Benefits of investing in Iran

Iran is a fundamentally attractive market. It is located in the heart of Western Asia, giving it access to regional markets in the Middle East and Central Asia, and also serves as a hub for trade between Europe and China.

With a population of about 85 million, Iran is the 18th most populous country in the world. In terms of gross domestic product (PPP), it has the 23rd largest economy in the world. More than half of GDP comes from the services sector, and the economy is diversified despite Iran having the world's largest combined oil and gas reserves.

Iranians are young - two-thirds of the population is under 40. They are also highly educated - Iran has the third-largest number of engineers per capita in the world.

There are 127 million mobile phone subscribers and 45 million smartphone users. Banking penetration is 94%, following two decades of rapid expansion of the financial sector, in which private banks play an increasingly important role.

Sanctions are a unique economic challenge facing Iran. But in the long term, there is reason for optimism, especially when comparing Iran with its similarly sized neighbors. The country boasts over $100 billion in foreign exchange reserves, nearly ten times more than Turkey and five times more than Pakistan.

Foreign Investment Protection

Foreign investment in Iran is regulated by the Foreign Investment Promotion and Protection Act (FIPPA) of 2002.

Moreover, based on the numerous bilateral investment treaties ratified by Iran, typical substantive and procedural protections have been offered, such as:

• Fair and Equitable Treatment (FET).
• Most Favoured Nation (MFN).

Investments through the FIPPA mechanism provide significant protection to foreign investors, and under FIPPA investments, there is no need for a contractual agreement to invest in the private sector. A FIPPA license can be obtained in no more than 45 days by submitting relevant information to the Organization for Investment, Economic and Technical Assistance of Iran (OIETAI) as the organization responsible for issuing the FIPPA license.

Foreign investors can either buy shares or bonds in an existing company or establish a new company in the form of a branch or subsidiary to conduct their business in Iran. Notably, a company in Iran can be wholly owned by foreign shareholders. Investment is allowed in all areas open to the Iranian private sector, with no restrictions on the percentage of shareholding by foreign investors.

In addition, regarding the dispute resolution system, it should be noted that there is access to international arbitration, generally in accordance with the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL). Since Iran is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, arbitral awards rendered outside the territory of Iran are enforceable in Iran. The Arbitration Center of the Iranian Chamber of Commerce, Industries, Mines and Tehran Regional Arbitration Center are the two main arbitration centers located in Iran.

Features and Benefits of the Foreign Investment Promotion and Protection Act (FIPPA)

• There is no limit on the share of foreign participation.
• Possibility of registering an Iranian company with 100% foreign capital.
• Transfer of capital stock, dividends and profits obtained from the use of capital in the form of foreign currency or goods.
• Enjoyment of the same and equal treatment as that provided to foreign investors by domestic investors.
• Possibility of investment by foreign individuals and legal entities, as well as Iranians living abroad.
• Permission to invest in all areas permitted to private sector.
• Provision of protective cover for various foreign investment schemes.
• Quick approval of foreign investment applications.
• Issue of five-year multiple entry visa and residence permit to foreign investors, directors, experts and their immediate family members.

Risks covered by FIPPA:

• Expropriation and nationalization.
• Unrestricted transfer of capital and dividends.
• Guarantee of purchase of goods and services from investment projects in BOT investment schemes where the government acts as the sole purchaser.

Tax exemption

Iran has a simple tax system with a flat rate of 25% on taxable income. For non-resident companies and registered branches, the taxable income is their income derived from Iran. In addition, a notable feature of Iran's tax system is that there is no discrimination between the taxation of domestic and foreign investors or the provision of tax incentives and rebates under the Direct Taxation Law (1987).

In addition, by making the right choice of location and type of business, foreign investors can benefit from various tax incentives and exemptions.

Agriculture

Income derived from all types of agricultural and horticultural activities, livestock farming, fish farming, beekeeping, poultry farming, crop farming, fisheries, sericulture, pasture restoration and forest restoration are exempt from tax. All individuals and legal entities (Iranian and foreign) can benefit from the above exemption.

Exemption from salary tax

Equally 50% of the salary tax of employees working in less developed regions, according to the list prepared by the Planning and Budget Organization, are exempt from paying tax. All individuals (Iranian and foreign) working in less developed regions can benefit from tax exemption.

Exemption from tax on sports, services and educational activities

Income earned from educational and professional activities by non-profit schools, whether primary, junior or senior secondary, technical or vocational, or non-profit universities and higher education institutions, as well as income earned from caring for mentally and physically disabled persons by an institution carrying out such activities, are exempt from tax, provided that the said institution has permission from the relevant authorities.

Income earned by sports institutions and clubs that have permission from physical education organizations is also exempt from tax if it is earned exclusively from sports activities.

Exemption from tax on cultural activities

All cultural, artistic and journalistic activities licensed by the Ministry of Islamic Culture and Guidance of Iran are tax-exempt. All individuals and legal entities (Iranian and foreign) can benefit from this exemption by complying with its provisions.

Cooperative Exemption

Up to 100% of the income earned from cooperative companies established by villagers, tribesmen, farmers, hunters, workers, employees and students is exempt from tax.

Export Tax Exemption

Equal to 100% of the income earned from the export of services, non-oil products, agricultural products, and 20% of the income earned from the export of unprocessed goods.

Equal to 100% of the income earned from the export of various goods that have been or will be imported to Iran in transit and are exported without making any changes to their content or performing any work on them is exempt from tax.

Exemption from tax on handicrafts

The income of handicraft and carpet weaving workshops, as well as relevant cooperative firms and production associations, is not subject to tax.

All individuals and legal entities can benefit from the above exemption by complying with the provisions.

Exemption from tax on production activities

In companies with more than 50 employees, if the number of employees increases to 50% compared to the previous year, one year of exemption will be added to the duration of the tax exemption period (specified in the above schedule).

In case foreign companies with a reliable brand produce goods using the production facilities of Iranian companies and export at least 20% of the total production, they can benefit from a tax rate of 50% on income received from the sale of products (this means that the general tax rate will be 12.5% instead of 25%) after the end of the above period.