According to Article 2 of the new Regulation 2/2004, foreign companies may not carry out commercial activities in Kurdistan-Iraq unless they have registered a branch for these activities in accordance with the regulation. For the time being, the authorities in Kurdistan are of the opinion that such registration is required even if the foreign company has a branch registered in Baghdad.
Previously, any foreign participation in any kind of company in Iraq was prohibited. However, a new order issued by the Coalition Provisional Authority expressly permits foreign natural or legal persons to establish or participate in Iraqi companies and partnerships. Among other things, it also expedites the registration procedure for companies established in Iraq.
Before the war in Iraq, a contract with specific entities - usually the government or state-owned companies - was required to establish a branch, while representative offices were not permitted to conduct any business activities. This situation has been overhauled with the introduction of a new regime governing the registration and operation of branches and trade representation offices.
Currently, it is still impossible for foreigners to register a company in Iraq, due to the lack of implementing regulations. The stalemate has been due to tensions between the Coalition Provisional Authority and parts of the Governing Council and the business community which favour a more protectionist approach to foreign investment.
The Iraqi Civil Code adopts the principle of freedom of contract. However, freedom of contract is not without limits and is restricted by some mandatory provisions in statutes enacted in order to protect weaker parties. Generally, a contract between commercial parties binds them to the terms of the contract.
The Coalition Provisional Authority has promulgated Order 39, which replaces all existing foreign investment laws and serves as the basis for future foreign investment in Iraq. In principle, foreign investment may take place in all parts of Iraq and with respect to all economic sectors.