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GUIDE TO IRANIAN MARKET

If I decide to invest in the Islamic Republic of Iran, what advantages or risks should be expected? What legal guarantees are there for protecting my capital and how will I be able to transfer my profits abroad? These and tens of other questions have boggled the minds of potential foreign investors during the years following the Islamic Revolution in Iran.
Below, we shall try to answer the fundamental questions concerning the existing criteria for foreign investment in Iran.

Are there specific laws concerning foreign investment in the Islamic Republic of Iran?
According to the Law Concerning the Attraction and Protection of Foreign Investment in Iran and the rules made thereunder, who is entitled to invest in Iran?
According to the said law, in what areas are foreign investments allowed?
What about the services sector?
In what forms can foreign capital be imported into Iran?
What legal protection is foreign capital entitled to?
Can foreign capital be covered by an insurance policy?
Is there no limit on the transfer of profits earned as a result of business activities of a foreign investor in Iran?
If the government happens to have limited foreign currency possibilities for this remittance, how will the problem be resolved?
What rate of foreign exchange will be applied to the transfer of the principal of foreign capital and the profit accrued from its investment in Iran?
In what foreign currency will the remittance of profits be expected?
Following approval, where are joint foreign-Iranian ventures registered?
What is the amount and limit of foreign investment in Iran?
Is there a ratio set for foreign-Iranian capital investments in the Free Trade-Industrial Zones?
What incentives and facilities have been foreseen regarding labor laws, social security regulations, etc.?
How are foreign investments protected against various risks?
Under what regulations is the remittance of foreign capital abroad possible from a Free Trade-Industrial Zone?
How are disputes between the foreign investor and his Iranian counterpart in the Zone, settled?

Are there specific laws concerning foreign investment in the Islamic Republic of Iran?

   Indeed there are. The Law Concerning Attraction and Protection of Foreign Investment in Iran, passed in November of 1955, and the rules for its execution ratified in 1956, are the governing guidelines in this respect. The law Pertaining to the Establishment of Free Trade-Industrial Zones in the Islamic Republic of Iran approved in 1993, and the Regulations Governing Capital Investment in the Free Trade-Industrial Zones in the Islamic Republic of Iran approved in 1994, have specified the manner in which foreigners can invest in Iran. The laws of Five-Year Economic, Social and Cultural Development Plans of the Islamic Republic of Iran, have also confirmed that foreign investors may invest in various economic sectors in partnership with Iranian nationals.  

According to the Law Concerning the Attraction and Protection of Foreign Investment in Iran and the rules made thereunder, who is entitled to invest in Iran?

   Only private individuals, companies and establishments of foreign origin are allowed to invest in Iran.

According to the said law, in what areas are foreign investments allowed?

   Foreign investment is allowed only in the fields of development and rehabilitation, and industrial, mineral and agricultural production, transportation and related activities. Financing institutions providing assistance to Iranian establishments, engaged in the aforementioned activities, are also entitled to the advantages issuing from the Law.
   Development and rehabilitation and productive activities mean activities which help raise the production level and income of the country, or, directly or indirectly earn foreign exchange, or cause economization on foreign exchange expenditures.

What about the services sector?

   Services performed independently of foreign investment activities do not fall under the framework of foreign investment laws, unless they are connected to one of the said fields.

In what forms can foreign capital be imported into Iran?

   In the form of foreign currencies, machinery, tools, spare parts, raw materials, land, air and sea means of transportation, patent rights, and wages and salaries paid to experts in foreign exchange. All net profits earned in Iran, added to the original capital or invested in other enterprises falling under the Law Concerning Attraction and Protection of Foreign Investment, shall be treated as foreign capital.

What legal protection is foreign capital entitled to?

   The government of the Islamic Republic of Iran extends its protection to all foreign capital imported into the country according to the Law Concerning Attraction and Protection of Foreign Investment, and the profits earned therefrom.
   Legal entitlements, exemptions and facilities for capital investment provided under different laws, including laws pertaining to taxation, will also be applicable to foreign investors. If foreign capital investments are expropriated as a result of any special legal enactment, the owner so deprived is entitled to a government guarantee of fair compensation for any resulting damages and losses.

Can foreign capital be covered by an insurance policy?

   Foreign investors may insure their capital imported into Iran. In the event of an accident, insurance companies will become successors to the capital investor, under the provisions of the relevant insurance policy. This successorship shall not be deemed as a transfer of capital.

Is there no limit on the transfer of profits earned as a result of business activities of a foreign investor in Iran?

   In principle, the transfer of the original capital and profits accrued from it in Iran meets with no legal limitations.
   The owner of foreign capital must keep at least 10 percent of his initial capital in Iran, for a period of six months from the date of transfer of the capital, as a security deposit to meet his contingent obligations. The foreign investor can transfer abroad the net profit derived from the investment of his capital in Iran after deducting taxes, dues and statutory reserve requirements in the same currency in which he originally imported the foreign capital.   

If the government happens to have limited foreign currency possibilities for this remittance, how will the problem be resolved?

   With regard to the principal of the capital, the foreign investor may transfer it abroad within a period not exceeding three months, unless the amount of the capital is such that its remittance might create foreign exchange difficulties. In this case, a longer period before it is transferred can be foreseen. In any case, the amount of the remittance in one year shall not be less than 30 percent of the total amount to be transferred. If the foreign exchange possibilities of the government do not allow for the transfer of all or a portion of the profits of a foreign investor, the party concerned will have the permission to export authorized goods without committing himself to returning the export-earned foreign exchange to Iran.  

What rate of foreign exchange will be applied to the transfer of the principal of foreign capital and the profit accrued from its investment in Iran?

   The foreign exchange rate applicable to the remittance of profits or the repatriation of capital, will be the selling rate set by the bank on the day of the transfer.

In what foreign currency will the remittance of profits be expected?

   The transfer shall take place in the same foreign currency imported into Iran, including the non-cash capital appraised as part of the total foreign capital investment.

Following approval, where are joint foreign-Iranian ventures registered?

   The articles of association of joint-venture companies are drafted in the form of one of the companies determined in the Commercial Code of Iran. Depending on their location, the joint ventures are registered in the Office for Registration of Companies, either in Tehran or in one of its branches elsewhere in the country.

What is the amount and limit of foreign investment in Iran?

   The Organization for Investment, Economic and Technical Assistance of Iran (OIETAI) which is charged with handling the foreign investment applications, sets the ratio for the foreign investor partnership with Iranian nationals on a case by case basis. In certain instances, it can even allow for foreign partners to be majority shareholders in joint ventures. Resolutions of OIETAI shall then be ratified by the Council of Ministers in form of a Decree.

Is there a ratio set for foreign-Iranian capital investments in the Free Trade-Industrial Zones?

   According to Article 5 of the Regulations Governing Capital Investments in the Free Trade-Industrial Zones, foreign investors may participate in the economic activities of these areas in any investment ratio they wish to. This is the most important fact concerning the facilities put at the disposal of foreign investors in the Free Trade-Industrial Zones.

What incentives and facilities have been foreseen regarding labor laws, social security regulations, etc.?

   Like Iranian nationals wishing to engage in economic activities in the Free Trade-Industrial Zones, foreign investors will also enjoy a tax holiday of 15 years from the date their business operation commences. Also, provisions regarding labor and social security regulations have become more flexible. In this context, the employer is allowed to lay off workers after payment of due compensation.

How are foreign investments protected against various risks?

   The legal rights of the foreign investors whose investment has been approved by the Council of Ministers shall be guaranteed and protected against possible risks arising from acts of expropriation and nationalization. The government is duly bound to make fair compensation for any damages suffered by the foreign investor in the Free Trade-Industrial Zones.

Under what regulations is the remittance of foreign capital abroad possible from a Free Trade-Industrial Zone?

   The initial foreign capital, the net profit and benefits accrued from investment activities, and sums arising from sales and transfers of such capital can be legally transferred from the Free Trade-Industrial Zones.

How are disputes between the foreign investor and his Iranian counterpart in the Zone, settled?

   Disputes between foreign investors and their Iranian counterparts are settled on the basis of written contracts and agreements concluded between the parties concerned.

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