Hiring in Iraq before operations begin is a common challenge for foreign companies, investors and contractors entering the market. The business needs people on the ground to set up offices, obtain licences, mobilise for a project or prepare for launch. Yet the legal infrastructure for employment, including a registered entity, a tax file, social security registration and, for foreign staff, work and residence permits, may not yet be in place. Hiring too early, through informal arrangements or entities that are not registered as employers, can create liabilities that follow the business for years. Hiring too late can delay the launch.
The solution is sequencing: identifying which steps must precede which, what interim arrangements are lawful and how to move people onto proper employment as soon as the infrastructure is ready.
The Labour Law No. 37 of 2015 governs employment relationships in Federal Iraq, including contracts, working conditions, termination and the employment of foreign workers. The Workers Retirement and Social Security Law No. 18 of 2023 requires registration of employers and workers and payment of contributions. The Income Tax Law No. 113 of 1982, as amended, requires employers to withhold tax on salaries. The Companies Law No. 21 of 1997, as amended, and the rules on foreign company branches govern the establishment of the employing entity. The Residency Law No. 76 of 2017 governs residence of foreign nationals. Kurdistan Region applies its own labour framework and procedures.
Why sequencing matters when hiring in Iraq before operations begin
An employer must exist as a legal entity before it can employ staff, register them for social security, withhold tax on their salaries and sponsor work and residence permits for foreign personnel. Each registration depends on the previous one: the entity must be registered before a tax file can be opened; the tax file and registration documents are typically needed for social security registration; and the employer’s registrations are required before it can apply for work permits. Starting employment before this chain is complete leaves the employee outside the system and the business exposed.
Step one: establishing the employing entity
The business must decide which entity will employ staff: an Iraqi subsidiary, a registered branch of a foreign company or, in limited cases, a local partner. The entity should be registered with the Companies Registration Department, and its registration documents obtained. Corporate advice in Iraq can assist with entity establishment.
Step two: tax and social security registration
Once registered, the entity should open its tax file and register with the social security authority as an employer. Social security registration for new entities may require an in-person process, while ongoing submissions may be handled electronically. These registrations should be completed before or immediately upon hiring the first employee.
Step three: compliant employment contracts
Contracts should comply with the Labour Law, covering the parties, job, wage, working hours, leave, probation and termination, and should be prepared in Arabic, with translations where needed. International templates should be adapted to local mandatory rights. Employment law advice in Iraq can prepare compliant contracts.
Step four: work and residence permits for foreign staff
Foreign employees require work permits and residence permits sponsored by the employer. Applications depend on the employer’s registrations and may require evidence of the need to employ foreign workers. The business should plan the timeline for permits, which can be lengthy, and should not deploy foreign staff to work before permits are in place.
Interim arrangements
Where the entity is not yet ready, the business may consider interim arrangements:
- Employer of record services. A licensed local company employs staff on the business’s behalf until the entity is ready.
- Short business visits. Foreign staff visit for meetings and preparatory activities that do not amount to employment, under the appropriate entry route.
- Consultancy arrangements. Engaging individuals as genuine independent consultants for limited tasks.
Each arrangement must be genuine and lawful. Using consultancy arrangements for what are in substance employment relationships, or allowing visitors to work, creates labour, tax and immigration risks.
Transitioning staff to the permanent employer
When the entity is ready, staff engaged through interim arrangements should transfer to the permanent employer. The transfer should be documented, service continuity addressed and new contracts issued. Social security records should reflect the transition accurately.
Local workforce requirements
The business should check whether local workforce proportions apply, such as requirements under investment licences or ministerial instructions on the ratio of Iraqi to foreign workers. Hiring plans should reflect these requirements from the start.
Common mistakes
- Employing staff through a foreign parent with no Iraqi registration.
- Allowing foreign staff to work on visit visas while permits are pending.
- Using consultancy agreements for full-time, supervised roles.
- Delaying social security registration until operations start.
- Using untranslated international contract templates.
- Ignoring local workforce ratios in early hiring.
Practical checklist
- Decide the employing entity and register it.
- Open the tax file and register with social security.
- Prepare Arabic employment contracts compliant with the Labour Law.
- Plan work and residence permit timelines for foreign staff.
- Use only genuine, lawful interim arrangements.
- Document transitions from interim to permanent employment.
- Check local workforce requirements before recruiting.
Budgeting for pre-operational employment costs
Employment costs begin before revenue does. Pre-operational budgets should include salaries, allowances, social security contributions at 12% for most employers or 25% in oil and gas, payroll tax administration, permit and residence fees, document attestation, medical tests, accommodation and transport. Underestimating these costs leads to pressure to cut corners, such as delaying registration or using visit visas, which creates far greater costs later.
Illustrative example. A foreign renewable energy developer wants to hire a country manager and two engineers in Baghdad six months before its project company is established. It initially plans to pay them through its regional office as consultants. Advice shows that the roles would be employment in substance and that the engineers, foreign nationals, cannot lawfully work without permits. The developer engages the country manager through an employer of record for the interim period, limits the engineers to short business visits for meetings, and establishes the project company, completes registrations and transfers the country manager onto its payroll as soon as possible.
Key takeaways
- Hiring in Iraq before operations begin requires sequencing entity registration, tax and social security registration, contracts and permits.
- Employment should not begin before the employer is legally able to register and pay staff.
- Interim arrangements must be genuine and lawful.
- Foreign staff should not work before permits are issued.
How Etihad Law Firm Can Help?
Careful sequencing makes hiring in Iraq before operations begin possible without creating labour, tax or immigration liabilities that undermine the new business.
Etihad Law Firm advises businesses entering Iraq on entity establishment, employer registration, employment contracts, interim staffing and work permits. We help clients build a compliant workforce from day one.