This article considers how an Iraqi share purchase agreement can allocate tax and employment liabilities that were not fully identified before signing. Because the target company generally continues as the same legal person after a share sale, historical obligations do not disappear when its shareholders change. The buyer therefore needs both an understanding of the exposure and an enforceable arrangement for allocating the resulting cost.
The relevant federal legislation includes the Companies Law No. 21 of 1997, as amended; the Iraqi Civil Code No. 40 of 1951; 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. Regional labour, tax and social security arrangements require separate review where the target operates in Kurdistan Region. Contractual allocation between buyer and seller does not bind the competent authorities or employees.
Establishing the periods and obligations under review
The review should establish the relevant periods and reconcile records that may describe the same obligation differently:
- Map the tax position by period. Identify returns, assessments, objections and payment records. Read the scope of any clearance carefully, because payment of one assessed amount does not necessarily establish that every liability for that period has been determined.
- Reconcile workforce records. Compare contracts, payroll, withholding records and social security registrations with the people actually employed. Investigate differences involving appointments, departures, salary changes or foreign worker permissions.
- Identify the evidence behind each unresolved balance. Distinguish an assessed liability from an estimate, an unpaid amount from a missing receipt and a current employee from a former employee whose file remains open. Each may require a different contractual response.
Employment and labour advice in Iraq should examine the events behind those records. The allocation should follow the relevant obligation and period rather than relying only on the latest employee list or accounting balance.
Distinguishing warranties from specific indemnities
A warranty can state an agreed factual position, such as the completeness of identified records or the absence of specified claims, subject to negotiated disclosures. A specific indemnity can allocate the cost of an identified category of historical exposure. The legal effect depends on the governing law and the wording, rather than the heading used in the agreement.
Known issues should be addressed expressly. If a social security reconciliation is outstanding, the parties should define the affected employees, periods and types of amount. A general statement that all employment matters are compliant may create an argument over disclosure while failing to explain how the known reconciliation will be handled.
Defining the loss that will be reimbursed
The agreement should address assessed tax, contributions, interest or penalties where applicable, together with reasonable defence costs and any agreed consequential amounts. It should identify the person entitled to claim and avoid ambiguity where the liability is paid by the target rather than the buyer itself.
The allocation must also account for amounts already reflected in price. A provision, retained amount or purchase price adjustment may overlap with the indemnity. The drafting should prevent duplicate recovery while preserving protection for an exposure that exceeds the amount already allowed for. Tax advisory services in Iraq can help align the legal definitions with the financial schedules.
Handling periods that straddle completion
An assessment may cover a period beginning before completion and ending afterwards. The agreement should explain how relevant income, payroll and other items are allocated. A simple time apportionment may be unsuitable for an obligation arising from a specific transaction or employment event.
The parties should also consider the effect of the buyer’s later actions. A change in accounting treatment or voluntary amendment to a return may affect a historic period. Any restriction on such actions should preserve compliance with law and official requirements, while providing consultation where the seller may bear the cost.
Conducting claims without compromising the business
The buyer should notify the seller promptly of relevant notices and claims and provide access to supporting records. The agreement should specify who controls correspondence, objections and settlement discussions. The target must remain able to meet legal deadlines even if the parties disagree about their contractual allocation.
A seller’s right to participate should not allow it to make admissions or concessions that affect later periods or ongoing employee relations without appropriate consent. Settlement provisions should address continuing business consequences as well as the immediate payment. Confidential information and employee data should be shared only to the extent necessary for the process.
Preserving a practical route to recovery
The buyer should consider how an identified claim will be notified, supported and recovered after the sale:
- Preserve a meaningful source of payment. Assess whether the seller will retain accessible assets after distributing the proceeds. Retained consideration or properly documented security may provide more practical protection than a promise without financial support.
- Match the claims procedure to the exposure. Review contractual notice requirements and claim periods against likely discovery and mandatory rules. The agreement should identify the supporting information needed without making compliance impractical when an authority first raises a query.
- Separate tax and employment procedures where needed. The claimants, records and response deadlines can differ. Tailored schedules should explain who handles each matter and how reimbursement interacts with the target’s own obligations.
Illustrative example. After completion, a former employee claims unpaid entitlements relating to service before the sale. The target may need to respond to the employee while the buyer separately pursues its agreed protection against the seller. The agreement should address notification, access to historical payroll records and the seller’s involvement in any settlement. It should also prevent the parties’ disagreement over reimbursement from delaying the target’s legally required response. The amount recoverable between buyer and seller should be assessed against the indemnity wording and any price allowance already made for the same exposure.
Conclusion & how Etihad Law Firm can help
Historical liabilities should be allocated through provisions that identify the exposure, the payer and the claims process. The target’s obligations to employees and authorities remain a separate matter from the buyer’s contractual recovery against the seller.
Etihad Law Firm supports purchasers and sellers with diligence and Iraqi share acquisition documentation. We help connect tax and workforce findings to specific transaction protections and practical procedures for handling liabilities that emerge after completion.