AUSTRALIAN COMPANIES CAN TAKE ADVANTAGE OF IRAQI INVESTMENT LAW 

The Iraqi government has stated that Iraq is now “open for business”. Below, we discuss the legal regime devised to facilitate foreign investment in Iraq.

Foreign investment in Iraq is regulated primarily by the Iraqi Investment Law, published in the Official Gazette as Law No. 13 of 2006 on January 17, 2007 (‘the 2006 Law’). The new law replaces the previous legislative arrangement, invalidating both the Coalition Provisional Government’s Order No. 39 of 2003, and the Arab Investment Law No. 62 of 2002, issued by the pre 2003 government of Iraq.

The 2006 law aims at encouraging investment and development by opening up Iraq’s economy and offering generous incentives and guarantees to foreign investors. The law is perhaps best regarded as a framework of guidelines rather than a comprehensive legislative arrangement, as many of the subsidiary regulations that will provide more substance to its reforms have yet to be formulated.

Article 29 of the 2006 Law provides that all areas of investment shall be subject to its provisions, except for the all-important oil and gas sector, and the banking and insurance services sectors. The Iraq oil law was submitted to the Iraqi Council of Representatives in May 2007, but the various factions within the Iraqi government have yet to reach an agreement on its implementation.

The position is complicated further by the federal nature of Iraq and the, as yet, unresolved tensions between regional and national laws. Foreign investment is not an area of exclusive federal jurisdictions and on 3 July 2006 the Kurdistan Regional Government passed the Law of Investment in the Kurdistan Region – Iraq, which regulates investment activities in the three provinces that comprise Iraqi Kurdistan. How tensions and contradictions between regional and national laws are resolved remains yet to be seen.

The National Investment Commission and Regional and Governorate Investment Commissions

The 2006 Law establishes the National Commission for Investment (NIC), which is primarily responsible for establishing and implementing national policies for investment, investor support, granting investment licenses, dealing with violations of the 2006 law, and drafting plans, regulations, guidelines and instructions for foreign investment. It stipulates that the NIC shall exclusively specialise in strategic investments of a federal nature.

The 2006 Law also allows the formation of local Regional and Governorate Investment Councils (RGICs) which are enabled to grant investment licenses, draw up investment plans and open local branches, as well as prepare lists of investment opportunities in their areas. RGICs must coordinate their activities with the NIC so as not to conflict with federal investment policy.

Investor protections 

Article 11 of the 2006 Law sets out that foreign investors have the right to withdraw capital from Iraq in hard currency; to trade in shares and bonds listed on the Iraqi stock exchange; to form investment portfolios; to lease lands for investment projects for a renewable fifty year period; to insure investment projects with local or international insurance companies; and to open bank accounts both inside and outside Iraq.

Article 12 of the 2006 Law enables investors to employ non-Iraqi workers, provided it is not possible to employ a worker with similar skills from within the local labour market. It articulates the in-principle right of such a worker to be granted a visa, but provides no detail as to threshold requirements or application procedures. Non-Iraqi employees are able to transfer their salaries and other compensation outside Iraq after paying ‘their dues and debts to the Iraqi government and all other entities’.

Investor incentives

The 2006 Law provides a number of attractive incentives for foreign investors. Projects which obtain an investment license from the NIC for areas of development defined by the Council of Ministers of the Iraqi government are entitled to a tax and fee exemption period of ten years from the date of commencement of commercial operations. The NIC may increase the years of tax and fee exemptions in a way directly proportional to the increase in the Iraqi investor share in the project.

Other incentives include fee exemptions for assets imported within the first three years of an investment project, imported assets required for expansion, development or modernisation; and spare parts imported for investment projects. Additionally, hotels, tourist institutions, hospitals, health institutions, rehabilitation centres and educational and scientific projects are able to obtain ‘additional exemptions’ from duties and taxes on their imports for furnishings, furniture and other ‘requisites’.

Under the 2006 law there is no requirement for foreign investors to retain Iraqi equity in their companies. This means that companies investing in Iraq can be 100% foreign owned. This is in marked contrast to the investment laws governing the countries of the Gulf Cooperation Council, all of which have provisions mandating various levels of local share ownership.

Investor Obligations

Article 14 of the 2006 Law sets out the obligations on investors in a general, non-specific manner. These include as follows:

• To notify the NIC and the RGICs of the commencement of commercial activities and the installation and equipping of fixed assets for investment activities;
• To maintain proper financial records audited by a certified accountant in Iraq;
• To provide feasibility studies, progress reports and budgets and other data for projects required by the NIC;
• To protect the safety of the environment and adhere to laws related to security, health, public order and values of Iraqi society;
• To adhere to Iraqi laws on salaries, vacations, work hours, conditions and other employment laws, and awars priority employment and training to Iraqi workers.

Application Procedure

Article 19 sets out the procedure for the grant of an investment license and establishment of foreign projects.

Significantly, the NIC and RGICs can only grant a license for a project provided that the following items are included in the investor's application:

• A complete application form;
• A bank guarantee from an approved bank;
• Details of projects undertaken by the investor;
• Particulars of the actual project including costings;
• A time line for the completion of the project.

International agreements 

Article 22 provides that the foreign investor shall enjoy additional privileges in accordance with international agreements signed between Iraq and their country as well as multilateral international agreements which Iraq has joined.

Disputes between Parties

The 2006 Law provided that disputes between parties are to be subject to Iraqi law, unless the parties contract out this provision. This means that parties can choose the governing law that applies to a contract and set out the procedure for arbitration. Iraqi law will apply in disputes arising from employment contracts involving Iraqi workers and disputes involving crimes, regardless of contractual provisions between the parties.

While domestic arbitration is governed by Articles 251-276 of the Iraqi Civil Procedure Code, the position for international arbitration of disputes is not so apparent, due to the absence of implementing regulations which render the application of the law in practice uncertain. Despite its ratification of the League of Arab States Convention on Commercial Arbitration (1987), Iraq is not a signatory to the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards (1958) and its subsequent rules.

Conclusion

Although there remains room for greater regulation and detail, the 2006 Law is a great leap forward for Iraq in fulfilling its potential as a robust economy that encourages and protects foreign investment.

Opportunities for Australian companies exist in the fields of Agriculture, construction, technology, communications and the oil industry. Coupled with the fact that the 2006 Law allows 100% Australian ownership, Australian companies should seriously consider opportunities in Iraq.

Please contact James Harb of Blackstone Waterhouse Lawyers should you be interested in investing in Iraq.