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Dr Daniel Heintel and Dr Bawar Bammarny
AMERELLER LEGAL CONSULTANTS
DOMESTIC COMPANY JOINT VENTURES (JVS)
REGULATION
1.
ARE JVS EXPRESSLY REGULATED?
The concept of a joint venture (JV) has no express legal basis under Iraqi law. Depending
on the nature of the JV and the intent of the JV partners, specific Iraqi laws will apply.
Contractual JVs are predominantly governed by the Iraqi Civil Code No. 40 of 1951 and
the Iraqi Commercial Code No. 30 of 1984. JVs that are organised in a corporate form
available under Iraqi law are also subject to the Iraqi Companies Law No. 21 of 1997.
TYPES
2.
WHICH TYPES OF JV ARE ALLOWED?
There are no specific rules of Iraqi law expressly regulating JVs, but the general principles
of Iraqi law apply. It is possible to distinguish contractual JVs and incorporated JVs. There
are no rules prohibiting certain forms of JVs in Iraq, but there are general limitations
regarding the registration of a corporate presence, tax issues and recognition by banks
and public authorities.
The JV parties may limit their relation to a contractual JV. Such contractual JVs will have to
comply with the general rules of Iraqi law (see Question 1).
The JV parties may also decide to incorporate their JV as one of the corporate forms
recognised under the Iraqi Companies Law. The most common corporate structure for
the establishment of JVs in Iraq is the limited liability company (LLC). In theory, it is also
possible to structure a corporate JV as a simple company in accordance with Articles 181
seq. of the Iraqi Companies Law. However, in practice, simple companies are rarely used
for JVs.
3.
ARE CORPORATE JVS SUBJECT TO THE CORPORATE LAW?
A corporate JV will be subject to the provisions of the Iraqi Companies Law that apply to
the type of company chosen for the JV. There are no specific rules for companies created
with the purpose to establish a JV.
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FORMATION AND REGISTRATION
4. IS THE USE OF FOREIGN LANGUAGE IN A JV’S FOUNDING DOCUMENTS (BOTH
CORPORATE AND CONTRACTUAL) RESTRICTED?
Under Article 4 paragraph 1 of the Iraqi Constitution of 2005, Arabic and Kurdish are
the two official languages in Iraq. Official documents must be drafted in either of these
languages. In addition, Article 4 paragraph 3 of the Iraqi Constitution provides that federal
and official institutions and agencies in the Kurdistan region must use both languages.
The authorities of the autonomous Kurdistan region of Iraq have recently issued the Law
of the Official Languages in Kurdistan Region-Iraq No. 6 of 2014. This Law provides that
all legal procedures in the Kurdistan region must be managed and set out in the Kurdish
language (Article 6 paragraph 1). The authors consider that this provision conflicts with the
Iraqi Constitution and have not seen any direct effect of the law. Currently, Arabic is also
used for the official founding documents of a corporate JV in the Kurdistan region.
There are no rules of Iraqi law providing for a specific language to be used for a
contractual JV. In practice, documents for international contractual JVs are commonly
drafted in a bilingual format, and the parties are free to agree on the prevailing language.
5. ARE PUBLIC OFFICERS (FOR EXAMPLE, PUBLIC NOTARIES) INVOLVED IN A JV’S
FORMATION PROCEDURE?
A contractual JV can generally be entered into without the involvement of public officers.
The parties are free to choose to notarise their contractual JV, but an Iraqi notary may be
reluctant to notarise an agreement if a party is not registered in Iraq.
The establishment process for a corporate JV will involve several public bodies, such as:
• The Registrar of Companies.
• The Chamber of Commerce.
• In specific circumstances, certain ministries, directorates and departments are required
to give their approval/permission for the specific corporate activity of the JV.
See also Question 6.
6. ARE JVS REGISTERED WITH ANY LOCAL REGISTRIES? ARE PUBLIC SECTOR
BODIES’ AUTHORISATIONS REQUIRED FOR A JV’S ESTABLISHMENT?
Local registries
Under Iraqi law, there is no general obligation to register a contractual JV. However, in
practice there are certain restrictions resulting from the fact that a contractual JV is not
recognised, and banks and public authorities will always rely on the local partner in the
case of a JV with a foreign entity.
A corporate JV in the form of an Iraqi limited liability company (LLC) must be registered
with the Registrar of Companies in order to acquire legal personality from the date of
registration. Registration with the tax and security authorities is also required.
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Corporate JVs in the form of simple companies must be notarised, and a notarised copy of
the company’s articles of association must be deposited with the Registrar of Companies.
The simple company acquires a corporate status from the date of deposit.
Public sector bodies
For both contractual and corporate JVs, specific activities undertaken by the JV trigger
specific licensing requirements, such as (but not limited to) activities related to:
• Health.
• Security.
• Natural resources.
There are no specific rules requiring the express authorisation by the competition
authorities for the establishment of a JV, although the activities undertaken by the JV must
comply with applicable competition laws and regulations.
7.
WHAT OTHER FORMAL REQUIREMENTS MUST BE COMPLIED WITH TO VALIDLY
CONSTITUTE A JV?
Apart from the requirements mentioned in Question 6, there are no other general formal
requirements to validly constitute a JV.
PERMITTED MARKETS
8. CAN THE JV INSTRUMENT BE USED IN EVERY MARKET? ARE THERE ANY
RESTRICTIONS TO BE CONSIDERED AND CAREFULLY ASSESSED BEFORE INVESTING?
There are no specific rules of Iraqi law limiting the potential markets in which the JV may
be active. A JV can be used in all areas and markets open to the private sector. This is
subject to the general principle that a contract cannot validly be entered into if it either
(Article 75, Iraqi Civil Code):
• Is contrary to public order.
• Contemplates an activity that is prohibited by law.
A JV must obtain licences for specific corporate activities, including (but not limited to)
those related to
• Health.
• Security.
• Natural resources.
PURPOSE
9.
CAN A JV BE ESTABLISHED WITH ANY PURPOSE?
There are no restrictions on the JV’s purpose provided that it complies with Iraqi
laws, public order and good morals. Specific corporate purposes will trigger licensing
requirements (see Question 8).
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SHARE CAPITAL AND PARTICIPATION
10. WHAT POSSIBLE FORMS OF PARTICIPATION ARE THERE IN A JV’S SHARE
CAPITAL? HOW CAN A JV MEMBER CONTRIBUTE AND ARE THERE STATUTORY LIMITS
ON THE POSSIBILITY TO MAKE CONTRIBUTIONS IN KIND?
Forms of participation
The form of participation in the JV’s share capital depends on the type of corporate
structure adopted for the JV.
Contributions
The Iraqi Companies Law allows both contributions in cash and in kind to the capital of a
corporation. There are no statutory limits to contributions in kind at the formation stage.
However, capital increases subsequent to the formation stage cannot be effected by
means of contributions in kind.
11. CAN A CORPORATE JV’S SHARE CAPITAL BE INDICATED BY MAKING REFERENCE
TO A FOREIGN CURRENCY?
The share capital of an Iraqi company must exclusively be denominated in Iraqi dinars
(Article 26, Iraqi Companies Law).
DURATION AND LIMITS ON MEMBERSHIP
12.
ARE THERE STATUTORY LIMITS ON A JV’S DURATION?
There are no specific limits on the duration of contractual JVs.
There are no specific statutory limits on the duration of corporate JVs. The duration of a
corporate JV depends on the existence of the corporate entity established for the purpose
of the JV, which will terminate with liquidation or dissolution.
13. ARE THERE STATUTORY LIMITS ON THE NUMBER OF MEMBERS PARTICIPATING
IN A JV?
For contractual JVs, there is no specific legislative provision requiring a minimum number
of contracting parties. There should be at least two members in a contractual JV.
For corporate JVs, the minimum and maximum number of members depends on the type
of company used. A limited liability company (LLC) can be established by a single natural
or juridical person, and can have a maximum of 25 shareholders. A simple company must
consist of not less than two and not more than five partners.
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PUBLIC SECTOR BODIES
14. CAN A PUBLIC SECTOR BODY ENTER INTO A JV AGREEMENT? SUBJECT TO WHAT
CONDITIONS? IN PARTICULAR, DO PUBLIC PRIVATE PARTNERSHIPS (PPP) LAWS AND
REGULATIONS APPLY?
Corporate activities of public sector bodies are governed by the Public Company Law No.
22 of 1997, amended in 2004. In addition, Iraqi Government Contract Regulations No. 2 /
2014 and Kurdistan Government Contract Regulations 2011 set out the framework for the
procurement of services and goods by public sector bodies.
Corporate or contractual JVs are not referred to in the above-mentioned legislation and
administrative instructions. In particular, there are no specific laws and regulations
applicable to public private partnerships (PPP). However, it is generally considered
permissible for an Iraqi public sector body to enter into a JV with a private partner,
provided that the purpose of the JV is to set up or operate local public services or activities
of general interest.
NON-COMPETITION AND ANTI-TRUST CLAUSES
15. ARE THERE STATUTORY CONSTRAINTS ON THE USE OF NON-COMPETITION OR
ANTI-TRUST CLAUSES IN A JV AGREEMENT?
During period of effectiveness
Neither the Iraqi Anti-Trust and Competition Law No. 14 of 2010 nor the Anti-Trust and
Competition Law No. 3 of 2013 (for the Kurdistan region) expressly regulate the use of
non-competition or anti-trust clauses in JV agreements. There are no specific statutory
constraints on the use of non-competition or anti-trust clauses in JV agreements.
However, these laws prohibit the formation of monopolies and specific horizontal and
vertical restrictions.
In practice, JV agreements are not per se regarded as violations under Iraqi anti-trust
legislation. Instead, to determine whether certain clauses of JV agreements are prohibited
under Iraqi law, it is necessary to comprehensively consider its impact on competition
in the market (that is, whether it has the effect of eliminating or restricting market
competition).
In JV agreements, non-competition or anti-trust clauses are regularly structured to restrict
competition between the JV parties and the JV (or in some cases between the JV parties
alone). These clauses can have the effect of eliminating or restricting competition between
actual or potential competitors.
It should generally be noted that due to its recent introduction, the application of the antitrust legislation in Iraq and the Kurdistan region is not currently backed by an extensive
body of legal precedents.
Following termination
Iraqi law only addresses the requirements for a valid post-contractual non-compete clause
in the context of employment relations, including in particular the requirement of an
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appropriate compensation (Article 910, Iraqi Civil Code). The authors are not aware of any
precedent extending the applicability of these regulations to other contractual structures
such as JV agreements.
DE FACTO COMPANY/PARTNERSHIP
16. MUST THE CONTRACTUAL JV SATISFY ANY CONDITIONS TO AVOID FALLING
WITHIN THE DEFINITION OF DE FACTO COMPANY/PARTNERSHIP?
Iraqi law does not recognise “de facto companies/partnerships”. Corporate JVs come into
existence on registration with the Registrar of Companies (limited liability company (LLC))
or deposit of the notarised articles of association with the Registrar of Companies (simple
company).
LIMITING MEMBER LIABILITY
17. CAN A JV AGREEMENT PROVIDE THAT A JV MEMBER CAN PARTICIPATE WITHOUT
INCURRING ANY RISK, LOSS OR REWARD?
The parties to a contractual or corporate JV are generally free to structure their internal
relation and to individually allocate risks, losses and rewards.
For simple companies (rarely used for JV structures in Iraq), a company’s contract is null
and void if it provides that one of the partners will not have a share in the profit or loss
(Article 186, paragraph 1, Iraqi Companies Law). However, it is possible to exclude a partner
from loss participation if the partner has agreed to contribute services exclusively,
provided that he does not receive remuneration for these services (Article 186, paragraph 2,
Iraqi Companies Law).
The contractual limitations of liability of the JV partners vis-à-vis third parties are subject
to the general restrictions of Iraqi law. For example, a clause cannot exclude liability
resulting from negligence, wilful misconduct or tort (Article 259, paragraph 2, Iraqi Civil
Code).
ANTI-TRUST
18. DO ANY ANTI-TRUST RULES, GUIDELINES OR POLICIES APPLY TO A JV
AGREEMENT?
In Iraq, the following anti-trust legislation must be differentiated:
• Iraqi Anti-Trust and Competition Law No. 14 of 2010.
• Anti-Trust and Competition Law No. 3 of 2013, which is applicable in the Kurdistan
region.
Both laws aim to limit the creation of monopolies. Law No. 14 of 2010 prohibits a
combined market domination of more than 50% (Article 9). Law No. 3 of 2013 prohibits a
domination of 35% or more of the market (Article 8).
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In addition, both laws prohibit certain vertical and horizontal restrictions, including, but
not limited to:
• Price fixing.
• Market sharing.
• Resale price maintenance.
GOVERNANCE AND LIMITS ON DIRECTORS
19. CAN THE PARTIES TO A JV FREELY REGULATE THE JV OR ARE THEY SUBJECT TO
CERTAIN RESTRICTIONS?
Iraqi law recognises the principle of freedom of contract, although the parties of
contractual JVs are bound by the applicable laws and public order principles.
For corporate JVs, the parties must comply with the specific provisions of the Iraqi
Companies Law which apply to the individual corporate structure chosen for the JV.
There are no general legal restrictions in relation to loans conceded by JV members to the
JV. It should be noted that interest payments on loans payable to a foreign JV party may be
subject to withholding tax under the Iraqi Income Tax Law No. 113 of 1982.
20. ARE THERE LIMITS OR RESTRICTIONS ON THE ELIGIBILITY OF AN INDIVIDUAL AS
A MEMBER OF THE BOARD OF DIRECTORS/STATUTORY AUDITOR?
Under the Iraqi Companies Law, the management of a limited liability company (LLC),
the most common form of corporate JV, is in the hands of a general manager, rather than
a board of directors. There have been cases where a contractual board of directors for
an LLC in Iraq has been agreed, but it is likely that a local court would not uphold such
a structure. However, a local court may not be competent to hear any such dispute if the
relevant documents are properly drafted.
The general manager does not need to be an Iraqi national but must dispose of a
valid residence permit for Iraq/Kurdistan region, as necessary. However, in practice,
the authorities in mainland Iraq do not currently require a residence permit for foreign
general managers. An Iraqi company must also appoint a statutory lawyer and a statutory
accountant, who must be registered with the local lawyer/accountant syndicates,
respectively.
TERMINATION
21. WHAT LEGAL REGIME APPLIES TO A JV’S TERMINATION? CAN A JV BE
TERMINATED FOR JUST CAUSE ON REQUEST OF ONE PARTY?
Contractual JV
The Iraqi law does not specifically provide for the termination of a JV.
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In most cases, the specific termination rules of the Iraqi Civil Code will apply if a
contractual JV does not comply with the contractual provisions of the Code. Therefore, the
general rules on the termination of contractual relations of the Iraqi Civil Code apply.
The general rules of the Iraqi Civil Code do not explicitly provide for a termination for just
cause. However, a contractual party has the right to request the local court to order the
rescission of the contract, on service of a formal notice, if the other party has failed to
perform its obligations under the contract (Article 177 paragraph 1, Iraqi Civil Code). Following
such a request, the court may do one of the following:
• Accept the request for rescission.
• Accord the breaching party further time to comply with the contractual obligation.
• Reject the request for rescission, if non-performance is trivial in comparison with the
extent of compliance by the breaching party.
The requirement of service of a formal notice/prior court judgement for the rescission to
be effective can be waived by the parties (Article 178, Iraqi Civil Code).
The Iraqi Civil Code also contains provisions that deal with force majeure and hardship
events. Where performance of an obligation is rendered impossible, and such impossibility
is due to circumstances which are beyond the parties’ control, the obligor is released
from its obligation (either temporarily or permanently, as the case may be) (Article 259
paragraph 1, Iraqi Civil Code). The concept of force majeure is construed narrowly, and only
applies to impossibility in cases where the event was not foreseeable.
In addition, where as a result of exceptional and unpredictable events of a general nature,
the performance of the contractual obligation has not become impossible but onerous,
such as it may cause exorbitant loss to the debtor, the court, after balancing the interests
of the parties, may, if it considers it equitable to do so, reduce the onerous obligation to
a reasonable limit. Any agreement to the contrary is null and void (Article 146 Paragraph 2,
Iraqi Civil Code).
Corporate JV
Under Article 147 of the Iraqi Companies Law, a corporate JV in the form of a limited
liability company (LLC) can be terminated in the following cases:
• Failure to start its activity without any legitimate reason after one year since its
establishment.
• Suspension of its activity for more than one year without any legitimate reason.
• Completion of the project for which it was established, or impossibility of completing it.
• Merger with another company or transformation into another type of company under
the provisions of the Companies Law.
• Loss of 75% of its nominal share capital and failure to take the remedial steps provided
in the Iraqi Companies Law.
A simple company must be liquidated in accordance with the provisions of its articles
of association. If the articles do not regulate termination, a simple company must be
liquidated in the manner agreed upon unanimously by the partners.
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22. IS THE TERMINATION OF A JV AGREEMENT SUBJECT TO ANY PUBLIC SECTOR
BODY’S APPROVAL?
The termination of a corporate or contractual JV is generally not subject to any public
sector body’s approval.
CHOICE OF LAW AND JURISDICTION
23. ARE THERE CONSTRAINTS ON THE CHOICE OF THE LAW AND THE JURISDICTION
APPLICABLE TO A JV?
The parties to an international contractual JV are free to determine the law applicable
to their contractual relation, subject to the Iraqi rules of public order (Articles 25 and 32,
Iraqi Civil Code). This right is disputed by some legal commentators for purely national JV
agreements. However, the authors are not aware of any precedent supporting this view.
A corporate JV will be subject to the mandatory provisions of the Iraqi Companies Law.
Iraqi law does not regulate choice of forum agreements. Therefore, it is very likely that any
Iraqi state court will ignore such agreements, in particular if the forum chosen is outside
of Iraq. There is also a risk that an Iraqi state court may not accept a foreign arbitration
clause since:
• The Civil Procedure Law No. 83 of 1969 does not expressly allow arbitration abroad.
• Iraq is not a signatory to most of the relevant international conventions (such as the
New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards
1958 (New York Convention)) that guarantee the enforceability of arbitration clauses.
The risk that a choice of forum clause will not be enforced is limited, but can be avoided if
the arbitration is carried out in a member state of the Riyadh Arab Agreement for Judicial
Cooperation 1983, to which Iraq is a party.
JVS WITH FOREIGN MEMBERS
VALIDITY AND AUTHORISATION
24. WHAT ARE THE RULES RELATING TO VALIDITY AND AUTHORISATION OF JVS
WITH FOREIGN PARTIES?
Validity
Iraqi law does not prohibit JVs with foreign parties.
Limits
There are no statutory restrictions on the maximum or minimum number of parties who
must be local.
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AUTHORISATION
There are no specific authorisation requirements for JVs with foreign parties.
EFFECT OF FOREIGN MEMBERSHIP
25. ARE ANY OF THE RULES RELATING TO DOMESTIC COMPANY JVS (SEE QUESTIONS
1 TO 23) DIFFERENT FOR JVS WITH MEMBERS INCORPORATED UNDER, OR GOVERNED
BY, THE LAWS OF A FOREIGN COUNTRY?
The rules relating to domestic company JVs are not different for JVs with members
incorporated under, or governed by, the laws of a foreign country.
ECONOMIC OR FINANCIAL INCENTIVES
26. ARE THERE ECONOMIC OR FINANCIAL INCENTIVES FOR FOREIGN DIRECT
INVESTMENTS IN A JV?
The Iraqi Investment Law No. 13 of 2006 regulates national and foreign investments in
Iraq and covers investments above US$250,000. The law provides for the following key
benefits for international investors:
• Repatriation in hard currency of profit and capital brought into Iraq.
• Lease or use of land needed for the project, provided that the term does not exceed a
period of 50 years, which can be renewed.
• Insuring the investment project of any national or foreign insurance company.
• Non-confiscation or nationalisation of the investment project.
• Exemption from fees and taxes for ten years from the start of the project. This period is
renewable. In addition, furniture and assets required for expanding and modernising
the project are exempt from import duties.
• The exemption period above may be extended for up to 15 years in cases of foreign and
Iraqi partnerships if the Iraqi investor’s participation is not less than 50% of the project
capital.
The Investment Law for the Iraqi Kurdistan Region No. 4 of 2006 regulates foreign
investment in the Kurdistan region of Iraq. The law provides for the following key benefits
for international investors:
• Allocation of land to investors (lease or usufruct) at promotional prices.
• Investors in strategic projects can acquire land at promotional prices or free of charge.
• Investment projects are exempt from all non-customs taxes and duties for ten years
from the date of providing services under the project, or the date of actual production.
• Further tax and customs duty exemptions for equipment, machinery, spare parts and
raw materials.
• Insuring the investment project at any national or foreign insurance company.
• A foreign investor is entitled to transfer the capital, profits and interest of his capital
abroad.
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MINIMUM INVESTMENTS/CONTRIBUTIONS
27. ARE THERE MANDATORY MINIMUM EQUITY INVESTMENTS OR CONTRIBUTIONS
IN KIND THRESHOLDS FOR A FOREIGN JV MEMBER?
There are no minimum equity investments or contributions in kind thresholds for a foreign
JV member.
The minimum share capital of an Iraqi limited liability company (LLC) is IQD1 million.
There is no maximum share capital amount. Contributions in kind must be fully
contributed before formation.
ONLINE RESOURCES
IRAQI LEGAL DATABASE
W www.iraqld.iq/Index.aspx
Description. Official website providing access to Iraqi laws. Relatively up-to-date.
Available in Arabic only.
LAWS OF THE KURDISTAN REGION
W www.perlemanikurdistan.com/Default.aspx
Description. Official website providing access to the laws of the Kurdistan region.
Relatively up-to-date.
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