Branch or local company? The first decision for a foreign business entering Iraq

Before the first contract, before the office, the team and the bank account, entering Iraq raises a question that comes ahead of everything else: in what capacity will your company be present here? Will it come as itself, through a branch that carries its name and acts on its account, or will you create a new Iraqi entity in which you share ownership?

This question is not settled at the registration desk. The form you choose today determines who answers for debts if a project falters, who stands in court if a dispute arises, with whom you share ownership and decisions, which contracts you can compete for, and how you leave the market if you decide to leave. It deserves to be taken with care.

The branch: your own company, in Iraq

A branch is not a new company. It is an extension of your parent company, operating under its name and its legal personality. Iraq’s Companies Law refers the regulation of foreign companies’ branches and offices to specific rules of their own, while subjecting them to its penalties on record-keeping, filing information and allowing the competent authorities to inspect.

This has a direct effect on liability. Having no separate legal personality, a branch cannot sue or be sued in its own right; claims are brought not against it, but against the parent company it represents. In practice, the party standing before Iraqi courts and creditors is your parent company, and whatever the branch commits to is answered for from the parent’s entire assets, not merely from what it has allocated to Iraq.

There is a point that is rarely noticed. The Iraqi Civil Code subjects a foreign company to the law of the country where its actual centre of administration lies, but makes Iraqi law applicable if its main activity takes place in Iraq. A branch that grows until it becomes the heart of your business changes, by operation of law, the framework that governs your company itself.

The activities a branch may carry out are set by the rules specific to branches and by its registration certificate. Iraq’s Investment Law expressly recognises a foreign investor’s right to open a branch of its company in Iraq in accordance with the law.

When is a branch the better choice? When your presence is tied to a defined assignment, you want ownership and control to remain wholly with the parent company, and you accept that its assets carry the risks of working here. Consider an engineering firm entering to perform a single contract with a main contractor, with no plan to stay afterwards: a branch gives it legal standing to work without a local partner, and without a separate entity it would later have to wind up through the full liquidation of a company.

The local company: an Iraqi entity you share in

A company established in Iraq under the Companies Law is, by the law’s own terms, an Iraqi company. It acquires legal personality from the date its certificate of incorporation is issued, and its head office must be in Iraq. It is a legal person separate from you, with its own assets, contracts and lawsuits.

Available forms. Since the 2019 amendment to the Companies Law, a foreign person, natural or legal, may be a founder or shareholder in joint-stock and limited liability companies. In both forms, a member is liable for the company’s debts only up to the nominal value of their shares. The limited liability company suits most entrants better: it has no more than twenty-five members and requires no public subscription, which is reserved for joint-stock companies.

Foreign ownership. Here lies the condition that changes the whole calculation: the amended text requires that the Iraqi share in the company’s capital be no less than fifty-one per cent. Under this text, a local company is necessarily a partnership, and your stake is a minority stake. This makes the choice of Iraqi partner, and the drafting of the articles on management, delegation, profit distribution and the transfer of shares, part of the entry decision itself, not a detail left for later.

What you gain in return. Your liability is limited to what you contributed, so the risks of the Iraqi market do not reach your parent company’s assets. An Iraqi company then stands where a branch cannot: the Companies Law gives Iraqi companies, including those in partnership with foreign companies, priority in government contracts of all kinds. Real-estate rights are registered in its name under its articles of incorporation with the Registrar’s endorsement, whereas registering them in the name of a foreign company requires additional approvals.

Some activities dictate the form themselves: insurance, reinsurance and financial investment may be carried out only through a joint-stock company.

When is it the better choice? When you plan a permanent presence, ongoing sales and distribution, or to compete for government contracts. Consider a manufacturer that wants to build a distribution network and bid in public tenders: a local company, with an Iraqi partner chosen with care, opens that door and confines its risk to a known amount of capital.

Comparison

Criterion	Branch	Local company (limited or joint-stock)
Legal personality	None of its own; claims are brought against the parent company	Iraqi legal personality from the date of the certificate of incorporation
Liability	Borne by the parent company from its entire assets	Up to the nominal value of the shares
Ownership	Wholly the parent company’s	Iraqi share no less than 51%
Permitted activities	Under the rules specific to branches and the registration certificate	Under the objects in the company’s articles; insurance and financial investment for joint-stock companies only
Government contracts	No priority	Priority for Iraqi companies, including those in partnership with foreign companies
Basic registration requirements	A registration certificate under the rules specific to branches	Articles of incorporation and a bank certificate of capital deposit (minimum for a limited company: IQD 1 million)
Exiting the market	Under the rules specific to branches	Liquidation under the Registrar’s supervision, ending with a decision to strike the company off; a late creditor may claim from members what they received, within three years

Common mistakes when choosing

Starting before the certificate. The Companies Law penalises anyone who operates in the name of a foreign company’s branch or office without a registration certificate with a fine of up to IQD 3 million, as it does anyone who acts in the name of a local company before its certificate of incorporation. Signing the first contract before registration is complete puts you in breach from the first day.

Treating the branch as a shield. A branch does not separate Iraqi risk from the parent company’s assets; claims go straight to the parent. If you want to contain risk, the route is a local company, not a branch.

Assuming full ownership of a local company. The amended text requires an Iraqi majority in the capital, and many guides in circulation were written before this amendment. Discovering this after negotiating with your first client means rebuilding the whole plan.

Thinking the form settles the question of foreign staff. Iraq’s Labour Law prohibits employing any foreign worker, in any capacity, without a work permit issued by the Ministry of Labour, whatever form you have chosen. Your staffing plan needs its own track, in parallel with registration.

Before you choose

Three questions that cut through much of the analysis:

• Is your presence in Iraq a project with an end, or a market you intend to stay in?
• Are government contracts at the heart of your plan, where Iraqi companies come first?
• Are you prepared for a partnership in which you hold the minority, and how will you protect your decisions within it?

This decision, and what follows it, is arranged through REMO’s Iraq Desk, in coordination with licensed lawyers.