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Contracting and Supplying to Iraq's Oil Sector: Local Content, Procurement, Staffing and Tax

Most foreign companies in Iraq's oil sector are not field operators but contractors and suppliers working for state oil companies or for international operators. Their position is shaped by procurement rules, contract templates, local content and Iraqi-staffing expectations, registration and visa requirements, and a specific 35% income tax regime. This article summarises the main legal points, with a focus on Basra, where much of the activity is located.

Othman Al-JubooriOthman Al-Juboori, Iraqi lawyer, expert in Iraqi labour lawIraqi lawyer, expert in Iraqi labour law

Who you contract with matters

A foreign service company may sit at one of several levels:

  1. Directly with a state oil company or the Ministry of Oil, for example Basra Oil Company, which handles fields in the south. Here the contract is a public contract subject to Iraq's government contracting rules.
  2. As a subcontractor to an international oil company operating under a licensing-round contract. Here the main rules come from the upstream contract (procurement procedures, approvals by joint management committees, local content clauses) and from the subcontract itself.
  3. As a supplier of goods with limited or no in-country services.

Each level has different implications for registration, tax withholding and dispute resolution, so the first step is to map the contractual chain.

Procurement with state oil companies

Contracts with ministries and state companies financed by the federal budget have long been governed by the Government Contracts Execution Instructions No. 2 of 2014, issued by the Ministry of Planning. These have now been replaced by Public Contracts Execution Instructions No. 1 of 2025, published in the Official Gazette (No. 4849, 17 November 2025) and applicable from mid-February 2026, 90 days after publication; contracts concluded under the 2014 Instructions continue to be governed by them (Articles 41 and 42). Both sets of instructions regulate tender methods, bid and performance guarantees, delay penalties, variations and dispute resolution (see the article on practical legal risks).

State oil companies also run their own vendor registration and qualification processes. Basra Oil Company, for example, publishes standard bidding documents and a contractor health, safety and environment procedure under which vendors are assessed for capability, experience and safety performance before being placed on an approved register. Tender documents may require manufacturer authorisations and, for equipment, an Iraq-based agent able to provide maintenance and spare parts. Bidders should read each tender's qualification criteria carefully; non-compliance is a common reason for rejection.

Local content and Iraqi staffing

Iraq does not have a single consolidated local content statute for the oil sector. Requirements come from several sources:

  • Upstream contract terms. The Ministry of Oil's technical service contract template (published through EITI) requires the contractor and operator to employ Iraqi nationals with the requisite qualifications "to the maximum extent possible" and to require subcontractors to do the same (Article 26). It requires training programmes aimed at increasing Iraqi employment and reducing expatriate staff, and a training fund. Article 30 requires subcontracts in Iraq to be awarded competitively, with preference for Iraqi entities (or foreign firms in association with them) and for locally manufactured or available goods where capability, price and delivery are competitive with the international market.
  • Government decisions on staffing. The Ministry of Oil has stated publicly that foreign companies under licensing-round contracts are expected to reach high Iraqi staffing levels, and in 2024 the Council of Ministers decided that private-sector companies and companies contracted with the Ministry of Oil must employ at least 80% Iraqi staff. The Ministry of Labour has stated that it applies this 80/20 ratio (INA, 3 December 2025; 964media, 28 September 2026). We have not seen the published text of the Cabinet decision, which practitioners cite as Decision No. 24832 of 2024, so its exact scope should be checked for each contract.
  • General law. The Investment Law and the Labour Law both give Iraqi workers priority where qualified candidates are available.

For a contractor, this means bids should include a credible Iraqi hiring and training plan, and subcontracting strategies should consider qualified Iraqi partners. Commitments made in a bid usually become contractual obligations.

Registration and presence

A foreign contractor that will perform services in Iraq generally needs a registered branch or an Iraqi company. Under Regulation No. 2 of 2017 on Foreign Company Branches (as amended), starting performance of a contract with a government body or public-sector company is a trigger for branch activity, and a branch must, among other things, have a resident manager, an Iraqi bank account and any sector licence required. A foreign company contracted only to supply goods may fall outside the registration requirement, but the position changes where the contract includes services in Iraq of a year or more. See our companion article on branches and subsidiaries.

Visas, work permits and site access

Contractors working in Basra fields typically need:

  • Entry visas and residency for expatriate staff under Foreigners' Residency Law No. 76 of 2017;
  • Work permits from the Ministry of Labour and Social Affairs under Labour Law No. 37 of 2015 (Articles 30-31 prohibit employing a foreign worker without a permit; the Law itself sets no ratio and has not been amended), subject to Instructions No. 1 of 2026 on foreign workers (Official Gazette No. 4863), which require a 15-day labour-market test to confirm that no suitable Iraqi candidate is available and issue one-year renewable permits. The Ministry of Labour applies the 80/20 ratio described above, so plan for no more than one foreign worker for every four Iraqi workers (in the Kurdistan Region, Council of Ministers Decree No. 172 of 2022 requires at least 75% local staff); and
  • Site access and security clearances issued through the state oil company and security authorities.

Lead times for these approvals affect mobilisation schedules and should be reflected in contract programmes and force majeure or delay clauses. Employment contracts, social security registration for Iraqi staff and termination rules are addressed in our separate labour-law series; see our articles on work permits for foreign workers and social security for employers, and our labour law page.

Tax on foreign contractors

Tax is often the area of greatest surprise:

  • Law No. 19 of 2010 imposes income tax of 35% on income realised in Iraq from contracts with foreign oil companies contracting to work in Iraq, their branches or offices, and their subcontractors, in the field of oil and gas production and extraction and related industries. The Minister of Finance, with the Minister of Oil, issues instructions identifying covered contracts.
  • Under the implementing instructions (No. 5 of 2011, as amended), the foreign company withholds from payments to subcontractors at 7% for specified oil contracts and 3.3% for other contracts. These amounts are generally treated as advance payments settled at final tax assessment.
  • Outside the oil regime, the general corporate rate under Income Tax Law No. 113 of 1982 is 15%, and the tax authority may apply deemed-profit methods to reported revenue.
  • In the Kurdistan Region, the regional Ministry of Finance has issued its own withholding instructions (Instruction No. 7 of 2022) applying 15% to deemed profit rates that vary by contract type.

Tax clearance is commonly required before final payments, release of guarantees and exit, so tax compliance should be built into project cash-flow planning from the start.

Contract terms to review

  • Governing law and dispute resolution: the TSC template provides for Iraqi law and ICC arbitration seated in Paris unless otherwise agreed; subcontracts and state company contracts may differ.
  • Payment mechanics, currency and the effect of budget delays.
  • Liability caps, indemnities and insurance.
  • Change-in-law and tax gross-up provisions.
  • Local content and staffing commitments and how compliance is measured.

Frequently Asked Questions

Does the 35% tax apply to every supplier to an oil company?

Not automatically. It applies to income from contracts within the scope of Law No. 19 of 2010 and its instructions. Whether a particular supply or service contract is covered should be confirmed early, as it affects pricing.

Is there a fixed local content percentage?

Not in a single statute. Percentages appear in contracts, government decisions and ministry policy. The contract and the current decisions applicable to it are the starting point.

Can expatriate staff start work on a visit visa?

Working without the required residency and work permit exposes both the worker and the employer to penalties. Permits should be obtained before mobilisation.

Sources

This article is general information, not legal advice.