There are several key areas to be aware of within Iraq’s employment regulatory framework, especially for companies that plan to initiate a full local office and human resources department. Iraq’s labour law is known for not being updated regularly and furthermore, difficult to access, particularly as it is almost entirely provided in Arabic. These challenges can be mitigated by use of a locally sourced payroll provider who is familiar with all of the local laws and rules for both local employees as well as foreign nationals.
Employment contracts in Iraq, under Article 10 of Law No. 71/1987, requires that employer/employee relationships, contracts, register and instruments of work should be provided in Arabic, although Kurdish is also acceptable for labour contracts entered into in the Kurdistan area. Contracts must be in writing, and specify wage amounts and the type of work to be carried out. Salaries and wages must be paid in IQD. Contracts for employment may specify either fixed or indefinite terms, depending of the type of work.
|Medical Leave ?||
Employees are entitled to a maximum of 30 days of paid sick leave each year. After these 30 days are used up, the employee is entitled to another 180 days sick leave, paid by the insurance provider rather than the employer. Sick leave is conditional on valid documentation by medical evidence provided by a doctor.
|Annual Leave Accrual Entitlement ?||
20 days paid leave, or 30 days if the employee is undertaking dangerous work. After 5 years of employment, annual leave is increased by 2 days per extra 5 years of employment.
|Maternity Leave in Iraq ?||
Female employees are entitled to not less than 72 days of paid maternity leave.
|Termination of Employment ?||
The process through which employment contracts may be terminated in Iraq is complex. There are several authorised grounds of terminations stipulated in the Labour Law, including:
It is possible to also terminate an employment contract if in accordance with the Civil Code.
In the case of a dispute between employer and employee, the parties must inform the Minister of Labour and Social Affairs and the President of the General Federation of Employee Unions, then begin to seek conciliation with the assistance of both to reach a mutually acceptable solution. If this fails, employees and employers may submit their dispute to the Labour Cases Tribunal, which makes a decision within 15 days that is final.
|Probation Period ?||
The Labour Law allows employers to hire employees on a probationary basis for a period of up to three months, and must be specified in writing through the employment contract.
|Pension Requirements ?||
The system of welfare and benefits in Iraq is known for being complex and unclear, particular for foreign employers. Contributions are as follows:
|Management Fee for Employer of Record Services / Monthly Payroll Costs||
Shield GEO does not operate in Iraq.
Iraqi Dinar (IQD)
|Income Tax Rates||
Tax rates are flat in Iraq i.e. the same rate is applied to all individuals.
|Tax Returns Supplied||
|Employers Social Security and statutory contributions||
|Employees Social Security and statutory contributions||
There are specific rules for payroll and taxation in Iraq, depending upon whether your company employs foreign nationals or local Iraqi employees. The primary concerns for a foreign company that needs to comply with tax laws in Iraq are: Individual income tax (IIT) for employees in Iraq, social security costs, payroll tax, sales tax, withholding tax, business tax and permanent establishment concerns.
Iraq has some unique rules regarding employment, for example there is no government pension system, although both employers and employees make contributions to health insurance and their sick leave.
|Remote Payroll ?||
A remote payroll in Iraq is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Iraq. This applies to both local and foreign employees. The only option for a non-resident company to payroll its employees (local and foreign) in Iraq is to use a fully outsourced service like a GEO or FESCO which will employ and payroll the staff on their behalf.
|Local Payroll Administration ?||
In some cases, a company will register their business in Iraq under one of the forms available, (RO, WFOE or JV) but prefer to have another company administer its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations, but the payroll calculations, payments and filings can all be outsourced to the payroll provider. The Iraqi Government tends to pay attention to large sums of money paid into or from international accounts, so it is key to employ a reliable and trustworthy local payroll administrator.
|Internal Payroll ?||
Larger companies with a commitment to Iraq may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a Iraqi payroll, and can fulfill all tax, withholding, and payroll requirements. They must have an Iraqi bank account.
This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Iraqi employment laws.
|Fully Outsourced Payroll & Employment ?||
Shield GEO does not operate in Iraq.
|Currency ?||Iraqi Dinar (IQD)|
|Corporate Income Tax ?||
|Income Tax Rate ?||
|Payroll Tax ?||
Employers are required to calculate and remit 15% of personal income tax.
|Sales Tax ?||
|Withholding Tax ?||
|Time to prepare and Pay Taxes ?||
|Time required to start a Business ?||
Iraq’s Labour Law makes a distinction between Arab and foreign employees. Arab employees are treated as Iraqis and therefore are not required to obtain work permits – rather, employees must only inform the Labour office within 10 days before commencement of employment for Iraqi employees, or within 30 days for Arab employees. On the other hand, foreign employees require work permits and may not begin employment prior to acquiring one. Employees of foreign branches are exempted from this rule.
Iraq currently faces extremely volatile social and economic conditions which have led the Consulate Department of the Ministry of Foreign Affairs to ban the issuance of new work permits, as of February 2010, reiterated in the Prime Minister’s statement in February 2011 which prevents the issuance of work permits to non-Arab expatriate workers without official consent in writing from the Council of Ministers of National Security Council. On the condition that this consent is received, the procedure to apply for a work permit is outlined below.
Article 12 of the Iraqi Investment Law No. 13 gives investors and business owners the right to employ foreign workers. In order to obtain a work permit, the following procedure should be followed:
1. An employment offer is issued to the foreigner
Foreigners must have received an official offer from either Iraqi authorities, respective Ministries of Foreign Affairs and letters from the Chamber of Commerce, as well as a letter from their prospective employer stating the reason for their travel.
2. The employer submits a written request to the Ministry of Labour and Social Affairs.
This should include all required information and supporting documents, as well as information about the employee’s name, nationality, type and duration of work, employer’s name and address.
The following documents must be included:
2. Two color photographs of the applicant
3. Colour copy of the passport with at least 6 months validity
4. Official letter from the employer inviting the foreigner to work in Iraq
Time: Visas take approximately 4-8 weeks to be processed.
3. The Department of Labour and Vocational Training checks all the legal conditions and then approaches the relevant authorities to issue an entry visa to the employee.
When employees enter Iraq, they must attend the Department of Labour and Vocational Training within 7 days from the date of the entry so that the procedures for obtaining a work permit can be completed.
If the employee is already in Iraq and wishes to commence work, they must:
1. Submit all legal papers and documents proving the employee’s legitimacy of entry and residency in Iraq
2. The employer submits a written request to the Department of Labour and Vocational Training in Baghdad, or equivalent divisions in other provinces.
Work permits are issued for one year and can be renewed at least one month prior to expiration.
|Category||Description of Visa|
To apply for a tourist visa, which allows visiting friends and family, sight seeing, and any unpaid work, an application form must be completed and included with two colour photographs of the applicant, a copy of their passport in colour with at least 6 months’ validity, proof of departure and HIV test results.
This type of visa allows foreign non-Arab workers to undertake employment in Iraq. Employees of foreign branches are not required to apply for a work permit. Work permits are issued for one year and can be renewed at least one month prior to expiration.
When setting up a company you may want to consider these factors:
Business factors such as:
Location will be another factor. Separate cities and regions may have different rules, costs and availability. It is always recommended to seek advice from relevant professionals, such as business or legal advisors, accountants and others depending on your needs.
Regional language may be an influence. Although Arabic is the national language, different locations in Iraq use different languages, such as Kurdish, meaning some terminology may be different in various regions.
Foreigners may incorporate companies and trade representative offices or branches, operating in Iraq under the Companies Law 21 of 1997 – the Ministry of Trade Instruction No 196 of 2004 details the registration of Iraqi companies, while Regulation No 5 of 1989 explains the process for registration of branches or representative offices of foreign companies.
Foreigners must not engage in retail sales activities before meeting the below requirements:
This is one of the relatively faster and simpler ways to set up a company in Iraq.
Time: 2-3 days to register a foreign company branch office or 5-10 days to register a representation office.
Cost: IQD 126,250
The steps for setting up a branch or representative office are as follows:
1. Company submits application
The company initiates their application by filing and submitting two completed copies of the registration application form to the OCR, along with all requisite registration documents.
The application form contains the following information:
The following registration documents must also be submitted, in both English and Arabic:
2. OCR checks application for completeness and correctness
The OCR will then verify the application and review all documents to ensure completion and compliance with legal requirements.
3. Company pays part of the registration fee
Payment may be made either via cash or certified check once the approval of the Minister of Trade has been obtained.
Fee: IQD 126,250.
4. Company collects registration certificate of the branch or representative office
Once the company’s application has been fully reviewed, they should attend the OCR to receive the decision, which is also published in the Official Gazette and Bulletin of the Registrar of Companies.
The registration certificate will then be supplied by the OCR to the General Taxation Commission of the Ministry of Finance, the Ministry of Labour and Social Affairs, General Commission for Customs, Bar Association, Iraqi National Intelligence Service, and the Pension and Social Security General Commission.
If an application is rejected, the company may appeal to the Minister of Trade within 30 days of rejection. If this appeal is then rejected, the company may further appeal to the relevant courts within 30 days.
WFOEs are limited-liability corporations organized by foreign nationals and capitalized with foreign funds. WFOEs are often used to produce the foreign firm’s product in Iraq later export to a foreign country. The WFOE must go through the entire registration and incorporation process, and is the most costly and complex business structure to setup. In Iraq, there is a minimum capital requirement of IQD 1,000,000 to set up a WFOE.
Time: Approximately two months for joint stock companies, but for limited liability companies often less than 5 days if all documents are correctly submitted
Cost: From IQD 2,571,077 upwards.
A Wholly Foreign-Owned Enterprise (WFOE, sometimes incorrectly written as WOFE) is a common investment vehicle for Iraq-based business wherein foreign parties (individuals or corporate entities) can incorporate a foreign-owned limited liability company.
WFOEs are limited-liability corporations organized by foreign nationals and capitalized with foreign funds. This can give greater control over the business venture in Iraq, and avoid a multitude of problematic issues which can potentially result from dealing with a domestic joint venture partner.
Such problems often include profit not being maximized, leakage of the foreign firm’s intellectual property and the potential for joint venture partners to set up in competition against the foreign firm after siphoning off knowledge and expertise.
The steps are described in detail below.
1. Reserving a company name with the Baghdad Chamber of Commerce and Federation of Chambers of Commerce
The company name should be in Arabic. It is possible to search with a department within the Chamber of Commerce, Trade Names, to scan the database of existing names or reserved names of other companies. If the name is available, it may be reserved by payment of a nominal fee.
The Federation of the Chambers of Commerce is informed so that they may complete relevant checks to ensure the company name is not already engaged by other Iraqi chambers of commerce. This means that there will often need to be more than one visit to both chambers.
Time: 2 days
Cost: IQD 500,000
2. Hiring a lawyer to draft the company’s articles of association
The cost of hiring a lawyer to draft the articles of association will, of course, vary based on who is hired. Lawyers are also often in charge of completion of the registration process since they are required to draft the articles of association. Any lawyers engaged to carry out this task are usually licensed by the Company Registrar as Company Registrar Agents.
Time: 1 day
Cost: Approximately IQD 1,500,000
3. Deposit the initial capital with a commercial bank and obtain relevant document evidencing completion
The company must deposit initial capital with a commercial bank and in return receive a confirmation receipt, which must be filed with the registration application to the Companies Registrar. These funds may be withdrawn immediately once the certificate of registration has been issued by the Registrar.
The fee varies depending on whether the company chooses to deposit with a public bank. Public bank fees are about IQD 5,000 while private banks may charge up to IQD 25,000.
Time: 2 days
Cost: IQD 5,000-25,000
4. Obtain the shareholders’ tax clearance certifications from the General Commission of Taxation
A tax clearance certificate must be issued by the General Commissioner of Taxation in order for the Registrar to be able to accept registration of the new company.
Time: 1 day
Cost: IQD 1,000 per certificate
Once you get in touch with us, one of our consultants will take all the work off your hands, coordinate with our local partners to get all the required permits organised, provide the processing time, costs, document-checklist and keep you informed through the process. Contact us to know more.
5. The Companies Registrar requires the following documents be provided:
Once these are presented, the Registrar will circulate the registration certificate to the Social Security agency, Ministry of Trade, Central Bank, the tax authority and any other relevant agencies.
Time: 14 days
Cost: IQD 250,000-350,000
6. Obtain the registration certificate
This will be issued on successful completion of the above step. A company formation announcement will be published in an internal bulletin. At this stage, the company officially acquires its legal personality.
Time: 1 day
Cost: Included in the previous step
7. Create a company seal
A seal maker must be hired to create an official seal. They will often require a copy of the certificate of registration so that the exact name of the company is accurately reflected.
Time: 2 days
Cost: IQD 20,000
8. Register for taxes with the General Commission of Taxation
A Tax Identification Number will be assigned to the company.
Time: 2 days
Cost: IQD 450,000
9. Legalise accounting books
The General Body of Taxes will notarise or register the company accounting books and any new accounting books as necessary.
Time: 2 days
Cost: IQD 175,077
10. Register employees for social security
The cost of completing this step is contingent upon how many employees there are. The employer is required to deduct 5% from the employee’s salary in addition to 12% of the employee’s salary.
Time: 3 days
Cost: IQD 20,000.
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