Many foreign companies prefer to enter Iraq through a branch rather than a new Iraqi company. A branch can be quicker to set up and keeps control with the parent. It is also often needed to perform contracts with Iraqi government entities. However, a branch that is not properly registered cannot lawfully trade, and its unregistered activity can expose the parent company to penalties and unenforceable contracts.
Legal Framework
The Regulation of Branches and Offices of Foreign Companies No. 2 of 2017 sets the rules for registering branches of foreign companies in Iraq. It sits within the wider framework of the Companies Law No. 21 of 1997. Registration is handled by the Companies Registration Department at the Ministry of Trade.
The regulation governs registration, documentation, management and reporting duties of foreign branches. Branches must also comply with tax, labour, social security and sector-specific rules. Registration under the regulation is therefore only the first step in operating lawfully.
Key Points for Foreign Companies
A Branch Is Not a Separate Company
A branch has no legal personality separate from its parent. The parent company is responsible for the branch’s obligations and liabilities. This is a key difference from an Iraqi limited liability company. Foreign companies should weigh this exposure when choosing between a branch and a subsidiary.
Eligibility of the Parent Company
The parent company must be validly established and in good standing in its home country. The regulation sets conditions on the parent’s existence and activity, which should be confirmed before applying. The branch’s activity must fall within the parent’s own registered objects.
Required Documents
Applicants typically need to submit:
- the parent’s certificate of incorporation and constitutional documents;
- a resolution of the parent authorising the branch;
- a power of attorney appointing the branch manager;
- recent financial statements of the parent.
Foreign documents must be legalised, including by the Iraqi embassy and the Ministry of Foreign Affairs, and translated into Arabic. This step often takes the longest.
The Branch Manager
The branch must have a manager appointed by the parent. The manager represents the branch before authorities and third parties. The scope of the manager’s powers should be clearly defined in the power of attorney. Any change of manager must be notified and registered.
Branches and Government Contracts
Foreign companies awarded government contracts in Iraq are often required to register a branch. Contracting entities may ask for the registration certificate before signing or paying. Companies bidding for public work should start the registration process early.
Tax and Other Registrations
After registration, the branch must register with the General Commission for Taxes. It must also meet social security and labour obligations for its employees. Foreign staff need work and residence permits under the relevant laws.
Accounts and Annual Obligations
The branch must keep accounting records in Iraq and prepare annual financial statements. These are audited by a licensed Iraqi auditor and submitted to the relevant authorities. Missing filings can block tax clearance, which is often needed to receive contract payments.
Closing a Branch
A branch cannot simply be abandoned. Closure requires deregistration, settlement of tax and other liabilities, and clearance from the competent authorities. Unresolved obligations can follow the parent company in future dealings in Iraq.
Practical Recommendations
- Decide early whether a branch or an Iraqi subsidiary better suits the company’s liability and contracting needs.
- Begin legalising and translating parent company documents as soon as entry is planned.
- Draft the branch manager’s power of attorney carefully, with clear limits on authority.
- Register with the tax authority promptly and appoint a licensed Iraqi auditor from the outset.
- Plan for proper deregistration when a project ends, rather than leaving the branch dormant.
Conclusion
A registered branch is a practical route for many foreign companies entering Iraq, especially for government projects. Its benefits come with full parent liability and ongoing compliance duties. Careful preparation and ongoing filings keep the branch, and the parent, in good standing.
This article provides general information only and does not constitute legal advice. For advice on registering a foreign company branch in Iraq, contact Etihad Law team.