Trade Policies

• • Iraq's non-membership of the World Trade Organisation (WTO) means that it has few preferential trade arrangements in place and, consequently, all imported goods are subject to the costly tariff regime regardless of their origin. Access to large markets is also somewhat restricted, though agreements do exist with the EU and some other MENA countries.

• • A flat 5% import tariff has been replaced since 2016 with a multiple tariff rate regime which ranges from 0%-80% for agricultural goods and from 0%-40% for non-agricultural goods. The opacity and convoluted nature of the trade regime also makes it difficult for firms to calculate tariffs and increases the risk of corruption and smuggling which damages the effective functioning of supply chains.

• • A sales tax of 300% is imposed on alcohol and tobacco (cigarettes), 15% on travel tickets, 15% on cars, and 20% on mobile recharge cards and internet. This is in addition to services rendered by deluxe and first class restaurants and hotels, which are subject to a 10% sales tax. There is no tax provision in the Iraqi tax law addressing excise taxes. The customs duty rates are specified in the customs tariff and the agriculture agenda that are annexed to the Customs Duty Law.

• • Certificates of origin are required for all products, which must include approval by numerous agencies in Iraq and the origin country of the goods. This is particularly difficult for imports of complex manufactured products which are comprised of parts from multiple different countries.

• The conflict in Syria and its spill-over into Iraq has caused huge disruption to trade flows between Iraq and its neighbours, including Jordan, Syria and Lebanon. The damage to infrastructure and security risks caused by Islamic State will also continue to delay supply chains in the short-to-medium term, despite the group being driven out of the country in late 2017.

Foreign Direct Investment Policy

1. Iraq's attractiveness as an investment destination is dented by challenging operating conditions. Some barriers have emerged as a direct result of government policies; for example, foreign investment is barred or capped in a number of sectors, including utilities, transportation, agribusiness and mining.
2. The government continues to operate restrictions on foreign investment in certain sectors, particularly those with strategic value to the Iraqi economy, such as oil and gas. Foreign ownership of hydrocarbons resources is not permitted. This means that international oil companies must take technical service agreements or production sharing agreements which are time-limited.
3. Non-resident persons or entities are not allowed to own land for industrial purposes without an Iraqi partner, except for the purpose of developing residential real estate projects.
4. In accordance with the Iraqi Investment Law, approved industrial projects are given certain custom duty and tax incentives; however, oil and gas is not one of the sectors that is normally granted investment promotion exemptions incentives. The tax incentives may include corporate tax, individual tax, and others; however, the tax incentives vary from one project to another.
5. The Board of Investment Promotion has the authority to add any sector or specific project to the list of sectors or projects that benefit from the investment promotion law incentives.
6. Income tax paid to a foreign country on income earned in that country may be credited against tax paid to Iraq. The amount of the credit may not exceed the amount of tax assessed in Iraq.
7. All foreign-owned entities in Iraq must employ Iraqi nationals as 50% of their workforce, while foreign firms are also encouraged to partner with and procure from local industries.
8. Government tender processes in Iraq are opaque and often plagued with corruption, creating difficulties for foreign businesses attempting to win government contracts. Government ministries are also required by law to give preference to SOEs when awarding contracts, even if their bids are more expensive than those offered by other firms.
9. SOEs are present throughout the Iraqi economy, with over 190 currently operational in a diverse range of sectors. SOEs receive preferential treatment by law in a broad swathe of areas, including the awarding of government contracts, the allocation of financing, and the availability of subsidies.