Legal Protections for Public Entities in Iraq
Companies operating in Iraq’s oil and gas sector must carefully consider how Iraqi law treats public entities in commercial agreements. Unlike private companies, state-owned entities benefit from statutory protections that restrict their exposure to financial claims and contractual limitations. A critical aspect of these protections is how tax liabilities and time limitations are treated under Iraqi law. This article explores key legal principles governing tax obligations, contractual enforcement, and the special status of public funds.
How Iraqi Law Interprets Contractual Tax Obligations
In Iraq, contract interpretation follows the civil law system, where statutory provisions and contract wording are applied as written unless ambiguity exists. Article 157 of the Iraqi Civil Code establishes that the plain meaning of a contract takes precedence, and any attempt to add meaning beyond what is explicitly stated is not permissible. If terms are vague, Article 160 provides that general clauses should be understood in their broadest reasonable sense unless limited by clear language or established legal principles.
This means that if a contract excludes tax liabilities for a public entity, any attempt to shift those costs onto the state through interpretation or implied obligations is not valid. Article 23.2 of Iraq’s Technical Service Contracts (TSCs), for example, explicitly prevents state-owned companies from bearing taxes owed by private contractors outside Iraq. Where tax provisions exist, their application must be in strict alignment with Iraqi law.
Why Public Entities Cannot Assume Tax Liabilities for Foreign Companies
Iraqi tax law, specifically Law No. 113 of 1982 and Instructions No. (1) of 2007, imposes clear restrictions on who is responsible for paying taxes in commercial arrangements. Article 9(4) of Instructions No. (1) of 2007 states that government entities cannot enter into contracts that require them to bear the tax obligations of foreign companies or their employees.
This provision reflects broader public finance protections in Iraq, ensuring that state resources are not used to subsidise private tax obligations. In practice, any attempt to claim reimbursement for foreign taxes from an Iraqi public entity is unenforceable.
Time Limits Do Not Apply to Public Entities Under Iraqi Law
Another critical distinction in Iraqi law is that state-owned entities are not subject to standard contractual limitation periods. Article 71 of the Iraqi Civil Code ensures that public property—whether financial assets or oil revenues—cannot be subject to private claims, contractual time bars, or disposal outside of explicit legal authorisation.
This principle has been upheld by the Iraqi Cassation Court, which ruled that any contract attempting to limit a public entity’s right to recover funds is void. Unlike private commercial contracts, where claims may be barred after a certain period, public funds in Iraq remain protected indefinitely.
Practical Considerations for Companies Working with Iraqi Public Entities
Companies engaging in contracts with state-owned oil companies and other public bodies in Iraq should take into account the following:
- Tax liabilities cannot be shifted – Public entities cannot pay or reimburse taxes that are the responsibility of a foreign company, and any contract stating otherwise is unenforceable.
- Contractual limitation periods may not apply – Unlike private companies, state-owned entities are not time-barred from recovering public funds, and any attempt to impose such a restriction may be struck down by the courts.
- Public funds are protected by law – Money owed to a state entity is considered public property and cannot be waived or compromised by agreement.
Final Thoughts
Iraq’s legal framework for public entities is designed to safeguard state resources and ensure strict adherence to financial and tax laws. Companies operating in the oil and gas sector must structure their contracts carefully, ensuring they do not assume obligations that Iraqi law prohibits. By understanding these protections, businesses can avoid unnecessary disputes and ensure compliance when dealing with Iraq’s state-owned enterprises.
Speak to Our Corporate and Commercial Team
For guidance on corporate and commercial matters in Iraq, please contact Mohammed Koperly, managing partner of our Baghdad office. Educated in the United Kingdom, he is a highly regarded commercial and corporate lawyer with extensive experience in corporate structuring, cross-border transactions, and market entry strategies. His career has spanned both Iraq and London, where he has advised multinational corporations on regulatory compliance, commercial agreements, and risk mitigation. Having worked with a leading Iraqi law firm and a prominent defence and security firm in London, he has developed a strong reputation for handling high-value corporate transactions and complex commercial negotiations.
Speak to Our Tax Team
For guidance on tax matters in Iraq’s oil and gas sector, please contact Al Mustansir Billah Al Bakri, Head of Tax and Social Security at Salt & Associates. With over eight years of experience in corporate and tax law, he has built a reputation as a trusted advisor, guiding clients through complex tax regulations and dispute resolution. His expertise spans corporate tax accounting, legal compliance, and litigation, having worked with Iraq’s leading law firms. Known for his strategic approach and deep understanding of Iraqi tax laws, he has successfully represented both local and international companies, securing favourable outcomes in high-profile cases.
