Iraq Market Entry – Babyinger

Subchapters:

Market entry
Forms and conditions of operation on the market
Marketing and Communications
Issues of intellectual property protection
Public procurement market
Payment terms, payment ethics and resolution of commercial disputes
Visas, fees, specific conditions of travel to the territory
Employment of citizens from the Czech Republic
Fairs and events

Market entry

Entering the Iraqi market with a new product or new services means facing foreign competition, which lately usually comes from neighboring Islamic countries (primarily Turkey, Iran) or from East Asia (South Korea, Japan, China), but also with local bureaucracy. According to cheeroutdoor.com, the quality criterion in the requirements of local importers is starting to gain importance, to this the good name of our country from the time of socialism can be added in favor of Czech exporters, and in combination with a reasonable price, the initial situation for Czech exporters is quite good.

For sales in Iraq, it is essential to find a partner who has or will create a distribution network and will help push the product to market. It continues to be largely controlled by large state-owned enterprises, especially in the area of strategic commodities (e.g. basic foodstuffs, medicines and medical equipment), the private sector still has a low share in the economy and, unfortunately, is not developing much. Achieving success without permanent representation by a local worker or company with good knowledge of the business environment would be extremely difficult if only because the legislation, tax and customs system is still not stabilized. When choosing a cooperating company or person, it is recommended not to save on the costs of their thorough examination (legal services, audit), because cases of fraudulent behavior are abundant in Iraq and difficult to detect without prior knowledge of the environment. For foreign investors, entering the Iraqi market is generally associated with a relatively large risk. It is not a simple matter and must be preceded by a thorough analysis of the market, for which it is necessary to find the right legal and strategic advice. The range of opportunities Iraq offers is wide to the point of overwhelming, many investors cite low competition as a reason for interest in the Iraqi market, but poor understanding of local market conditions, pervasive corruption and protection of intellectual property rights are of concern.

Any legal entity that has registered with the Tax Department in Iraq can start a relevant business and engage in international trade by meeting the necessary requirements of the Iraqi government. For commercial purposes, a registered business with an appropriate license (if required) according to the type of business and registered in the country’s commercial register is necessary for the export and import of goods to Iraq.

Iraq has a legal system based on civil law. The Iraqi Civil Code was modeled after the Egyptian Civil Code, which in turn was modeled after the French. Like the Egyptian Civil Code, the Iraqi Civil Code contains certain elements of Sharia law. However, Sharia’s influence on Iraqi law is quite limited. This concerns an important area of business such as banking, which is fundamentally unaffected.

Foreign entities can set up branches in Iraq and do business even if they are fully foreign-owned. Iraqi ownership of at least 51% is required to establish a limited liability company in Iraq. In addition, there are some industry rules that require full or partial national ownership to obtain certain types of licenses and approvals (for example, this includes pharmaceutical companies and commercial agencies).

Investment incentives come in the form of tax and customs concessions and/or duty exemptions. Land allocation is also sometimes available.

The customs tariff is available for download on the Internet, but it is recommended to always check the applicable rates with the customs office before closing deals (changes in rates during the year are announced for many items).

The State Company for Iraqi Trade Fairs and Trade Services, a subsidiary of the Iraqi Ministry of Trade and Minerals, has introduced a Certificate of Registration (CoR-Certificate of Registration) system for manufacturers and suppliers from exporting countries. The CoR program was formally launched on October 1, 2020, with gradual implementation depending on the product category and in accordance with a set schedule, from which CoR will become a mandatory prerequisite for manufacturers and suppliers to obtain an import license in the Republic of Iraq.

Forms and conditions of operation on the market

Limited Liability Companies (LLCs) are the most common legal form of business. According to the Companies Law (Companies Law No.21/1997 as amended by No. 64/2004), foreign investors have the right to establish or hold shares in IQ companies without any restrictions, but with the approval of Iraqi ministries/departments. For example, establishing an LLC in federal Iraq that intends to engage in oil and gas services requires approval from the Iraqi Ministry of Petroleum. The memorandum of association of the LLC is its decisive document, and the law defines the information that must contain:

The name, form of the company and its objectives;

Address of registered office;
Name, address, occupation and nationality of the founder; and
Share capital (minimum capital is 1 million IQD)

An LLC may not have more than 25 shareholders. An investor wishing to establish a company in federal Iraq must complete an application and submit it to the Companies’ Registrar at the Ministry of Commerce. The Registrar of Companies must obtain the approval of the MOI (Ministry of the Interior) before issuing the LLC Certificate of Registration. After approval by the MOI, the Company Registration Office issues a certificate of registration. The LLC is then ready to operate its activities throughout federal Iraq.

Branches and representative offices of foreign companies (Branches/Representative Offices of Foreign Companies). A foreign parent company may establish a branch in Iraq if it has previously entered into a contract with the Iraqi government or a contract with a prime contractor that has a contract with the Iraqi government. The branch can only carry out business activities authorized by its parent company and is also bound by the operations enumerated in the contract when establishing its presence in Iraq. In contrast, a representative office can only engage in business development and marketing activities and thus cannot engage in any commercial activities in Iraq. A representative office may be converted to a branch if a government contract or prime contractor contract with the Iraqi government is secured.

Commercial agency (based on the Commercial Agency Agreement) Commercial agencies in Iraq are mainly governed by Law No. 51 of 2000 on the Organization of Commercial Agencies (Agency Law. Only Iraqi citizens can be commercial agents. The government entity usually requests representatives of foreign companies to have submitted their legal documents (Certificate of Company Registration/Deed of Incorporation, including agency agreements together with a letter of authorization and approval of the foreign company issued by the Iraqi representative company. The legal documents are the Company Registration Certificate and other related documents, e.g. (Tax Clearance Certificate payment of tax).

Marketing and communication

Finding a potential partner is a complicated matter in Iraq. There is practically no demand for PR and HR services in the country. From social networks, communication is also widespread between sellers of the WhatsApp application, including the sending of larger attachments-presentations.

Information sources about business entities are sporadic, there are no internet databases or publicly accessible sources (company websites are still used by a fraction of companies, they are often only in an Arabic version and are often not functional or at least not updated, the commercial register is also not available). Online search according to the lists of members of associations, associations, unions, the tool is also unavailable in Iraq. Obtaining a list of companies (even state ones) in written form with at least partial data from representatives of sector ministries also proves to be a problem. Systematically building personal contacts, creating one’s own networking of business partners is a way that proves to be effective. By using the information that chambers of commerce keep about companies, it is possible in some cases to complete the verification of data on selected companies. Handing out catalogs in the official language (Arabic, Kurdish), at least in English, has proven to be effective. In addition to colorful and high-quality promotional materials, however, personal contact is the most important thing in the Arab world. Exhibitions and fairs are generally used for such contact, but in Iraq their significance is limited. They are primarily a regional matter. The majority of foreign exhibitors are companies from the neighboring countries of Iran, Turkey, and Jordan. Certain exceptions include the IQDEX (international fair for defense and security technology) exhibitions in Baghdad or the Erbíl International Fair (a multidisciplinary fair regularly presents a wide range of companies across industrial fields). In addition to colorful and high-quality promotional materials, however, personal contact is the most important thing in the Arab world. Exhibitions and fairs are generally used for such contact, but in Iraq their significance is limited. They are primarily a regional matter. The majority of foreign exhibitors are companies from the neighboring countries of Iran, Turkey, and Jordan. Certain exceptions include the IQDEX (international fair for defense and security technology) exhibitions in Baghdad or the Erbíl International Fair (a multidisciplinary fair regularly presents a wide range of companies across industrial fields). In addition to colorful and high-quality promotional materials, however, personal contact is the most important thing in the Arab world. Exhibitions and fairs are generally used for such contact, but in Iraq their significance is limited. They are primarily a regional matter. The majority of foreign exhibitors are companies from the neighboring countries of Iran, Turkey, and Jordan. Certain exceptions include the IQDEX (international fair for defense and security technology) exhibitions in Baghdad or the Erbíl International Fair (a multidisciplinary fair regularly presents a wide range of companies across industrial fields).

Among the online magazines published in the English version, we can mention Iraq-BusinessNews, Iraq Oil Report or ShafaqNews, which publish sector information useful for business. However, since these are private initiatives, the comprehensiveness, impartiality and timeliness of the reports published by them cannot be guaranteed.

Current information for investors is actively disseminated by the National Investment Commission ( NIC ) portal. It is an institution with a ministry-level status that participates in the mediation of investment opportunities, including updating business and logistics information and conditions for doing business.

The Iraqi News Agency ( INA ) is the first news agency in Iraq and, as the official news agency, includes an economic news section. The National Iraqi Intelligence Agency ( NINA ) was established as the first independent intelligence agency in Iraq in 2005. It still operates mainly as an Internet newsletter.

Issues of intellectual property protection

Iraq has legislation in force covering the area of intellectual property protection (patents, trademarks, industrial designs, copyright) which corresponds to the current standard. Due to the absence of information about its possible violation, however, it cannot be assumed that it is properly applied. This is also evidenced by the fact that, even though Iraq is not a member of the WTO, it seeks to join, and ensuring standard protection of intellectual property rights is one of the essential conditions.

Patents. Patent applications must be filed in Arabic, contain a detailed description of the invention, and must be accompanied by a number of documents. Each application will be assessed for compliance with the formal requirements and patentability under the Patent Act, particularly for innovative content. The Patent Office may require changes to ensure compliance. The application will be rejected if the required amendments are not complied with within the period set by the patent office.

Registration. The Ministry of Planning is responsible for patents and the register of industrial designs.

Enforcement and Remedies. The Patent Act provides patent holders with a variety of criminal and civil remedies to protect their patent rights. Infringers can be manufacturers, retailers or users in the case of a process or method.

Length of protection. Patents are protected for 20 years from the date of filing. They cannot be restored or extended.

Trademarks (Trade Marks). Any sign that can be graphically represented and is suitable for distinguishing products and services from other products and services can be protected as a trademark. The term “trademark” includes trademarks, service marks, collective marks and certification marks.

Protection. The Ministry of Industry and Minerals administers trademarks.

Enforcement and Remedies. Iraqi law provides both criminal and civil remedies to protect the trademark owner’s rights from infringement. Application, registration or use of the same or similar trademark for the same or similar products and services constitutes infringement.

Public procurement market

Public contracts (tenders) are either internal (exclusively for Iraqi companies) or international (allowing the participation of foreign entities). Public contracts are published either in the form of a decree by the relevant ministry or on the website of the ministry (or state-owned company). Unfortunately, the published information tends to be very fragmentary and to get any details requires a subscription to the official bulletin.

A common feature is that there is a very short period of time between the announcement of a public contract and the deadline for submitting an application – even in Iraq. In addition, only an entity registered in Iraq can obtain (purchase) the terms of the competition. This is also another argument why Czech business entities with a serious interest in penetrating this market should have their permanent representative or local partner in Iraq.

In order to successfully obtain a contract in Iraq, it is very important to comply with the legislative conditions of the tender. In no case do not be late with the delivery of the offer, and if it is unavoidable, ask for a delay in time. Always try to communicate with the contracting authority and find out which type of supplier is being sought, and adapt your offer accordingly, or add a discount to the offer.

It is advisable to avoid strict declarations that could be used by the contracting authority to exclude from the bidding process. E.g. if we want to criticize the awarding of the tender (its inadequacy or incorrectness), it is necessary to use a more “diplomatic expression”. It is not appropriate to say that “we will not accept the assignment because…” Statements of this type may be considered disqualifying.

It is also necessary to expect a delay in the Iraqi banking sector. Therefore, in the case of sending a Bid bond or other payment, it is better to count on a longer maturity, not to rely on the fact that the commission will consider the date of submission of payment as valid for fulfilling the tender conditions. In many cases, on the contrary, the day when the payment was credited to the client’s account is counted, which again can be disqualifying, however culpable the Iraqi bank may be.

Payment terms, payment ethics and resolution of commercial disputes

Commercial disputes are mostly settled by agreement, enforcement of the law is difficult and in any case very lengthy. Investment in the territory is limited to large international oil companies.

We do not recommend investing in small or even medium-sized companies. As a basic payment instrument in the case of goods deliveries, we recommend a confirmed irrevocable letter of credit, opened at a reputable bank.

Doing business in Iraq is limited primarily by the long-term unstable security situation (except for the Iraqi Kurdistan Region). The consequence is limited possibilities of movement in the greater part of Iraq, or security risks associated with it. The danger arising from relatively frequent attempts at fraudulent behavior when establishing business relations with Czech entities must be taken into account. The already mentioned non-transparent legal system further complicates the possibilities of long-term planning and implementation of business cases with Iraqi partners. The same applies to the lower level of legislation (ministerial decrees and regulations), whose chaotic changes are moreover difficult to follow. For the above reasons, cooperation with local lawyers is essential.

The insufficiently developed banking system is assessed as another negative factor for the realization of business relations with Iraq. Bank transfers are complicated and lengthy due to the lack of experience of Iraqi bank staff and technical obsolescence (especially the absence of digitization). The level of development of electronic banking is absolutely insufficient.

Visas, fees, specific conditions for traveling to the territory

Immediately before the planned trip, we recommend that you always contact the Embassy of the Republic of Iraq in Prague and request the latest information on any current changes to the conditions of entry into the territory.

Czech passport holders can obtain a one-time short-term entry visa valid for 60 days for a fee of USD 75 upon arrival at the international airports in Baghdad, Basra and Najaf. In the case of using a land border crossing, it is necessary to contact the responsible Iraqi embassy in the neighboring country in advance and request the currently valid instructions for obtaining an entry visa.

In the case of a trip to the region under the administration of the Kurdish Regional Government (Dohúk, Erbíl, Sulaymánija), it is currently possible for holders of Czech travel documents to travel to the KRI for a short time without an entry visa. Subsequently, after the flight/arrival, a short-term entry permit to stay in KRI will be received for a fee of approximately USD 70. The validity of this entry permit is limited to a period of 30 days (without the possibility of entering other Iraqi provinces). For more detailed and up-to-date information, we recommend that you always contact the Consulate General of the Czech Republic in Erbil before your planned trip.

Customs regulations and rules are comparable to other countries in the region. We recommend not importing items and goods that could be considered incompatible with the Islamic religion (especially alcohol or Jewish religious items).

Due to the restrictions on movement, we recommend having sufficient cash (USD), as it is often not possible to use payment cards or withdraw from ATMs in Iraq (which can also be risky, both due to the possible misuse of payment data and due to the charging of very high handling fees in amount of hundreds of USD). Payments in EUR are not usual. It is necessary to take into account the impossibility of using electronic banking, therefore even payments in hotels are in cash.

COVID-19 – current travel conditions to Iraq

All travelers over the age of 12 must present an international certificate of completed vaccination against COVID-19 or a negative PCR test no more than 72 hours old when entering Iraqi territory, together with an official document of a medical condition that precludes vaccination against COVID-19.

Employment of citizens from the Czech Republic

The conditions for the employment of citizens of the Czech Republic by Iraqi entities are not good mainly for security reasons. Given the long-term uncertain security situation and difficult living conditions, we do not expect Czech citizens to be interested in employment in Iraq. An exception is the safe and rapidly developing Iraqi Kurdistan Region, where several Czech citizens and legal entities are already successfully operating.

Legislatively, employment in Iraq is governed by the Labor Code, Law No. 71 of 1987, applicable to federal Iraq and the Kurdistan Region. According to the law, Arabic is the decisive language mutation of the employment contract, Kurdish is recognized in KRI. English may be included as a supplement, but it is safe to assume that Iraqi courts will rely on the Arabic version.

The Labor Code loosely defines “worker” as any person who performs work for wages, in the service of an employer and under his direction and supervision. The worker must have an employment contract, which must contain a number of binding provisions, namely, it must be in writing, specifying the nature of the work performed, the remuneration and the duration of the contract (it can be for an indefinite or definite period).

The employer is obliged to pay social insurance in the total amount of 17% of the salary, of which 5% is paid by the employee. Every employer who employs more than 3 people is obliged to register for the payment of social insurance. Due to the ever-changing legislation, it is recommended that you work with a local attorney on employment matters. Although the Labor Code prohibits foreign workers from working without a work permit, in practice work permits (and residence permits) in Iraq have been limited to large contractors that have direct contracts with the Iraqi government. The same privilege has been extended to subcontractors of large contractors, where the approval and sponsorship of government contractors is still required.

The Council of Ministers (Council of Ministers, Decision Nr. 336 of 28/08/2018) issued the following decision in the matter of foreign workers employed in Iraq with a work permit issued: The necessity of providing guarantees (according to Article 18 of the Law on the Residence of Foreigners) is established as follows:

100,000 IQD for foreigners who are contracted to work in Iraq by investment companies or companies that contract with Iraqi ministries or state institutions.
300,000 IQD for a foreigner who is employed in Iraq by foreign investment or non-investment companies contracting with the Iraqi private sector.
1,000,000 IQD for a foreigner who is involved in work in Iraq in cases other than those listed.

Fairs and events

The following actions are planned in Iraq in the foreseeable future:

Baghdad

International Food Exhibition (10-13 July 2022)
3rd Health and Environment Conference and Exhibition (September 1-4, 2022)
International Conference and Exhibition of Anti-Terrorism and Special Operations and Cyber Security (ATSO) (September 11-14, 2022)
Baghdad International Fair (1-10 November 2022)
IQDEX (March 2023)

Erbil