Tax provision for foreign investors in Iran – Law Firm In Iran
Marjan Tehrani Legal & Contracts Advisor ForsatMC Law Firm
As a General rule, all non-Iranian real or legal entities for the income earned in Iran are subject to taxation. Foreign legal entities shall be taxed at the flat rate of 25% in respect of the 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.
Likewise, 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 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, the tax exemption will be null and void.
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 according to the direct taxation Law.
The direct taxation Law and the other legislation are considered tax exemptions with rate of 0.0% for the legal entities as table below:
Transfer of Shares Tax (Share Transfer Tax)
Out of each transfer of shares and preemptive rights of shares, a flat rate of 4% of their nominal value will be collected. The tax due from the transfer of any shares and the preemptive rights shall be settled to Iranian National Tax Administration before transferring.
Each transfer of companies’ shares and priority right of shares, whether Iranian or foreign, in the stock exchanges or in the licensed OTC markets, shall be taxed at a flat rate of 0.5% of the sale value of such shares and priority rights of shares, (Article 143(bis), Direct taxes act).
Double Taxation Treaties (DTTs)
Iran is a signatory to a Treaty for the Prevention of Double Taxation with many countries all over the world. DTTs are international treaties regarding income taxes and capital taxes under which state parties agree to avoid double taxation. Therefore, international workers or companies do not have to pay tax twice on the same income.
Auslandsinvestitionen in der Freizone
Alle natürlichen und juristischen Personen und Institutionen, wie z.b. iranische, ausländische und internationale Organisationen, können unabhängig oder unter Beteiligung ihrer Organisation und Tochterunternehmen oder unter gegenseitiger Beteiligung in Freizonen investieren. Ausländische Investitionen sind auch in diesen Bereichen zulässig, sondern unterliegen sie den rechtlichen Vorteilen dieser Gebiete, nur dann sie die erforderlichen Genehmigungen gemäß den Gesetzen dieser Regionen erhalten.
Sonderwirtschafts und Freihandelszonen im Iran
Sonderwirtschaftszonen sind eingeschränkte Zollgebiete, in denen die Einfuhr von Waren, Maschinen und Ausrüstungen nicht den allgemeinen Einfuhr /Ausfuhrbestimmungen unterliegt. Die Zonen aus verschiedenen Gründen und Zielen eingerichtet worden sein.
Die Freizone ist ein Gebiet in einem Land, das gegründet wurde, um Exporte und Auslandsinvestitionen zu fördern und zu entwickeln. Mit anderen Worten, die Regierungen versuchen, die besten Möglichkeiten für Investitionen, Exportentwicklung und währungsumsätze in der Freizone zu finden.
Im Iran gibt es 17 Sonderwirtschaftszonen und 7 Freihandelszonen. Freihandelszonen umfassen Qeshm, Kish, Chabahar, Bandar Anzali, Arvand, Aras and Maku.
Erteilung der Investitionssgenehmigung in der Freizone
Investor, die ihr Kapital in Freizonen anlegen möchten, sollten ein Antragsformular und ein vom Sekretariat und Behörden der Zonen erstellter Fragebogen ausfüllen. Sie sollten die Formulare bei der Behörde in jeder Zone abgeben. Die eingegangenen Antragsformulare sollten von den Behörden in der Zone überprüft werden. Die Investitionsgenehmigung sollte von der Behörde jeder Zone ausgestellt werden.
Antrag ausländischer Investoren, der eine Angebotsgarantie erfordert (gemäß Artikel 21 der Gesetzesnovelle über die Verwaltung der Freihandelszonen der Islamischen Republik Iran) sollten von einem Ausschuss verwaltet und geplant werden, der sich aus Vertretern des Sekretariats des Obersten Rates der Freizonen (Leiter des Ausschusses), der Organisation für Investition, wirtschaftliche und technische Hilfe (Wirtschafts- und Finanzministerium) und der Management- und Planungsorganisation des Iran zusammensetzt. Auf Vorschlag des Ausschusses und Zustimmung der Mehrheit der Mitglieder des Obersten Rates der Freizonen, wird eine Investitionssgenehmigung für sie ausgestellt.
Die Empfänger der Investitionssgenehmigung sollten einen bestimmten Teil des Kapitals in die Zone einführen, zur Initialisierung des operativen Betriebs, wie in der Investitionssgenehmigung hervorgehoben. Wenn ausländisches Kapital dem ausländischen Staat gehört, wird es als privates Kapital betrachtet. Infolgedessen ist es nicht von staatlichen und diplomatischen Ausnahmen betroffen.
Die Vorteile der Investition in Freizonen
Einige der Vorteile einer Investition in Freizonen sind:
- Steuerbefreiung für 20 Jahre ab dem Datum des Betriebs für alle wirtschaftlichen Tätigkeiten
- Die Möglichkeit der Eintragung eines Unternehmens mit 100% ausländischem Eigentum in das Registergericht der Gesellschaft und das gewerbliche und geistige Eigentum der Freizonen
- Die Freiheit, Kapital und Gewinne zu importieren und abzugeben
- Einreise von Ausländern ohne Visum
- Beseitigung die Zahlung von Zöllen für die Einfuhr von außen in die region und umgekehrt
- Exportieren von Produkten ins Ausland ohne Entrichtung von Zollgebühren
- Freiheit der Einfuhr und Ausfuhr von Kapital und Einnahmen aus Wirtschaftstätigkeiten
- Einfache Formalitäten für die Wiederausfuhr und Durchfuhr von Waren
- Rechtsschutz für ausländische Investoren
Foreign Investment in Iran
Marjan Tehrani Legal & Contracts Advisor ForsatMC Law Firm
There are different types of legal procedures for entering capital to Iran in order to obtain foreign investment license. This may include three following paths:
a) Legal Participation (Direct Investment): is defined as a direct involvement of a foreign investor in the equity capital of a new or existing Iranian company. The right of foreign investor to run and control a company emanates from and is dependent upon his direct contribution in the equity capital of the concerned company. There is no restriction on the level of shareholding as well as percentage of shares belonging to foreign investors in Iranian companies.
All foreign investors are permitted to invest, for the purpose of development and manufacturing activities, in all areas of industry, mining, agriculture and service activities. There are no restrictions on foreign direct investment in Iran due to the percentage of participation and the amount of investment.
b) Contractual Arrangements: is defined as a set of mechanisms under which the utilization of foreign capital is solely based on agreements reached by the contracting parties. In other words, the rights of the foreign investor are not yielded with his direct participation in the capital of the recipient Iranian firm, but through the arrangements agreed upon under a contract. According to The Foreign Investment Promotion and Protection Act Contractual Arrangements are limited to “Buy Back”, “Build-Operate-Transfer” (BOT) and “civil participation”, however these Contractual Arrangements are divided into different types.
This type of investment may be carried out in all the sectors of economy. Under contractual arrangements, the return of capital and accrued profits have to be sourced only out of the economic performance of the investment project.
c) Establishing a Branch or Representative Offices: Foreign companies which are known as legal entity in their country of registration, may, subject to mutual action in their respective countries, be able to register their branch or representative offices in Iran, in accordance with the relevant law and regulation. (Article 1, Act on Registration of Branches or Representatives of Foreign Companies).
The fastest method of foreign investment in Iran is Foreign direct investment. In order to do that, foreign companies need to acquire a FIPPA license. Although getting this license is not compulsory foreign investors shall be granted the license if they tend to enjoy the privileges allowed by the Investment Protection Act.
The procedure for issuance of an investment license is short and simple. Upon submission of the official application for foreign investment addressed to Foreign Investment Organization, the application will be put in the agenda of the Foreign Investment Board for review within 15 working days, and subsequently a draft license will be communicated to the foreign investor for confirmation. After imparting the decision of the board to the foreign investor, the permit is signed by the minister of Economic Affairs and Finance. This stage would take a maximum period of 30 days.
After issuance of investment license, the foreign investor is required to bring an appropriate portion of his capital into the Country, within a period determined by the Investment Board, on the basis of the particularities of the investment project; otherwise the investment license shall be null and void.
Documents Required for the Issuance of Foreign Investment Licensing
- Application Form
- Establishment License / Primary agreement of the pertinent Iranian organization
- Official letter of the foreign investor to submit to the Organization for investment economic and technical assistance of Iran (OIETAI).
- The foreign investor’s background including a brief history of the company, the year of establishment, areas of activities, a photocopy of passport and resume shall be provided
- A list of machinery, equipment which may be imported into the country as a part of the foreign investor’s capital
- In case that part of the foreign investor’s share is in the form of technical know –how, a draft of the contract outlining the conditions of the transfer of technology
- Any further useful information.
Advantages of FIPPA
The most important advantages under FIPPA include:
- No restriction on the percentage of foreign shareholding
- The possibility of registering an Iranian company with 100% foreign capital
- Allowing investing in all areas which are permitted to the private sector
- Issuing a three-year residence Permit for Foreign Investors, directors, experts as well as their immediate family members
- Tax exemptions and discounts to be equally granted to domestic and foreign investors, according to the Direct Taxes Law
- No limitation on exportable profits and capitals
- Freedom of exportation of goods by Investee Company
Locality Requirement in Public Procurement Tenders
Iranian and European Approaches; a Bitter Contrast
Jalal Seyedabadi Legal & Contracts Advisor ForsatMC Law Firm
Procurements in different countries and regimes are not similar in terms of openness and the process of evaluation. Laws and regulations governing tenders in Public Procurement typically require procuring entities to set a range of requirements which the tenderers shall meet for award of the contract. The procuring entities usually take into consideration, inter alia, expertise of the tenderers, expertise of the assigned personnel, financial standing, project approach and project schedule.
In some cases the procuring entities require, among other factors, the requirement of locality, which means either that only interested economic operators in location of the procurement are allowed to take part in the tender, or that local tenderers are somehow prioritized over non-local competitors when they parallel in other factors. Popularity of locality naturally differs among various countries and industries.
What about Iran?
The recent sanctions against Iran have given rise to fluctuating conditions as regards foreign public procurement. Most recently, on May 5 2019, the Parliament of Iran enacted the “Law on the Maximum Use of the Country’s Production and Service Capacities and the Protection of Iranian Goods”, which follows, through several provisions, that the procurements shall be carried out only by Iranian entities (Article 5). In exceptional cases the procuring entities shall achieve relevant permissions in order for them to procure what they are in need of through foreign tenderers.
Regardless of the mentioned law, evaluation process of foreign tenders, to some extent requires a prioritization of Iranian tenderers over non-Iranian participants. Although “Tenders Law (2004)” does not account locality as a necessary factor in assessment of the proposals, companies and organizations vastly contemplate this requirement in the tenders. For Instance, Urban Development and Revitalization Organization of Iran, New Towns Development Corporate Holding Company and Iran & World Tourism Development Corporation frequently require locality in their Invitations to tender. Especially, procuring entities apply an overall coefficient of 0.9 to evaluation of foreign Tenderers, which signifies Article 15 of the “Executive Regulation on Qualitative Evaluation of Tenderers (2006)”. The situation was even discouraging for foreigners before 2004 when the repealed Regulation on “Referring the Works to Contractors (2002)” had provided for locality as a fixed item in evaluation of the tenders.
EU and Public Procurement
European Union procurement has been known to be one of the most favorable markets for tenderers. DIRECTIVE 2014/24 of 26 February 2014 on public procurement specifies detailed provision of public procurements for the member states and contracting authorities. The procedures involve equality of treatment among all participants (Articles 42,59,76.4 and 93) as well as transparency (36,58,76.4 and 93). Under this regime, the main concerns have been public interest as well as reciprocity in openness of public procurement.
As regards public interest, locality, by itself, is not a value in European procurements, so far as the offer is economically advantageous and the tenderers satisfy relevant standards, e.g., technical and environmental criteria (Articles 58,60 and 81 of above DIRECTIVE 2014/24). Put it differently, quality is so important that the Commission has held that even abnormally low tenders shall be rejected, under certain conditions.
Locality also matters when it comes to reciprocal treatment of other states towards European member states regarding openness of their procurement markets. Reciprocity might be considered to be the most important reason behind requiring locality under EU law. In this regard, the Commission and the Parliament of EU have put tremendous effort on promoting other states to join international agreements, especially GPA under WTO. This would pave the way for mutual cooperation between bidders form EU member states and third country bidders.
In light of the above-mentioned purposes the Commission issued the “Guidance on the Participation of Third Country Bidders in the EU Procurement Market” last week. The Guidance places a great emphasis upon five main subjects, including legal framework of the bidders, which demands a common ground in terms of international instruments. The Commission also has stressed the importance of rejecting abnormally low tenders as well as the significance of quality standards.
The consequences of using locality as a factor in tenders are not the same in different situations. While requiring locality for specific purposes may provide the public with more benefits in a competitive market, in a market with a limited number of regional tenderers, locality means nothing but corruption and discrimination, which inevitably opposes public interest. This is exactly how sanctions are destroying the infrastructures of Iran. The more Iranian government isolates the economy, as a natural result of the sanctions, the more it decreases the capacity of development in the future.
 See the Directives below, for further information:
- DIRECTIVE 2014/25/EU on Procurement by Entities Operating in the Water, Energy, Transport and Postal Services Sectors
- DIRECTIVE 2009/81/EC on the Coordination of Procedures for the Award of Certain Works Contracts, Supply Contracts and Service Contracts by Contracting Authorities or Entities in the Fields of Defence and Security
- DIRECTIVE 2014/55/EU on Electronic Invoicing in Public Procurement