1. The prevailing market situation in Iraq
The Iraqi market is vulnerable and unstable. Getting a market share can be difficult, but on the other hand, when your company have gained foothold, it is hard to lose the market or customers. The Iraqi market is not as susceptible to competition as the European or North American markets. Rntering the market is more difficult because of the national tendering and acquisition process in national projects. The process is not particularly transparent. Purchase offers might be sent privately to certain companies. The criteria and conditions set for international operators maybe tight, and on the other hand the public sector controls the economy.
2. Legislation – what can be traded?
In Finland national legislation defines the marketing and trade of particular products. For example, alcoholic beverages cannot be sold for persons under 18 or 21-year-old. Tobacco products are forbidden for persons under 18. Also video on console games, movies, and the sales of respective products are restricted by different age limits.
In addition, producing social and health care services requires making to the municipality where the services are produced. Alternatively, these services need the official license from Valvira or AVI (Regional State Administrative Agency). A shop selling any groceries (such as a restaurant, coffee shop, kiosk , or supermarket) has to make an announcement to the municipality’s food authority. If you set up a hairdresser or a barber shop, a beauty spa, foot massage or a tattoo parlor , you also need to make an announcement to the municipality’s health authority.
If you play music in the in the spaces reserved for customers in your company, you have to pay compensations to Teosto or Gramex. If a company copies of scans copyrighted material such as books or magazines, they have to get licenses from Kopiosto. If you want to use an image of a photo taken by another person in your advertisement you need the permission from the original photographer or the person owning the copyrights. Importing products to Finland requires a customs license.
Selling medicines is authorized in Finland. All medication products sold in Finland need to have a trading license or registration. The trading license is admitted by FIMEA or the European Union Commission, and the registration is done by FIMEA. A medical company producing the medicine applies for the trading license. Based on the information given in the application, FIMEA makes sure that the medication fulfills the requirements set for effectivity, safety and quality.
When planning exporting medical products to Iraq, the required licenses and permissions need to be checked beforehand. In Iraq a lot of medical products can be acquired only with a prescription given by a physician like in Finland. Certain medications such as painkillers can be sold as daily merchandise.
In Finland the production of cosmetics is regulated by the European Union cosmetics decree. It is the responsibility of the European Union member countries to follow the current regulations.
The cosmetics legislation presupposes that the products are safe in normal and predictable reasonable use. In addition, the decree defines operations for cosmetics production surveillance, rightfulness of the package markings and language requirements of the product information. The ingredients included in any cosmetic product and their environmental effects are regulated with the European Union chemical decree. The distributor or the person in charge of the product is responsible for obeying current laws and regulations. Tukes and the Finnish customs monitor the law.
You should make sure which kind of cosmetic legislation is valid in Iraq because the European Union legislation does not stand in Iraq.
3. Licenses and requirements in Iraq
Setting up a business in Iraq is reasonably easy. Getting sufficient financing is difficult when based in Iraq. Starting a business is the most fluent if the person has enough existing capital for business operations.
The stages and expenses of setting up a business in Iraq
Nowadays setting up a business in Iraq is easier than a couple years ago. A company can also hire a lawyer to take care of the registration of the company. First you contact the Baghdad Chamber of Commerce which needs the essential information of the new business and its fields of operation. The Chamber of Commerce states if the operations are legal in Iraq. After this the company can start making preparations and getting various licenses for the actual application. The official registration license is applied from the National Union of Chambers of Commerce and at the same time the application fee is paid. The application reviewing process takes approximately one to two months depending on the field of operation. The application can be sent online which diminishes the possibility of corruption. The companies that operate nationally are registered in Baghdad, but the smaller businesses can take care of its registration process in other cities as well. Registering international corporate trademarks or companies is done in the same way.
Phases of company registration
Phase 1: Reserving a trade name
Where: The local chamber of commerce
The company founders need to deliver a request for the local chamber of commerce. The request needs to include the proposed name and terminology for the company, as well as the names and nationalities of the founders. The purpose is to check the suggested trade name and whether or not it’s already in use. If the local chamber of commerce states that the trade name is adequate, the company gets a preliminary reservation for the name after payments.
Phase 2: Getting the trade name license
Where: The Union for Chambers of Commerce in Iraq
The chamber of commerce checks the company’s name and the founders will get a letter announcing the preliminary reservation. There are various fees collected from the registration, letter stamps and archiving of the process.
Phase 3: Getting a certificate of the company’s capital
Where: an accredited bank
The company needs to deposit the company’s existing capital into an accredited Iraqi bank. The bank will deliver a letter stating the amount of capital.
Phase 4: Getting the registration approval for the company
- sending the online application: the company drafts an online application concerning the registration of the company
Where: Send the application online
- Registration of the company
Where: Company registration board of directors
Phase 5: Getting the registration license
Where: the company registration department of the office for company registration
The Iraqi Office for Company Registration approves or rejects the application only if all payments are completed. If the application is accepted the company needs to have a constitutive meeting. Moreover, the company needs to hire a lawyer and an accountant. The ministry of Employment and Social Services is requested to setting up social services for all employees.
If the application is rejected a complaint can be made within 30 days.
The phases and costs of setting up a business in Iraq are as follows according to the information published in Reliefweb (as stated in Comprendum, 2019):
- Reserving a company name in Baghdad Chamber of Commerce. The application must include 10 name alternatives which have to be Arabic. Duration is 1 day and cost 250 000 dinars (211 US dollars)
- Hiring a lawyer to take care of the judicial and other operations concerning with the founding process. Duration 1 day, estimated cost 1,5 million dinars (approx. 1270 US dollars)
- Temporary depositing of investment capital into a bank and getting a deposit certificate which need to be delivered into the company register. Duration 2 days and costs about 5000 – 25 000 dinars (4-21 US dollars).
- Registration application to the company register office, including various documents and fees. Duration about 15 days and cost about 250 000- 300 000 dinars (211-254 US dollars)
- Getting the registration certificate, 1 day
- Having the company seal done, 2 days and cost 20 000 dinars (17 US dollars)
- Registering company employees for social security, 3 days and cost 20 000 dinars (17 US dollars)
There are not so many company forms in Iraq. Limited liability companies do not need to have a separate registration or listing of the shares. The business partners only need to take care of their partnership deals by themselves. Licensed enterprises are given a certain level qualification according to their existing investment capital. The more the company has capital, the better rating it will get. The received rating influences for instance the amount of taxes and payments. In the registration phase a company may get a better rating by paying unofficial fees.
In total, setting up a business in Iraq takes about 3 to 6 months.
Taxation, customs and cash payments
Iraq does not tax the company’s profits. Taxation is determined by annual turnover. For example out of $100 000 turnover, $20,000 of tax can be paid. If the company works with government officials in a joint project, it may be entitled to some tax reductions.
Taxation is not done electronically. Online merchandising companies must ask for taxation and pay the taxes unprompted. Import businesses are taxed at the border. The taxes for imported goods is determined at the customs, according to the sales value. 5% of value-added tax is added on top of the total value. Imported goods need to include a statement about the goods’ value, otherwise the tax may be arbitrarily big. In Iraq you should hire an expert middleman who negotiates the amount of import customs payments and takes care of all the arrangements.
Importing to Iraq takes place at Turkish or the Iranian border. Land transport is more convenient and cheaper an air transport. Customs is done at the border instantaneously.
4. The banking and financial sector and monetary transactions
In Iraq the local companies may use the local banks (Bank of Baghdad or TBI Bank). It is easier to operate with the capital calculated in American dollars. Money can be transferred from Turkey or the United States without sanctions or fees. A private person can receive up to $10,000 a month and a company account can receive for example $100 000 a month (depending on the rating of the company). If a person wants to set up a business in Iraq, the transport of capital into an Iraqi bank should be done well in advance.
Iraq does not have banks offering financing. The government bank finances national projects and some research projects. Construction costs are not financed. Private, commercial risks loan banks can admit financing, but the annual interest rate may be really high, about 16 to 21%. The Iraqi banks are mostly currency banks.