Iraq’s first post-conflict perm government passed a new investment law in October 2006, opening up its economy to foreign investment.
While Iraq is making great strides to develop a more investor-friendly business environment, much work remains. Inflation and stagnant economic growth will be challenges that Iraq will need to overcome, but the Government of Iraq (GOI) is in the process of making the necessary economic reforms to lead the country in a new direction. Pension reform and further reductions of the refined oil price subsidy are just a few of these economic policies.
In addition to passing a new investment law, Iraq’s commitment to rejoin the international community can also be seen in its progress towards World Trade Organization (WTO) accession.
With stabilized security conditions throughout the country, Iraq is certainly a place to consider for investments, business expansion, and other fruitful opportunities.
Openness to Foreign Investment
The Government of Iraq’s (GOI’s) Council of Representatives passed an investment law, and the Presidency Council subsequently approved Law No. (13) in November 2006 with the following aims
- To promote investment and transfer modern technologies in order to contribute to the developing and enhancing Iraq and expanding and diversifying its production and service base.
- To encourage the Iraqi and foreign private sector to invest in Iraq by providing the required facilities for establishing investment projects and enhancing its competitive capacities in the local and foreign markets for projects included in this law.
- To develop human resources based on market demands and provide work opportunities for the Iraqis.
- To protect the rights and properties of investors.
- To expand exports and improve the balance of payments and the balance of trade of Iraq
The new investment law grants the foreign investors great privileges and guarantees as Article (10) of that law states that “The Investor irrespective of his/her nationality shall enjoy all privileges, facilitations and guarantees and shall be subject to the obligations stated in this law.
The Iraqi and foreign investor shall have the right for the purposes of housing projects, the use of the land for a sum to be determined between him and the land owner without land speculation according to conditions set forth by the National Commission for Investment and the approval of the Council of Ministers. The Commission shall facilitate the allocation of the required lands for the housing projects. The housing units shall be allocated for ownership by the Iraqis after the completion of the project.”
The question in mind for all investors is what kind of benefits shall the foreign investor be granted?
The investment Law No (13) answers that question and states in Article ( 11 ) that the investor shall enjoy the following benefits :
First: The investor shall have the right to take out the capital he brought into Iraq and its proceeds in accordance with the provisions of this law and pursuant to the instructions of the Central Bank of Iraq in an exchangeable currency after paying taxes and debts to the Iraqi Government and all other authorities.
Second: The foreign investor shall have the right to: 1) trade in shares and bonds listed in the Iraqi Stock Exchange; and 2) form investment portfolios and bonds.
Third: Renting or leasing lands needed for the project for the term of the investment project, provided that it does not exceed 50 years renewable with the agreement of the Commission, and provided that the nature of the project and its benefit for the national economy is taken into consideration when determining the period.
Fourth: Insuring the investment project with any foreign or national insurance company it deems suitable.
Fifth: Opening accounts in Iraqi or foreign currency or both at a bank inside or outside Iraq for the licensed project.
The law also guarantees the foreign investors the right to:
- Employ and use non-Iraqi workers in case it is not possible to employ an Iraqi with the required qualifications and capable of performing the same task in accordance with guidelines issued by the Commission.
- Grant the foreign investor and non-Iraqis working in the investment projects the right of residency in Iraq and facilitating his/her entry and exit to and from Iraq.
- Non-seizure or nationalization of the investment project covered by the provisions of this law in whole or in part, except for projects on which a final judicial judgment was issued.
- Non-Iraqi technicians and administration employees working in any project shall have the right to transfer their salaries and compensations outside Iraq in accordance with the law after paying their dues and debts to the Iraqi government and all other entities.
Performance Requirements and Incentives
The new GOI investment law allows both domestic and foreign investors to qualify for incentives equally. It also allows for investors to take out capital brought into Iraq and its proceeds in accordance with the law. Foreign investors are able to exchange shares and bonds listed on the Iraqi Stock Exchange. The new law also allows investors who have obtained an investment license to enjoy exemptions from taxes and fees for a period of ten years. Hotels, tourist institutions, hospitals, health institutions, rehabilitation centers and scientific organizations also are granted additional exemptions from duties and taxes on their imports of furniture and other furnishings. The exemption increases to fifteen years if the Iraqi investor share is more than fifty percent of the project.
Right To Private Ownership And Establishment
The new GOI investment law does not allow foreigners to own land. Foreign investors are permitted to rent or lease land for up to fifty years (renewable). Foreign investors are also able to form investment portfolios in shares and bonds but regulations are different in Kurdistan of Iraq as the investment laws allow for foreign investors to own lands.
Protection of Property Rights
The GOI is in the process of developing a new intellectual property rights (IPR) law in line with the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), but the exact structure of this and related legislation is still being determined. IPR functions are currently spread across several ministries. The patent registry and industrial design registry remain a part of the Central Organization on Standards and Quality Control (COSQC), an agency of the Ministry of Planning and Development Cooperation. Copyrights are under the Ministry of Culture, and trademarks under the Ministry of Industry and Minerals. The GOI’s ability to enforce intellectual property rights laws.
Iraq is also a member of several international intellectual property conventions, and of regional or bilateral arrangements which include:
- Paris Convention for the Protection of Industrial
- Property (1967 Act) ratified by Law No. 212 of 1975.
- World Intellectual Property Organizations (WIPO) Convention; ratified by Law No. 212 of 1975. Iraq became a member of the WIPO in January 1976.
- Arab Agreement for the Protection of Copyrights; ratified by Law No. 41 of 1985.
- Arab Intellectual Property Rights Treaty (Law No. 41 of 1985).
Efficient Capital Markets and Portfolio Investment
The Central Bank of Iraq (CBI) is responsible for conducting monetary policy in Iraq. The CBI was re-organized by CPA Order No. 56 as a legal public entity that has financial and administrative independence. The Iraqi banking system includes seven state- owned banks, the two largest being Rafidain and Rasheed, which account for about 96 percent of banking sector assets. The vast majority of banking transactions, however, are confined to basic consumer transactions rather than business loans. There are also 20 private banks Three foreign banks have also been licensed in Iraq.
The Trade Bank of Iraq (TBI) was established as an independent government entity under CPA Order No. 20 in 2003. TBI’s main purpose is to provide financial and related services to facilitate the importation. The payments system began limited operation in August 2006, with five banks participating. It is anticipated that by year-end another six to eight banks will begin to participate as well.
The new GOI investment law allows for foreign investors to exchange shares and bonds listed in the Iraqi Stock Exchange (ISX). It also allows foreign investors to form investment portfolios. Trading transactions and buy and sell orders are presently written by hand on grease boards in trading sessions. This system does not always allow for full transparency in terms of timing of market participants or knowledge of who has placed the bid. The coming automation of the ISX will provide much greater transparency as well as pave the way for foreign investment on the exchange.
Bilateral Investment Agreements and Regional Cooperation
Iraq is a signatory to thirty-two bilateral, and nine multilateral agreements within the Arab League arrangements on Investments Promotion and Protection (IPPA). Some of the bilateral agreements with other countries include Afghanistan, Bangladesh, India, Iran, Japan, Jordan, Kuwait, Mauritania, Republic of Korea, Sri Lanka, Syria, Tunisia, Turkey, the United Kingdom, Vietnam and Yemen. These 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.
In addition, Iraq has bilateral free trade area (FTA) agreements with the following eleven countries: Algeria, Egypt, Jordan, Lebanon, Oman, Qatar, Sudan, Syria, Tunisia, Yemen, and the United Arab Emirates. Iraq is also a signatory to several multilateral agreements, including the “Taysir” agreement with Arab countries dated February 27, 1982, and ratified in January 11,1982.
On July 11, 2005, Iraq and the U.S. signed a Trade and Investment Framework Agreement, a first step toward creating liberalized trade and increasing investment flows between the U.S. and Iraq.
OPIC and Other Investment Insurance Programs
The Overseas Private Investment Corporation (OPIC) finances a variety of investment projects in Iraq. Some of OPIC’s basic programs include structured finance projects, political risk insurance, investment funds and financing for small and medium-sized enterprises. In addition, OPIC and the Government of Iraq have executed an Investment Incentive Agreement (IIA).
Article 12 of the Iraqi Law on Investment grants the right for foreign investors to employ and use non-Iraqi workers in case it is not possible to employ an Iraqi with the required qualifications and capable of performing the same task in accordance with guidelines issued by the Commission and also the right for foreign investor and non-Iraqis working in the investment projects the right of residency in Iraq and facilitating his/her entry and exit to and from Iraq..
Iraq is a party to both International Labor Organization (ILO) Conventions related to youth employment, including child labor abuse. The Ministry of Labor and Social Affairs (MOLSA) also sets a minimum monthly wage for unskilled workers. In addition, according to Iraqi law, all employers must provide some level of transport, accommodation, and food allowances for each employee. The law does not fix allowance amounts.
In addition, foreign investors are expected to help train Iraqi employees as well as to raise their efficiency, skill, and capabilities.
Foreign Trade Zones And Ports
The Free Zone Authority Law No. 3/1998 (FZL) permitted investment in Free Zones (FZ) through industrial, commercial, and service projects. This law operates under the Instructions for Free Zone Management and the Regulation of Investors’ Business No. 4/1999. Capital, profits, and investment income from projects in the FZ are exempt from all taxes and fees throughout the life of the project, including in the foundation and construction phases.
Activities permitted in Free Zones include: (a) industrial activities (both production and consumer), assembly, installation, sorting and refilling processes; (b) storage, re-export and trading operations; (c) service and storage projects and transport of all kinds; (d) banking, insurance and reinsurance activities; and (e) supplementary and auxiliary professional and service activities. Prohibited activities include actions disallowed by other laws in force, such as weapons manufacture, environmentally-polluting industries and those banned because of place of origin.
There are currently four Free Zones. The Basrah/Khor al-Zubair Free Zone is one million square mile and is located 40 miles southwest of Basrah on the Arab Gulf at the Khor al-Zubair seaport. This area has been operational since June 2004. The Ninewa/Falafel Free Zone is 400,000 square miles and is located in the north, near roads and railways that reach Turkey, Syria, Jordan and the Basrah ports. The Sulaymaniyah Free Zone is located in northern Iraq in the Kurdish area. The al-Qayam Free Zone has two sections located near the Iraqi– Syrian border
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