Germany
Kurdistan
German engagement with Iraq is written mostly in electricity and industrial equipment, and mostly in the federal territory. The Kurdistan Region is a different market with a different rulebook.
For a German founder the interesting fact about the Region is not the corridor. It is that Germany moved its low-tax line to exactly where Kurdistan sits.
Key facts for German founders
| Question | Answer |
|---|---|
| Can a German resident own 100% of a Kurdistan company? | Yes. Full foreign ownership, unlike federal Iraq's 49% cap |
| Germany-Iraq double tax treaty | None |
| Kurdish corporate tax | 15% on net profit, all sectors |
| AStG low-tax threshold | 15%, reduced from 25% with effect from 2024 |
| Effect of a Kurdish investment licence | Effective rate falls toward zero for ten years |
| Federal Iraqi oil and gas rate | 35%, and not adopted in the Region |
| Tax on dividends leaving the Region | None |
Until 2024 an Iraqi rate of 15% sat comfortably under a German threshold of 25%. The threshold moved. The comfort went with it.
The German analysis: Hinzurechnungsbesteuerung after 2024
German controlled foreign company taxation dates from 1974, but the number that matters here changed very recently.
| Element | Position |
|---|---|
| Governing law | Aussensteuergesetz, the Foreign Tax Act |
| Low-tax threshold, before 2024 | 25% |
| Low-tax threshold, from the 2024 assessment period | 15%, per section 8(5) AStG |
| Why it changed | The law implementing the EU Minimum Tax Directive, passed by the Bundesrat on 15 December 2023 |
| Also required | Control by German residents, and income falling in the passive catalogue |
| Country-by-country safe harbour | Available for 2024 to 2026 to evidence high taxation |
What the change did to the Iraqi position
This is worth stating precisely, because guidance written before 2024 reaches the opposite conclusion.
- At a 25% threshold, Iraq's 15% was low-taxed and Germany's CFC rules were live.
- At a 15% threshold, Kurdistan's 15% is not below the line. It is on it.
- Federal Iraq's 35% oil and gas rate is well clear of the threshold on either version.
- The Region has not adopted that 35% rate, so a Kurdish energy services company also sits at 15%.
- The rate test is not the whole test. Control and the passive income catalogue still have to be run.
The licence is the trigger, not the shelter
Kurdistan Region Investment Law No. 4 of 2006 exempts a licensed project from all non-customs taxes and duties for ten years from the start of services or actual production. It is the Region's strongest incentive.
It also drives the effective rate toward zero, which puts the entity unambiguously below the German threshold rather than on it.
The benefit and the trigger are the same event. A German group that takes the licence without modelling the AStG consequence has optimised one side of a two-sided problem. Run both before applying.
Substance, and what the Region forces you to have
German CFC taxation looks at income character and control, and an entity with real operations and real people is a different proposition from a letterbox.
The Region does not offer letterboxes. Registration requires:
- A managing director, legal agent and authorized employee who reside in the Region and appear before the Registrar in person.
- Premises verified by physical inspection, which cannot happen without a signed lease.
- A locally qualified lawyer and accountant, both mandatory and both renewed annually.
- Audited accounts under the Iraqi Unified Accounting System, from year one at any size.
- Actual local trading, since a Kurdish entity is reported not to operate in federal Iraq.
Those are costs during registration and evidence afterwards. Detail in Kurdistan company compliance.
No treaty, and no threshold on the Iraqi side either
Germany has no double tax treaty with Iraq. Hungary is the only EU member state on Iraq's treaty list.
| What you might expect | What actually applies |
|---|---|
| A treaty allocating taxing rights | Nothing. Both sides may assess |
| A presence threshold before Iraqi exposure | None. Iraqi law has no permanent establishment concept |
| A treaty rate on non-resident withholding | The Region's Instruction No. 7 of 11 April 2022, at 15% on deemed profit |
| A mutual agreement procedure | None |
For a German supplier this changes how a commissioning trip is priced. Sending technicians to install equipment in Erbil creates Iraqi exposure from the first day of work performed, and there is no days count to shelter behind. Set out in Kurdistan withholding tax.
The Kurdish side, in short
| Element | Position |
|---|---|
| Ownership | Up to 100%, the only route to that in Iraq |
| Registration | 2 to 4 weeks in practice |
| Minimum capital | IQD 1,000,000, fully paid, roughly USD 850 |
| Published government total | IQD 4,425,000 for a local company, including that capital |
| Corporate tax | 15%, with no 35% oil and gas rate in the Region |
| Filing deadline | 30 June, six months after year end |
| Territorial limit | Reported not to trade in federal Iraq |
- 1974German CFC taxation introduced under the Aussensteuergesetz
- Until 2023Low-tax threshold at 25 percent, comfortably above Iraq's 15 percent general rate
- 15 Dec 2023Bundesrat passes the Minimum Tax Directive Implementation Act
- From 2024Threshold falls to 15 percent under section 8(5), landing exactly on the Kurdish rate
When this makes sense from Germany, and when it does not
- You supply equipment, engineering or industrial services into the Region. A local entity is how you contract for on-site work.
- You have a Kurdish customer or a signed contract. Full ownership is available and entry is quick.
- You are weighing an investment licence. Model the AStG effect before applying, not after.
- You want a holding company. Wrong jurisdiction, and precisely the profile CFC rules exist to catch.
- You want a low tax base. At 15% with a mandatory audit it is not one, and making it one is what crosses the German line.
- Your project is in the federal south. That is a federal entry, covered in Iraq company from Germany.
Common mistakes from Germany
- Using pre-2024 guidance. The threshold was 25% and is now 15%, which reverses the conclusion.
- Reading 15% against 15% as clearance. It is a boundary, not a margin.
- Taking the ten year exemption without running the AStG analysis. The incentive is the trigger.
- Assuming a treaty exists. Germany has none with Iraq, and Hungary is the only EU country that does.
- Pricing a commissioning trip without Iraqi tax. There is no presence threshold to fall under.
- Creating a fresh German holding company as shareholder. A foreign corporate shareholder is reported to need over a year of existence.
The bottom line, and how CorpSec helps
The German position on Kurdistan changed in 2024 without anything changing in Kurdistan. A German group relying on the old analysis is relying on a threshold that no longer exists.
At the ordinary Kurdish rate the entity sits on the line rather than under it, which means the analysis is worth running properly rather than assuming either outcome. At an exempt rate under an investment licence, it sits under the line, and that is a decision to take with a German adviser in the room.
CorpSec handles the Kurdish registration, the mandatory local appointments and the bank account sequence. The substance the Region requires of us is the same substance your German adviser will want to document.
Frequently asked questions
Can a German resident own 100% of a company in the Kurdistan Region?
Yes. The Region permits full foreign ownership, unlike federal Iraq where an Iraqi shareholder must hold at least 51% under Law No. 17 of 2019.
What is the AStG low-tax threshold now?
15%, reduced from 25% under section 8(5) with effect from the 2024 assessment period, as part of the law implementing the EU Minimum Tax Directive passed by the Bundesrat on 15 December 2023.
Is Kurdistan low-taxed for German CFC purposes?
At the ordinary 15% rate it is not below the threshold, but it is exactly on it. The rate test is also not the only test: control and the passive income catalogue still have to be applied.
Does the Kurdish investment licence create a German problem?
It can. The licence exempts a project from non-customs taxes and duties for ten years, driving the effective rate toward zero and below the German threshold. Model it before applying.
Does the 35% oil and gas rate apply in the Region?
No. The Kurdistan Region has not adopted it, so an energy services company there is taxed at 15% rather than 35%, which is a real advantage over federal Iraq.
Is there a tax treaty between Germany and Iraq?
No. Hungary is the only EU member state with a treaty with Iraq. Relief for a German taxpayer depends on unilateral rules.
How much presence creates Iraqi tax exposure?
Any. Iraqi tax law has no permanent establishment concept, so work performed in the Region is taxable regardless of how brief the visit or how small the contract.
What substance will a Kurdish entity have?
More than most. The managing director and legal agent must reside in the Region and appear before the Registrar, premises are inspected physically, and a local lawyer and accountant are mandatory annual appointments.
How long does Kurdish registration take?
Two to four weeks in practice, against six to twelve weeks or longer in federal Iraq, where every foreign shareholder requires Ministry of Interior clearance.
Can my Kurdish company also supply Baghdad?
It is reported that a Kurdish entity does not operate in federal Iraq, and Board of Investment licences cover Erbil, Sulaymaniyah and Duhok only. Serving both markets means two entries.
Sources
- Mindestbesteuerungsrichtlinie-Umsetzungsgesetz: the AStG section 8(5) low-tax threshold reduced from 25% to 15% with effect from the 2024 assessment period
- Iraq Britain Business Council: the 35% oil and gas rate has not been adopted in the Kurdistan Region
- Kurdistan Region Investment Law No. 4 of 2006: the ten year exemption for licensed projects
- KRG eRegulations portal: registration procedures, documents and published fees
The reduction of the low-tax threshold in section 8(5) of the Aussensteuergesetz from 25% to 15%, effective from the 2024 assessment period, was made by the law implementing the EU Minimum Tax Directive, passed by the Bundesrat on 15 December 2023. Whether German CFC taxation actually applies also depends on the passive income catalogue and on control, so a rate comparison alone does not settle the question and a German adviser should run it. Germany has no double tax treaty with Iraq. The Kurdish corporate rate of 15% and the non-adoption of the 35% oil and gas rate in the Region come from the Iraq Britain Business Council. The effect of a Board of Investment exemption on the German analysis is a conclusion drawn here from the two rules read together, not a position stated by either authority. This is not legal or tax advice.