the State Oil Marketing Organization (“SOMO”), It is the government-owned company under the Iraqi Ministry of Oil that is responsible for the marketing and export of Iraq’s crude oil and petroleum products. SOMO manages crude sales contracts, sets pricing based on international benchmarks, and ensures compliance with Iraq’s fiscal and regulatory policies .
When international companies purchase crude oil or oil-related products from the State Oil Marketing Organization (SOMO) of Iraq, they enter a highly regulated legal and fiscal framework. These transactions offer attractive commercial opportunities but also involve strict compliance requirements under Iraqi oil laws, tax regulations, and central bank directives.
In this article, our team at Muayad & Associates, a leading Iraqi law firm advising international companies, explains what foreign businesses should know before signing a SOMO contract.
What is SOMO and its Role in Iraq’s Oil Sector?
The State Oil Marketing Organization (SOMO) is the Iraqi government entity responsible for marketing crude oil and oil derivatives. It manages exports through standardized contracts that reflect Iraq’s national interest, fiscal policy, and international obligations.
For foreign companies, a SOMO contract is not just a sales agreement. It is a government-backed contract governed by Iraqi law, the Central Bank of Iraq’s rules, and the Iraqi Income Tax Law No. 113 of 1982.
Key Features of SOMO Contracts
Typical SOMO contract terms include:
a. Delivered quantity in barrels or metric tons
b. Pricing formula linked to global benchmarks such as Platts or MOPAG
c. Premiums or bonuses above the benchmark
d. Payment terms through authorized Iraqi banks
These provisions impact not only the commercial transaction but also tax obligations and compliance.
Taxation and Compliance Obligations
Foreign companies contracting with SOMO must comply with multiple Iraqi tax and fiscal obligations, including:
a. Corporate Income Tax (CIT): Usually assessed at 15% of profits, based on contract performance
b. Payments in Lieu of PIT: A statutory levy at 0.1% of the gross contract value, payable to the General Commission for Taxes
c. Withholding Tax Obligations: May arise in relation to subcontractors or service providers under the contract
Failure to comply may result in payment delays, financial penalties, or exclusion from future oil contract awards.
Strategic Importance for International Companies
SOMO contracts give direct access to one of the largest crude oil exporters in the world. For refiners, energy traders, and international oil companies, securing a SOMO contract can be a strategic step in supply security.
However, success depends not only on logistics and trade management but also on navigating Iraq’s complex legal and tax framework.
Why Legal and Tax Guidance is Essential
Many companies underestimate the complexity of doing business with SOMO. Compliance with Iraqi tax law, central bank rules, and regulatory requirements is essential, not optional.
Working with experienced legal advisors ensures:
a. Proper contract review and negotiation
b. Full alignment with Iraqi tax rules
c. Protection against disputes and penalties
d. Smooth execution of payments and deliveries
At Muayad & Associates, we regularly advise international companies on SOMO contracts, Iraqi taxation, and compliance strategies.
FAQs on SOMO Contracts
1. What is a SOMO contract in Iraq?
A SOMO contract is a government-backed oil sales agreement between the State Oil Marketing Organization and an international company, subject to Iraqi law and fiscal regulations.
2. How are SOMO contract prices determined?
Prices are typically benchmarked against international references like Platts, with premiums or discounts depending on contract terms.
3. What taxes apply to SOMO contracts?
Foreign companies are subject to Corporate Income Tax (15%), Payments in Lieu of PIT (0.1%), and in some cases, withholding tax obligations.
4. Can non-oil companies enter into SOMO contracts?
Yes, provided they meet Iraq’s compliance, licensing, and financial requirements. Legal and tax due diligence is essential before contracting.
5. Why do companies need legal advisors for SOMO contracts?
Because SOMO agreements involve government regulations, tax liabilities, and compliance risks that can directly affect profitability and eligibility for future contracts.
Final Thoughts
For international companies, engaging with SOMO offers significant opportunities but also requires careful legal and tax planning. Our team at Muayad & Associates helps clients structure SOMO contracts, manage compliance, and resolve disputes under Iraqi law.
If your company is considering entering into a SOMO contract, contact us to discuss how we can assist in safeguarding your commercial and legal interests.