Statement of opinion regarding the legislative framework governing foreign ownership of real estate in Iraq

Legal Opinion Statement: The Legislative Framework Governing Foreign Real Estate Ownership in Iraq

The regulation of foreign ownership of real estate in the Republic of Iraq is considered a legal subject of particular sensitivity. This is due to its direct correlation with national sovereignty, economic policy, and investment requirements.

The legislative framework governing this matter has passed through several successive stages. These stages have reflected the orientation of the Iraqi legislator during various periods, ranging from restricted permission and absolute prohibition, to exceptional permission linked to investment.

In this article, we review the most important legislative stages that have regulated foreign real estate ownership in Iraq, while clarifying the legal foundations and regulations that currently govern this right.

First: The Phase of the Foreigners’ Real Estate Ownership Law No. (38) of 1961, as Amended

This law was enacted to regulate foreign ownership of real estate in Iraq. It adopted the principle of reciprocity as the governing basis for this right, while imposing strict restrictions and regulations.

Below is a brief presentation of the most important provisions introduced by this law:

The Principle of Reciprocity (Article 1): Foreign ownership of real estate in Iraq is subject to the principle of reciprocity. A foreigner is not permitted to own property except to the extent allowed for an Iraqi citizen in the foreigner’s home country, regarding the type of real estate, its area, location, and usage.
Governmental Authority to Restrict (Article 2): The Council of Ministers may restrict or suspend the foreigner’s right to own real estate, or halt its registration, if required by public interest, reciprocity, or in the event of emergency circumstances.
Exemption for Arab Nationals (Article 3): The provisions of this law do not apply to nationals of Arab states; they are subject to provisions contained in valid special laws.

Conditions for Ownership (Article 4): For a foreigner to own real estate, the following conditions must be met:

Obtaining the approval of the Minister of Interior.
Proof of residence in Iraq for a period of not less than seven years.
The absence of any administrative or military impediment.
The real estate must not be close to the Iraqi borders, nor be part of agricultural or State-owned (Miri) lands.

Limitation on Number and Usage (Article 5): Foreign ownership is restricted to one property for residence and one place of business only. Furthermore, the foreigner is prohibited from placing the property under endowment (Waqf) or bequeathing it to a foreign entity outside Iraq.
Disposal of Excess Property (Articles 11 & 13): If a foreigner exceeds the permissible limit of ownership, they must transfer the excess to an Iraqi citizen within a specified legal period. Otherwise, the property shall be sold forcefully (compulsory sale) in accordance with the provisions of the law.
Nullity of Violations (Articles 16 & 17): Every contract, disposal, or registration occurring in violation of the provisions of this law is considered null and void. No acquired right shall result from such actions for the foreigner.

Analysis of the Legal Restrictions in Law No. (38)

From these texts, it becomes evident that the Foreigners’ Real Estate Ownership Law No. (38) of 1961 did not recognize the right of ownership for foreigners in an absolute manner.

Rather, it established it as an exceptional and restricted right based on the principle of reciprocity, surrounded by strict administrative and security constraints.

Through this law, the legislator was keen to narrow the scope of foreign real estate ownership in terms of:

Quantity: Limiting the number of properties.
Location: Excluding specific zones.
Usage: restricting use to residence and business.

Additionally, the legislator linked this right to official approvals and long-term residency conditions. A prime example is Paragraph 3 of Article 4, which prohibited foreign ownership of any real estate located less than 30 kilometers from the Iraqi borders, in addition to mandating nullity for any strictly violating disposal.

Second: The Phase of the Dissolved Revolutionary Command Council Resolution No. (23) of 1994

This resolution was issued by the dissolved Revolutionary Command Council and remains in force in Iraq today. It constituted a fundamental shift in the regulation of foreign real estate ownership.

Through this resolution, the legislator moved towards a comprehensive suspension of all laws and decisions that previously permitted non-Iraqis to own real estate or invest their funds within Iraq.

The Scope of Prohibition and Penalties

The resolution decreed the suspension of all legal provisions allowing non-Iraqis to:

Own real estate.
Invest in companies.
Engage in any other form of ownership or investment, regardless of its form or cause.

Furthermore, the resolution imposed penal sanctions on violators of its provisions, as follows:

Imprisonment: A term of not less than one year and not more than three years.
Aggravated Penalty: If the violator is an Iraqi national, the penalty is increased to imprisonment for a term of not less than two years.
Confiscation: Confiscation of the funds or real estate owned or invested in violation of the resolution's provisions.

Conclusion of this Phase:

This stage represents the era of Absolute Prohibition of foreign real estate ownership and investment within Iraq, lasting until the enactment of subsequent legislation that reorganized this right within exceptional and specific frameworks.

The Phase of Establishing the Foreign Investor’s Right to Own Real Estate within the Investment Framework

Article (10) of the Investment Law No. (13) of 2006 (As Amended) represents a pivotal stage in the evolution of Iraqi legislative policy regarding foreign real estate ownership.

In this phase, the legislator transitioned from the principle of general prohibition to Restricted Permission linked strictly to investment.

1. The Principle of Equality (Article 10/First)

The article established the principle of equality between the Iraqi investor and the foreign investor. Both enjoy all the privileges, facilities, and guarantees granted by the law. Conversely, they are subject to the same obligations, confirming the unity of the legal status of the investor regardless of nationality.

2. Ownership for Housing Projects (Article 10/Second/A/1)

The legislator permitted the transfer of ownership to the Iraqi or foreign investor for lands allocated for residential projects belonging to the State or the public sector.

Additionally, the legislator allowed the purchase of lands belonging to the private or mixed sector, exclusively for the purpose of establishing Housing Projects, provided that the project does not conflict with the uses of the approved Basic Design (Urban Master Plan).

3. Key Restrictions on Foreign Ownership

It is understood from this article that the legislator did not grant the foreign investor an absolute right of ownership. Instead, it was restricted by several fundamental regulations, most notably:

Limitation to Housing: Ownership is exclusively restricted to residential projects and no others.
Licensing Requirement: Ownership is contingent upon the existence of a licensed investment project.
Urban Planning Compliance: The necessity of adhering to urban planning and the approved Basic Design.
Equal Status: The equality of the foreign investor with the Iraqi investor regarding rights and obligations within the investment framework.

Therefore, this article is considered an explicit legislative exception to the general rules that prohibited foreign real estate ownership. It establishes a third phase based on restricted permission, viewing ownership as a tool for executing the investment project, not as an absolute or independent right.

4. Legislative Supremacy (Article 34)

This legislative trend is explicitly reinforced by Article (34) of the Investment Law, which states: "No text contradicting the provisions of this law shall be applied."

This text is interpreted to mean that the legislator decided to suspend all previous laws and decisions that conflict with the provisions of the Investment Law. This includes the dissolved Revolutionary Command Council Resolution (mentioned in the Second Phase) which decreed the suspension of non-Iraqi ownership or investment.

Article (34) serves as an explicit legislative suspension and an implicit repeal of the Revolutionary Command Council Resolution, within the limits of investment activities covered by the Investment Law—specifically regarding the permission granted under Article (10) for foreign investors to own lands allocated for housing projects in accordance with legal regulations.

Legal Alternatives to Ownership: The Musataha Agreement and The Lease Agreement

Musataha (Surface Right) is considered one of the Real Rights (Rights in Rem) regulated by the Iraqi Civil Code No. (40) of 1951.

Article (1266) of the Civil Code defines it as follows: "A real right authorizing its holder to erect a building or other installations, other than planting, on the land of another pursuant to an agreement between him and the landowner. This agreement defines the rights and obligations of the Musataha holder."

1. Legal Restrictions on Musataha for Foreigners

Given the legal nature of Musataha as a Real Right, the legislator imposed special restrictions on establishing it in favor of foreigners.

Article (15) of the Foreigners' Real Estate Ownership Law No. (38) of 1961 (Amended) stipulates the following: "It is not permissible to arrange any real right for a foreigner on State real estate, nor to grant him a concession of exploitation on the real estate of an Iraqi person, except by a Concession Contract in accordance with the provisions of the law."

Furthermore, Article (152) of the Real Estate Registration Law No. (43) of 1971 stipulates the following: "The registration of real estate real rights in the name of a foreign company is subject to the following conditions:

Approval of the Registrar of Companies that the company is registered in Iraq in accordance with the law and has the right to own real estate under its Memorandum of Association.
Approval of the Competent Minister that the real estate is located within the boundaries of cities and towns, or that its ownership is permitted under an agreement or concession ratified by law.
Approval of the Minister of Interior."

Practical Implications

Since Musataha is classified as a Real Right, its arrangement or registration in favor of foreign companies is subject to the strict conditions mentioned above.

The requirement to obtain the approval of the Minister of Interior, in particular, makes resorting to this legal path extremely difficult from a practical standpoint.

2. The Lease Agreement: The Realistic Alternative

Consequently, the most realistic legal alternative for foreign companies is the Lease Agreement.

Duration: It is permissible to agree on the duration of the lease according to the will of both parties.
Legal Flexibility: Iraqi law does not specify a maximum limit for the lease term, provided that:
- It does not violate Public Order.
- It does not lead to the arrangement of a hidden real right.

Conclusion and Inference

It is evident that the regulation of foreign real estate ownership in Iraq has passed through three main legislative stages:

First Stage: Adopted the principle of Reciprocity while imposing strict restrictions.
Second Stage: Moved towards Absolute Prohibition under the Revolutionary Command Council Resolution No. (23) of 1994.
Third Stage: Restored Restricted Permission within the investment framework under the Investment Law No. (13) of 2006.

In the final stage, the legislator recognized the right of the foreign investor to own real estate exclusively for the purpose of executing licensed residential projects, subject to specific conditions and regulations.

Based on Article (34) of the Investment Law, any previous text conflicting with this has been suspended. Therefore:

The General Rule: Remains Prohibition.
The Exception: Is Restricted Permission linked to investment.
Nature of Right: This does not amount to an absolute right of ownership for the foreigner.

In light of the restrictions imposed on arranging Real Rights for foreigners—especially the Right of Musataha, which is subject to strict registration conditions and approvals—resorting to this alternative remains practically limited outside the scope of investment.

Therefore, the Lease Agreement is considered the broadest and most applicable legal alternative.

It allows foreigners to utilize the real estate for agreed periods (without violating public order) and benefit from the property without acquiring the right of ownership or arranging a real right upon it.

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