Social security clearance when closing a business or liquidating a foreign branch
When a foreign company decides to shut its Iraqi branch, or a factory owner decides to sell or close, one document comes up at the end of every checklist: the social security clearance. The Law Office of Ali Barakat, in Baghdad, al-Yarmouk, explains where it comes from, why it cannot be skipped, and what to put in order before asking for it.
The provision behind it
Article 20(1) of Workers' Pension and Social Security Law No. 18 of 2023 overrides any other legislation on this point. For any company, workshop, factory or body employing one worker or more, it bars the following until a clearance certificate has been issued by the Workers' Pension and Social Security Department:
- selling or transferring ownership;
- granting, registering or renewing permits and trade licences;
- leasing;
- any other legal dealing.
Article 20(2) adds that the body's assets cannot be sold or distributed, nor can it be declared bankrupt or liquidated, until the department has been notified of the bankruptcy or liquidation.
So clearance is tied not only to closing down but to any step that changes the business's position. Someone selling a stake or renewing an operating licence will meet the same requirement.
What has to be paid before asking
Clearance means the department has no outstanding claim. The steps before it are about squaring the account:
- Monthly contributions for every insured worker up to the last working day, due within thirty days of the following month, under article 17.
- Late-payment penalties where the delay passed one hundred and twenty days, charged monthly as a percentage of the contribution up to a ceiling, under article 17. The minister, on the board's recommendation, may waive them once where there was a convincing excuse.
- Suspension periods: contributions for periods when a worker's contract was suspended for illness, childbirth, detention or another lawful reason fall on the employer, with no recovery from the worker, under article 18.
Matching the department's list of registered workers against the people actually employed at the branch is worth doing before applying, because gaps between the two cause most of the objections.
Liquidating a foreign branch: where the department comes in
Foreign Company Branches Regulation No. 2 of 2017 sets out liquidation in article 12. The company has sixty working days to apply to the Registrar of Companies, counted from the day the Iraqi embassy or mission in its home country certifies the documents proving the reason, whether bankruptcy, a merger that ended its legal personality, or a decision to wind up in Iraq. It appoints one or more liquidators, and the registrar has fifteen working days to decide. Since Regulation No. 4 of 2023, the liquidator publishes the decision in two local newspapers and the registrar writes to the Iraqi bodies concerned within a working week of the decision. This is where the regulation meets article 20 of the social security law: the department is one of the bodies notified, and liquidation cannot proceed without that notice.
The branch must finish liquidating and submit final accounts within two years of the decision, and is then struck off within seven working days. If liquidation is not completed in two years, the registrar cancels the licence and strikes the branch off, and the parent company remains answerable for any debt or obligation that arose while the branch operated in Iraq, social security included, under article 12(8). The general closing process is in Closing a foreign branch.
Workers at closure
Workers' rights outlive the closure. On the social security side:
- An insured worker whose service ends without qualifying for a pension may be owed a lump-sum award in the cases listed in article 46, including leaving the country permanently.
- A foreign worker leaving Iraq is paid entitlements on the basis of reciprocity or international labour conventions, whichever is better for the worker, under article 25 and the minister's instructions.
A practical order of steps
- List and reconcile the registered workers.
- Pay contributions and penalties up to the last working day.
- Notify the department of the liquidation or sale decision.
- Request the clearance and hand it to the registrar or whichever body asks for it.
- Deal with other bodies, such as the tax authority, in parallel.
The office follows these provisions from Baghdad, al-Yarmouk.
Legal basis and sources
- Workers' Pension and Social Security Law No. 18 of 2023, articles 17, 18, 20, 25 and 46 (Iraqi Official Gazette, issue 4734 of 28/8/2023)
- Foreign Company Branches Regulation No. 2 of 2017, articles 11 and 12 (Iraqi Official Gazette, issue 4438 of 13/3/2017)
- Regulation No. 4 of 2023 amending the Foreign Company Branches Regulation (Iraqi Official Gazette, issue 4734 of 28/8/2023)
Frequently asked questions
Can a factory be sold before the social security clearance is issued?
No. Article 20(1) bars sale, transfer and any other legal dealing until the Workers' Pension and Social Security Department issues the clearance.
The foreign company closed its branch and left without paying social security. Are the debts gone?
No. Article 12(8) of the regulation keeps the parent company liable for everything that arose while its branch worked in Iraq.
Is clearance required to renew an operating licence?
Yes. Article 20 lists renewing permits and trade licences among the dealings that need clearance.
Can the company deduct contributions for a worker's sick leave from the worker's final settlement?
No. Article 18 puts contributions for lawful suspension periods on the employer, with no recovery from the worker.
Related topics and articles
- 01Closing a foreign-company branch: liquidation and strike-offClosing a foreign-company branch in Iraq: strike-off by the Registrar, or liquidation on the company's request, under Regulation No. 2 of 2017 as amended.
- 02Liquidating an Iraqi company and striking it off: the steps after the liquidation decisionWhat happens after an Iraqi company is put into liquidation under Companies Law No. 21 of 1997: appointing the liquidator, calling creditors, the order of payment, voiding pre-liquidation dealings, tax authority approval, notice to social security, striking off and distributing the remainder.
- 03The employer's duties in workers' social securityEmployer duties under Law No. 18 of 2023: yearly particulars, payment time limits, clearance, contractors and work injury.
- 04The reach of Law No. 18 of 2023: which groups fall under Iraq's workers' social securityThe reach of Workers' Pension and Social Security Law No. 18 of 2023: private, mixed and cooperative sector workers, trainees and probationers, the self-employed and employers, informal work, family members in the business, Iraqis at embassies and organisations, Iraqis abroad, and foreign workers.
- 05Opening a social-security file at the first hire after a company is formedFirst-hire social-security file after a company is formed: coverage, wage base, particulars and the security document.