of execution of the project submitted to the National Investment Commission and to notify the latter of the project’s commencement, budget, progress and other information stipulated in the Investment Law.

According to Article 14 of the Investment Law, the investor must also commit to protect the safety of the environment and comply with laws related to security, health, public order and the values of Iraqi society.

The Investment Law addresses dispute resolution mechanisms and the applicable law, including disputes between the investor and the Investment Authority, which are to be resolved in an Iraqi civil court. However, the parties may also resort to Iraqi or international arbitration.

The entities most commonly registered by persons conducting business in Iraq are limited liability companies (LLCs) and branches of foreign companies.

Limited Liability Company

LLCs are required to hold at least 51% Iraqi shareholding capital in Federal Iraq. In the Kurdistan Region, 100% foreign shareholding is still permissible, as the amendment to the Companies Law has not yet been passed by the Kurdistan Parliament. An LLC may be established by a maximum of 25 shareholders, who may be legal entities or individuals, or a combination of both. The minimum capital for an LLC is IQD1 million. Public subscription of shares in an LLC is prohibited. The general assembly of shareholders appoint and determine the powers of the managing director, who may be a foreign national.

Branch of a Foreign Company

Another commonly registered entity is the branch of a foreign company. The commercial activity of a branch is limited to the registered activity of the foreign company; thus, the foreign company would be liable for the branch. For the registration of a branch in Federal Iraq, the foreign company must have been established at least two years earlier. Any managerial changes must be approved through a shareholders’ resolution by the parent company.

The application submitted to the Companies Registrar should include a set of documents, including but not limited to the shareholder resolutions, a bank letter, the passports of the shareholders and directors, the lease agreement for the company premises in Iraq, and the incorporation documents of the foreign company in the case of a branch.

Timeline

It takes approximately six to ten weeks to register an LLC in Iraq (due to required security checks), and approximately four to eight weeks to register a branch.

Shareholder meeting decisions should be noted in the minutes of meeting and sent to the Companies Registrar within four days of being implemented. Copies of all final accounts, the annual plan and related reports must also be sent. Any managerial changes must be approved through a shareholders’ resolution by the parent company and then submitted to the Registrar.

The Registrar is entitled to obtain any document from the company for the purpose of carrying out its responsibilities under law.

The general assembly of shareholders comprises the members of the company and is the highest authority of the company. The general assembly may remove and determine the wages and powers of the managing director, and must also approve the LLC’s budget, final accounts and annual plan. The managing director carries out the day-to-day business operations of the LLC, and may be a foreign national. In the case of a joint-stock company, which is also a possible entity option in Iraq, a board of directors appoints and dismisses the managing director and is responsible for the administrative, financial and organisational duties of the company.

Directors and officers have a duty to serve the company’s best interests and are liable to the general assembly in carrying out these duties. They must also disclose any direct or indirect interests regarding any transactions with the company. They will be held liable if such duties are proven to be violated. The inspectors would be appointed by the Companies Registrar, who in turn would inform the relevant authorities so that the appropriate action may be taken in case of a breach. The company would be guided by the Companies Registrar based on the findings of the inspection report.

Employment relationships are governed by Iraqi Labour Law No 37 of 2015. The Labour Law takes a particularly employee-friendly stance and makes it difficult to terminate employment agreements. The Kurdistan Region still uses the old labour law, as the new one has not yet been passed by the Kurdistan Parliament.

Collective bargaining agreements are regulated by the Labour Law and include negotiations between the employer or group of employers or their associations on one hand and one or more worker associations or elected representatives on the other. The purposes of these collective bargaining or negotiations are set out in the Labour Law as follows:

• co-operating between the workers' associations and the employers or the employers’ associations in order to achieve the workers’ social development;
• improving the work terms and conditions;
• regulating the work relationships between workers and employers;
• regulating the relationship between the employers or their associations and the workers’ associations; and
• settling labour disputes that may arise between workers and employers.

An employment contract may be concluded in verbal or written form. If the employment contract is not concluded in writing, the employer and the employee shall both have the burden to prove the existence of such contract and any rights or claims based thereon.

The Labour Law provides for both definitive and indefinite employment agreements, but it does not determine a maximum or minimum duration for the employment contract.

The employment contract must specify the following:

• the employer's and employee’s details;
• the type of project;
• the type of work to be performed, and its duration and start date;
• working hours;
• wages;
• bonuses and allowances to be paid; and
• the date, place and method of payment.

It must be in Arabic (other than in the Kurdistan Region, where the contract may be in Kurdish), although a bilingual contract may be used for ease of reference. In case of conflict, the Arabic (or Kurdish) version would prevail.

According to the applicable labour law in Iraq, working hours must not exceed eight hours per day or 48 hours per week, except for in special circumstances listed in the law. Employees are entitled to at least one day of rest per week. As such, a limit of 40 working hours per week would allow for a two-day weekend due to the cap of eight working hours per day.

Working hours may be extended by the employer in certain circumstances in order to prevent an imminent hazard, such as in the case of force majeure, in which case the Ministry of Labour and Social Affairs’ approval is required. The hours may also be extended up to 56 hours per week if the work circumstances so require and the right to a day off during the week is not affected. In addition, the Ministry of Labour and Social Affairs shall determine the maximum hours for overtime on a case-by-case basis when approving exceptions to working hours.

The working hours may also be extended for the following reasons:

• to manage an exceptional increase in work at the time of festivals, seasonal work or for other justifiable reasons;
• to repair or maintain devices, tools and machinery which, if they become inoperative, will affect the employer’s operations or result in a considerable number of employees being unable to perform their duties;
• to avoid the deterioration of substances or products; and
• to establish annual inventory and accounts, prepare for sales or open for the season.

There are a few limitations on overtime work, with the following two being particularly noteworthy:

• in regular work environments, the maximum total overtime hours should not exceed four hours per day; and
• employees may not work 40 hours of overtime in 90 days or 120 hours of overtime within one year.

The wage for overtime must be increased by 50% or 100%, depending on the type and nature of the work. Normally, an employee working overtime is entitled to a 50% increase on normal hourly wages for any work considered as overtime. In the case of night, arduous or hazardous work, employees must receive a 100% increase on normal hourly wages for work considered as overtime.

The Labour Law sets out severe restrictions for employers terminating employment relationships. An employment agreement may only be terminated for the following reasons listed in the Labour Law:

• death of the employee;
• if the employee is sentenced, by a final court decision, to imprisonment of more than one year;
• death of the employer, if the employment relationship was based on personal considerations and the contract may not be continued with their heirs;
• liquidation of the project by virtue of a final court decision, or in case of voluntary liquidation or closure, provided that prior ministerial approval is obtained;
• the written mutual agreement of the employer and the employee;
• expiry of the contract (for fixed-term contracts);
• the completion of the work or provision of the service, if the contract is concluded for a specific work or service;
• employee’s resignation with prior 30 days’ notice (if resignation was without notice or with a notice of less than 30 days, the employee shall pay the employer compensation equivalent to the wage of notice term or the remaining part thereof); and
• in case of force majeure.

Termination by Employer

The Labour Law stipulates cases where the employer may unilaterally terminate the employment, upon giving 30 days' prior written notice to the employee. If the employer fails to notify the employee in advance, the employee shall be compensated for the notice period. These cases are as follows:

• employee’s illness causing incapacity to work, lasting for more than six months as evidenced by an official medical report;
• employee’s disability of no less than 75% with incapacity to work as evidenced by an official medical report;
• employee reaching retirement age;
• if the work exigencies required downsizing the project, with prior ministerial approval;
• breach of contractual obligations;
• if the employee assumed a false identity or submitted false documents;
• if the employee was on probation and had not shown efficiency during this period (provided that the employee is notified seven days prior to termination); and
• if the employee has committed, by virtue of final judgment, a grave mistake causing heavy loss to work, workers or production.

As part of the disciplinary action, the Labour Law provides for termination in case of the employee’s unsatisfactory performance. This case may be applied when the employee has received the necessary work instructions, was notified in writing of the unsatisfactory performance and continued to perform the work in an unsatisfactory manner 30 days after being warned.

As a general rule, the employee shall be entitled to severance pay of two weeks for each year of service in case of termination for the causes listed above. However, they shall not be entitled to this compensation if termination was for one of the following cases:

• employee sentenced to imprisonment;
• employee breaches contractual duties;
• employee assuming a false identity or submitting false documents; and
• employee committing grave error, causing loss to the employer.

Employees (except for civil servants) are allowed to create or join a trade union or workers’ association, but this is rarely practised in Iraq. For any employment-related issues, the union would usually meet with the Ministry of Labour and Social Affairs to try to reach a resolution. Once a decision is agreed upon with the employer, it shall take immediate effect.

Income tax in Iraq is governed by Income Tax Law No 113 of 1982 as amended. Entities are required to withhold the income tax from their employees’ wages, regardless of the type of entity and of whether or not it is tax exempt. The law imposes taxes on the income of a resident Iraqi individual who earns it inside or outside Iraq, irrespective of the place of payment. The income tax rate for wages ranges between 3% and 15% of the total wages received, with 10% being for wages of IQD1 million and above. This does not apply to freelancers, who are subject to and liable for payment of their own income tax.

Iraq recently enacted the new Social Security Law No 18 of 2023, under which employers operating in Iraq are also required to remit social security contributions for all their employees working in Iraq. Although in practice foreign employees are often not registered in the Iraqi social security system, it is becoming increasingly difficult to forego this requirement as foreign employees may not opt out of this by law. The contributions are to be paid on a monthly basis to the social security office. Social security is 17% of a local employee’s monthly wages; 12% is paid by the employer and the remaining 5% is deducted from the employee’s wages. For foreign employees, the rate is 25% (5% deducted from the employee’s salary and 20% paid by the employer).

Where applicable, the corporate tax rate is 15%. If there is no profit, no tax is levied. In practice, the tax authorities work on the basis of estimating a company’s gross income from a contract without taking account of any expenses (even though the law allows this in theory). They then levy a percentage charge (eg, 15%) on the estimated gross income as being the tax payable. Therefore, it is becoming increasingly attractive for western companies to apply for an investment licence under Iraqi Investment Law No 13 of 2006 (if they meet the conditions set out under the law), which enables tax breaks to be given.

Iraq has no VAT but sales tax is imposed on alcohol and tobacco, cars, travel tickets, internet and mobile recharge cards, and first class hotels and restaurants. With regard to withholding tax, private contracts do not normally apply such obligations, which are usually only applied in public contracts.

The Investment Law offers tax incentives for holders of an investment licence. Investors may benefit from tax exemptions for a period of ten years from the date of commencement of operations, subject to the development plan approved by the Council of Ministers. This exemption may be extended up to 15 years in cases where Iraqi investors’ shareholding capital exceeds 50%.

A licensed investment project is also exempted from:

• import duties on any item imported for the purposes of the investment project for three years from the date the investment licence is granted;
• import duties on any item imported for the purposes of expanding, developing or modernising the investment project for three years from the date the Investment Authority is notified of the intended expansion; and
• import duties on all spare parts imported for the purposes of the project, if the value of these parts does not exceed 20% of the fixed asset value.

To date, tax consolidation is not regulated under Iraqi law.

There are no particular thin capitalisation rules applicable in Iraqi legislation.

Transfer pricing rules are not defined in the Iraqi legal system and there is no specific regulation.

No specific anti-evasion law or regulation has yet been enacted in Iraq.

As a general rule, companies must report financial statements and pay taxes in the time and manner specified. Companies may be subject to inspection by the Companies Registrar if there has been a violation related to their filings. Questionable findings shall be reported to the relevant authorities for the appropriate action to be taken. In the meantime, the company's file will be suspended, along with possible fines. The Registrar is entitled to see the company’s records by law; if it is prevented from seeing such documents, the company would be subject to heavy fines and possible imprisonment for the person responsible.

Mergers and acquisitions are not subject to notification in Iraq; only the signing of a resolution and a sales and purchase agreement would be required. For mergers, this would include signing the merger contract and the resolution. The announcement of such merger must be published in a daily newspaper.

Merger notifications are not required under Iraq law.

Fair Competition and Antitrust Law No 14 of 2010 (Competition Law) protects and ensures free and fair trading in Iraq. The law provides for a Fair Competition and Antitrust Council attached to the Council of Ministers, which supervises Iraqi markets. Consumer Protection Law No 1 of 2010 gives consumers the right to be fully informed about consumer goods. Most notably, Iraqi Product Protection Law No 11 of 2010 aims to protect local Iraqi products from unfair competition in international trade. It remains to be seen whether these laws will be applied in a protectionist manner.

The Competition Law generally prohibits practices that aim to harm competition. There is no specific legal framework that governs unilateral conduct and economic dependency.

The Competition Law contains a list of anti-competitive practices that are prohibited. For example, it is prohibited to sell a product at a price that is less than its actual purchase price if it is done so to harm competition, or to buy a product or service to the extent that it leads to higher market prices or to prevent any decrease thereof. Furthermore, the law prohibits the merging of two or more companies if such a merger would result in one entity controlling at least 50% of the total production or sales of a product or service.

Patents are regulated in Iraq by Law No 65 of 1970 on Patents and Industrial Designs (Patent Law) as amended by Law No 28 of 1999 and CPA Order No 81. According to Article 2 of the Patent Law, patents protect inventions that are applicable to industry, are novel or involve an innovative step and concern new industrial products, new industrial methods or new applications of known industrial methods.

The following persons may apply for patents:

• Iraqi nationals and citizens of Arab countries;
• foreigners residing in Iraq;
• foreigners belonging to a state having a reciprocal agreement with Iraq concerning patent registration;
• public departments; and
• companies and establishments organised and existing in Iraq or in a state having a reciprocal agreement with Iraq concerning patent registration.

Iraq is a member of the Convention establishing the World Intellectual Property Organization (WIPO) and the Paris Convention for the Protection of Industrial Property.

Patents are protected for 20 years from the date of the filing. They may not be renewed or extended.

Registration

Patent applications must be submitted in Arabic, contain a detailed description of the invention, and be accompanied by a number of documents. Each application will be examined for conformity with formal requirements and patentability according to the Patent Law, and amendments may be requested. The application will be refused in cases of non-compliance with the required amendments within the given deadline.

Trade marks in Iraq are governed by Iraqi Trade Mark Law No 21 of 1957, which was amended pursuant to CPA Order No 80 on 26 April 2004. According to Article 1 of the Trade Mark Law, any mark that can be graphically represented and is suitable for distinguishing goods and services from other goods and services may be protected by a trade mark. The term “mark” includes trade marks, service marks, collective marks and certification marks.

Trade mark protection by registration may be obtained for ten years, and may subsequently be renewed every ten years.

Registration

Applications must be submitted in Arabic and accompanied by a number of documents. Use of trade marks is not a requirement for the filing of applications for registration. Application fees will be charged for each class. The registrar may impose any limitations or modifications it considers necessary in respect of the form, mode or place of use of the mark to prevent confusion between the mark and a similar registered mark, or for any other reason it may consider appropriate.

Industrial design is regulated in Iraq by Law No 65 of 1970 on Patents and Industrial Designs (Patent Law) as amended by Law No 28 of 1999 and CPA Order No 81. It is defined as “every new arrangement of lines and shapes, coloured or uncoloured, used in industrial production”.

The term of protection of industrial designs is ten years from the date of issue of the certificate.

Registration

Every industrial design must be separately applied for. An application must be submitted to the registrar of patents and industrial designs, containing a detailed description of the design. The application will be rejected in case of non-compliance with the conditions stipulated by law, but the applicant may appeal the decision within 30 days thereof.

Copyright Law No 3 of 1971 as amended by CPA Order No 83 governs Iraqi copyright and related rights. The Copyright Law protects the authors of original literary, artistic and scientific works. No registration is required to obtain protection.

The protection covers works expressed in writing, sound, drawing, painting or movement, including:

• written works of all types;
• computer programs, whether in source or object code, which are protected as literary works;
• works conveyed orally, such as lectures, lessons, speeches and sermons;
• works conveyed by drawing and painting with lines and colours, engraving, sculpture and architecture;
• dramatic works and musical plays;
• works performed by artistic movement or steps, and that are materially prepared for production;
• musical works, whether or not accompanied by words;
• photographic and cinematographic works;
• works prepared for radio and television;
• charts, drawings and scientific three-dimensional figures;
• public recitals of the Quran;
• sound recordings; and
• compilations of data.

The author’s economic rights are protected throughout the lifetime of the author and for 50 years from the date of their death.

In addition to the protection of inventions by patents and industrial designs, the Patent Law, as amended by CPA Order No 81, grants protection for undisclosed information, integrated circuits and plant varieties.

Iraq is a member of the Paris Convention on the Protection of Industrial Property (Stockholm Act).

Iraqi legislation does not currently have a specific data protection or privacy law in place. In the absence of such a law, certain general provisions from the civil and penal codes involving privacy would apply.

Since there are no specific data protection laws in place, its applicability to foreign companies is not regulated.

Although there are no compliance measures in this case to be taken into consideration from existing legislation, there are general provisions that may be used to challenge any data used or disclosed. For instance, Article 437 of the Iraqi Penal Code penalises anyone who has access to confidential information and discloses or uses such information unless otherwise required by law. However, it also states that there would be no penalty if such disclosure is intended to report a felony or misdemeanour.

In the absence of a data protection law, violations of data protection rules would be addressed by the judiciary, who would apply Iraqi Civil Code No 40 of 1951 and Iraqi Penal Code No 111 of 1969.

No major legislative reforms are expected in the near future for Iraq.