I   R   A   N    C   H   A   M   B   E   R    O  F    C   O   M   M   E   R   C   E ,   I   N   D   U   S   T   R   I   E   S    &    M   I   N   E   S

Home | About ICCIM | Local Chambers | Publication | Members' Directory | Business contact | About Iran | Links | Contact Us

GUIDE TO IRANIAN MARKET

In February of 1988, the Iranian Parliament passed the Law of Direct Taxation. In April of 1992, it amended the said law mainly to harmonize it with the requirements of more recent economic policies. Foreigners interested in investing or working in the Islamic Republic of Iran, should be informed of the highlights of this legislation.

What are the various types of direct taxes?
Who is liable to pay taxes in Iran?
What type of tax facilities are provided to non-Iranians investing in Iran?
What are the most important tax exemptions?
How are corporate taxes calculated?
What is the situation of foreign companies operating in Iran, concerning taxes?
Are there any other flat rate taxes?
What type of tax incentives are there for investments and activities in the Free Trade-Industrial Zones in Iran?
Are there safeguards against being retaxed in the Law of Direct Taxation?
Are the activities of agents of foreign companies in Iran also taxable?
What regulations are taxes on salaries of foreigners working in Iran subject to?

What are the various types of direct taxes?

   According to the Law of Direct Taxation, there is, in principle, a direct tax on real property, undeveloped land, inheritance, income earned from agricultural activities, salary, professions, corporation, incidental income, and aggregate income acquired through various sources. However, depending on specific cases, exemptions and discounts are also available.  

Who is liable to pay taxes in Iran?

   1. Companies and all legal entities of Iranian nationality, with respect to all income earned in Iran or abroad.
   2. Every natural person of Iranian nationality residing in Iran, with respect to income earned in Iran or abroad.
   3. Every natural person of Iranian nationality residing abroad, with respect to all income earned in Iran.
   4. Any non-Iranian natural person or legal entity with respect to income earned in Iran, as well as incom gathered through the transfer of a license or right, provision of training and technical assistance, and royalties on movie films.

What type of tax facilities are provided to non-Iranians investing in Iran?

   According to Article 3 of the Law Concerning Attraction and Protection of Foreign Investment, all capital invested in Iran and the profits that accrue therefrom, shall be subject to government protection. All rights, tax exemptions, and facilities accorded to domestic capital and private productive enterprises, are also available to foreign capital and corporations. The foreigners may also enjoy the advantages and facilities provided in the agreements on double taxation avoidance concluded between Iran and their respective country.

What are the most important tax exemptions?

   Articles 132 to 146 of the Law of Direct Taxation specify the major tax exemptions as follows: Income earned by productive enterprise and mining units which have obtained an establishment license, or an identification card from the Ministry of Industry, Ministry of Mines and Metals or the Ministry of Jihad-e-Sazandegi (Construction Crusade), shall be exempt from taxation for a period of eight, six,or four years from the commencement date of their operation.
   If such units are developed in deprived regions of Iran, an equivalent of half of the aforementioned periods of tax exemptions shall be added to their legal period of tax exemption. In addition, 20 percent of taxable income earned from manufacturing, mining, engineering designing and assembly designing which have or will receive an operating license from the said ministries, are exempt from taxation.
According to Article 113 of the Third Five-Year Economic, Social and Cultural Development Plan, export of all goods and services shall be exempt from taxation.
   Income earned from all agricultural activities, farming, animal husbandry, fisheries and the like are also exempt from taxation.In addition to the above cases, exemptions and tax breaks have been outlined in the Law of Direct Taxation and other related legislations for some public utility institutions, as well as cultural, religious and scientific foundations and activities.

How are corporate taxes calculated?

   An initial 10 percent of the total taxable income of companies and other legal entities, earned from various sources in Iran or abroad, is deducted as a corporation tax, and the remainder is calculated on the basis of rates set by Article 131 of the Law of Direct Taxation. Non-commercial Iranian legal entities as well as companies whose shares are offered on the stock exchange market, shall be exempt from the 10 percent corporation tax. The rates set by Article 131 which begin at 12 percent of the annual taxable income and rise to 54 percent, are as follows:

What is the situation of foreign companies operating in Iran, concerning taxes?

   According to Article 105 of the Law of Direct Taxation, foreign legal entities must pay taxes on all taxable income earned through investments in Iran or from direct or indirect (through agents, branch offices, etc.(activities, assignment of their royalties
   or other rights, or by providing training and technical assistance in Iran, at the rates stated in Article 131.
Nevertheless, by virtue of Article 113, direct taxes on income earned by foreign airlines and shipping companies through transporting passengers and cargo from Iran, is a flat rate of five percent on all sums received from these activities in Iran, en route, or at the final destination. Where the tax applying to the income of the Iranian airlines and shipping companies in a foreign country exceeds five percent of the fare collected, the Ministry of Economic Affairs and Finance shall be required, upon notification by the Iranian entity concerned, to increase the tax rate applying to the income of the airline and shipping companies of the said country, to the amount of tax collected in that country.  

Are there any other flat rate taxes?

   Yes. In accordance with Article 111, the taxable income of foreign contractors in Iran, active in areas such as construction, technical installations, transportation, designing plans for buildings and installations, topographical surveying, drawing, supervision and technical calculations, is a flat rate of 12 percent of their annual receipts in all instances. With respect to contracting work performed by foreigners, when the employers are ministries, governmental organizations and companies or municipalities, the portion of the contract price utilized on the purchase of supplies and equipment received from abroad, is exempt from the payment of income tax.
   As stipulated by Article 107, the taxable income of foreign legal entities earned by the assignment of their royalties and other rights, provision of technical training and ceding of movie films (earned as price, screening rights, or otherwise), depending on the case, shall be from 20 to 90 percent of the total sum acquired by the entity within one fiscal year. The rate set for each case is determined according to the regulations approved by the Council of Ministers.
   When training and technical assistance is provided to governmental organizations, the scale of payment on the taxable income of the entity concerned may be set at lower than 20 percent. According to Article 109, foreign insurance companies which earn their profit through reinsurance may be subject to a tax at the rate of two percent of the premium collected and the interest accrued from their deposits in Iran.
In cases where Iranian insurance companies acting in the country of citizenship of the foreign reinsurance company, are exempt from payment of taxes on reinsurance activities, the foreign establishments shall also be exempted from payment of taxes to the Iranian government.

What type of tax incentives are there for investments and activities in the Free Trade-Industrial Zones in Iran?

   According to Article 13 of the Law Concerning the Manner of Administering the Free Trade-Industrial Zones 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 15 years, from the date of operation as stated in their license.

Are there safeguards against being retaxed in the Law of Direct Taxation?

   In order to prevent double taxation, the government of Iran has signed agreements with a number of states such as Germany and France. Also, under the rules of reciprocity, airlines and shipping companies of certain countries are exempt from taxation on income earned in Iran by carrying passengers and cargo.

Are the activities of agents of foreign companies in Iran also taxable?

   Branches and agencies of foreign companies which have been registered according to the relevant regulations in Iran, and by virtue of their aticles of association are not authorized to engage in profitable activities but can do marketing and collect economic information, are not liable to any taxation on the sums received from the mother company as a revolving fund. However, if it is proven that the said branches and agencies are engaged in profitable activities in Iran and are acquiring an income therefrom, the sums earned shall be subject to taxation according to the respective regulations.

What regulations are taxes on salaries of foreigners working in Iran subject to?

   In principle, issuance of a permit to leave Iran, or extension of a residence permit or work permit for expatriates, except for those who are exempt from the payment of taxes, shall be subject to the submission of a tax clearance certificate on salary received. The taxable income earned as salary, consists of the salary (wages, or the basic salary) and fringe benefits related to the job, be it temporary or permanent, after deducting exemptions determined by the law, the value of non-pecuniary benefits such as housing, private automobiles and the like, put at the disposal of salaried individuals, are calculated and added to the salary paid to them.

Home | About ICCIM | Local Chambers | Publication | Members' Directory | Business contact | About Iran | Links | Contact Us

Designed by Mehr Argham Rayaneh