The Industrial Investment Law defines an “industrial project” in Article (5) as any project whose primary purpose is to produce a commodity for final consumption or to produce a capital or intermediate good, including software. This is achieved through transformation in form or composition, and the work within the project must be managed using mechanical power.

Application of the Law Regarding Activities and Persons:

The Industrial Investment Law No. (20) of 1998 applies to industrial projects in both the private and mixed sectors.
It pertains to both natural and legal persons who apply for a license to establish and own an industrial project, provided they are Iraqi citizens and have reached the age of eighteen for natural persons.
Objectives of the Law:

The Industrial Investment Law aims to encourage industrial investment in both the private and mixed sectors, develop their activities, provide flexibility and support, regulate state supervision over industrial projects, and establish guidelines for granting financial aid and exemptions to ensure coordinated and balanced industrial development.

Project Implementation:

Paragraph (5) of the general regulations attached to the Industrial Investment Law states that the owner of an industrial project with an establishment license must begin establishing their project within one year from the date of receiving the license and complete it within three years. The General Directorate for Industrial Development may grant a one-year extension.

Paragraph (3) of the executive regulations indicates that the relevant authorities must take necessary actions to facilitate the establishment of the project and provide required services such as electricity, water, communication means, and fuel.

Paragraph (Second/B) of the executive regulations stipulates that the project approval decision must be issued within 15 days from the date the application is submitted to the General Directorate for Industrial Development.

Exemptions:

Existing industrial projects prior to the enactment of the law are exempt from taxes and fees, except for income tax and production fees, for a period of 5 years from the date of enactment.

Industrial projects that obtain an establishment license after the law comes into effect are exempt from all taxes and fees, except for income tax and production fees, for 10 years starting from the date the establishment license is granted.

The annual profits of the project are exempt from income tax for a period of 5 years from the year in which the profit is realized, according to rates specified by the law.

Retained reserves from project profits allocated for its development or expansion are exempt from income tax, up to 25% of total annual profits before tax calculations.

Machinery for expansion and development, as well as necessary land and buildings, are exempt for 5 years from the date of actual production commencement.

Imports of machinery, equipment, raw materials, and operating supplies for the industrial project are exempt from the requirement to obtain an import license.

Land Allocation:

The law mandates relevant state departments to allocate the land needed for industrial projects and lease it at a rate equivalent to the market value, ensuring the lease agreement remains valid for the duration of the establishment license.

The law permits owners of privately owned agricultural land and those with rights of disposal to establish industrial projects on their land.

Article (9/Fifth) of the Industrial Investment Law states that if the owner of the project leases the allocated land, wholly or partially, or uses it for purposes other than those designated, the land (or the part leased or used for other purposes) will be reclaimed, and the project owner will pay (double) the market value for the duration of the lease or usage for non-designated purposes.

Any change in the project's location is subject to the same principles and regulations governing the initial site allocation.

Loan Provision:

The Industrial Investment Law does not include legal provisions related to granting loans and employing Iraqis, unlike Investment Law No. (13) of 2006. However, Article (9/Eighth) encourages Iraqi and foreign investors to participate with Iraqis by providing loans and financial facilities in coordination with the Ministry of Finance and other financial institutions, provided the investor completes 25% of the project, with project facilities as collateral. It allows for favorable loans for housing projects and final beneficiaries while ensuring the use of Iraqi labor commensurate with the size of the loan.

Additionally, Article (15/First) of Regulation No. (2) of 2009 assigns the authority, in coordination with the Ministry of Finance, to allocate amounts annually in the general budget for (grantingSoft loans) and financial facilities through government banks to Iraqi investors holding investment licenses.

Article (15/Second) of the aforementioned regulation requires Iraqi investors receiving loans to employ unemployed Iraqi workers in a manner proportionate to the size of those loans and facilities.

Obligations

The project owner or their representative is required to maintain organized records that detail information about the actual production achieved, production capacities, production details, equipment and materials used, and the number of employees along with their qualifications. This information must be submitted to the General Directorate for Industrial Development in the first quarter of each year.

Penalties and Sanctions

Article (13/First) of the Industrial Investment Law states that a notice shall be issued to those violating the provisions of the law to take the necessary actions within a period not exceeding 7 days from the date of receiving the notice to rectify the violation. The violator must correct the violation within a period not exceeding 90 days from the start of the remedial actions. A penalty of no less than 25,000 dinars and no more than 100,000 dinars will be imposed if the violation remains uncorrected after the specified period. The penalty will be doubled in the case of repeated violations, and if the violation continues, the project will be closed until the violation and its consequences are rectified.

Appeal Procedures

Regarding Industrial Investment Law No. (20) of 1998, Article (15/First and Second) states:
First: The industrial project owner and any interested or affected party may appeal to the appellate authority against any decision made according to the provisions of this law within 30 days from the date of being notified.
Second: The appellate authority shall rule on the appeal within a period not exceeding 15 days from the date the required fee listed in the third item of this article is paid. Its decision will be final after the Minister's approval.

Recommendations

Based on the presented information, it is essential to consider some amendments to the law to enhance its effectiveness:

Ownership of State Land:

It is recommended to allow Iraqi investors to acquire ownership of state and public sector lands at a reasonable price upon the completion of their project establishment. This amendment would align with the Investment Law, which permits Iraqi investors to own land as stated in Article (10/Second/A/2) of Regulation No. (6) of 2017. Currently, the Industrial Investment Law only permits leasing state and public sector land.

Unification of Exemptions:

There is a need to unify the exemptions provided to industrial projects to include those set forth in the Investment Law, similar to provisions in the Industrial Cities Law No. (2) of 2009 and the Investment Law for the Refining of Crude Oil No. (64) of 2007, as amended. This would ensure consistent support across various investment laws.

Addressing Equipment and Material Usage:

It is crucial to address the situation concerning the sale or use of exempted machinery, equipment, or materials for purposes other than those designated in the project. This should be modeled after Article (18) of Investment Law No. (13) of 2006, which outlines regulations for such matters. Ensuring strict guidelines in this area would help maintain the integrity of investment incentives.

By implementing these recommendations, the Industrial Investment Law could be more effective in promoting industrial development and supporting investors in Iraq.

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