Since U.S. and European Union sanctions on Iran are finally removed on 16 January 2016, Iran returned to the world’s markets and obtained the freedom to trade and cooperate with other countries and to increase its foreign trade volume. Moreover, Iran will reach its assets in the amount of 100 billions dollars held in international banks. The ease of sanctions and removal of parts of international restrictions will definitely cause an increase of foreign investors in Iran. It is clear that the foreign investors were waiting for this removal, so that they can invest in Iran in order to take a part in the Iranian markets. Consequently, the heavy investments and big improvements in Iranian business sector are expected.
Official Name: Islamic Republic of Iran
Population: 75.1 million (UN, 2010)
Area: 1.65 million sq km (636,313 sq miles)
Major Language: Persian
Major Religion: Islam
Country Code Top-level Domain: .ir
Dialling Code: +98
Islamic Republic of Iran with nearly 75 million inhabitants has been located in South-West Asia. The country neighbours with Turkey and Iraq in west, Afghanistan and Pakistan in East, Armenia, Azerbaijan, Russia, Kazakhstan and Turkmenistan in North and Kuwait, Saudi Arabia, Qatar, Bahrain, United Arab Emirates and Oman in South through Persian Gulf and Oman Sea.
Iran has a unique geographical situation as a junction point of the Middle East, Europe and Asia. Firstly, this unique location has resulted with many ethnic groups. Just over half of the population is of Persian origin; while a quarter is Turkish speaking Azeri. A large group of Kurds and smaller minorities of Lors, Arabs and Baluchis also exist in certain regions. Secondly, there is the capability of quick accessing to the neighbour markets besides of having a huge domestic market.
Iran is certainly a unique market in the Middle East. It is populous, rich in natural resources and apt to technological progress and international developments. There is an advanced infrastructure in the fields of telecommunication, energy and rail/road transportation. A four-season climatic endowment also privileges the agricultural activities throughout the country and throughout all seasons.
Iran’s economy is characterized by a large hydrocarbon sector, small-scale agriculture and services sectors, and a noticeable state presence in manufacturing and financial services. The country's natural resources create a significant wealth. Iran ranks second in the world in natural gas reserves and fourth in proven crude oil reserves. 1Moreover, Iran became the 18h largest economy in the world in terms of purchasing power parity.
Bilateral Investment Treaties (BIT`s) were signed with countries in order to promote and protect investments. These treaties reflect the potential to improve bilateral investment relations. Iran’s BITs in force are executed with the following countries:
“Afghanistan, Algeria, Armenia, Austria, Azerbaijan, Bahrain, Bangladesh, Belarus, Bosnia and Herzegovina, Bulgaria, China, Croatia, Cyprus, Ethiopia, Finland, France, Georgia, Germany, Greece, Indonesia, Italy, Kazakhstan, Democratic People’s Republic of Korea, Republic of Korea, Kuwait, Kyrgyzstan, Lebanon, Libya, The former Yugoslav Republic of Macedonia, Malaysia, Morocco, Oman, Pakistan, Poland, Qatar, Romania, Serbia, South Africa, Spain, Sudan, Sweden, Switzerland, Syrian Arab Republic, Tajikistan, Tunisia, Turkey, Turkmenistan, Ukraine, Uzbekistan, Bolivarian Republic of Venezuela, Yemen, Zimbabwe.”
Iran has also signed Agreement on Promotion and Protection of Investment among Member States of the Economic Cooperation Organization (2005). To add more, Iran is a contracting party of the investment related multilateral intergovernmental agreements such as MIGA Convention (1985) and New York Convention (1958).
Admission of Foreign Investment shall be made in accordance with the provision of the Foreign Investment Promotion and Protection Act (FIPPA). Pursuant to the Article 1 of FIPPA, Iran welcomes foreign investment in all areas of economic activity by foreign persons including real persons as well as legal entities.
This act provides the foreign investor to enjoy the same treatment as accorded to domestic investors and allows investing in all areas, which are permitted to the private sector. It also foresees some opportunities such as quick approval of the foreign investment application and issuing a three-year residence license for foreign investors, directors and experts as well as their immediate family members risks, protection against expropriation and nationalization and unlimited transfer of capital and dividend.
Pursuant to the article 2 of FIPPA, the foreign investment in Iran is based on following policies:
- Contribution to economic development;
- Financing projects, upgrading technological and management skills,
- Sharing benefits and risks on equal term without discrimination;
- Advantages in enhancing products and output quality, increasing employment and
Pursuant to Article 7 of FIPPA, the Center for Foreign Investment Services (FISC) was established by the OIETAI in 2002. The FISC is intended to provide all efficient services in order to facilitate and expedite the affairs related to foreign investments in Iran. After the establishment of the FISC, the investors have had the opportunity to easily reach all required information and services.
TYPES OF INVESTMENT
- Direct Investment
- Equity Participation in All Areas Open to Iranian Private Sector Without Any Limitation on the Percentages of Foreign Shareholding
- Investment through Contractual Arrangements
- Buy-back Arrangements
- Civil Partnership
- Built-Operate-Transfer (BOT) Schemes
PRELIMINARY PERMIT FOR THE FOREIGN INVESTMENT
In pursuit of choosing the project, the foreign investor shall obtain preliminary permit from the relevant Iranian organization/ministry considering the nature of the project. To illustrate, in case of a project for the construction of power stations, the foreign investor shall sign a contract with the Ministry of Energy and submit it to the Organization for Investment Economic and Technical Assistance of Iran (OIETAI).
FOREIGN INVESTMENT LICENSE
The foreign investors shall apply to OIETAI to obtain the investment license. Investment licensing procedure is demonstrated in the cart2 below:
ESTABLISMENT OF A COMPANY
Iran eased business start-up by installing a web portal allowing entrepreneurs to search for and reserve a unique company name. After the reservation of a unique company name, the company shall be registered at the Company’s Registration Office and the registration fees shall be paid. The company must submit all required documents to register with the Companies Registration Office. The registration procedure takes only 3 days.
The Iranian Commercial Code provides for the following types of business association: Joint stock company, Limited liability company, General partnership, Limited partnership, Mixed joint stock partnership, Proportional liability partnership, Production and consumption cooperative.
The Code specifies that a joint stock company must have minimum three shareholders and a limited liability company must have minimum two shareholders. There is no legal restriction on the percentage of foreign shareholding. It is possible to register a company with 100 percent belongs to foreign investor. However, the Iranian Government generally requires Iranian shareholder participation in fields of activity deemed important to the nation's development programs.
At time of formation of the company, a minimum share capital must be 1,000,000 Rials for the private company and 5,000,000 Rials for the public company. As a pre-requirement, the promoters must subscribe at least 20% of the shares of the company and deposit not less than 35% of the amount undertaken by them into an account opened in the name of the company.
According to 107 of the Commercial Code of Iran, a joint stock company is managed by a board of directors, appointed from among the shareholders, who are wholly or partly subject to removal. The number of directors of a public joint stock company must not less than five. Moreover, in parallel with article 111 of the commercial code of Iran, all company directors are required to obtain a criminal record clearance to register a new company. It is possible to obtain it in five days.
A notice of the company formation shall be published both in the Official Gazette and the general circulation newspaper designated by the founding shareholders. Besides, although the registration and publication requirements have been met, the legal existence of the company commences on the date the directors and inspectors accept their positions in writing.
The following charges and fees will be incurred in connection with the formation of the Company:
- Registration fee based on the capitalization of the company payable to the Companies Registration Office,
- Charges for publication in the Official Gazette of the notice of registration payable to the Official
- Gazette at current rates,
- Charges for publication in a general circulation newspaper at current rates,
- Stamp taxes on share
FOREIGN INVESTMENT IN STOCK EXCHANGE
The foreign investor, who is willing to make an indirect investment in the Iranian Stock Exchange, shall consider the Regulations Governing the Foreign Investment in the Exchanges and Over the Counter (OTC) Markets (hereinafter referred to as “the Regulations”) approved by the Council of Ministers in 2010.
According to Article 2 of the Regulations, following the receipt of the trading license, the foreign entities are authorized to trade in securities market or on the exchange or OTC market within the range indicated in the trading license. However, according to the Article 3, the foreign investors can invest in the exchange or in the OTC market in scope of the limitations of FIPPA provided that the Council does not restrict in certain cases.
In order to obtain the trading license, the foreign investors shall submit all required documents and information along with an application to the Securities and Exchange Organization. The Organization shall issue the trading license within seven business days. Pursuant to the Article 10 of the Regulation, by obtaining the trading license, the foreign investors will be authorized to open accounts in Rials and in foreign exchanges, transfer foreign currencies to Iran and convert them.
EMPLOYMENT OF FOREIGN NATIONALS
Pursuant to the Labor Law of the Islamic Republic of Iran, the foreign nationals should receive work and employment permits to work in Iran. The employers who hire foreign nationals without a valid work permit will be sentenced to prison or fine.
This work permit shall be issued by the Department General for Employment of Foreign Nationals of the Ministry of Cooperatives, Labor and Social Welfare upon a request by the Iranian employer. In accordance with the Labor Law, the Technical Board for Employment of Foreign Nationals has strict rules and regulations for issuance of work permits in order to reduce the unemployment rate of the educated and skilled job-seekers. However, FIPPA sets forth promising provisions for issuance of work permits for foreign investors, directors and experts in relation with the invest- ments under FIPPA.
The work permits of foreign nationals is issued, extended or renewed for one year. The issuance and renewal of work permits for foreign nationals costs 1,400,000 Rials and extension of permits costs 1,000,000 Rials.
There is also a unique advantage that the foreign investors employing those introduced by the affiliated units of the Ministry of Cooperatives, Labor and Social Welfare will enjoy growing discounts or exemption from paying part of the insurance duties in case their units are newly established, or there would be no reduction in their employment rate the year before.3
Foreign investors pay the same amount of taxes with domestic investors. Tax exemptions and discounts are also equally granted. This means that foreign investors in Iran benefit the same supports and privileges, which are offered to the Iranian investors.
Depending on the type of activity of the foreign investor, various taxes and exemptions are appli- cable such as follows:
- Foreign legal entities residing abroad shall pay the fixed corporate income tax at the flat rate of 25%.
- 80% Exemption of Income for 4 Years in Industry and Mining Activities 100% Exemption of Income for 20 Years in Less Developed Areas regarding Industry and Mining Activities
- 100% Exemption of Income for 20 Years in Free Zones (All Activities)
- 100% Exemption of Income for No limited Time in Agricultural Activities
- 50% Exemption of Income for No limited Time in Tourism Activities
- 100% Exemption of Income in Export of Services & Non-oil Goods during 5th Development Plan
- 100% Exemption of Income for No limited Time in Handicrafts Activities
- 100% Exemption of Income for No limited Time in Educational & Sport Services
- 100% Exemption of Income for No limited Time in Cultural Activities
INVESTMENT INCENTIVES IN THE ZONES
In Iran, there are two types of advantageous zones for investment: Trade-industrial free zones and Special economic zones. In these zones, the obligations of the investor are facilitated in respect of the custom, export-import, permits, procedures, rates and guarantees. The exemptions and deductions in this manner are the major incentives and provide easy circumstances for the investors.
Trade-Industrial Free Zones: Qeshm Trade-Industrial Free Zone, Chabahar Trade-Industrial Free Zone, Aras Trade-Industrial Free Zone, Anzali Trade-Industrial Free Zone, Arvand Trade-Industrial Free Zone, Kish Trade-Industrial Free Zone, Maku Trade-Industrial Free Zone
Special economic zones: Salafchegan special economic zone, Shiraz special economic zone, Assaluye special economic zone, Arge Jadid special economic zone, Payam Airport special economic zone, Persian Gulf special economic zone, Lorestan special economic zone, Amirabad port special economic zone, Bushehr Port special economic zone, Shahid Rajaee Port special economic zone, Sarakhs special economic zone, Sirjan special economic zone, Yazd special economic zone, Bushehr special economic zone.
Besides of Iran’s having a unique geographical situation and a large economy, its features such as market potential and proximity, labor privileges, developed infrastructure, law production costs, abundant natural resources, climatic characteristics and fiscal incentives, political stability and new investment legislation promote to start a business in Iran. Iran reached to meet necessary legislative changes by creating FIPPA and provided a more secure and appropriate environment for investors. More importantly, Iran draws attention of the foreign investors due to the removal of the sanctions. Following this removal, Iran will enter into the world’s markets and become active in international trade. To conclude, it is understandable that the numerous foreign investors seek to obtain a share in the reopened Iranian market.