This article examines how UAE parents financing Iraqi group companies should structure repayment, currency and cash transfer arrangements. A loan may be validly documented while the repayment transfer still depends on bank review, currency availability and supporting evidence. The financing should therefore separate the borrower’s legal obligation to pay from the practical and regulatory conditions that govern moving money out of Iraq.
The relevant framework includes the Civil Code No. 40 of 1951 on loans, interest and performance; the Banking Law No. 94 of 2004; the Central Bank of Iraq Law No. 56 of 2004 and the Central Bank’s regulations on foreign currency and external transfers; the Anti-Money Laundering and Counter-Terrorism Financing Law No. 39 of 2015; and the Companies Law No. 21 of 1997, which governs the borrower’s authority to borrow and grant security.
Characterising the funding
The documents should state whether the funding is a loan, an equity contribution or payment for another obligation, and accounting entries and bank descriptions should follow that characterisation. An amount recorded as a shareholder loan in one entity should not appear as revenue or capital in another without a documented explanation, because banks and tax officials will compare the records.
A review of financing arrangements in Iraq should confirm the parties, amount, purpose, maturity and return. The borrower’s authority under its articles and the Companies Law to borrow and grant security should be checked. Intra-group lending should also be distinguished from regulated banking activity, since an ordinary company cannot conduct lending or deposit-taking as a business without a licence.
Currency and discharge of the debt
The agreement should state the currency of account and payment and explain how any permitted conversion is calculated. If the borrower earns Iraqi dinars but owes US dollars, the allocation of exchange rate risk should be explicit, particularly given past movements between official and market rates in Iraq. Payment to a designated account should be clearly linked to discharge of the corresponding obligation.
Alternative payment arrangements need careful drafting. A clause allowing settlement through another group company should identify the authority and accounting consequences, and must not be used to disguise the beneficiary or the purpose of the transfer. The Civil Code generally allows payment to a third party designated by the creditor, but mandatory banking and AML rules continue to apply regardless of the parties’ preferences.
Banking evidence and transfer conditions
Iraqi banks may ask about the underlying agreement, source of funds, beneficial ownership and the relationship between payer and beneficiary. The financing file should support those enquiries with consistent corporate documents, drawdown evidence and repayment calculations. Some transfers may also need to pass through specific Central Bank mechanisms, and the receiving bank in the UAE may have its own requirements.
The lawful transfer route should be confirmed before assuming that a repayment date can be met through a particular currency or correspondent bank. Requirements change, and a successful remittance last year does not guarantee that a later transfer will be processed in the same way.
Interest, tax and the Civil Code
The Civil Code permits agreed interest within limits it sets and restricts compounding, so foreign-law assumptions about interest calculation should not be imported automatically. A review of Iraqi tax treatment should distinguish principal from interest or fees, and consider any withholding on interest paid abroad and the deductibility of interest for the borrower. Evidence of amounts paid and balances outstanding should be preserved.
Delay and contractual remedies
The agreement should address what happens when a transfer is delayed by a compliance enquiry or a regulatory restriction, including notice, cooperation and a lawful alternative payment process. Administrative difficulty does not automatically extinguish the debt or excuse every delay, and claims of impossibility or exceptional circumstances must meet the Civil Code’s strict conditions.
Acceleration and security enforcement provisions should be examined before a lender assumes that a payment obstacle permits immediate recovery by another route. Repayment schedules should also be reconciled with the borrower’s actual cash position, particularly where project revenue is subject to customer retentions or delayed public payments.
Security for group loans
A UAE lender may want security over the Iraqi borrower’s assets. Iraq has no modern registry for security over movable assets, and pledges of movables traditionally depend on possession passing to the creditor or a custodian, which is impractical for operating equipment. Mortgages over real estate must be registered with the Real Estate Registration Directorate, and pledges of shares must be recorded with the Companies Registration Directorate to be effective against third parties.
In group financing, security is often less important than control and subordination. The parent can protect its position through shareholder rights, subordination agreements with third-party lenders and restrictions on the subsidiary’s other borrowing. Where external lenders are involved, intercreditor arrangements should clarify whether the parent’s loan ranks behind bank debt and what happens to repayments if the subsidiary breaches its external financing covenants.
Conclusion & how Etihad Law Firm can help
Group financing works when a clear repayment obligation is matched with a documented and lawful payment route that the banks involved will accept.
As Iraq project finance lawyers for UAE-based companies, Etihad Law Firm advises lenders and Iraqi borrowers on financing terms, corporate authority, security and regulatory requirements, helping anticipate currency, tax and banking issues before repayment falls due.