This article examines how a business can leave the Iraqi market in an orderly way when its liabilities are likely to continue after operations have ended. Exit planning usually focuses on the visible steps: terminating contracts, releasing staff, selling assets and closing the local entity. Less attention is given to the liabilities that do not end on a fixed date, such as tax reviews of earlier years, warranty obligations, pending litigation, end-of-service claims and guarantees issued to customers.
Where those liabilities are significant, a business cannot simply close its doors and deregister. It must decide how the residual exposure will be managed, by whom, with what resources and for how long. An orderly exit treats the run-off period as a phase of its own, with a budget, a responsible team and a defined end point, rather than an afterthought handled from abroad.
The Companies Law No. 21 of 1997, as amended, governs dissolution, liquidation and the duties of liquidators. Regulation No. 2 of 2017 on the branches and offices of foreign companies governs branch closure. The Iraqi Civil Code No. 40 of 1951 governs contractual liability, guarantees and limitation periods. The Income Tax Law No. 113 of 1982, as amended, the Labour Law No. 37 of 2015 and the Workers Retirement and Social Security Law No. 18 of 2023 govern tax and employment exposures. The Civil Procedure Law No. 83 of 1969 governs pending litigation.
Distinguishing operating wind-down from liability run-off
An orderly exit has two distinct phases. The operating wind-down ends trading, completes or transfers contracts, releases staff and sells assets. The liability run-off manages obligations that remain after trading has stopped. These phases overlap but require different resources and decisions.
During the operating wind-down, the business still has revenue, staff and relationships. During the run-off, it may have none of these. Planning the run-off while the operating business still exists allows the company to retain the records, people and funds it will later need.
Building an inventory of residual liabilities
The exit plan should include a detailed inventory, with an estimate of the amount, likely duration and probability of each exposure:
- Tax. Open years that may be reviewed, pending assessments and disputes, withholding obligations and the time needed to obtain clearance.
- Contractual. Defects liability periods, performance warranties, retention amounts and outstanding guarantees or bonds.
- Employment. Potential claims by former employees, social security audits and end-of-service disputes.
- Litigation. Pending court cases and arbitrations, and threatened claims.
- Regulatory. Outstanding licence obligations, environmental or site restoration requirements and reporting duties.
Each item should be assigned an owner and a plan for resolution. Tax advisory services in Iraq can help estimate exposure for open tax years and the timetable for review.
Choosing a structure for the run-off
The business must decide which entity will carry the residual liabilities and how it will be managed. Common approaches include:
- Maintaining a dormant entity. The Iraqi company or branch remains registered but does not trade. It continues to file returns, respond to authorities and defend claims. This preserves standing but carries ongoing costs and compliance obligations.
- Liquidation with reserves. The company is liquidated, but the liquidator retains a reserve to meet expected claims before distributing the surplus. The liquidation may need to remain open until the main exposures are resolved.
- Transfer to a third party. Some liabilities, such as project warranties, may be transferred to a successor contractor or buyer with the counterparty’s consent, in exchange for payment.
- Parent support. The parent provides a guarantee or undertaking to meet residual liabilities, allowing the local entity to close earlier.
Corporate advice in Iraq can help compare these options against the inventory and the group’s objectives.
Settling exposures early where possible
Many residual liabilities can be reduced or eliminated by negotiation before exit. Customers may agree to release guarantees in exchange for a reduced retention or extended warranty from the parent. Former employees may accept final settlements with signed releases. Tax issues may be resolved by filing outstanding returns and engaging with the authority. Pending litigation may be settled.
Early settlement usually costs less than leaving exposures open, because the company still has resources and leverage while it is operating. Litigation and dispute resolution advice in Iraq can help evaluate settlement opportunities for pending disputes.
Funding and staffing the run-off
The run-off requires funds for professional fees, settlements and potential assessments. The exit plan should estimate a run-off budget and decide where it will be held. Funds held in Iraq can be used quickly but may be exposed to attachment. Funds held by the parent require a reliable mechanism for transfer when needed.
The run-off also requires people. The company should appoint a local representative with authority to receive notices, deal with authorities and instruct advisers. It should retain key finance and legal staff, or external advisers with access to records, for as long as major exposures remain.
Preserving records and evidence
Records are essential to defending claims and responding to tax reviews. The exit plan should identify which records must be retained, where they will be stored and who can access them. Electronic records should be backed up and preserved in formats that remain readable. Physical records should be stored securely, with an index allowing retrieval.
Setting an end point
The run-off should have a defined end point, such as the expiry of the last warranty period, receipt of tax clearance or conclusion of pending litigation. At that point, the remaining entity can be liquidated or deregistered and any reserves released. Reviewing the inventory periodically helps track progress and adjust the plan as exposures are resolved.
Managing communications with authorities
Authorities may not be aware that a business is leaving Iraq until filings stop or correspondence goes unanswered. An unexplained gap in filings can trigger estimated tax assessments, penalties or inquiries. The exit plan should therefore include proactive communication with the tax authority, social security authority, the companies registry and any sector regulator, informing them of the change in status and identifying the representative who will deal with them.
Where the entity remains registered but dormant, it should continue to file returns, even if they show no activity, and maintain its registered address. Where licences are no longer needed, they should be surrendered formally so that renewal fees and compliance obligations do not continue to accrue. These steps are administrative, but neglecting them can create liabilities that are disproportionate to the effort needed to prevent them.
Illustrative example. A foreign telecommunications equipment supplier decides to leave Iraq after completing a network rollout. Its Iraqi subsidiary has two open tax years, a three-year warranty to the operator and a pending dispute with a subcontractor. The group retains the subsidiary as a dormant entity with a local representative, negotiates with the operator to replace the warranty bond with a parent guarantee, settles the subcontractor dispute and files the outstanding tax returns. When the warranty expires and tax clearance is issued, the subsidiary is liquidated.
Conclusion & how Etihad Law Firm can help
An orderly exit from Iraq requires planning for liabilities that outlast the operating business. By identifying residual exposures, choosing an appropriate run-off structure, settling early where possible and retaining the resources needed, a business can leave the market without leaving unresolved risks behind.
Etihad Law Firm assists international and regional businesses with exit planning and run-off management in Iraq. Our commercial team can help negotiate releases and settlements with customers and counterparties before operations end.