Customs exemptions are the statutory and regulatory mechanisms through which goods are admitted into Iraq with full or partial relief from the customs duties, taxes, and fees that would otherwise apply. The framework engages exemptions under the Investment Law No. 13 of 2006 (as amended); the Free Zones Law No. 3 of 1998; suspensive customs regimes operating under the Customs Law No. 23 of 1984; diplomatic and military exemptions; sectoral exemptions for specific categories of goods; and Council of Ministers exemptions adopted for specific purposes. The exemptions confer substantial commercial benefits but engage substantive procedural requirements and conditions that should be observed with care.
Investment Law Exemptions
The Investment Law No. 13 of 2006 (as amended by Law No. 50 of 2015 and subsequent amendments) establishes a package of statutory incentives for investment projects licensed by the National Investment Commission (NIC) or the Provincial Investment Commissions (PICs). The principal customs-related incentives include:
- Exemption from customs duties on imported fixed assets, equipment, machinery, and tools required for the licensed project, available for a period of ten years from the date of issuance of the Investment Licence (extendable in specified circumstances)
- Exemption from customs duties on imported raw materials and intermediate inputs used in the production of the licensed project for a defined period, where the project’s output is substantially exported
- Exemption from corporate income tax for ten years from the commencement of commercial operations, extendable in specified circumstances
- Right to repatriate capital and profits in convertible currency
- Access to land use rights on preferential terms
The customs exemption is procedural in nature, requiring the presentation of the Investment Licence and supporting documentation at the point of customs clearance and the compliance with the conditions attached to the exemption.
Investment Licence Procedure
The procedure for the Investment Licence engages:
- Application to the NIC or the relevant PIC, supported by the project documentation including feasibility study, technical specifications, business plan, and applicant documentation
- Evaluation of the application against the eligibility criteria
- Issuance of the Investment Licence specifying the scope of the project, the incentives applicable, and the conditions attached
- Registration of the project with the Companies Registrar
- Implementation of the project in accordance with the licence
- Submission of periodic performance reports to the issuing authority
Operators contemplating substantial investment in Iraq should engage with the Investment Law framework at an early stage of project planning to secure the available incentives.
Free Zones Law Exemptions
The Free Zones Law No. 3 of 1998 establishes the framework for free zones in Iraq, providing for the establishment of designated areas within which goods may be received, stored, processed, and exported without the customs duties and taxes applicable in the broader Iraqi customs territory. The principal Iraqi free zones include the Khor al-Zubair Free Zone, the Falafel Free Zone, and the Nineveh Free Zone, with the Kurdistan Region operating additional free zones under the Kurdistan Regional framework. Operations within free zones benefit from:
- Suspension of customs duties and taxes on goods received in the free zone
- Exemption from corporate income tax for activities conducted exclusively within the free zone
- Simplified administrative procedures for permitted activities
- Right to repatriate capital and profits
- Specific labour law considerations
Goods released from a free zone into the Iraqi customs territory engage the standard customs procedures applicable to importation, with the customs duties and taxes assessed at that point. Free zones are accordingly suitable for operations engaging substantial transhipment, processing for export, or strategic inventory positioning.
Temporary Admission
Temporary admission is a suspensive customs regime under which goods are admitted into Iraq with suspension of customs duties and taxes, subject to the requirement that the goods be re-exported within a prescribed period. The regime is suitable for:
- Goods imported for exhibitions, fairs, and similar events
- Professional equipment imported for specific projects
- Goods imported for testing or demonstration
- Containers and packing materials
- Goods imported under specific arrangements consistent with the framework
The regime engages the provision of security in the amount of the suspended duties and taxes, typically through bank guarantees, with the security released on the re-exportation of the goods within the prescribed period. Failure to re-export within the period engages the obligation to pay the full duties and taxes, with the security called upon for the payment.
Inward Processing
Inward processing is a suspensive customs regime under which goods are imported for processing or manufacturing in Iraq, with the processed or manufactured product subsequently re-exported. The regime engages suspension of customs duties on the imported inputs, recognising that the economic activity of processing and manufacturing for export should not be burdened with customs duties on the inputs. The regime engages:
- Authorisation by the General Authority of Customs to operate under the regime
- Specification of the inputs, the processing operations, and the resulting products
- Yield rates determining the input-to-output relationship
- Provision of security for the suspended duties
- Periodic reporting of operations to the customs authority
- Re-exportation of the processed products within the prescribed period
The regime supports the development of Iraqi manufacturing and processing operations engaged with export markets.
Outward Processing
Outward processing is the complementary regime in respect of Iraqi goods temporarily exported for processing abroad, with the processed products subsequently re-imported into Iraq. The regime engages relief on the re-importation by reference to the value of the Iraqi inputs, recognising that the inputs have already been within Iraqi commerce. The regime engages similar procedural requirements to inward processing, adapted for the outward direction of the flows.
Transit
Transit is the suspensive customs regime applicable to goods passing through Iraq to a destination outside Iraq. The regime engages the suspension of customs duties on the transit goods, supervision of the transit operation by the customs authority, and the provision of security against the prospect that the goods may be diverted into the Iraqi customs territory rather than reaching the stated destination. The regime supports Iraq’s role as a transit corridor for trade between origin and destination markets engaged with Iraqi territory.
Customs Warehousing
Customs warehousing is the suspensive regime under which imported goods are held in approved warehouses under customs supervision, with suspension of customs duties pending the eventual destination of the goods. The destination may be importation into the Iraqi customs territory (with assessment of duties at that point), re-exportation, or destruction. The regime supports the flexibility of supply chain operations engaging substantial Iraqi imports and is addressed in further detail in Chapter 4 of the Supply Chain in Iraq series.
Diplomatic and Military Exemptions
Specific exemptions engage diplomatic missions accredited in Iraq, international organisations, and military operations conducted under bilateral or multilateral arrangements. The framework engages specific procedures for the verification of entitlement and the processing of exempted importations. The exemptions are not generally available to commercial operators but may engage commercial operators in supply arrangements with eligible entities.
Sectoral Exemptions
Specific sectoral exemptions engage particular categories of goods identified for exempted treatment on grounds of sectoral policy. The categories evolve over time with policy developments and include:
- Specific categories of medical supplies and equipment, particularly in response to public health emergencies
- Educational materials
- Specific categories of agricultural inputs
- Goods imported for humanitarian operations
- Specific categories supporting industrial development
The applicable sectoral exemptions should be verified by reference to the current Council of Ministers instruments in force at the time of importation.
Procedural Requirements
The application of any customs exemption engages procedural requirements including:
- Presentation of the basis of the exemption at the point of customs clearance, including the supporting documentation
- Identification of the goods within the scope of the exemption
- Compliance with any conditions attached to the exemption
- Provision of security where required by the framework
- Maintenance of records supporting the application of the exemption
- Cooperation with post-clearance verification by the customs authority
Failures of procedural compliance may engage the loss of the exemption and the consequent obligation to pay the full duties, supplemented by penalty exposure where the failure engages misconduct.
Strategic Considerations
Strategic considerations for customs exemptions include the early identification of the available exemptions for the contemplated operations, the structuring of operations to satisfy the eligibility criteria and procedural requirements, the maintenance of documentation supporting the application of exemptions throughout the period of the exemption, and the proactive engagement with the customs authority on matters of interpretation or application. Investment in proper structuring at the planning stage substantially supports the realisation of the available exemption benefits.
How We Can Help
Etihad Law Firm advises on customs exemptions in Iraq, including Investment Law No. 13 of 2006 licence applications and the procurement of the customs incentives, free zone structuring under the Free Zones Law No. 3 of 1998, the structuring of operations under suspensive customs regimes including temporary admission, inward processing, and customs warehousing, the application of sectoral exemptions, response to post-clearance verification of exemptions, and the conduct of disputes engaging the application of customs exemptions.