The Central Bank of Iraq plans to allow trade with China to be settled directly in yuan for the first time to improve its access to foreign currency.
The settlement of trade in the Chinese currency instead of the US dollar will help the Iraqi central bank to “stabilise exchange rates”, it said in a statement on its website.
The move is part of a series of measures by the central bank to address a dollar shortage in local currency markets that forced Iraq’s cabinet to allow a currency revaluation earlier this month.
The latest announcement is “in addition to what was announced in the first package of facilities provided by the central bank to stabilise exchange rates”, the regulator said.
The central bank said it has options, the first being measures to boost the balances of Iraqi banks that have accounts with Chinese banks in the yuan.
“The second option: strengthening the balances of Iraqi banks through the accounts of the central bank to the final beneficiary in the Chinese yuan, through our accounts with JP Morgan and the Development Bank in Singapore,” the regulator said.
“It is the first time imports would be financed from China in yuan, as Iraqi imports from China have been financed in [US] dollars only,” Reuters quoted the government’s economic adviser, Mudhir Salih, as saying on Wednesday.
The first option would depend on the central bank’s yuan reserves while the second would rely on the bank’s US dollar reserves at JP Morgan and DBS.
The two banks would convert the dollars to yuan and pay the final beneficiary in China, Mr Salih said.
Although the move is aimed at tackling dollar shortages and stabilising the Iraqi dinar, it also signifies the growing importance of the Chinese currency in international markets.
On February 7, the Iraqi government approved a currency revaluation to strengthen the dinar against the dollar.
The cabinet set the official exchange rate at 1,300 Iraqi dinar per US. The revaluation plan was submitted by the central bank after the Iraqi dinar shed more than 10 per cent of its value in recent months.
For years, the official rate for banks and exchange companies was 1,182 dinars per dollar while the rate on the street was about 1,200 dinars.
Amid a liquidity crisis due to plummeting oil prices on the international market, Iraq’s central bank devalued the dinar in December 2020 to 1,460 dinars per dollar for banks and 1,470 dinars for individuals.
But since December, the Iraqi dinar has wavered against the dollar as the Federal Reserve Bank of New York introduced measures to stop the flow of dollars to sanctioned countries, mainly Iran, through a state-run currency auction.
The US has blacklisted several Iraqi banks over suspicious foreign transactions. New measures have been brought in to scrutinise the process of releasing money from the US to cover imports and other needs.
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Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
The Old Slave and the Mastiff
Patrick Chamoiseau
Translated from the French and Creole by Linda Coverdale
