On 23rd November 2009, Iraq's Parliament approved the first draft Amendment to Law No 13 of 2006 (the "Investment Law"). The Amendment is designed to encourage applications from foreign developers to invest in and develop new housing projects in Iraq through the availability of land ownership and other incentives.
The Amendment still requires the approval of Iraq's Presidential Council and will not come into force until it is published in the Iraqi Gazette. Nonetheless, given the relative lack of opportunities for new projects in the Gulf countries, many Gulf developers are already active in identifying and securing development opportunities in Iraq.
Following the cessation of hostilities and the return to relative norm, Iraq is facing a serious housing shortfall. Iraq's National Investment Commission ("NIC") estimates that over three million new homes will be needed across the country over the next five years, citing a combination of the following factors:
- High population growth rates: At present rates of 2.6% annual growth, the population of Iraq will reach 40 million by 2015, creating a need for almost two million new housing units.
- The return of refugees: The United Nations has estimated that 0.5 million of the 4.2 million refugees will return by 2010 if stability continues.
- Displaced persons: Internally displaced families will need new housing.
- Increasing urbanisation: Oil revenues, agricultural surpluses, and Iraq's various conflicts have all hastened the trend toward migration to the cities, especially to Baghdad and Basrah.
The Government estimates that 85% of this home building will be carried out by the private sector. Whilst the Government built some housing projects in the 1970's and 1980's, residential development has since been undertaken by small-scale local builders. These builders have not yet developed the financial and technical capability to address the large-scale development now needed to satisfy the rising demand for housing. Ample opportunity therefore exists for large established foreign developers to participate in the housing construction boom that is expected to take place over the course of the next five years.
The emphasis is on "affordable housing", to be achieved through a combination of reconstruction and restoration works in Iraq's top five cities as well as greenfield development. The NIC perceives a need for "real estate developers that are capable of planning, designing, developing, and delivering planned community housing at the necessary price point...Foreign investment can bring new designs and techniques as well as efficient lower-cost building materials for planned communities and a wide variety of creative low-cost housing units". Whilst recommending that foreign developers partner with local developers to help steer their project through the permitting, licensing and other business related issues involved, the NIC is clear that real opportunities exist for the foreign developer: "Private foreign investment in Iraqi housing is expected to grow robustly, with estimated upper-range investment of $35 B USD in 2009 and $40 B USD in 2010. The slowdown in competing markets, especially in the Gulf region, and the pent up demand in Iraq seeking more efficient residential real estate development, presents an excellent opportunity for leading regional and global private developers".
The Role of the National Investment Commission ("NIC")
The National Investment Commission was created pursuant to Iraq's Investment Law, Law No 13 of 2006. The purpose of the NIC is to serve as a single point of contact, or a gateway, for private investors, national and foreign, who wish to establish a project and invest in Iraq's regeneration. According to its website, the NICs responsibility is "to connecting investors with profitable projects that address Iraq's most critical needs, and to ensure that the environment exists for simple entry into the country". Interest from investors is sought across a wide range of sectors, including railroad and port projects, residential and urban development, electricity plants, refineries, hotels and telecommunications infrastructure expansion. The only sectors that are specifically excluded from the provisions of the Investment Law are the following:
- Oil and gas production
- Banking and insurance
The remit of the NIC is to facilitate investment in "Strategic Projects of Federal Nature" ("SPFNs"), which are further specified in Investment Regulation No (2) of 2009 as follows:
- Infrastructure projects of a capital not less than US$50,000,000.
- Joint projects among regions or provinces not affiliated with a region.
- Projects pertaining to extraction of natural resources, taking into consideration the contents of Article (29) of the Investment Law.
- Projects arising from an agreement where the Republic of Iraq is a party therein.
- Projects in the engineering, mineral, petrochemical or pharmaceutical industries, or the manufacture and production of vehicles, of a capital not less than US$50,000,000.
- Projects promoting archaeological and historical sites.
- Transport projects, such as roads, ports, airports and railways, of a capital not less than US$30,000,000.
- Electricity projects of production capacity not less than thirty megawatts.
- Dams, reservoirs and irrigation projects, involving an irrigated area of not less than 2,500 square meters.
- Communication projects.
- Projects of a capital not less than US$ 1 billion.
- Any other project which the Council of Ministers considers to be a SPFN.
Accordingly, the NIC's Board of Directors is tasked with the following:
- Develop a general national strategy for investment and set plans and rules to regulate the strategy.
- Implement measures to monitor, follow-up and assess performance of investment projects through committees established for this purpose.
- Indentify the most important investment sectors.
- Develop a plan for investment projects in Iraq in the light of information collected from investment commissions in the regions (Region Commissions) and from provinces not affiliated with a region (Province Commissions), coordinating with relevant ministries as necessary.
- List the investment opportunities in the SPFNs.
- Identify development areas for investment projects.
- Recommend safe investment areas to the Council of Ministers for approval.
- Establish permanent committees for administering NIC work.
In addition to the NIC, the Investment Law also called for the establishment of Region Commissions and Province Commissions, who in conjunction with the NIC support the more localised investment needs of Iraq's regions and provinces.
Availing of NIC's Services
The first port of call for any investor, local or foreign, wishing to invest in a housing project is the NIC's One Stop Shop (or, for a project that does not qualify as an SPFN, the equivalent window at the relevant Region or Province Commission). The stated goals of the One Stop Shop are as follows:
- Process investment applications in a single easily accessible spot.
- Create a single clearinghouse where investors can get answers to all their questions.
- Streamline the investing process by clarifying legislation, and improving service quality in registration, licensing permitting, and land allocation.
- Provide investors with pre-approval support including approval facilitation, local partnering, and information on markets, sectors, and investment incentives.
- Provide post approval support including permits application, equipment and raw material import, and profit repatriation.
Application for an Investment License is made by completing a nine page form, which can be downloaded from the NIC's website www.investpromo.gov.ie and submitted either in person or by email together with the following supporting documentation:
- Executive summary of the project
- Project feasibility study (financial and technical)
- Certificate of good standing for the investor issued by a certified bank
- List of projects completed by the investor both inside and outside Iraq
- Project timeline
- Investor's identity documents
The NIC has a period of 45 days within which to consider the application and either grant the investor an Investment License or reject the application. Within this time period, the NIC must liaise with other relevant government departments and ministries. There is a right of appeal in the event that an application is rejected
Incentives for Foreign Developers in the Housing Sector
The draft Amendment to the Investment Law that was recently approved by Iraq's Parliament and which now awaits the approval of Iraq's Presidential Council introduces some important incentives to foreign developers who wish to undertake housing projects in Iraq through an Investment License obtained from the NIC.
If passed, the Amendment will enable Iraqi and foreign developers to acquire lands and properties from the Government and the private sector and own them for the purpose of development of a housing project. To this end, the Ministries of Finance, Municipalities & Public Works and Agriculture are required to provide suitable lands and properties for allocation by the NIC to developers for housing projects. The price to be paid by developers for government lands and properties is to be established by a Regulation.
It is to be noted that any developer who acquires land or property for implementation of a specific project will be required to fully complete that project before being permitted to dispose of it. Speculation in land or property is strictly prohibited. Furthermore, any developer who contravenes his obligations to complete a project within the agreed timeline faces deregistration of his title at the Department of Real Estate Registration. In such eventuality, the title will revert to the previous owner and the developer will be reimbursed the price that he paid for the land. However, a developer may dispose of the project in whole or in part to another developer, provided that the NIC's consent is first obtained and that the new developer assumes the role and responsibilities of the outgoing developer to complete the project. Upon completion of the project, the developer may sell or lease the properties that he has built to Iraqi citizens.
In addition to the land and property allocation and ownership privileges to be introduced through the Amendment, the Investment Law more generally provides the following additional benefits and incentives to a foreign developer who holds an Investment License for a specific project:
- Exemption from taxes and fees for a period of 10 years, commencing from the start date of the project (generally, a tax of 15% on all income earned by Iraqi and foreign companies is applied).
- Exemption from import duties on materials, plant and machinery used for the project for a period of 3 years from the date that the Investment License was granted.
- Repatriation of invested capital and profits upon completion of the project.
- The right to employ foreign workers where suitably qualified Iraqi workers are not available.
- A guarantee that the project will not be nationalised or confiscated by the Government, except by way of final court ruling.
Furthermore, a developer holding an Investment License can procure insurance for the project, and may open a bank account for the project in his currency of choice, either in Iraq or abroad.
Investing in the Kurdistan Region of Iraq
It should be noted that the Kurdistan Region of Iraq is governed by the Kurdistan National Assembly, and accordingly the Investment Law has no application in this region. Instead, the Kurdistan National Assembly enacted the Law of Investment in Kurdistan Region, Law No 4 of 2006, pursuant to which the Board of Investment was formed with a remit very similar to that of the NIC. Whilst similar benefits and incentives are available to investors in projects in the Kurdistan Region, Law No 4 should be studied in detail by any developer wishing to compare and assess the differences between the two jurisdictions.
Al Tamimi & Company will be keeping a watchful eye on the progress of the Amendment to the Investment Law as it passes through the Presidential Council for final approval and enactment. The timing for this is uncertain, especially in view of the upcoming general elections on 6th March 2010. However, we will publish an update at the appropriate time.
Our Property and Construction Departments in the UAE are working closely with our office in Baghdad to ensure that we are well placed to assist developers and contractors throughout the Gulf region who wish to set up and implement development projects in Iraq.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.