Facts about Iran

The Islamic Republic of Iran is a sovereign state in Western Asia. Also known as Persia, Iran has a population of more than 81 million and is the world’s 18th largest nation. It comprises 31 provinces.

Iran has special economic and geopolitical significance in the Middle East region. It is located at one of the world’s most strategic crossroads, linking Asia to Turkey (the gateway to Europe) and Russia and the Commonwealth of Independent States (CIS) to the energy-rich region and strategic waterways of the Persian Gulf.

It holds the fourth and second largest proven oil and natural gas reserves in the world respectively. According to the Organization of the Petroleum Exporting Countries (OPEC), in 2016, 11 percent of discovered crude oil and 18.2 percent of natural gas reserves in the world were in Iran.

Iran’s extensive petroleum and natural gas deposits are located primarily in the south- western province of Khuzestan and in the Persian Gulf. Iran also has one of the world’s largest reserves of copper; deposits are located throughout the country, but the major lode lies in the central region between the cities of Yazd and Kerman. This region also serves as a center for the mining of bauxite, coal, iron ore, lead, and zinc.

Additional coalmines operate throughout the Alburz Mountains; iron ore mines also exist near Zanjan in the northwest, near Mashhad in the northeast, and on Hormuz Island in the Strait of Hormuz. Iran also has valuable deposits of bauxite, chromites, gold, manganese, silver, tin, and tungsten, as well as various gemstones, such as amber, agate, lapis lazuli, and turquoise.

It is a major regional producer of steel, cement and petrochemicals. It is also a leading producer and exporter of several agricultural products, including saffron and pistachios.

Despite the great climatic variety of Iran, its average annual precipitation is about 250- 300 millimeters.

On this account, Iran is ranked among the semi-arid countries of the world. However with the great efforts made by Iranian experts to construct dams and to domesticate wastewater within the past two decades, it is hoped that the problem of water shortage will be solved in a not so remote future. It is worth mentioning that only a quarter of Iran’s area is endowed with fertile lands and mild, favorable climate. Small as may seem this figure in comparison with the whole surface area, it represents an area larger than Germany, Belgium and Netherlands grouped together. 

The World Bank puts Iran’s Gross Domestic Product (GDP) at USD 418.9 billion in 2016. According to the World Bank, this makes it the second largest economy in the Middle East region. According to Goldman Sachs, by 2050 Iran will be the 19th economic power in the world, slightly behind countries such as Italy and Canada.

History

Iran is one of the world’s oldest civilizations, beginning with the formation of the Proto- Elamite and Elamite kingdoms in 3200–2800 BC. The country unified by the Persian Medes in 625 BC for the first time, who became the dominant cultural and political power in the region. Iran reached the highest stance during the Achaemenid Empire, which is founded by Cyrus the Great in 550 BC. At its greatest extent stretched from parts of Eastern Europe in the west, to the Indus Valley in the east, making it the largest empire the world had yet seen. The empire collapsed in 330 BC following the conquests of Alexander the Great, but reemerged shortly after as the Parthian Empire.

 Under the Sassanid Dynasty, Iran again became one of the leading powers in the world for the next four centuries. Beginning in 633 AD, Rashidun Arabs conquered Iran and largely displaced the indigenous faiths of Manichaeism and Zoroastrianism by Sunni Islam. Iran became a major contributor to the Islamic Golden Age that followed, producing many influential scientists, scholars, artists, and thinkers.

During the 18th century, Iran reached its greatest territorial extent since the Sassanid Empire, and under Nader Shah briefly possessed what was arguably the most powerful empire at the time. Through the late 18th and 19th centuries, a series of conflicts with Russia led to significant territorial losses and the erosion of sovereignty. Popular unrest culminated in the Persian Constitutional Revolution of 1906, which established a constitutional monarchy and the country’s first legislative body, the Majlis (Parliament). Following a coup d’état instigated by the U.K. and the U.S. in 1953, Iran gradually became closely aligned to with the United States and the rest of the West but grew increasingly autocratic. Growing dissent against foreign influence and political repression led to the 1979 Revolution and the establishment of an Islamic republic.

Geography

Iran, officially the Islamic Republic of Iran, is a country in south-western Asia, located on the northern shores of the Persian Gulf with an area of 1,648,195 square kilometers, Iran lies at the easternmost edge of the geographic and cultural region known as the Middle East and it is the second largest country in this area.

To the north the country is coterminous with Armenia, Azerbaijan, the Caspian Sea, and Turkmenistan; to the east with Afghanistan and Pakistan; to the south with the Gulf of Oman, the Strait of Hormuz, and the Persian Gulf; and to the west with Iraq and Turkey. It is divided into 31 provinces. Iran’s capital and largest city is Tehran, located in the northern part of the country. The country’s population, while technically and linguistically diverse, is almost entirely Muslim. More than half of Iran’s international border of 4,430 km (2,750 mi) is coastline, including 740 km (460 mi) along the Caspian Sea in the north and 1,700 km (1,100 mi) along the Persian Gulf and adjacent Gulf of Oman in the south. Both the Caspian Sea and the Persian Gulf have important ports and contain extensive underwater deposits of oil and natural gas. Iran’s largest harbor, Bandar-e ‘Abbas, is located on the Strait of Hormuz, the narrow passage separating the Persian Gulf and the Gulf of Oman.

Economic overview

The 2016 nuclear deal removed the main economic obstacles by terminating a myriad of sanctions and helped Iran increase its oil production by almost 20% (up to 3.8-3.9 mb/d) and has been exempt from OPEC supply cuts. For the first time since 1990 inflation plummeted to under 10% as import costs significantly shrank after the sanctions lifting.

Robust GDP growth (+6.5% in 2016) creates a constructive atmosphere that should limit commercial risk. With regard to financing risk, public and external and debt ratios are projected to stay low.

Iran is classified as an upper-middle income economy, by annual GNI per capita of USD 5,470 and has declined its rank from 120 out of 190 economies in 2017, to 124 in the World Bank’s Doing Business 2018 survey.

Moreover, after starting reforms of the banking sector (anti-money laundering and counter-terrorist financing laws) is expected to further enhance financial transparency. A healthier banking sector along with practices that are compliant with international standards (Basel III) would be key to attract foreign investment and financing.

However, most of structural weaknesses remain in the economy. The unemployment rate is high at 12% and the economy lacks diversification, being heavily dependent on the oil and gas sector which accounts for 23% of GDP and over 50% of export receipts. Against this background, the government’s aim for annual average growth of +8% in 2016-2021 appears to be rather ambitious.

 

Travel and Visit to Iran 

Visas and Immigration

Tourist visa for visitors from more than 65 countries is issued upon arrival at airport.

Visitors to Iran must obtain a visa from one of the Iranian diplomatic missions unless they come from one of the visa exempt countries or countries eligible for visa on arrival (map below). All visitors must hold a passport valid for at least 6 months.

Except with transit visas, all visa applicants must be ‘approved’ by the Ministry of Foreign Affairs (MFA) in Tehran. This includes those seeking a visa on arrival, who can be approved either in advance or, with a longer wait, on arrival.

After approval, the MFA sends an authorization number to the consulate, which takes application form, passport photos and fee and issues the visa. Fees vary depending on applicant’s country of origin; see the Iran embassy website.

Tourist visa, Issued for up to 30 days and extendable. Must be obtained before coming to Iran and valid to enter for 90 days from the issue date.

Tourist visa on arrival (VOA), Issued for 30 days on arrival at any Iranian international airport.

Iran usually issues 30-day tourist visas on arrival (Airport Visa) to people from about 65 countries, including most European, ASEAN, Persian Gulf  and Central Asian countries, several South American countries, Australia, China, India, Japan, New Zealand and South Korea. Notable absentees are Britain, Canada and the USA.

Transit visa, Issued for five to seven days. You must enter and exit via different countries, and have a visa or a ticket to an onward country. Transit visas are not available to US passport holders. To most other nationalities, the visas can be obtained in one or two days and no authorization number is required.

Entry Visa (Business Visa), to get a 30-day (extendable) business visa. The process is otherwise the same as getting a tourist visa. People coming for a conference or to play in a sporting event need an ‘entry visa’.

Medical Visa, Iran has also reformed its regulation and visa policy in granting medical visas. In an attempt to boost its tourism sector, the country has now eased its regulations in obtaining medical visas for those who wish to take advantage of the country’s well educated and skilled professionals and highly advanced medical facilities along with their families for a pleasant medical-holiday package travel.

For issuance of e-visa visitors can use “http://evisa.mfa.ir”.

Medical Services & Hospitals

Iran is one of the best countries in educating and training health professionals. The country boasts over 50 medical schools and more than 3000 medical students graduate each year. Currently more than 20 hospitals with English speaking doctors are ready to serve international patients in Tehran and other large cities of Iran.

In 2016, Bloomberg ranked Iran among “top 30” most efficient healthcare systems ahead of the United States and Brazil. It’s important to note that in Iran, an extensive network of public clinics offer primary health care services at low cost.

The country has a reputation for its medical excellence and is truly a unique tourist destination, quickly becoming a pioneer in the field of Medical Tourism. Some of the world’s best highly experienced and skilled doctors, modern and private health care facilities are here to answer all your therapeutic needs. Therefore, Iran has become an affordable and attractive destination for worldwide medical tourism, with (absolutely) zero waiting time at hospitals and clinics that are well equipped with the latest technologies.

For emergency services you have to dial 110.

Currency, Credit Cards and ATMs

Iran’s national currency is Rials; however Iranians refer to and employ the term “Toman”. Each Toman is 10 Rials.

Market exchange rates to other currencies may vary on a daily basis. It is advised to bring American dollars or Euros when traveling to Iran. The maximum permitted amount of foreign currency visitors can bring with them into Iran is USD 10,000 (or its equivalent in other currencies).

International credit or debit cards are not accepted in Iran and it is recommended you bring cash with you while traveling to Iran. Local ATMs only accept local (rial) debit cards so travelers won’t be able to use their international debit or credit cards at an ATM in Iran. Most hotels accept hard currency such as the American dollar (USD) and Euros; however, you will need to change your money at money exchange shops for shopping, etc. There are plenty of these shops across the country.

 Mobile & Internet

Internet speed in Iran has yet to catch up with international standards and access to a number of websites is limited by Internet Service Providers. Upon request businesses can avail themselves of high-speed internet connections. It is possible to have voice/video call by applications such as Skype in Iran.

For using mobile services there is 4 operator that provide Sim-Cards, IR-TCI, MTN IranCell, Taliya and RighTel.

How to Buy a Sim Card: 

To purchase an Iranian mobile sim card you should have Your passport to pay the sim card price. You can also buy Sim-Cards at airport arrival.

General Information

The official language of Iran is Persian - known as ‘Farsi’ to Iranians. Farsi is a language of Indo-European family. It share many words with Arabic, Turkish, Hindi and many other Central Asian languages.

  • Iran Business Hours

Governmental organizations can be reached from 7.30 AM to 16:30 PM from Saturday to Wednesday and from 7.30 AM to 1.30 PM on Thursday. Businesses open from 8.30 AM to 12.30 AM and after lunch till 20:00 PM. Stores open from 9 AM to 10 PM. The weekend in Iran is on Thursday and Friday.

Offices: Saturday to Wednesday 09.00 - 17:00 Banks: Saturday to Wednesday 07:30 - 15:30 Thursday 7:30-12:30

Some supermarkets in Iran stay opened beyond the hours indicated above. Food may be purchased on all week days in shops.

  • Population & People

The population of Iran is more than 81m in 2018 that about 60 million live in urban, and the rest in rural areas.

64 percent of Iran's population was under age 35 means iran has a great and young society.

  • Food and Beverage

Iranians are interested in lamb meat, as it is frequently used in Persian dishes and is a natural part of the Iranian diet. In addition, with the lifting of sanctions and ongoing changes in consumer habits and infrastructure, Iran is expected to see a growth of chain restaurants, hotels and malls in the coming years.

  • Health & Pharmaceutical

Iran’s healthcare and pharmaceutical sector is one of the most developed in the region. The country benefits from a large and growing population and relatively widespread access to healthcare services.

Due to the population growth and increased life expectancy of Iranians, the Government is determined to further modernize the sector by building new hospitals, medical laboratories, and related facilities.

BMI Research indicates that Iran is an attractive medical equipment market in the region. This is due to its large size and significant reliance on the importation of different types of medical equipment.

  • Services

The biggest sector of Iran’s economy is services. This makes up more than 50 percent of GDP. The main components of the services sector in Iran are transportation, communications, financial services, construction, retail, education, hospitality and hotels, and public services. But food services are still very much untapped in Iran.

Economic Analysis

Economic Risk Index

High inflation and crippling sanctions had worn the economy down over the five years prior to nuclear deal. Improving relations with the West and better macroeconomic management have led to an improvement in the macroeconomic outlook, leading to a return to growth. That said, lower oil prices and the required huge sums of investment will weigh on growth over the next five years.

MENA Economic Risk Index

Education

Iran ranks in the top five in the world for the total number of engineering-related graduates, almost level with the United States, and ahead of Japan and South Korea. Iran also has the world’s fastest-growing scientific output, measured by the number of peer-reviewed papers published in international journals, albeit starting from a low base.

As a percentage of the population, Iran has one of the highest levels of participation in tertiary education in the world, ahead of the United Kingdom, France, and Germany, and it edged out Finland for a spot in the top ten. The share of Iranians with some post-secondary education more than doubled between 2006 and 2011, but this was due in part to the opening up of the university system to part-time and long-distance instruction. The overall literacy rate for Iranians between the ages of 15 and 24 is 98 percent, above the global average and on par with most developed countries.

We have seen elsewhere, especially in India and China but also in Japan, South Korea, and Eastern Europe, how a technically literate workforce can rapidly generate wealth and employment if its talents are unleashed on the economy in rewarding jobs. In India, ICT service exports now account for about 66 percent of the nation’s service exports. ICT is also a major priority for Iran’s government, as outlined in the latest five-year development plan.

E-Commerce in Iran

There is no Amazon or Uber in Iran because American companies are banned from selling there. But that does not mean Iranians are digitally starved. On the contrary, local Iranian versions of all of these services have sprung up.

They include Sheypoor, the Iranian Craigslist; Esam.ir, a local version of eBay (which itself was founded by an Iranian); Cafe Bazaar, an app store similar to Google Play; and Cloob, which is akin to Facebook. Among the most successful of the new online retailer sites is Digikala, one of the biggest e-commerce platforms in the Middle East.

The entrepreneurial private sector in Iran is much bigger than copycat tech companies. It includes companies such as Turquoise Partners (Firoozeh Asia), a financial services company that claims to manage more than 90 percent of all foreign portfolio investment on the Tehran Stock Exchange; Griffon Capital, an asset management firm pioneering the development of Iran’s private-equity industry, and CinnaGen, a biopharmaceutical manufacturer based in Tehran that specializes in monoclonal antibodies for blood group typing.

In Iran, one sign of the long history and culture of business is the image of entrepreneurs: they enjoy higher status than in France, and on a par with the United States, according to the Global Entrepreneurship Monitor.

Retail and Consumer Position

Iranians are big shoppers. Measured on a purchasing power parity basis, retail sales per capita in Iran are higher than in Russia, Turkey, and Malaysia, and almost as high as in Germany.

Domestic brands dominate both retail trade and fast-moving consumer goods. Carrefour is the only global retailer with a significant presence in Iran, and only a few global brands, including Nestlé, Beiersdorf, and Unilever, have local production. Nonetheless, surveys show that Iranians believe international brands are of higher quality than domestic ones.

One manifestation of this is the multitude of food outlets with copycat names such as “Pizza Hat”, “Kabooky Fried Chicken”, and “Mash Donald’s”. Together with the size and dynamism of retail consumption, this interest in international brands makes Iran a growth market for multinational companies, and there has been a flurry of interest. In February 2016, Roberto Cavalli opened a two-story boutique in the upscale Zafaraniyeh neighborhood of Tehran. Sephora has announced plans to open several shops in the country.

Tourism Industry and Potentials of Iran

Iran include 21 UNESCO World Heritage sites—more than Greece—plus a rugged coastline on the Caspian Sea that makes for good hiking, 20 mountain resorts for winter sports, beaches on the Persian Gulf, and the shrine of Imam Reza in Mashhad, which is a religious pilgrimage destination. When counting both domestic and foreign travelers in 2014, Iran had almost 63 million overnight tourists, of whom just over four million were international visitors.

Compared with other countries in the region with similar attractions, Iran’s tourism sector is relatively under-developed, accounting for only about 2.3 percent of GDP and 1.8 percent of employment. That is less than half the proportion in Egypt, where tourism represents almost 6 percent of the overall economy and 5 percent of employment. Moreover, tourism from wealthier developed countries declined sharply during sanctions era, and more than three-quarters of the four million international visitors annually hail from just six countries: Afghanistan, Azerbaijan, Iraq, Pakistan, Turkey, and Turkmenistan.

Given Iran’s natural and cultural endowments and its geographic location, tourism has the potential to become a significant source of growth and employment.

Developing into a mass tourist market will require significant upgrading and development of the tourism sector. Airports and airlines will need to add capacity and improve services. For example, Iran’s fleet of passenger aircraft includes about 200 planes with an average age of more than 23 years. Tehran’s two international airports serve 59 international destinations. Hotels and other facilities would also need to provide greater comfort and quality, and there is a need for more of them. Iranian hotel capacity lags significantly behind that of peers, with the average hotel having 25 rooms.

Similarly, Iran has relatively few four- or five-star hotels, which limits its appeal for conferences, and business executives.

Transforming Iran into a thriving mass market in tourism calls for coordinated and sustained action by international corporations, domestic firms, and the Iranian government. The government has developed a plan to grow the sector, including a goal of increasing international tourism to 20 million visitors by 2025. To help reach this target, the government has planned more than 1,300 investment projects to attract foreign investment in the industry. It has said that all new hotels and tourism centers will be exempt from income tax for five years and that visitors from all but more than sixty countries will be granted visas on arrival. Going forward, the government could lay the groundwork for tourism development by defining a united strategy for the sector, encouraging foreign investment, and investing in capital projects to bolster infrastructure, upgrade tourist attractions, and maintain its cultural heritage sites. It could also launch a major marketing campaign to shape Iran’s global brand abroad and build interest in Iran as a tourist destination.

Iranian companies should raise the quality of tourist offerings to appeal to business travelers and tourists alike. By 2035 Iran could need as many as 60,000 new hotel rooms, many of which would be built and operated by Iranian companies, to accommodate the anticipated increase in overnight tourism. They could develop high-quality offerings around potential tourism clusters, such as eco-tourists or skiers.

Investment and Tax Considerations

Iran follows a territorial tax system, Iranian companies are taxed on their worldwide income and non-resident companies are taxed on their income derived from Iran. Iran has a competitive corporate income tax (CIT) regime with a CIT rate of 25%.

Iran is an attractive investment location from a tax perspective as tax exemptions are granted for certain types of activities, mainly manufacturing and mining operations. There are also a number of free trade zones which grant tax exemptions.

With tax efficient cash repatriation, a comprehensive double tax treaty and investment protection agreement network (covering in excess of 42 countries) and no capital gains tax on non-residents disposing of shares in Iranian companies, investments can be structured in a tax efficient manner.

To benefit from protections under Iran’s Foreign Investment Promotion and Protection Act (FIPPA), investors need to obtain a license from the Organization for Investment, Economic and Technical Assistance of Iran (OIETAI). An OIETAI license is also required to benefit from many Iranian investment protection treaties. FIPPA provides important substantive protections, although these are generally less extensive than those found in Iranian bilateral investment treaties. However, under FIPPA, investment disputes must be resolved before Iranian courts. Investors may therefore wish to consider structuring investments to bring them within the scope of a bilateral investment protection treaty to benefit from more robust protections and the ability to enforce those protections through international arbitration. Opting for arbitration outside Iran when agreeing commercial contracts can also help to mitigate risks. However, investors contracting with the state or state entities need to be aware that parliamentary approvals may be required for such entities to agree to international arbitration.

Economic Activity

The unwinding of sanctions against Iran opens up one of the largest emerging markets to foreign investment and trade. There is huge potential across a range of sectors – in particular oil and gas and various consumer markets. However, there are structural impediments to growth, particularly within the business environment.

Iran presents a huge opportunity to investors across almost all sectors, and we hold a bullish outlook for the country's economy over the next decade as sanctions are removed from 2016. In broad terms, Iran is the 29th largest economy globally, its population is relatively well educated despite mass emigration, and its large consumer base and relative wealth offers enormous opportunities to the autos, ICT and food and drink industries, among others.

However, pent-up demand, positive demographics, a skilled workforce, and a large hydrocarbon and consumer story all make Iran perhaps the most positive and relatively well-balanced growth story in the Middle East over the next decade.

Iran's oil and gas sector presents one of the most exciting opportunities globally. Iran has the fourth largest oil reserves and second largest gas reserves globally, and years of sanctions have kept the industry far below potential. While Iran will certainly not allow unfettered access to its oil reserves given historical suspicion and its desire to protect industries of national security, the government is likely to push for partnership with local firms. Even with these restrictions, as well as substantial investment deficits, the country has enormous potential. Our Oil & Gas team expects Iran's oil production to reach 4.1mn barrels per day (b/d) in 2020.

While Iran's oil reserves have received the lion's share of media interest of late, the country has huge potential as a consumer market, which accounts for 44% of GDP – one of the highest shares in the region. As well as having a population of 80mn (the second highest in the Middle East after Egypt), Iran's GDP per capita compares favorably with similar emerging markets.

On the business environment front, there are a few positives awaiting investors into Iran. Despite the exodus of skilled Iranians in the past four decades (there are at least 1mn Iranians skilled professionals overseas) the country has a relatively skilled workforce by regional standards, with 98% of labor force possessing formal education and a tertiary enrollment ratio of 55.2%, the third highest in the Middle East and North Africa. Furthermore, the improving investment climate in Iran could tempt skilled workers to return to the country.

 Education

Iran ranks in the top five in the world for the total number of engineering-related graduates, almost level with the United States, and ahead of Japan and South Korea. Iran also has the world’s fastest-growing scientific output, measured by the number of peer-reviewed papers published in international journals, albeit starting from a low base.

As a percentage of the population, Iran has one of the highest levels of participation in tertiary education in the world, ahead of the United Kingdom, France, and Germany, and it edged out Finland for a spot in the top ten. The share of Iranians with some post-secondary education more than doubled between 2006 and 2011, but this was due in part to the opening up of the university system to part-time and long-distance instruction. The overall literacy rate for Iranians between the ages of 15 and 24 is 98 percent, above the global average and on par with most developed countries.

We have seen elsewhere, especially in India and China but also in Japan, South Korea, and Eastern Europe, how a technically literate workforce can rapidly generate wealth and employment if its talents are unleashed on the economy in rewarding jobs. In India, ICT service exports now account for about 66 percent of the nation’s service exports. ICT is also a major priority for Iran’s government, as outlined in the latest five-year development plan.

E-Commerce in Iran

There is no Amazon or Uber in Iran because American companies are banned from selling there. But that does not mean Iranians are digitally starved. On the contrary, local Iranian versions of all of these services have sprung up.

They include Sheypoor, the Iranian Craigslist; Esam.ir, a local version of eBay (which itself was founded by an Iranian); Cafe Bazaar, an app store similar to Google Play; and Cloob, which is akin to Facebook. Among the most successful of the new online retailer sites is Digikala, one of the biggest e-commerce platforms in the Middle East.

The entrepreneurial private sector in Iran is much bigger than copycat tech companies. It includes companies such as Turquoise Partners (Firoozeh Asia), a financial services company that claims to manage more than 90 percent of all foreign portfolio investment on the Tehran Stock Exchange; Griffon Capital, an asset management firm pioneering the development of Iran’s private-equity industry, and CinnaGen, a biopharmaceutical manufacturer based in Tehran that specializes in monoclonal antibodies for blood group typing.

In Iran, one sign of the long history and culture of business is the image of entrepreneurs: they enjoy higher status than in France, and on a par with the United States, according to the Global Entrepreneurship Monitor.

Retail and Consumer Position

Iranians are big shoppers. Measured on a purchasing power parity basis, retail sales per capita in Iran are higher than in Russia, Turkey, and Malaysia, and almost as high as in Germany.

Domestic brands dominate both retail trade and fast-moving consumer goods. Carrefour is the only global retailer with a significant presence in Iran, and only a few global brands, including Nestlé, Beiersdorf, and Unilever, have local production. Nonetheless, surveys show that Iranians believe international brands are of higher quality than domestic ones.

One manifestation of this is the multitude of food outlets with copycat names such as “Pizza Hat”, “Kabooky Fried Chicken”, and “Mash Donald’s”. Together with the size and dynamism of retail consumption, this interest in international brands makes Iran a growth market for multinational companies, and there has been a flurry of interest. In February 2016, Roberto Cavalli opened a two-story boutique in the upscale Zafaraniyeh neighborhood of Tehran. Sephora has announced plans to open several shops in the country.

Tourism Industry and Potentials of Iran

Iran include 21 UNESCO World Heritage sites—more than Greece—plus a rugged coastline on the Caspian Sea that makes for good hiking, 20 mountain resorts for winter sports, beaches on the Persian Gulf, and the shrine of Imam Reza in Mashhad, which is a religious pilgrimage destination. When counting both domestic and foreign travelers in 2014, Iran had almost 63 million overnight tourists, of whom just over four million were international visitors.

Compared with other countries in the region with similar attractions, Iran’s tourism sector is relatively under-developed, accounting for only about 2.3 percent of GDP and 1.8 percent of employment. That is less than half the proportion in Egypt, where tourism represents almost 6 percent of the overall economy and 5 percent of employment. Moreover, tourism from wealthier developed countries declined sharply during sanctions era, and more than three-quarters of the four million international visitors annually hail from just six countries: Afghanistan, Azerbaijan, Iraq, Pakistan, Turkey, and Turkmenistan.

Given Iran’s natural and cultural endowments and its geographic location, tourism has the potential to become a significant source of growth and employment.

Developing into a mass tourist market will require significant upgrading and development of the tourism sector. Airports and airlines will need to add capacity and improve services. For example, Iran’s fleet of passenger aircraft includes about 200 planes with an average age of more than 23 years. Tehran’s two international airports serve 59 international destinations. Hotels and other facilities would also need to provide greater comfort and quality, and there is a need for more of them. Iranian hotel capacity lags significantly behind that of peers, with the average hotel having 25 rooms.

Similarly, Iran has relatively few four- or five-star hotels, which limits its appeal for conferences, and business executives.

Transforming Iran into a thriving mass market in tourism calls for coordinated and sustained action by international corporations, domestic firms, and the Iranian government. The government has developed a plan to grow the sector, including a goal of increasing international tourism to 20 million visitors by 2025. To help reach this target, the government has planned more than 1,300 investment projects to attract foreign investment in the industry. It has said that all new hotels and tourism centers will be exempt from income tax for five years and that visitors from all but more than sixty countries will be granted visas on arrival. Going forward, the government could lay the groundwork for tourism development by defining a united strategy for the sector, encouraging foreign investment, and investing in capital projects to bolster infrastructure, upgrade tourist attractions, and maintain its cultural heritage sites. It could also launch a major marketing campaign to shape Iran’s global brand abroad and build interest in Iran as a tourist destination.

Iranian companies should raise the quality of tourist offerings to appeal to business travelers and tourists alike. By 2035 Iran could need as many as 60,000 new hotel rooms, many of which would be built and operated by Iranian companies, to accommodate the anticipated increase in overnight tourism. They could develop high-quality offerings around potential tourism clusters, such as eco-tourists or skiers.

Investment and Tax Considerations

Iran follows a territorial tax system, Iranian companies are taxed on their worldwide income and non-resident companies are taxed on their income derived from Iran. Iran has a competitive corporate income tax (CIT) regime with a CIT rate of 25%.

Iran is an attractive investment location from a tax perspective as tax exemptions are granted for certain types of activities, mainly manufacturing and mining operations. There are also a number of free trade zones which grant tax exemptions.

With tax efficient cash repatriation, a comprehensive double tax treaty and investment protection agreement network (covering in excess of 42 countries) and no capital gains tax on non-residents disposing of shares in Iranian companies, investments can be structured in a tax efficient manner.

To benefit from protections under Iran’s Foreign Investment Promotion and Protection Act (FIPPA), investors need to obtain a license from the Organization for Investment, Economic and Technical Assistance of Iran (OIETAI). An OIETAI license is also required to benefit from many Iranian investment protection treaties. FIPPA provides important substantive protections, although these are generally less extensive than those found in Iranian bilateral investment treaties. However, under FIPPA, investment disputes must be resolved before Iranian courts. Investors may therefore wish to consider structuring investments to bring them within the scope of a bilateral investment protection treaty to benefit from more robust protections and the ability to enforce those protections through international arbitration. Opting for arbitration outside Iran when agreeing commercial contracts can also help to mitigate risks. However, investors contracting with the state or state entities need to be aware that parliamentary approvals may be required for such entities to agree to international arbitration.

Economic Activity

The unwinding of sanctions against Iran opens up one of the largest emerging markets to foreign investment and trade. There is huge potential across a range of sectors – in particular oil and gas and various consumer markets. However, there are structural impediments to growth, particularly within the business environment.

Iran presents a huge opportunity to investors across almost all sectors, and we hold a bullish outlook for the country's economy over the next decade as sanctions are removed from 2016. In broad terms, Iran is the 29th largest economy globally, its population is relatively well educated despite mass emigration, and its large consumer base and relative wealth offers enormous opportunities to the autos, ICT and food and drink industries, among others.

However, pent-up demand, positive demographics, a skilled workforce, and a large hydrocarbon and consumer story all make Iran perhaps the most positive and relatively well-balanced growth story in the Middle East over the next decade.

Iran's oil and gas sector presents one of the most exciting opportunities globally. Iran has the fourth largest oil reserves and second largest gas reserves globally, and years of sanctions have kept the industry far below potential. While Iran will certainly not allow unfettered access to its oil reserves given historical suspicion and its desire to protect industries of national security, the government is likely to push for partnership with local firms. Even with these restrictions, as well as substantial investment deficits, the country has enormous potential. Our Oil & Gas team expects Iran's oil production to reach 4.1mn barrels per day (b/d) in 2020.

While Iran's oil reserves have received the lion's share of media interest of late, the country has huge potential as a consumer market, which accounts for 44% of GDP – one of the highest shares in the region. As well as having a population of 80mn (the second highest in the Middle East after Egypt), Iran's GDP per capita compares favorably with similar emerging markets.

On the business environment front, there are a few positives awaiting investors into Iran. Despite the exodus of skilled Iranians in the past four decades (there are at least 1mn Iranians skilled professionals overseas) the country has a relatively skilled workforce by regional standards, with 98% of labor force possessing formal education and a tertiary enrollment ratio of 55.2%, the third highest in the Middle East and North Africa. Furthermore, the improving investment climate in Iran could tempt skilled workers to return to the country.

Why Invest in Iran?

Iran qualifies in many respects to be a good location for investment and doing business. Some of the features are highlighted below:

  1. Strategic Location: A unique geographical location, the heart of a cross-road connecting the Middle East, Asia and Europe, empowered by many inter- and trans-regional trade, customs, tax and investment arrangements;
  2. Market Potentials and Proximity: Vast domestic market with a population of 80 million growing steadily as well as quick access to neighboring markets with approximately 300 million inhabitants;
  3. Labor Privileges: Large pool of trained and efficient manpower at very competitive costs in a diversified economy with an extensive industrial base and service sector;
  4. Developed Infrastructure: Territory developed networking in the area of telecommunication, roads and railways across the country;
  5. Low Utility and Production Cost: Diversified range of energy, telecommunication, transportation, as well as public utilities;
  6. Abundant Natural Resources: Varied and plentiful reserves of natural resources ranging from oil and gas to metallic and non-metallic species reflecting the country’s accessibility to readily available raw materials;
  7. Climatic Characteristics: A four-season climatic endowment as a privilege to agricultural activities throughout the country and throughout all seasons.
  8. Iran holds 11% of the worlds proven oil reserves and 18.2% of its Gas. It is OPEC’s second largest exporter and the world’s fourth oil producer.

An Overview of Foreign Direct Investment in Iran

Foreign Direct Investment in Iran has been hindered by unfavorable or complex operating requirements and by international sanctions, although in the early 2000s the Iranian government liberalized investment regulations. In the early 2000s, foreign investors have concentrated their activity in a few sectors of the economy: the oil and gas industries, automotive, copper mining, petrochemicals, foods, and pharmaceuticals.

According to World Investment Report 2017 by the United Nations Conference on Trade and Development (UNCTAD), Iran has been among successful countries in terms of signing investment agreements in 2016.

The report also said Iran’s highest rate of foreign investment attraction goes back to 2012 when the country recorded USD 4.662 billion of foreign investment. The figure though fell significantly in the next few years due to the sanctions imposed on the country’s economy.

Based on the report, signing a total of 37 international investment agreements (IIA) in 2016, Iran ranked third among the world’s top economies in terms of the number of signed IIAs.

Legal Framework of Iran

Legal Considerations for Foreign Companies

Generally speaking, Iran has two types of laws concerning foreign companies. The first are laws that address issues concerning foreign companies directly such as the Foreign Investment Promotion and Protection Act (FIPPA), and the second are general laws of which certain articles or by-laws address foreign companies, for instance the Taxation Law and the Labor Law.

General Laws & Regulations of Iran

According to Article 44 of the Iranian Constitution, the economy of Iran is to consist of three sectors: state, cooperative, and private; and is to be based on systematic and sound planning.

  • The state sector is to include all large-scale industries, foreign trade, major minerals, banking, insurance, power generation, dams and large-scale irrigation networks, radio and television, post, telegraph and telephone services, aviation, shipping, roads, railroads and the like; all these will be publicly owned and administered by the State.
  • The cooperative sector is to include cooperative companies and enterprises concerned with production and distribution, in urban and rural areas, in accordance with Islamic criteria.
  • The private sector consists of those activities concerned with construction, agriculture, animal husbandry, industry, trade, and services that supplement the economic activities of the state and cooperative sectors.

A strict interpretation of the above has never been enforced in the Islamic Republic and the private sector has been able to play a much larger role than is outlined in the Constitution. In recent years, the role of the private sector has been further on the increase. Furthermore, an amendment of the article in 2004 has allowed 80 percent of state assets to be privatized (ref: Note C, article 44 of Constitution).

Privatization in Iran

According to the Fourth Five-Year Economic Development Plan (2005-2010), the Privatization Organization of Iran affiliated to the Ministry of Economic Affairs and Finance is in charge of setting prices and ceding shares to the general public and on the stock market. The privatization effort is primarily backed by reformist members of the Iranian government and society who hope that privatization can bring about economic and social change.

In 2007, Supreme Leader Ayatollah Khamenei requested that government officials speed up implementation of the policies outlined in the amendment of Article 44, and move towards economic privatization. Ayatollah Khamenei also suggested that ownership rights should be protected in courts set up by the Justice Ministry; the hope was that this new protection would give an additional measure of security and encourage private investment.

Foreign Investment Promotion and Protection ACT(FIPPA)

The Law on foreign investment in Iran under the name of “Foreign Investment Promotion and Protection Act” (FIPPA) was ratified by the parliament in 2002. Under the “FIPPA” commercial risks are not covered but any expropriation or nationalization will be compensated by the government. In some cases, if an act of the government disrupts the business activity, the government will be under obligation to make payments for any loan installments that are due on behalf of the project company. The law also permits more options for repatriation of profits in hard currency combined with a broader definition of foreign investment. Notably, FIPPA allows for international arbitration in legal disputes.

For the first time, project financing schemes such as buy back agreements and BOT projects are specifically covered under the foreign investment law. Under the FIPPA, any foreign natural or legal person – including Iranian expatriates -- importing capital in Iran will enjoy the benefits and privileges of this law as long as:

  • The investment leads to economic growth, promotes technology, promotes quality of products, increases employment opportunities, increases exports and entering the international markets.
  • The investment does not jeopardize national security and public interests or harm the environment or interrupt national economy or disrupt products of domestic investments.
  • The investment does not involve the granting of any special rights resulting into a monopoly.
  • FIPPA will be applicable based on the nationality of the Foreign Capital as opposed to the investor. As long as the capital comes from foreign sources, any one importing it will be eligible for FIPPA protection including Iranians residing in Iran or abroad.

Some specific enhancements introduced by FIPPA for foreign investment in Iran can be outlined as follows:

  1. Broader fields for involvement by foreign investors including in major infrastructure,
  2. Broader definition given to foreign investment, covering all types of investments from FDI to different types of project financing methods including :Civil Participation, Buy –Back arrangements, Counter trade and various BOT schemes;
  3. Streamlined and fast track investment licensing application and approval process;
  4. Creation of a one stop shop called the “Center for foreign investment Services” at the organization for investment for focused and efficient support for foreign investment undertaking in Iran,
  5. More flexibility and facilitated regulatory practices for the access of foreign investors to foreign exchange for capital transfer purpose

Conventions & International Organizations

Intellectual property in Iran

Iran is a member of the World Intellectual Property Organization (WIPO), one of the 17 specialized agencies of the United Nations and has acceded to several WIPO intellectual property treaties. Iran joined the Convention for the Protection of Industrial Property (Paris Convention) in 1959. In December 2003 Iran became a party to the Madrid Agreement and the Madrid Protocol for the International Registration of Marks. In 2005 Iran joined the Lisbon Agreement for the Protection of Appellations of Origin and their International Registration, which ensures the protection of geographical names associated with products. As at February 2008 Iran had yet to accede to The Hague Agreement for the Protection of Industrial Designs.

Law for the Protection of Authors, Composers and Artists Rights, 1970

Iran has a legal code to protect the proprietary and intellectual rights of works produced for inside Iran called Law for the Protection of Authors, Composers and Artists Rights dated January 12, 1970. These laws however do not cover works from outside Iran as it is not a signatory to the Berne Convention for the Protection of Literary and Artistic Works, the WIPO Copyright Treaty, or a member of the World Trade Organization (WTO).

Law of Registration of Marks and Patents, 1931

The Iranian Law of Registration of Marks and Patents of 1931 stipulates that a trademark is any type of logo, design, picture, number, letter, word, seal, wrapper, etc that is adopted to identify and distinguish goods and services. The law provides for registration of various types of marks chosen to identify industrial, commercial or agricultural products and goods. It also provides for registration of service marks. The essential requirement is that the mark presented for registration should be distinctive.

Obtaining a court injunction is a proper remedy to prevent the violation of any right secured by patent. This is provided for in the law, and the complainant can seek compensation of any damages sustained. If the violation falls under the heading of unfair competition, forgery or fraud, the perpetrator faces prosecution.

Article 30 of the law provides that any inventor or discoverer who holds an unexpired patent certificate outside Iran may apply for a patent in Iran valid for the remaining duration of the original one. But if a person or firm has used the invention or discovery in Iran— wholly or partially—prior to the foreigner’s application or has made preparations to exploit the same, the foreign patentee will not have the right to stop the operation of said person or firm.

The Registration of Patents, Industrial Designs and Trademarks Law, 2008

The Law of Registration of Patents, Industrial Designs and Trademarks was first passed by the Iranian parliament on 23 January 2008 for a probationary period of five years, effective from May 5, 2008.

The Majlis (Parliament) also ratified a bill in May 2001 to recognize and enforce international arbitration awards, a decision designed to grant companies greater protection over their property. By acceding to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the New York Convention, Iran has agreed to enforce arbitration awards made in other countries. Awards issued in Iran will also be enforceable in other member countries.

According to Nour law, the new law, unlike its predecessor gives priority to patents and industrial designs over trademarks and is substantially more scrupulous in the protection of these instruments, as it is of intellectual property rights.

Patents

Novelty: No public knowledge in Iran or abroad sufficient to put into practice. The first person to apply for the registration of an invention in accordance with the law is considered the inventor of the patent, unless proven otherwise.

Types and duration: Patents are registered for 5, 10, 15 or 20 years, at the option of the applicant.

Un-patentable: Pharmaceutical formula and compounds are not patentable, but a patent application can be filed for processes related to the manufacture of pharmaceuticals. In addition, any invention or improvement on an invention disturbing public order or considered to be contrary to morality or public health cannot be patented.

Working: A patent will be vulnerable to cancellation if it is not worked during the five-year period following its date of granting. Although there are no explicit provisions concerning nominal working, in lieu of actual working, it is recommended that there be nominal working before the fifth anniversary of granting.

Registration: In October 2007 Iran's parliament approved becoming signatory to the Patent Cooperation Treaty (PCT) which enables patent holders in one country to register their patents in PCT member countries simply by filing a single application with the related national registration authority.

To register a patent, the documents listed below must be presented to the Patent Office within six months of the date of the Iranian application. This period of duration may be renewed only once for a justifiable excuse.

The applicant must present the following information: name and address; title of the invention or discovery; power of attorney duly legalized by the respective Iranian consulate; certified copy of the corresponding patent certificate (or application if benefiting from Paris Convention provisions); certified copy of the transferal document, if the applicant is not the original proprietor; and three copies of the related specifications, claims, plans and drawings.

If the patent office refuses an application because of insufficient documentation or because the application is contrary to the governing provisions, the patent applicant has the legal right to refer, personally or through a lawyer, to a competent court and ask for the cancellation of the patent office decision.

Copyrights

Registrable: Books, pamphlets, plays and all other literary, scientific and artistic writings, irrespective of the way they are written, recorded or broadcast; audiovisual works for stage or screen performances or for broadcasting by radio and television; paintings, pictures, drawings, designs, decorative writings, geographical maps or any decorative and imaginative work produced in any simple or complex manner; sculptures of all types; architectural works, designs, sketches and buildings; photographic works produced by any original methods; original articles of applied handicraft and industrial art, carpet and rug designs; original works based on folklore and national heritage of culture and arts.

Duration: The financial rights of the author are transferred to his heirs, or by covenant, for a period of 30 years after his death. In the absence of such heirs or a transfer by covenant, the Ministry of Culture and Arts will hold the rights for public use for the same period of time.

Trademarks

Types and duration: A trademark may be registered for ten years, renewable indefinitely for additional ten-year periods.

Legal effect: Registration gives an owner the exclusive right to use a trademark on the goods for which the trademark is registered. The owner may prevent other parties from using the trademark on competing products.

Any trademark, whether already registered or being presented for registration, may be contested by the person who claims that it belongs to him, or that the resemblance is so close that it may mislead the consumer.

Any opposition to the registration of a trademark on the grounds of prior use or close resemblance, and/or claims relating to the infringement of a registered trademark, may be filed with the General Courts of Tehran. The right to contest a trademark is in force for three years, starting from the actual date of its registration. The registered trademark then becomes incontestable in the courts.

The proprietor is entitled to take civil legal actions and/or lodge complaints involving legal penalties to prevent third parties from infringing his right of ownership. Remedies may include damages, costs, and an injunction preventing further violations. Under Articles 529 and 530 of the Islamic Penal Code (Taazirat), commission of forgery or unauthorized use of registered trademarks incurs civil liabilities and imprisonment of up to two years. Punishment for the forgery of trademarks of governmental and municipal companies and establishment as well as using such forged trademarks varies from 3–15 years and from six months to three years of imprisonment, respectively.

Not register-able: The official flag of Iran; any flag that the government has prohibited to be used as a trademark; badges, medals and insignia of the Iranian government; marks of official institutions such as the Iranian Red Crescent or the International Red Cross; words and/or phrases creating an impression of official connection with Iranian authorities; marks contrary to public order and good morals (the standard for this is tougher in Iran than in most other countries); and marks that so closely resemble an already registered mark that it would cause confusion or deceive consumers.

Working: If a trademark has not been used in Iran or abroad within three years from the registration date and if the owner or his legal representative fails to furnish a valid reason, any interested party may apply to the court and request cancellation of trademark.

Registration: To register a trademark, an applicant (Iranian or foreign) should refer in person or through an attorney to the Registration Office for Industrial Property, in Tehran, and file a request for obtaining a certificate of trademark registration. Applications are published in the official gazette so that interested parties may inspect and, if needed, contest them. The registrar examines applications for format, content and consistency in compliance with the relevant rules of registration. If the registrar rejects an application, the applicant may appeal in court.

In addition, the office formally examines trademark applications for any conflict with previously registered trademarks or applications and for compliance with Iranian patent and trademark law. Resemblance of a trademark to a previously registered mark or application takes into account appearance, pronunciation, form of writing or any other similarity.

To register a trademark, the applicant must present the following information: full name and address of applicant(s); power of attorney duly recognized by the Iranian Consulate (a single power of attorney is sufficient for all trademarks); details of the trademark, presented with 12 samples; specifications of goods and classes (according to International Classification).

Protection of Cultural Property

Iran ratified the Protocol to the Convention for the Protection of Cultural Property in the Event of Armed Conflict (The Hague, 14 May 1954.) in 1959 and the Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property (Paris, 14 November 1970.) in 1975, and agreed to the Convention concerning the Protection of the World Cultural and Natural Heritage (Paris, 16 November 1972) and to the Second Protocol to the Hague Convention of 1954 for the Protection of Cultural Property in the Event of Armed Conflict. (The Hague, 26 March 1999) in 2005.

Convention for the Protection of Industrial Property (aka the Paris Convention), 1959

Iran is a signatory to the International Convention for Protection of Industrial Property (also known as the Paris Convention). The Paris Convention requires Iran to grant the same protection to the industrial property of the nationals of the members of the treaty as to that of Iranians.

World Intellectual Property Organization (WIPO), 2002

Iran is a member of the WIPO since 2002 and has acceded to several WIPO intellectual property treaties. However, Iran is not a signatory to the WIPO Copyright Treaty.

Madrid Agreement Concerning the International Registration of Marks, 2003

The Council of Ministers passed Decree H24305T/6921 in December 2003, ratifying Iran’s accession to the Madrid Agreement Concerning the International Registration of Marks and its protocol. In accordance with the agreement, nationals of any contracting country may secure protection for their marks in all the other acceding countries by registering them with the World Intellectual Property Organization (WIPO).

Lisbon Agreement for the Protection of Appellations of Origin and their International Registration, 2005

In 2005 Iran joined the Lisbon Agreement for the Protection of Appellations of Origin and their International Registration, which ensures the protection of geographical names associated with products. The Lisbon Agreement went into force in March 2006. As a direct consequence, Iran’s Customs Administration has banned the import of goods that are produced overseas but bear Iranian brand names.

WTO copyright laws

Iran's government has not agreed to be bound by WTO copyright laws, endorsing the free distribution of unlicensed software in massive quantities. Linux, freely reproducible even in countries with strong Intellectual Property (IP) laws, is also growing in popularity within Iran, however.

Iran may change this status if and when it becomes a full member of WTO, as WTO members are encouraged to abide by WTO copyright regulations. However, the United States has previously vetoed Iran's ascension to the WTO 22 times, and as of 2007 actively refuses to support Iran's full membership in the WTO. Thus, as a matter of reciprocity, Iran has determined that its interests are not served by observing WTO copyright treaties, and has thus exercised its sovereign right not to alter its laws, thereby making certain foreign copyrights unenforced by Iranian authorities, in theory, or in practice.

Iranian pharmaceutical manufacturers are disadvantaged by the government's poor intellectual property protection regime. Developing a molecule for combination therapies may qualify for patent protection in other countries. However, while weak patent law adherence continues in Iran, it is expected this will create significant barriers for Iranian companies prospecting trade on the global market.

Licensing and franchising

There are numerous associations that assist in matching licensers and franchisers with local partners. The most important of these is the Iran Chamber of Commerce, Industry and Mines. Another important point of reference is the Internet-based Iran Trade Point Network, which provides information on locating local partners.

Practical Aspects of Doing Business In Iran

Foreign Investment

According to Foreign Investment Protection Act, all foreign investors can establish company or buy in to equity of a local company, possessing as high as 100% shares of the company. The foreign investor, regardless of the field of business activity envisioned, is required to acquire an "Investment License" thorough the issuing authority, Organization for Investment, Economic and Technical Assistance of Iran (OIETAI) a subsidiary of Ministry of Economic Affairs and Finance. Such investments will enjoy a complete coverage by the “Foreign Investment Promotion and Protection Act =FIPPA”. Once the prospective investor has transferred an acceptable portion of his/her intended capital in to the country, a Capital Recognition Notification (CRN) will be issued in favor of the investor. At such time the imported portion of the capital will be recognized and receive coverage under FIPPA.

Under FIPPA, application procedure for investment licensing is designed in a very short and simplified manner. As illustrated bellow the whole licensing procedure is designed in four stages, as following chart.

According to the new circular of OIETAI, foreign investors can set up entity with 100% ownership without any other specific permission from governance and can register their company with the "Companies Registry Bureau”.

Foreign companies which are engaged it carrying out business activities in Iran conduct their business either through a branch or a limited liability company (joint stock Company). In order to have a general understanding of the commercial features attached to either of these legal vehicles, we feel it is appropriate to provide you, in brief, general information about each of these tools.

A branch does not have a separate personality and is treated as a division of the company it represents. Assets and liabilities of the branch are those of the company and the net assets (liabilities) represent amounts due to (from) the company. A branch needs to maintain proper books of accounts in the same manner as a limited liability company is obligated. It is however exempt from certain compliance obligations such as holding annual general meetings or appointing a “legal inspector”. Foreign companies, which intend to engage into contracting activities in Iran, need to establish a branch, unless their activities are carried out through a limited liability company or any other form of legal vehicle recognized by the Commercial Code of Iran. Most common types of vehicle are either a branch or a limited liability company.

In limited liability companies, the liabilities of its owners are limited to the amount of capital they have subscribed. There are two types of limited liability Company recognized by the Commercial Code of Iran as follows:

  • A limited liability company in which its capital is divided into shares, called “joint stock company”
  • A limited liability company in which its capital in not divided into shares

The most common limited liability company is the one with share capital. Any reference to “limited liability Company” in the text which follows is to a joint stock company.

Limited liability companies can be either “private” or "public". Private limited liability company is the one with minimum share capital of one million Rials. All shares are allocated to its founders at the time of its formation. In a public limited liability company, the share capital must be at least five million Rials and part of it must be offered for sale to public at the time of its foundation. A limited liability company must have at least three shareholders.

According to Iranian regulations, foreign nationals are generally allowed to hold 100% holdings in a company registered in Iran without any limitation or certificate unless they want to apply for a certificate of protection issued by the Government in accordance with the Law for Attraction and Protection of Foreign Investments.

Establishment of a Branch

The applicants of establishment of a branch in Iran need to submit the following documents to the Company’s Registrar in Iran:

  1. A written application by the company.
  2. Notarized certified copies of the company’s Articles of Association, certificate of 
incorporation, and latest changes thereto notified to the competent authorities in 
the country of Head Office.
  3. A report containing:
    • Information pertaining to the activities of the company
    • Justification and the need for the establishment of a branch in Iran
    • Nature and scope of the authorities given to the branch and the object of the branch
    • An estimate of human resources required, segregated between Iranian and expatriate employees
    • The manner by which the local requirements of the branch (foreign currency and Rials) are funded
    • A letter from a government agency in the event that the company has concluded a contract with that agency
    • Registration declaration for the branch. There is a template for this, which will be completed and signed by the resident manager
    • A letter of authority authorizing the branch manager to act on behalf of the foreign company 

    • A letter of commitment executed by the resident manager undertaking to proceed to liquidate the branch in the event the activities of the branch are terminated by the Iranian competent authorities.


Kindly note that any of the documents set out above which are prepared outside Iran must be certified by the competent authorities and confirmed by the foreign ministry and notarized by the Iranian Consulate in that Country. The above documents must be translated into Farsi and the English originals as well as the translated versions must be submitted to the Company’s Registrar.

Dissolution & Liquidation

General provisions governing the dissolution and liquidation of a joint stock company are provided in the law and companies are authorized to specify in their Articles of Association any particular provisions they may desire so long as they are not inconsistent with the law. Since the provisions of the law on this subject are general in nature, it is advisable, when drafting Articles of Association, to include procedures for dissolution and liquidation.

Statutory Inspectors (Auditors)

The law requires the election, by the shareholders, of a statutory inspector and alternate inspector once a year at the ordinary general meeting. The election of more than one inspector and alternate inspector is optional. In general, the function of the inspector is to serve as a watchdog over shareholders and third parties interests and he may be prosecuted criminally for violation of his duties. Certain categories of persons such as criminals, the directors and their relatives, and persons doing business with the company are disqualified from serving in this post. Among other things, the inspector is required to submit a report of the ordinary general meeting each year. 

Books of Account

Both the public and private joint stock companies are required to maintain in the Persian language the journal, ledger, inventory and copy book of merchants. These books serve as the basis for determining the company’s tax liability and failure to keep them strictly in accordance with the legal requirements may result in the tax authorities making their own determination of what the company’s tax liability should be.

Employment of Foreign Citizens and Iranian Labor Law

Employment of foreign nationals in Iran is only possible within the framework of the provisions stipulated in the Labor Law of the Islamic Republic of Iran. The general policy of the country is aimed at meeting its Labor requirements and implementing its industrial and development projects through Iranian manpower as much as possible. However, employment of foreign manpower when there is an immediate need for their expertise is not ruled out.

According to Article 120 of the Labor Law, approved on November 20, 1990, foreign nationals are not allowed to work in Iran unless they are provided with an entry visa with the right to engage in specific work, and secondly, they receive work permit according to relevant laws and by-laws.

Obviously, foreign nationals who are exclusively on diplomatic and consular missions, as well as the staff and experts of the United Nations and its affiliated organizations, correspondents of foreign news agencies and press, are exempted from such regulations on the condition of reciprocity.

Ministry of Cooperatives, Labor and Social Welfare shall approve the issue of a visa for a specific type of occupation for foreign nationals and work permit for them while taking certain conditions into consideration:

Work permits would be issued, extended or renewed for a period of one year.

When the interests of the industries of the country necessitate the immediate employment of a foreign national, the minister of the relevant ministry may report the case to the Minister of Labor and Social Affairs and upon the approval of the latter, a temporary work permit shall be issued for the foreign national without observing the relevant formalities for the issuance of a visa with right to engage in specific work.

The temporary work permit would be valid for a maximum period of three months and its extension would be subject to the approval of the technical board in charge of the occupation of foreign nationals.

Prior to the conclusion of any contract through which foreign experts would be employed, employers are bound to inquire about the views of the Ministry of Cooperatives, Labor and Social Welfare on the possibility for the said foreign nationals.

The Ministry of Cooperatives, Labor and Social Welfare is authorized to take measures for the nullification of the work permit for those foreign nationals who do not observe Islamic principles, current laws and regulations of the country and humanitarian relations, as declared by the competent authorities.

Employers who hire foreign nationals whose work permits have been expired or have no work permit, or employ them in jobs other than those stipulated in their work permits, or do not notify the Ministry of Cooperatives, Labor and Social Welfare about cases where the employment agreement between them and foreign nationals is terminated, shall be sentenced to prison terms ranging from 91 to 180 days. The court usually changes the jail punishment into cash penalty

Social Security Requirements

According to Article 148 of the Labor Law, employers are under the obligation to provide insurance with the Social Security Organization (SSO) for their workers.

Employers failing to comply with the above obligation shall be condemned to pay the shares of premium payable by employers as well as the employees together with all applicable penalties and interests at the rate of 42% of the amounts in arrears in addition to a cash penalty of up to ten times the amount of premium due to the SSO according to Article 183 of the Labor Law.

According to a law ratified on September 26, 1979 by the Islamic Consultative Assembly foreigners are also required to pay social security premium to SSO and shall be covered by SSO regulations except in the following cases:

  1. Where between the country of such aliens and the government of the Islamic Republic of Iran bilateral or multilateral treaties with regard to Social Security have been made, in which case the contents of such treaties shall be complied with and;
  2. Where an alien shall produce a certificate of his government authorities evidencing that during his employment in Iran he has been insured in his own country or any other country for any or all the instance enumerated in Article 3 of the Social Security Act, in which case the said employees shall be exempted from payment of premium in respect of certified instances only.

The certificate mentioned in Sub-clause “b” above in order to provide exemption in respect of payment of premium must be drawn up to cover all instances enumerated in Article 3 of the Social Security Act as follows:

Accidents and sickness, Pregnancy, Wage Compensation, Disability, Retirement, Death

Social Security premium is 30% of the monthly salary of which 23% will be paid as contribution by employers (20% SSO insurance premium and 3% unemployment insurance premium) and 7% by employees. A further 3% will also be paid to SSO by the Government.

The above premiums (employers’ and employees contributions) must be paid through some lists of salaries of the personnel which must be collected from the local SSO branch in respect of every month, not later than the last working day of the next month.

SSO for Foreigners

According to the convention No 19 of International Labor Organization (ILO) all countries joined to this convention are obliged to treat with all, national or international, workers equally in the case of work related accidents.

On this basis, Social Security Organization of I.R. of Iran has declared the procedures for enforcement of work related accidents insurance for foreign workers from 187 countries joined to the ILO convention No (19), through admitting specific note added to article 5 of Social Security Law.

According to this Note, those foreign nationals who work under the S.S. Law of Iran would be treated equally as the other insured in paying contributions and receiving benefits. But those who are under the coverage of other countries which have joined to ILO Convention No (19) will be protected only against work-related accidents.

In latter case, if any work-related accident occur to persons, Social Security Organization would undertake the responsibility of providing the health services, as well as the payment of wage compensation, loss of limb compensation, partial & total disability pension and survivors' pension.

According to this note, employers of foreign nationals are obliged to deduct 3 percent of total wages and benefits paid the person, without considering the maximum wages subject to the contribution, and remit it to the SSO account.

The note also emphasizes that providing the health services is only for work-related accidents and other health issues do not lies under the responsibility of Social Security Organization. In addition the survivors pension is payable in case of the insured’s death due to occupational accident. 

SSO Premium Payable by Contractors

Five percent of the value of every progress statement plus the total amount of the last statement given by a contractor to a client must be retained by client and released to contractor upon submission of SSO clearance certificate.

In issuing clearance certificates, SSO, according to Article 41 of the Social Security Act, claims that premium must be paid according to a Decree of the Social Security High Council approved 1991 which provide as follows:

  1. “The workers’ social security insurance premium under the contracts, all the materials required for whose implementation are supplied by the employer and also the contracts whose subject is provision of certain services including installation of equipment, technical and consultant engineering services, training, drafting, surveying, cleaning, ... or the contracts which require no materials for their implementation, shall be collected on the basis of fifteen (15) percent of the gross value of works carried out plus one-ninth (1/9) of the applicable insurance premium for Unemployment Insurance.
  2. The insurance premium for other contracts shall be collected on the basis of seven (7) percent of the gross value of works carried out plus one-ninth of the applicable insurance premium for Unemployment Insurance.

By “gross value of works carried out”, it is meant the total value of works including foreign exchange and Rials portions.

The equipment which a contractor is obligated to design, manufacture or purchase from abroad and install in Iran according to the terms and conditions of a contract and to receive payment of their prices through letters of credit, in foreign currency, shall be excluded from the value of works subject to deduction of SSO insurance premium and shall be exempt from payment of insurance premium.

All contractors, consulting engineers and employers should, at the time of concluding contracts, take into account the applicable amount of insurance premium by due attention to the terms and conditions of the relevant contracts and the obligations of both parties. All contractors and consultant engineers must pay to SSO the applicable insurance premium on the specified basis together with submission of the monthly SSO lists so that clearance certificate can be issued upon completion of the contract operations without any problem.”

The above ruling of the Social Security High Council was published by the Income Department General of the Social Security Organization as Circular No.149.

Later on, the Managing Director of the Social Security Organization, through a Circular No.149/2 dated August 25, 1998, pursuant to an agreement concluded between SSO and the Association of Construction Companies on April 15, 1998 decided that the above social security premiums {15%+(15%×1/9)} or {7%+(7%×1/9)} should be deducted from every progress statement. Therefore, no further deduction of 5% from each progress statement was necessary.

The above circular adversely affected the cash flow of contractors. In order to cancel the circular letter of the SSO Managing Director, some companies and organizations such as Iranian Offshore Oil Company (IOOC), Industries Development and Renovation Organization (IDRO) and others submitted a plaint to the Administrative Court and asked for cancellation of the above circular letter which provided that the total SSO premium of {15%+(15%×1/9)} or {7%+(7%×1/9)} must be deducted from every progress statement and paid to SSO. The Administrative Court cancelled the above Circular in favor of the Iranian contractors who are exempt in respect of penalties provided in the Social Security Act. However, such cancellation did not do any good to foreign contractors operating in Iran who are liable to pay penalties to SSO and must make sure, in our opinion, that they will be treated, pursuant to special arrangements between SSO and the client organization, in accordance with the provisions of the above cancelled Circular Letter.

Banking and Financial Market of Iran

Currently, there are 30 banks and 5 financial/credit institutions active in Iran, where banks are the main source of funding for development plans and companies. The Iranian banking industry makes up for 2.5% of GDP and has the second highest penetration rate in the MENA region.

Currently the government plans to expand the use of online banking and to modernize the banking systems that are at the moment far from international standards.

As it is depicted, there are 3 different types of banks in Iran, and all of them are under the rule of the central bank.

All the banks must follow Islamic banking principles whereby usury is forbidden and, rather than interest rates, profit rates are set on deposits and expected rates of profit on facilities are set on loans. In terms of both assets and capital, the banking sector is dominated by Bank Melli Iran (National Bank of Iran).

Regarding governments plans to reform the financial sector by privatizing the majority of Iran’s state-owned banks, in recent years Tejarat, Saderat and Mellat Bank was privatized.

Melli Bank London plc, Bank Melli Iran branches in Hamburg and Paris, Bank Sepah Plc in London and Bank Sepah branches in Rome and Frankfurt are among Iranian state-owned financial entities licensed to operate in European countries.

Payment Instruments

The introduction of modern payment instruments can be traced back to early 1990s where commercial bank of Sepah launched its Aber Bank (Debit Card) and ATM services. Since then almost all Iranian banks have provided their customers with the card payment services focusing on cards with debit function and ATM services to tackle the problem of heavy branch traffics.

The interbank card switch (SHETAB) was introduced in 2002 and now all card issuing banks in Iran are connected to the center; building up a uniform card payment network where all issued cards are accepted in all acquiring terminals.

SWIFT (the Society for Worldwide Interbank Financial Telecommunication) is used by nearly every bank around the world to send payment messages that lead to the transfer of money across international borders. It provides a wide range of services including transmitting letters of credit, payments and securities transactions among 9,700 banks across 209 countries.

However, in March 2012 Iranian banks were disconnected from the system after the implementation of the US-led sanctions against the country. Accordingly, all 30 Iranian banks were blocked from using SWIFT services, literally cutting Iran off from the global banking system.

Following its implementation in January 2016, most Iranian banks have been reconnected to the SWIFT network and can engage in international transactions. However foreign banks remain concerned about doing business with Iran, as the US still retains sanctions in place which predate the nuclear crisis and worry they could still be targeted by the United States.

Re-engagement with the banking world through the SWIFT system is vital for Iran’s trade, particularly for the country’s oil exports and broader stability of its currency. Whilst we expect progress to be slow at first, the signs are positive.

Iran remains largely a cash-based economy. However, banks offer credit transfers, direct debits, checks and card payments. Although the usage of payment cards has increased rapidly over recent years, usage remains limited. There are currently more than 400 million domestic debit (Shetab) cards in circulation. None of the international providers offers card services in Iran. There are currently around 48,000 ATM terminals and over 3 million POS terminals in Iran.

Interbank system of Iran gets advantages of SHETAB for Interbank Information Transferring Network and PAYA for automated clearing house system and SATNA as the main center for settlement of Iranian banks' transactions in Rial.

Checks are processed manually via the check clearing house (owned by all Iran’s commercial banks) in Tehran and via its many other branches across Iran. Banks have their customers’ card transactions processed via the Central Bank’s Shetab payments network. At present, all commercial banks in Iran use the Shetab network. Together they issue all of Iran’s 400 million payment cards.

Capital Market

Tehran Stock Exchange

The Tehran Stock Exchange (TSE) is Iran's largest stock exchange, which first opened in April 1968. The TSE is based in Tehran. As of September 2017, more than 600 companies, with a market capitalization of US$100 billion were listed on TSE. TSE which is a full member of the World Federation of Exchanges and a founding member of the Federation of Euro-Asian Stock Exchanges has been one of the world's best performing stock exchanges in recent years.

Structure

The Securities & Exchange Council is the highest authority and is responsible for all related policies, market strategies, and supervision of the market. The Chairman of the Council will be the Minister of Economic; other members are: Minister of Trade, Governor of the Central Bank of Iran, Managing Director of the Chamber of Commerce, Attorney General, Chairman of the Securities and Exchange Organization, representatives of the active market associations, three financial experts requested by the Economics Minister and approved by the Council of Ministers, and one representative for each commodity exchange.

The Securities and Exchange Organization (SEO) is responsible for administration and supervisory duties, governed by the Board of Directors. The SEO’s Board of Directors are elected by the Securities and Exchange Council. 

Operations

The TSE is open for trading five days a week from Saturday to Wednesday, excluding public holidays. Trading takes place through the Automated Trade Execution System from 9am to 12:30am, which is integrated with a clearing, settlement, depository and registry system. The TSE is solely an order-driven market and all transactions are executed in the manner and under the principles of open auction.

The trading system is an order driven system, which matches buying and selling orders of the investors. Investors can place their orders with TSE accredited brokers, who enter these orders into the trading system. Then, the system automatically matches buy and sell orders of a particular security based on the price and quantity requirements. The mechanism for which the price of equities is determined is as follows:

  • The best price (price priority)
  • Time of order priority’

Under the price priority rule, a selling (buying) order with the lowest (highest) price takes precedence. Under the time priority rule, an earlier order takes precedence over others at the same price. Thus, when the lowest sell and the highest buy orders match in price, the transaction is executed at the price. In short, the TSE market is a pure order- driven Market.

The trading system also generates and displays details of current and historical trading activity, including prices, volumes traded and outstanding buy and sell orders in the the trade placed. This ensures that investors have the required information to be able to take informed investment decisions. The range of price movements is typically restricted to 10% daily. This can be changed in specific situation by the Board of the TSE in case of unusual price movements resulting in an extremely high or low P/E ratio. Short selling is not permitted.

Presently, TSE trades mainly in securities offered by listed companies. Equities and Corporate Bonds are being traded at TSE at the moment. The plan is to introduce other financial instruments in the near future. The introduction of project-based participation certificates that bear a fixed annual return during the period of the project and promise the final settlement of the profit at the date of its completion, has diversified the market.

The Tehran Stock Exchange (TSE) has started an ambitious modernization program aimed at increasing market transparency and attracting more domestic and foreign investors. Concrete measures that have been taken in the planning and operations of the stock exchange such as the settlement system, geographical expansion, new exchange laws in order to attract local and foreign capital.

The new system makes it possible to purchase and sell stocks on the same day. The system has also made it possible for 2,000 brokerage stations to work simultaneously, up from about 480 in the past. The rise in electronic dealing, non-stop input and updated data on orders, transactions and indices are among other features of the new system. The new system has made it possible to link the stock market to the international bourses. The bourse can now handle 700 transactions per second and 150,000 transactions per day. TSE experienced an 11% growth at the end of 2008 and ranked second in the world in terms of increase in the volume of trade after Luxembourg’s Bourse.

Economic Sectors

As of September 2017, there are more than 600 companies listed on the TSE. Up to 60% of the market capitalization relates to listed companies from the Basic Metals Sector, Motor Vehicles and Trailers Sector, Chemicals and By-Products Sector, and Non-Metallic Minerals Products Sector. Largest stocks include Persian Gulf Petrochemical Industries Co. with a market capitalization of USD 5,886 m, which translates to 6.3 % of total market capitalization, Mobarakeh Steel Co. with a market capitalization of USD 5,794 m, which translates to 5.7% of total market capitalization, Telecommunication Company of Iran which represents 3.6% of total market capitalization National Iranian Copper Industries Company (Sanaye Mese Iran) which represents 3.4% of total market capitalization, and Iran Khodro Industrial Group at 1.2% of total market capitalization.

Taxation

New Iranian tax laws are simply with the flat rate for corporate tax. The tax rate is 25% fixed rate. Under the new Tax Law shareholders do not pay any tax.

A Review of the Iranian Tax System

Tax Bases and Rates

The Iranian tax system is divided into two general categories of direct and indirect taxes. There are two major types of direct taxes including income taxes and property taxes. Each category of direct taxes, in turn, is divided into sub-parts. Indirect taxes include taxes on imports and Value Added Tax (VAT). Taxes on imports are currently collected by the Iranian Customs and are not within the jurisdiction of INTA.

Taxable Persons

According to article (1) of direct taxation act the following persons shall be subject to taxation:

  • All the owners - whether natural or juridical persons with regard to their personal and real properties located in Iran.
  • Every Iranian individual (natural person) residing in Iran, on all his incomes earned in Iran or abroad.
  • Every Iranian individual (natural person) residing abroad, on all his incomes earned in Iran.
  • Every Iranian legal person (entity) with respect to all its incomes earned in Iran or abroad.
  • Every non-Iranian person (whether natural or legal) with regard to his/its incomes earned in Iran, as well as in respect of the incomes derived by such person from Iranian sources for granting of licenses and other rights, or for the provision of training and technical assistance and also for the transfer of cinematographic films (whether the latter income is received as the price, or the fee for the screening, of the films, or under any other titles).

Double Taxations Avoidance Agreement

In order to prevent double taxation, the government of Iran has signed agreements with other states as follow:

Iran is a signatory to a Treaty for the Prevention of Double Taxation with many countries all over the world. Draft agreements with additional countries are at the discussion stages. A Double Taxation Prevention Treaty, in principle, enables offsetting tax paid in one of two countries against the tax payable in the other, in this way preventing double taxation.

Another important factor is the grant of an exemption or tax at a reduced rate on certain receipts such as interest, royalties, dividends, capital gains and others that are connected with a transaction carried out between parties associated with the Double Taxation Prevention Treaty.

When certain income is taxable under the Iranian Income Tax Ordinance but there is an exemption (reduced tax) under any Taxation Treaty, the income is taxed, if at all, but only according to the provisions of the Taxation Treaty.

Taxation of Foreign Companies

The taxable income of foreign legal persons and enterprises residing abroad shall be assessed as follows:

  1. In case of contracting business in Iran with regard to all types of work in the fields of construction, installations and technical installations, including procurement and setting up of the same, and also in the fields of transportation, preparation of design for buildings and installations, topography, drawing, supervision and technical calculations, provision of training and technical assistance, transfer of technology and other services, the taxable income in all cases will be 10%-20% of total annual receipts.
  2. In case of income derived from Iran for granting of licenses and other rights or transfer of cinematographic films, whether the latter income is received as the price or the fee for the screening of the films, or under any other titles, the taxable income shall consist of 15% to 25% of all payments received by them during a tax year. The applicable coefficients for determination of taxable income in each of the cases mentioned in this paragraph shall be determined on basis of the proposal of the Ministry of Economic Affairs and Finance and approval of the Council of Ministers. Those making the said payments, shall be required to withhold, from each payment, the applicable tax by taking into account the total payments made from the beginning of the year up to the date of each relevant payment. They should remit the withheld amounts, within ten days, to the tax affairs office local to their residence. Otherwise, the receivers shall be jointly and severally liable for payment of the basic tax and other payments related thereto.
  • As for the operation of capital and other activities performed by the aforesaid legal persons and enterprises in Iran through the agencies such as branches, representatives, agents and the like, the regulations of the Article 106 of this Act shall apply.

Taxation in Iranian Free Zones

According to Article 20 of the Law Concerning the Manner of Administering the Free Trade Industrial Zone of the Islamic Republic of Iran, natural persons and legal entities economically active in such areas, are exempt from payment of direct income tax for a period of 25 years, from the date of operation as stated in their license.

What are the legal facilities for investment at free trade and industrial zone?

  • Unlimited foreign and domestic participation for investment as desired
  • Simplified and suitable work procedures
  • Full guarantee for foreign investment and accrued benefits
  • Free movement of capital Minimal administrative formalities for the foreigners.
  • Issuing visa for foreign nationals upon their arrival at the airport
  • 25 years tax exemption for economic activities
  • Customs duties and commercial benefit tax exemptions for import of raw materials 
and machineries used in production of goods in the zone
  • Sale and lease of land for domestic investors and lease of land for foreign investors
  • Favorable conditions for foreign and domestic banking operations
  • Protection of registered trademarks and intellectual property rights
  • Active management support
  • Availability of skilled workforce and ejucated manpower

Income Taxation of Natural Persons

According to Article 131 of direct taxation act the rates of income tax of real persons, except where separate rates are provided under the present act, shall be as follows:

Value Added Tax (VAT)

Supply of commodities and services, in Iran, as well as their imports and exports, shall be subject to the provisions of this Law. VAT rate is 9%.

The basis of calculation of tax shall be the price of the goods or services indicated in the invoice. In cases where no invoice shall be available or no invoice shall be presented or it shall be established, according to supporting proof, documents and evidence that the price in the invoice is not real, the basis of calculation of tax shall be the prevailing prices of the commodities or services compared with such prices prevailing on the date of application of tax.

Taxation from foreign investors in Iran

A-Direct Taxes

All non-Iranian real or legal entities for the income earned in Iran and also for the income gained through granting of license or other rights, technical and educational assistance or movie contracts in the territory of Iran are subject to taxation. Depending on the type of activity of the foreign investor, various taxes and exemptions are applicable, including profit tax, income tax, property tax, etc. 
Foreign investors in Iran enjoy the same supports and privileges that are offered to the Iranian investors. This means both Iranian and foreign investors pay the same amount of taxes. Tax exemptions and discounts are also equally granted to domestic and foreign investors. 
Since foreign investments are usually active as legal entities, we will hereunder focus on rules and regulations for Corporate Income Tax.

B- Corporate Income Tax

B-1- General Issues

Foreign legal entities that are based abroad shall be taxed at the flat rate of 25% in respect of the aggregate taxable income derived from the operation of their investment in Iran or from the activities performed by them, directly or through the agencies in Iran.
The legal entities shall not be subject to any other taxes on the dividends or partnership profits they may receive from the capital recipient companies.
Legal entities are obligated to, even within the exemption period, submit declaration and profit and loss balance sheets, provided from their official statutory books, maximum four months after the tax year (March 21 each year until March 20 next year)  along with the list of partners and shareholders, their shares and addresses to the tax department within the area of the activity of the legal entity. If these legal entities do not submit the documents within the stipulated time span, the tax exemption will be null and void.

B-2-Exemptions

The Direct Taxation Law and other pertinent legislations have considered certain exemptions for the legal entities as bellowed table:

B-3-Deductions

Expenses which are deductible in the assessment of taxable income are listed in articles 147 and 148 of the Direct Taxes Act. These expenditures must be supported to a reasonable degree by documentary evidence and are exclusively connected with the earning of income during the year in question.

B-4-Losses

Losses sustained by all taxpayers engaged in trading and other activities are accepted by the tax authorities; will be carried forward and written off against future profits for a period of three years.

B-5-Depreciation

Depreciation of assets is deductible in the assessment of taxable income. Depreciation rates range from 5% to 100% and the period over which assets may be depreciated ranges from 2 to 15 years.

This table briefly shows various types of taxes in the Iranian taxation system.

Iran’s Free Zones and Special Economic Zones

A free-trade zone (FTZ) is a subgroup of special economic zone, which can be either a port or a non-port area. In this region, there are special customs regulations with many advantages for trade. According to World Bank definition, free trade zones are “small, fenced-in, duty-free areas, offering warehousing, storage, and distribution facilities for trade, transshipment, and re-export operations.” Though this a traditional definition and nowadays there are more and more free zones focus on service industries, almost all trade zones in Iran are doing the regular activities.

The idea of free trade zones in Iran backs into the 1960s when the government asked United Nations Conference on Trade and Development (UNCTAD) to investigate the possibility of establishing free ports in Iran. Although Bandar Abbas has been chosen to be the first free trade zone according to these studies, Kish Island officially introduced as the first free trade zone of Iran in 1972 and began to work since 1977.

After the Islamic revolution in 1979 and based on the first development plan, the government became responsible for establishing free zones at the three border points of Kish, Gheshm, and Chabahar. However, it took about four years for these regions to have an official law for managing and operation. Four other free zones, including Aras, Anzali port, Maku, and Arvand, have been added to these three former active zones since early in the 2000s to both ease the transaction of imported commodities to the interior parts of the country and improve the economy of people in those four regions.

Currently, there are 14 special economic zones and 7 Free Trade Zones, and there plans to introduce 7 new Free Trade Zones in Iran.

The list of the Trade-Industrial Free Zones:

  1. Anzali Trade-Industrial Free Zone
  2. Aras Trade-Industrial Free Zone
  3. Arvand Trade-Industrial Free Zone
  4. Chabahar Trade-Industrial Free Zone
  5. Kish Trade-Industrial Free Zone
  6. Maku Trade-Industrial Free Zone
  7. Qeshm Trade-Industrial Free Zone

and the list of special economic zones:

  1. Amirabad port special economic zone
  2. Arge Jadid special economic zone
  3. Assaluye special economic zone
  4. Bushehr Port special economic zone
  5. Bushehr special economic zone
  6. Lorestan special economic zone
  7. Payam Airport  special economic zone
  8. Persian Gulf special economic zone
  9. Salafchegan special economic zone
  10. Sarakhs special economic zone
  11. Shahid Rajaee Port special economic zone
  12. Shiraz special economic zone
  13. Sirjan special economic zone
  14. Yazd special economic zone

Useful information

  • Rules that govern economic activities in Free Zones are provision of the law on the manner of Administration of the Free Trade-industrial Zones and the relevant decrees of the Council of Ministers are the primary legal sources for regulating economic activities and enterprises in the Free Zones.
  • Each Free Zone is administered by its own Authority and is administered by its own Authority which is organized as a company, with an autonomous legal status. The company's capital belongs to the government of the Islamic Republic of Iran. Issuance of permits for all manner of authorized economic activities, construction of buildings and installation and undertaking various occupations by natural and legal persons, within the boundaries of a Free Zone, rests solely with the respective authority. The Authorities are empowered to implement all regulations pertaining to the establishment of production units, importation and exportation of goods, employment of manpower, social security and insurance, issuance of entry visas to foreign nationals, and the like.
  • The utilization of land and national resources belonging to the government within the Free Zones and the sale or lease of properties to Iranian nationals, whether natural persons or companies, are determined by each Authority according to the respective regulations. As for private ownership of Iranian nationals residing in the Free Zones, they shall enjoy the same rights of ownership of land and properties that prevail in the rest of the country. Renting of land to foreign nationals is permitted. However, the sale of land to foreigners or to companies whose capital is wholly partially owned by foreigners, is prohibited.
  • Fair compensation for damages shall be abided by the Authority, in cases where the capital of foreign investors is nationalized or expropriated. Foreign investors also have the option to safeguard their capital and rights by operating under the provisions of the Law Concerning the FIPPA. Repatriation from the Free Zone of net profits, the initial capital and gains resulting from economic activities of foreign investment is permitted. The authority of each Free Zone is obliged to issue a permit of transfer within one week from the date of the receipt of an application for such repatriation. Investors may transfer their shares to other investors with the approval of the respective Authority. In principle, the movement of capital and expatriation of profits generated by economic activities and commercial operations in the Free zone is free and permitted, without let or hindrance.

Capital recognition under the rules of the Free Zones

As defined in Article 3 of the Regulations on investment in the Free Zones, capital shall include: The national currency, i.e., the Rial and foreign currencies convertible in the Free Zones; machinery, equipment , accessories and tools of work; industrial property rights resulting from patents, technical know-how, trademarks and commercial names; land, air and sea transport vehicles related to the subject of investment; all or part of the transferable net profit obtained in the Free Zones and added to the principal capital or utilized in other activities authorized under the rules of the Free Zones . In certain cases, at the discretion of the Free Zone Authority, raw materials and semi- manufactured parts may be designated as a portion of the foreign investment.

Foreign investor vs Iranian partner of the Joint-venture settled

Disputation between Foreign investor and their Iranian parter in Joint Ventures are resolved on the basis of written contracts and agreements concluded between the parties concerned. The resolution of differences can be achieved by means such as conciliation and arbitration or court litigation.

Registration of Companies and Intellectual Properties Accomplished

Registration of companies, institutions and branches of Iranian or foreign companies shall be established in the Free Zone, upon submission of the required documentation. The registration Bureau of the Zone shall also handle the applications for registration of trademarks and names, patents, and industrial designs.

Export and Import Activities in the Zones

The exchange of goods between each Zone and outside the country is excluded from the provisions of the Export-import Regulations. However, exchange of goods between the Zone and the rest of the country, whether of a commercial nature or by travelers, is governed by the general national regulations on the export and import of goods. Importation of goods produced in the Free Zones, into other parts of the country, is exempt from payment or all or a part of customs duties and commercial benefit tax, equal to the added value thereof in the Zone. Importation of goods produced in the Free Zone in which all or parts of their raw materials are supplied domestically, shall be exempt wholly or partially from payment of customs duties and commercial benefit tax, in proportion to the domestic raw materials component of the product.

Taxes in the Free Zones

Natural and legal persons, whether Iranian or foreign nationals, who are engaged in any kind of commercial or manufacturing activities in the Free Zones, are exempt from payment of tax on their revenues and assets for 25 years, as from the date their business operation commences.

Needs for Foreigners before Entering the Free Zones

For direct entry into and exit from each Free Zone through authorized points, foreign nationals are not required to obtain visas in advance. The police shall affix the seal of a residence permit on the valid travel documents of such foreign citizens. The respective residence permit is issued for a period of two weeks and may be extended up to six months upon the request made by the Authority. For entry into the Free Zones through the mainland of Iran, foreign nationals are obliged to obtain a visa from the Iranian consulates abroad. Foreigners who wish to travel to other parts of the country after their entry into the Zone, are required to obtain a permit from the local representative office of the Iranian foreign Ministry.

Banking Activity in Free Zones

Establishment of Iranian banks, organizing branches of foreign banks, establishment of Iranian or foreign non-banking credit institutions, or setting up their branches in the Free Zones are permitted. The banks can be engaged in operation like opening letters of credit and rendering similar services to businesspersons. Offshore activities are also allowed for the banks, if they use foreign currencies. Foreign exchange dealers may operate in the Zone upon the authorization of the Respective Authority. Buying and selling of foreign currencies by banks and exchange dealers is based on the supply and demand factor and the floating rate of the free market.

Employment and Social Security in the Free Zones

Provisions regarding labor and social security regulations are more flexible in the Free Zones, in comparison with the rules prevailing on the mainland, Employment may be based on a contract according to the mutual agreement of the employer and employee, with the right of cancellation of the work contract applicable for both parties. In this context, the employer is allowed to lay off workers after payment of due compensation.

SOURSES:

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  2. IRAN: THE $1 TRILLION GROWTH OPPORTUNITY?, McKinsey&Company, 2016.
  3. Iran Country Report, IMF, 2017.
  4. For Sanctions Compliance, the relaxation of sanctions offers no time to relax, by Jonathan H. Burke, Ernest & Young LLP.
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  6. Iran Oil & Gas Report, Business Monitor International LTD., 2017.
  7. Entering the Iranian Market, Opportunities and Risks, KPMG, 2016.
  8. Iran a unique investment opportunity?, Ernest & Young LLP., 2016.
  9. Market Guid of Iran, New Zealand Trade & Enterprise, 2017.
  10. The next frontier INVESTING IN IRAN, KPMG, 2016.
  11. Iran Country Report, Euler Hermes Economic Research, 2017.
  12. Iran Business Handbook 2016, GoG-AMA Centre for International Trade, Suhayl Abidi, 2016.
  13. Off to Iran? What you should know before you enter the market, KPMG, 2016.
  14. The Emerging Investment Landscape of Post-Sanctions Iran: Opportunities, Risks, and Implications on US Foreign Policy, Fordham International Law Journal, Christopher Beall, 2017.
  15. Investing in Iran, Guide Book-The Laws and Practice.
  16. World Bank.
  17. Central Bank of Iran.
  18. The Supreme Council of Iran’s Free Trade, Industrial and Special Economic Zones.
  19. CIA FactBook.

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