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Country Commerce

Iran

Released March 2008 The Economist Intelligence Unit 111 West 57th Street New York NY10019 USA

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Iran 1

Country Commerce 2008 www.eiu.com © The Economist Intelligence Unit Limited 2008

Contents

3 Regulatory/market assessment

3 Regulatory/market watch

5 The operating environment Political conditions Market conditions Currency State role in the economy Foreign investment International agreements

17 Organising an investment Basic investment approval Acquisition of an existing firm Building and related permits Environmental law Acquisition of real estate Local-content requirements Business associations Establishing a local company Establishing a branch

22 Incentives Overview General incentives Industry-specific incentives Regional incentives Export incentives and zones

25 Licensing Overview Protection of intellectual property Registering property Negotiating a licence Administrative restrictions

29 Competition and price policies Overview Monopolies and market dominance Mergers Freedom to sell Resale-price maintenance Price controls

30 Exchanging and remitting funds Overview Repatriation of capital Profit remittances Loan inflows and repayment Remittance of royalties and fees Restrictions on trade-related payments

32 Corporate taxes Overview Corporate tax rates

Taxable income defined Depreciation Schedule for paying taxes Capital taxes Treatment of capital gains Taxes on dividends Taxes on interest Taxes on royalties and fees Double-tax treaties Intercompany charges Regional management companies Turnover, sales and excise taxes Other taxes

37 Personal taxes Overview Residence Determination of taxable income Personal tax rates Capital taxes

39 Capital sources Overview Short-term capital Medium- and long-term capital

41 Human resources Overview Labour law Industrial labour Wages and fringe benefits Working hours Part-time and temporary help Termination of employment Employment of foreigners

46 Foreign trade Overview Tariffs and import taxes Import restrictions Taxes on exports Free ports, zones Export restrictions Export insurance and credit

51 E-commerce Forms of e-commerce Growth of e-commerce Foreign investment Intellectual property Consumer protection Contract law and dispute resolution Basis of taxation Classification of e-commerce transactions Compliance and enforcement issues

2 Iran


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Rosemary Didomizio

Amy Ha

Ali Kabir

Tom Ehrbar Managing editor, Country Commerce

Rachel Makabi

Conrad von Igel

Debarati Ghosh Managing editor, Country Finance

Iran 3


Regulatory/market assessment

• Emboldened by electoral victories in 2006 elections for the Assembly of Experts and city councils, the reformists and centrist conservatives decided to participate in the parliamentary elections of 2008 in a broad coalition. However, the government disqualified many of the candidates. As of March 19th 2008, with most votes counted, conservatives had won more than 70% of the seats in Iran�s 290-member parliament. 6

• In December 2007 a report by the US national intelligence estimate (NIE) concluded that Iran had stopped its nuclear-weapons programme in 2003. Although the latest US NIE report diminishes the possibility of a military confrontation between the United States and Iran in the short run, it does little to curb tensions between the two countries over Iran�s insistence on developing a full nuclear fuel cycle in the long run. 7

• The Economist Intelligence Unit estimates that real GDP growth increased to 5.4% in fiscal year 2007/08 (ending March 20th), from 4.3% in 2006/07. This growth is the result of buoyant oil receipts reflecting exceptionally high oil prices, which in turn fuelled the government�s expansionary fiscal policy. 9

• In March 2008, the UN Security Council passed a third round of economic sanctions on Iran, with a 14-0 majority. The sanctions target Iranian banks and call for further inspections of Iranian cargoes. They do not focus on Iran�s oil-and-gas sector and leave open the possibility for further negotiations in the future. 16

• The Majlis approved the Registration of Industrial Designs and Trademarks Bill in 2008 for a probationary period of five years. This bill revamps the Law of Registration of Marks and Patents of 1931 to comply with Iranian treaty obligations under the Paris Convention and Madrid Agreement. 26

• German firms have continued to play a major role as suppliers of capital goods, although imports from other European countries have declined. The value of imports from Asia, especially from China, increased markedly in 2006/07. Japan was Iran�s largest export market in 2006, followed by China. Iran has made strenuous efforts to diversify its oil markets, with particular success in Asia and South Africa. 46

Regulatory/market watch

• The Economist Intelligence Unit expects Iran�s real GDP to grow only modestly in fiscal year 2008/09, by 4.3%. Since oil prices will remain very high, however, oil revenue will stay strong, resulting in firm levels of public spending in 2008. We estimate that inflation will average 19% in 2007/08, up from 17% in 2006/07. 9

• The Iranian government announced in February 2008 that 15m Iranians would be eligible to receive �justice shares� in 2008/09. The distribution of justice shares to 25m low-income people is an integral part of the government�s privatisation plan, which calls for privatising 80% of state-owned companies. The government said 4.6m had received justice shares as at 2006. 12

• Oil companies Repsol of Spain and Royal Dutch Shell (Netherlands/UK) have until June 2008 to work out a final decision on a proposed joint venture with the National Iranian Oil Company (NIOC). The two companies signed a framework agreement with NIOC in 2004. Under the proposed deal, Shell and Repsol would each take a 50% share of the venture on a �buyback� basis. 18

• The government will implement a law to establish a value-added tax, at 7%, by September 2008; it initially proposed the bill in 2005. The Majlis debated the bill during August 2006 and approved it in September 2007, for an 18-month probationary period. 37

4 Iran


IR:¥1 IR:€1

Fundamental indicators: exchange rates against chief trading partners

Source: Oanda Corporation (end-month).

Note. Scales are inverted so that an upward-sloping line always indicates a strengthening rial.

IR:R1 (South African rand)IR:Rmb1

IR:Dh1 (United Arab Emirates dirham) IR:W1 (South Korean Won)

94

90

86

82

78

74

FebJan08

DecNovOctSepAugJulJunMayAprMarFeb2007

14,400

14,000

13,600

13,200

12,800

12,400

FebJan08


1,345

1,320

1,295

1,270

1,245

1,220

FebJan08


1,490

1,440

1,390

1,340

1,290

1,240

FebJan08


2,635

2,620

2,605

2,590

2,575

2,560

FebJan08


10.50

10.40

10.30

10.20

10.10

10.00

FebJan08


Iran 5


Key commercial indicators Investing: foreign-investment indicators Level of foreign direct investment (FDI), 2006a US$900m FDI as a percent of GDP 2006a 0.40% Sectors with highest foreign investment, 2006/07b industrial sector, utilities, real property

Licensing: intellectual-property indicators Protection of intellectual propertya very poor Patent applications filed by residents, 2002c 691

Patent applications filed by non-residents, 2002c 0Trading: crossborder indicators Value of world merchandise exports, 2005d US$73.7bn Share of world merchandise exports, 2005d 0.60% Value of world merchandise imports, 2006d US$35.9bn

Share of world merchandise imports, 2006d 0.40% Exports as a percent of GDP, 2006a 28.1%

Imports as a percent of GDP, 2006a 23.0% Mean tariff rate for all goods, 2004c 17.5%

Tariff nomenclature Harmonised SystemE-commerce indicators Personal computers per 1,000 persons, 2005c 109

Internet users per 1,000 persons, 2005c 103

Sources: (a) Economist Intelligence Unit, Country Forecast Iran, February 2008. (b) Organisation for Investment, Economic and Technical Assistance of Iran (OIETAI). (c) World Bank, World

Development Indicators, 2007. (d) World Trade Organisation, International Trade Statistics 2007. (e) World Customs Organisation.

The operating environment

Since the 1979 Islamic Revolution that dethroned the shah, Iran has operated under a dual power structure, with a supreme religious leader (the vali-e faqih, also known as the rahbar), who serves an indefinite term, and a president, who serves a fixed four-year term. The rahbar has more political influence than the president. Ayatollah Seyyed Ali Khamenei came to power in 1989 as the rahbar after the death of Ayatollah Ruhollah Khomeini, the founder of the Islamic Republic of Iran. Mahmoud Ahmadinejad, the little-known, former conservative mayor of Tehran, was elected president for a four-year term in June 2005.

The Majlis-e-Shuray-e Islami (Islamic Consultative Assembly or parliament) consists of 290 members and is elected by universal suffrage. Although mainly responsible for ratifying legislation, the Majlis can also propose bills and enjoys considerable political independence, largely because the executive cannot dissolve it.

Three other constitutional bodies exercise considerable power alongside the Majlis: the Guardian Council, the Expediency Council and the Assembly of Experts. The Guardian Council, comprising six Islamic clerics and six lay jurists, has in effect become an upper house of parliament. The council can vet all legislation passed by the Majlis and veto any laws that it judges do not comply with Islamic law or Iran�s constitution. Its influence was most apparent in 2004 and 2005 when it ratified legislation giving the Majlis retroactive veto power over two major foreign investment contracts, those of Turkcell (Turkey) and Tepe-Akfen-Vie (a joint Austrian-Turkish consortium).

Political conditions

6 Iran


The Guardian Council also scrutinises candidates who are running for national office; it can reject those it considers unqualified or of unsuitable character and does not give disqualified candidates any right to appeal its decisions. This power gives the conservatives enormous influence in national elections and was a decisive factor for conservative victories in the 2004 Majlis elections, the 2005 presidential elections that put Mr Ahmadinejad in power, and the 2006 elections of the Assembly of Experts. The Ministry of the Interior also has significant political power, including the initial vetting of candidates. With this authority, it disqualified reformist candidates for most seats in the March 14th 2008 parliamentary elections. Indeed, officials announced in late January 2008 that 2,400 out of 7,200 aspiring candidates for 290 parliamentary seats had been judged unsuitable by either the ministry or the Guardian Council. As of March 19th 2008, with most votes counted, conservatives had won more than 70% of the 290 parliamentary seats.

The Expediency Council mediates disputes between the Guardian Council and the Majlis. It tended to favour the Guardian Council during the reformist era (1997�2005), when the Majlis and Guardian Council frequently clashed over legislation. However, the present conservative-dominated seventh Majlis has been more compliant, giving the Expediency Council an opportunity to exercise more direct oversight on the government. For example, on orders from the rahbar, the Expediency Council took charge of monitoring the Twenty-Year Outlook, a developmental blueprint that Mr Ahmadinejad had been reluctant to press forward.

The Assembly of Experts is an elected all-clerical body whose primary task is selecting the supreme leader. In theory, the assembly can dismiss the supreme leader if he fails to meet specific criteria or cannot execute his duties satisfactorily.

Iran�s domestic politics have evolved since 1989 into an increasingly bitter power struggle between conservatives who prefer the present semi-democratic form of government and reformists who have sought to democratise the system within the regime. During 1989�97, former president Ali Akbar Hashemi Rafsanjani sought to implement a programme of gradual economic and political reform, but his more conservative rivals frequently blocked his policies. However, the fifth Majlis election in 1996 removed the conservatives� absolute majority in parliament; an avowedly reformist candidate, Mohammad Khatami, then shocked the conservative establishment in 1997 by winning a landslide presidential victory. Mr Khatami�s supporters also defeated conservatives in the Majlis elections in February and May 2000, gaining majority control of the sixth Majlis.

However, the conservatives swept to victory in the February 2004 elections for the seventh Majlis. There was extremely low voter turnout, attributable to widespread disappointment within the Iranian electorate over the failure of former President Khatami and his allies in the Majlis to implement their reformist agenda, and over the Guardian Council�s veto of more than 2,000 reform-minded candidates. Many voters boycotted the election altogether. Abadgaran Iran-e Islami (Developers of an Islamic Iran), a conservative bloc,

The economy at a glance

% of estimated 2007 GDP

Agriculture 10.7

Industry42.9

Services46.4

Iran 7


won about 195 seats; the reformist representation fell to about 50 seats, from about 200 in the previous parliament.

The election ended the reform efforts of Mr Khatami and his allies. The conservative-dominated seventh Majlis has rejected the economically liberal elements of the 2005�09 five-year plan (passed by the outgoing reformist-dominated sixth Majlis) that had sought to cut state subsidies, reduce state dominance of the economy and encourage foreign investment.

Mr Ahmadinejad�s victory in the June 2005 presidential elections marked the culmination of the conservative campaign to regain control of the executive position. He defeated the candidates of reformist parties and centrist conservatives in the first round of elections, and he won against the favourite to win the poll, former President Rafsanjani. Mr Ahmadinejad�s success surprised almost all Iran observers.

But the conservative sweep of Iran�s executive and legislative branches has not translated into a smooth ride for Mr Ahmadinejad. Differences within the conservative camp that remained in the background during the campaigns against the reformists have now come to the forefront. Conservatives have criticised Mr Ahmadinejad for his record of economic mismanagement, particularly his public spending. He has also been criticised for failing to deliver on his populist promises to combat corruption and redistribute income. An alliance of reformists and centrist conservatives came together to defeat Mr Ahmadinejad�s allies in the December 2006 elections for the Assembly of Experts and city councils. Emboldened by these electoral victories, the reformists and centrist conservatives decided to participate in the parliamentary elections of March 2008 in a broad coalition, though they ultimately lost the election. Mr Khatami and Mr Rafsanjani, both former presidents, spearheaded efforts to create the coalition and warned the government and the Guardian Council against disqualifying reformist and centrist candidates; the former presidents subsequently lobbied Mr Khamenei, the current rahbar, to rein in the Council of Guardians. Nevertheless, officials announced in late January 2008 that 2,400 out of 7,200 aspiring candidates for 290 parliamentary seats had been judged unsuitable by either the ministry or the Guardian Council. As of March 19th 2008, with most votes counted, conservatives had won more than 70% of the 290 parliamentary seats.

In foreign policy, both reformists and conservatives have severely criticised the president for his unnecessary antagonism towards the United States. Critics say his foreign policy led to the imposition of UN sanctions against Iran in December 2006 and March 2007, a threat of military confrontation with the US and a deterioration of relations with Europe. Mr Ahmadinejad won an important policy battle against other conservative factions within the government in October 2007, when he succeeded in replacing Ali Larijani with Saeed Jalili, a conservative career diplomat and his confidante, as secretary of the Supreme National Security Council. He then portrayed the release of the December 2007 US national intelligence estimate (NIE), which concluded that Iran had stopped its nuclear weapons programme in 2003, as a foreign policy victory. Although the latest US NIE report diminishes the possibility of a military confrontation between the US and Iran in the short run, it does little to

8 Iran


curb tensions between Iran and the US over Iran�s insistence on developing a full nuclear fuel cycle over the long term.

The rule of law in Iran is inconsistent and unsatisfactory. Recourse to the courts is unwieldy, often counterproductive and rarely leads to a swift resolution of outstanding disputes. Although there have been steps towards international arbitration, such as Iran�s accession to the New York Convention in October 2001, Iranian law now regulates all projects involving the government. Contract negotiations are often lengthy, prolonged by the exhaustive details that state agencies demand and by the slow workings of the bureaucracy, which often require approval from many higher officials before a legal agreement can be concluded. Moreover, foreign firms negotiating with state agencies have complained of last-minute�and even retroactive�changes to contracts and business regulations, even after work has commenced. It is common in the private sector, too, for Iranian parties to seek to renegotiate contracts after they have been signed.

Iranian civil law governs contract disputes. Few foreign firms have had satisfactory experiences bringing contract disputes before the courts. The judicial system is opaque and very slow, and both public and private Iranian parties are adept at employing effective delaying tactics, substantially increasing the time and financial cost of legal action. Foreign companies considering legal action also face the threat of commercial or political pressure to reach an out-of-court settlement. Such pressure might take the form of a threat to blacklist the company involved from future tenders, to launch counter-proceedings in the parallel �revolutionary� court system that deals with political or security-related matters, or even to take action on unrelated issues such as immigration or tax questions against individuals in Iran employed by the company.

Many Iranian commercial entities, such as the bonyad (charitable Islamic institutions that control large business conglomerates), also enjoy substantial political influence and often appear to operate with impunity. It is usually necessary to have contracts with such parties, but written agreements offer little protection for the contracting party. Foreign companies often find that engaging an influential and experienced local business partner who also enjoys substantial political patronage is the most effective form of protection.

For more information and analysis on political conditions in Iran, see the Economist Intelligence Unit�s Country Report Iran.

The structure and health of the Iranian economy depends on its oil industry. A crude-oil producer since the first decade of the 20th century, Iran�s economy has had periods of boom and bust as oil prices have risen and fallen on the volatile international markets. As the sole recipient of crude-oil revenue, the state is the dominant economic actor. Over-ambitious development plans following the price explosion of 1973 concentrated yet more power in the public sector; compounding the process was the nationalisation of many large firms in the aftermath of the 1979 revolution and restructuring for the war effort in the 1980s, triggered by Iraqi forces� invasion of Iran for the strategically important Shatt al-Arab waterway.

Market conditions

Iran 9


Iran has experienced sustained economic growth since fiscal year 2000/01 (ending March 20th). The upturn has been the result of policy changes and conditions that included the decrease of Iran�s debt-service obligations, reform of the foreign-exchange regime (a single, controlled exchange rate was established in 2002), a pick-up in agriculture since 2001 and strong performance of the oil sector. The high revenue from the oil sector since late 1999 has supported additional government consumption and an increase in public capital spending.

The Economist Intelligence Unit estimates that real GDP growth increased to 5.4% in 2007/08 from 4.3% in 2006/07. This growth is the result of buoyant oil receipts due to exceptionally high oil prices, which in turn fuelled the government�s expansionary fiscal policy. This continued to contribute to high levels of private consumption and investment. We expect the lack of refining capacity to hold back oil export revenue, resulting in a lower forecast of 4.3% for real GDP growth in 2008/09. Constraints on oil output and exports in 2009/10 will contribute to an easing of real GDP growth to a projected 3.8%.

The broad thrust of economic liberalisation was set to continue under the fourth five-year plan (2005�09) that the reformist-dominated sixth Majlis passed on May 2nd 2004. In mid-August 2004, however, the conservative-dominated seventh Majlis scrapped many of the major articles of liberalisation in the plan that sought to promote privatisation of state-owned enterprises, reduce state subsidies for foodstuffs and petrol, and encourage foreign investment. The seventh Majlis wants to prevent foreign domination and to increase government intervention in the Iranian economy.

President Mahmoud Ahmadinejad shares the belligerent stance of the Majlis on privatisation and foreign investment; the president associates privatisation with the corruption and inequality of the Rafsanjani presidency (1989�97). Islamic foundations, which own large swathes of the non-oil economy, and the bazaari (the traditional merchant class) will also continue to resist economic liberalisation. Both the foundations and the bazaari are well connected in conservative clerical circles.

The average inflation rate was 17% in 2006/07, up from 11% in 2005/06. Higher inflation in 2006/07 is the result of the expansive fiscal policy of the government, liquidity pressures and low real interest rates. The Economist Intelligence Unit estimates that inflation averaged 19% in 2007/08, based on reports of sharp rises in the prices of essential goods and services as a result of government spending, high liquidity levels and growing import costs. The rate of annual price increases is expected to decrease slightly, to 17% in 2008/09 as government spending increases at slower pace. Limited monetary policy tools make it difficult for the central bank to combat inflation, leaving it largely dependent on arguing the case for curbing growth in government spending.

For more information on market conditions, see the Economist Intelligence Unit�s Country Forecast Iran.

10 Iran


Fundamental indicators: production and consumption % growth

2006 actual 2007 estimate 2008 forecastGDP 5.8 5.4 5.2Private consumption 6.2 7.0 5.0Government consumption 7.4 8.0 5.0

Source: Economist Intelligence Unit, Country Forecast Iran, February 2008.

The Iranian unit of currency is the rial, but in conversation Iranians refer to tomans (IR10=1 toman). Since the government owns oil export earnings and has large reserves, it can influence the value of the rial and manage the supply of foreign exchange in the market. The state-owned banks dominate the interbank market (which determines the rial�s daily US dollar value), and the government can manage demand because the central bank supervises the letters of credit and authorisations required for current-account and capital-account outflows.

Bank Markazi (the central bank) abolished the multi-tiered exchange-rate regime and established a closely controlled single rate from the start of fiscal year 2002. Though the US has a trade embargo against Iran, Bank Markazi still prices the rial against the US dollar since Iran�s main export, oil, is traded in US dollars. The rial has been allowed to depreciate gradually against the dollar since then, in order to promote non-oil exports and to counter the rapid growth of imports.

The rial depreciated from IR9,223:US$1 at end-2006 to IR9,592:US$1 at end-2007. The exchange rate averaged IR9,407:US$1 in fiscal year 2007/08 (ending March 20th). The Economist Intelligence Unit forecasts the rial to average IR9,880:US$1 in 2008/09.

Against the currencies of countries with which Iran has higher levels of trade, the rial also depreciated heavily against the euro and the Chinese renminbi over the last year. It stood at IR14,276:�1 at end-February 2008, compared with IR12,697: �1 at end-February 2007; it was at IR1,328:Rmb1 at end-February 2008, compared with 1,243:Rmb1 a year earlier.

The 1979 revolution transformed Iran from a pro-Western constitutional monarchy to an Islamic, populist republic. During the revolution, the Revolutionary Council passed a number of major economic measures that transferred considerable private-sector assets to the state. The council nationalised banks, insurance companies, major industries and certain categories of urban land; it expropriated the wealth of leading business and industrial families; and it appointed state managers to oversee many private industries and companies. However, the government has granted operating licences to several private Iranian firms to establish insurance operations. Although the previous Majlis prepared legislation to allow foreign insurance companies to operate in Iran, no such legislation had passed as at February 2008, and it is unlikely that any such legislation will be proposed in the near future.

Iran�s proven oil reserves are estimated at more than 125bn barrels, roughly 10% of the world�s total. Oil exports have accounted for an average of 82% of total export earnings, 40�50% of the government budget and 10�26% of gross

Currency

State role in the economy

Iran 11


domestic product in recent years, making the oil industry the most important and politically sensitive sector of the Iranian economy. Iran�s oil industry, nationalised in 1951, has been almost totally state owned and operated since the 1979 revolution. Although the constitution prohibits granting petroleum rights on a concessionary basis or direct equity stake, the 1987 Petroleum Law permits the establishment of contracts between the Ministry of Petroleum, state companies, and �local and foreign national persons and legal entities�.

The National Iranian Oil Company (NIOC) often enters into �buyback� contracts with foreign contractors, in which foreign companies develop fields to the point of production, then hand them over to the Iranian authorities. The foreign company is then paid out of the proceeds of the sales from the field�s output. Iran introduced measures at the beginning of 2007 granting greater flexibility, including longer terms, and some contracts have recently been signed on this basis. International oil companies (IOCs) have been frustrated by the fact that they are not permitted to exploit new finds, an issue that Iran has attempted to resolve by offering firms the chance to "supervise" work in the post-exploration phase. But it seems unlikely that these revisions would significantly alter the concerns of prospective partners, not least because IOCs are preoccupied with the risk that their investments may be jeopardised by the future introduction of economic sanctions or that they may simply fail to make the planned investments as a result of US pressure.

Populist conservatives had long complained about corruption in the NIOC and the petroleum ministry, and Mahmoud Ahmadinejad pledged during his 2005 election campaign for the presidency that he would wipe out corruption in the oil industry and bring oil revenues to the people�both of which he has failed to do. In addition, the oil industry was hurt by a lack of foreign investment as a result of pressure by the US against countries that deal with Iran. Mr Ahmadinejad initially had to pick an oil-industry insider who opposed many of his policies, Kazem Vaziri Hamaneh, for the position of petroleum minister, after the Majlis rejected several of his nominees for the position. This changed in August 2007, when Mr Ahmadinejad successfully replaced Mr Hamaneh, with whom he often clashed, with Gholamhossein Nozari. Though Mr Nozari, who is head of the NIOC, is a major oil-industry insider, he supports many of the president�s policies. Nevertheless, Mr Ahmadinejad has been criticised for picking an industry insider for the position.

In November 2006 the oil ministry submitted a bill proposing that the NIOC act as the holding company managing four subsidiaries that would deal with oil and gas reserves, oil and gas refining, transmission and distribution, and petrochemical industries. The oil ministry and the NIOC would set overall oil policy, and the four subsidiaries would handle operations, with the managing directors of each of the four subsidiaries acting as a deputy to the oil minister. Legislation was drafted to implement this restructuring, but a number of Majlis deputies, including Kamal Daneshvar, the chairman of the Energy Committee, have argued that it would be better to set up a single management division rather than four separate subsidiaries. As at March 2008 the bill had not yet passed.

12 Iran


Though the private sector, including international investors, made some headway into the market during the Rafsanjani (1989�97) and Khatami (1997�2005) administrations, major sectors (such as oil and gas, transport, telecommunications, industry, and banking and finance) remain overwhelmingly under the purview of the state and its entities. The state directly owns well over 500 companies, and there are another 1,000 or so semi-public companies. State-affiliated bonyad (politically and economically powerful Islamic �charities� that were charged with running a range of assets nationalised after the revolution) and the Islamic Revolutionary Guards Corps (a paramilitary force responsible for defending the Iranian Revolution) often control many industries with little transparency or accountability. These quasi-public bodies have established themselves as business conglomerates and dominate much of the non-oil economy. The Khatami government had only limited success in weakening their position�for example, the government made the bonyad liable for tax. These entities proved too well entrenched and connected, which made significant change impossible. The administration of Mr Ahmadinejad has shown no interest in challenging the position of these state institutions in the economy; indeed, it has funnelled large government contracts to the Islamic Revolutionary Guards Corps.

The previous reformist-dominated sixth Majlis sought to reduce the state role in the economy by encouraging foreign investment. But the present conservative-dominated seventh Majlis rejects this policy. During 2004 and 2005, it blocked two high-profile foreign investment projects: by Turkcell (Turkey), in Iran�s telecommunications sector, and by Tepe-Akfen-Vie (Austria/Turkey), in Tehran�s new Imam Khomeini International Airport. In mid-August 2004 the Majlis rejected major articles of the five-year economic plan of 2005�09 that would have permitted the privatisation of state-owned banks and the operation of foreign banks in Iran.

In July 2006 the supreme leader, Ayatollah Ali Khamenei, announced a programme to privatise 80% of several state-owned companies. An integral part of the privatisation is the distribution of �justice shares� to 25m low-income people. However, the programme excludes the oil and gas industry, major banks, the Civil Aviation Organisation, and the Ports and Shipping Organisation. Although Mr Ahmadinejad�s government largely ignored criticism by the parliament in early 2007 for its lack of progress on the privatisation programme, the government grudgingly agreed to an incremental plan to privatise 20% of the targeted public enterprises after pressure from the secretary of the Expediency Council. By December 2006 the government claimed it had dispensed US$2.5bn in justice shares to 4.6m eligible persons. The government announced in February 2008 that 15m Iranians would be eligible for justice shares in fiscal year 2008/09 (ending March 20th).

The president�s economic policies, ostensibly to promote social welfare and income redistribution, have further entrenched the state role in the economy. The 2007/08 budget promoted a spending increase of more than 18% from the previous year�s budget, with a 30% increase in �development spending� and a substantial increase in the budget for conservative-dominated organisations such as the Guardian Council and the Islamic Republic of Iran Broadcasting. In

Iran 13


February 2008 the government allocated US$3bn in subsidies for petrol imports in 2008/09.

Although Iran has some of the world�s largest oil reserves, it needs to import petrol; three major factors hamper its oil industry: (1) US pressure against foreign countries that want to help develop Iran�s reserves; (2) highly subsidised fuel prices in Iran, which leads many to smuggle fuel out of the country and in turn caused the government to start rationing fuel in June 2007; and (3) low refining capacity�Iran consumes 75m litres a day of petrol but refines only 45m litres a day.

For years, the Majlis has pushed for reforms to remove the government�s dependence on oil revenue. To reach this goal, the Majlis has called on the Ahmadinejad administration to implement the Fourth Development Plan and the 26-Year Outlook, both of which call for reducing oil revenues as a source for government spending. But Mr Ahmadinejad�s 2008/09 budget, which he presented to the Majlis in January 2008, attempts to sidestep both of these plans by under-pricing oil in the budget. Although Mr Ahmadinejad�s budget increases the nominal projected price of oil from US$33.70 per barrel in 2007/08 to US$39.70 per barrel for 2008/09, most analysts, including the Economist Intelligence Unit, project Iranian oil to average US$74�78 per barrel in 2008 and 2009�double the Iranian government�s forecasts. In effect, by projecting much lower oil prices in the budget, the Ahmadinejad administration in effect reduces the share of oil as revenue in the budget. But in the last quarter of the fiscal year, when it becomes clear that prices are actually much higher than the initial projections, the government can then come to parliament with supplemental bills and request to use the additional oil revenue for spending. The Majlis approved Mr Ahmadinejad�s 2008/09 budget in February 2008.

Major state-owned enterprises Company Sector State ownership (%)National Iranian Oil Company Oil and gas 100

Mostazafan & Janbazan Foundation Civil development and housing, agriculture, transport, commerce, tourism,

industry and mines 100

Bank Melli Banking 100Bimeh Iran Insurance 100

Telecommunications Company of Iran Telecommunications 100

Source: Iranian government.

The Economist Intelligence Unit estimates that inward direct investment in Iran decreased from US$900m in 2006 to US$700m in 2007. The conservative-dominated seventh Majlis (parliament), elected in February 2004, has taken a hostile stance concerning foreign investment. Conservatives have objected to giving banking, telecommunications, transport and border-control responsibilities to foreign firms.

The Majlis blocked two major foreign-investment deals in 2004 and 2005. In May 2004 Iran�s armed forces shut down Tehran�s US$350m Imam Khomeini International Airport (IKIA), built and operated by a Turkish-Austrian consortium, Tepe-Akfen-Vie (TAV), on its opening day. Turkcell (Turkey�s largest mobile-phone operator) signed a US$3bn contract in September 2004 for Iran�s first private mobile-phone network, but the Majlis passed a bill on

Foreign investment

14 Iran


September 26th 2004 giving itself retroactive veto power over both the Turkcell and IKIA deals, and the Guardian Council quickly approved the legislation. The Majlis initially tried to give itself power over all such contracts but, in the face of opposition from the Guardian Council, watered down the legislation to apply to just these two contracts.

The Majlis passed legislation on February 15th 2005 lowering Turkcell�s share in Irancell to 49% from 70%. In late 2005 Iranian authorities announced that Turkcell was no longer involved in the project, and Mobile Telephone Networks (MTN), a South African mobile operator, secured an agreement. MTN obtained a 49% share in Irancell in a 15-year agreement that included an upfront fee of US$375m and a revenue-sharing formula. MTN launched its mobile-phone service in Iran in October 2006. Turkcell had filed a lawsuit against the Iranian government in a Tehran court in October 2005 and was reportedly seeking US$10bn compensation for damages. In March 2006 the court ruled in favour of the government, but in a statement released on January 15th 2008 Turkcell said it had started international arbitration procedures against the Iranian government.

In September 2004 the Majlis demanded that the IKIA remain closed until the Majlis investigated the national-security implication of TAV operating the airport. The Majlis investigated the issue and decided that it was not correct to have awarded the contract to TAV in the first place. The operation of the IKIA was then given to an Iranian consortium, and the airport resumed operations on May 8th 2005.

Despite the hostility of both the government and Majlis towards foreign investment in Iran�s economy, �buyback� contracts dominate the oil sector. These contracts are a hybrid of a service contract and a production-sharing agreement, and foreign companies use them to fund and execute development projects. Afterwards, the companies receive reimbursements for capital expenditure and agreed remuneration from the sale of the product from the venture, though ownership�and usually day-to-day management�reverts to the government once development is complete. Subsequent variations to this format have granted investors payment from other sources if the venture in question is not viable.

In February 2007 the government unveiled its new buyback-contract formula, which significantly extended the length of the contracts to as long as 20 years; the formula remained in effect as at March 2008. These guidelines allow foreign oil companies to participate in the production phase in an advisory role under a technical-assistance agreement. Previously, foreign investors had said the contracts were too short to let them realise substantial profits. To counter persistent efforts by the United States to limit investment in Iran�s oil and gas sector, the government showed signs of flexibility in awarding contracts for the development of oil- and gasfields to foreign firms in 2007, as evidenced by negotiations with Essar Group of India to develop the Azadegan oilfield.

The government enacted the long-awaited Foreign Investment Promotion and Protection Act (FIPPA) in May 2002. However, because of hostility to foreign investment from both the present government and Majlis, it seems unlikely that

Iran 15


foreign investors will be able to take full advantage of the opportunities created by FIPPA in the near future.

The government ratified the implementing regulations for the FIPPA on October 15th 2002. The law overhauled and consolidated various older regulations that had loosely regulated foreign investment in Iran. Though technically implemented in late 2002, most FIPPA regulations were not common public knowledge or used until late 2003.

The 26-article law streamlines procedures for foreign investors but sets certain limits on foreign investment. Crucially, it allows for international arbitration in legal disputes, a major demand for foreign investors unwilling to subject themselves to the vagaries of the Iranian judicial system. Iran had previously permitted equity participation in companies, but the FIPPA formally provides the first legal framework for foreign investment under contracts such as build-operate-transfer (BOT), buyback (under which foreign oil companies operate) and civil partnerships. The legislation states that foreign investment will be guaranteed compensation in the event of nationalisation.

Article 44 of Iran�s constitution stipulates that the �state sector is to include all large-scale and mother industries...power generation...post, telegraph and telephone services...and the like; all these will be publicly owned and administered by the State�. Although the constitution also stipulates that the state fully own the banking sector, in 2001 Bank Markazi (the central bank) authorised the establishment of Iran�s first private banks since the revolution, essentially ignoring Article 44. The Expediency Council moved in October 2004 to resolve this constitutional issue by interpreting Article 44 to allow for the sale of 65% of the shares of state-owned enterprises, except for defence and security-related industries and the National Iranian Oil Company. Given the opposition to privatisation on the part of both the seventh Majlis and President Ahmadinejad, implementation of the Expediency Council�s ruling is unlikely in the near future.

Despite the adoption of the FIPPA, much uncertainty remains, particularly over foreign property ownership and the method of calculating and judging the maximum share to be allowed for foreign-owned entities (foreign market share should not exceed 25% in any one sector or 35% in individual industries, except for goods and services, other than crude oil, for export purposes). The bureaucracy surrounding investment approval remains extensive, with ministers required to endorse proposals. The review process may turn out to be particularly cumbersome under the present administration, since the political appointees who have replaced many of the experienced technocrats in the state agencies handling the FIPPA investment applications generally view foreign investment with suspicion. Furthermore, the bureaucracy is overly cautious in dealing with foreign contracts given that the administration�s policies for �combating corruption� are poorly defined and selectively implemented.

In October 2006 George W. Bush, the US president, signed into law the Iran Sanctions Act (ISA), which brings together US Executive Order 13058 of August 19th 1997 and the Iran�Libya Sanctions Act (ILSA) of 1996. The act will run until end-2011. The ISA bans virtually all forms of trade with Iran and imposes

16 Iran


mandatory and discretionary sanctions on non-US companies investing more than US$20m annually in Iran�s oil and gas industries. As at March 2008, ISA sanctions had not been enforced against any non-US company; the act allows the president to waive sanctions on a case-by-case basis, though this waiver is subject to renewal every six months. Despite the restrictions on American investment in Iran, FIPPA provisions apply to all foreign investors, and many Iranian expatriates based in the US continue to make substantial investments in Iran.

In March 2008, the UN Security Council passed a third round of economic sanctions on Iran, with a 14-0 majority. The sanctions target Iranian banks and call for further inspections of Iranian cargoes. They do not focus on Iran�s oil-and-gas sector and leave open the possibility for further negotiations in the future.

The US Treasury Department has also stepped up its attempt to restrict financing of foreign investment and trade with Iran. In January 2006, under intense American pressure, Swiss banks UBS and Credit Suisse announced separately that they were halting operations in Iran. In September 2006 the Treasury Department banned all dealings by Iran�s Bank Saderat with the US financial system, and in January 2007 it also blacklisted Bank Sepah and its British subsidiary, Bank Sepah International. In October 2007 the US Treasury blacklisted Bank Melli and Bank Mellat. Under pressure from the US, 12 Chinese banks have reduced ties with Iranian banks since early September 2007, but five of them resumed commercial ties in mid-January 2008.

In mid-February 2008, the US Treasury alleged that Bank Markazi (Iran�s central bank) helped the blacklisted banks evade US sanctions, by conducting transactions for them. The allegations could lead to sanctions and stiff penalties against Iran�s central bank, especially if US allies participate in them.

Investment approval checklist

The Foreign Investment Promotion and Protection Act (FIPPA) has a broad overall definition of foreign investment. As long as the capital for an investment comes from foreign sources, anyone importing it is eligible for FIPPA protection (including Iranians residing in Iran or abroad) as long as the investment addresses the following issues: • The investment leads to economic growth, promotes technology, promotes quality of products, increases employment

opportunities, increases exports and facilitates the internationalisation of Iranian companies; • The investment does not jeopardise national security and public interests, harm the environment, interrupt the

national economy or disrupt products of domestic investments; • The investment does not involve the granting of any special rights that result in a monopoly; and • The value ratio of goods and services produced does not exceed 25% in each economic sector or 35% in individual

industries, except for goods and services, other than crude oil, for export purposes. Article 6 of the FIPPA allows foreign investments that meet these criteria to apply for an investment licence from the Organisation for Investment, Economic and Technical Assistance of Iran (OIETAI). The Foreign Investment Board, which is a part of the Ministry of Economic Affairs and Finance, then issues the licence. There are four separate types of applications, as follows: • Form 100�1, Foreign Direct Investment (FDI)/Civil Partnerships/Greenfield; • Form 100�2, FDI Existing Firms; • Form 100�3, Build-Operate-Transfer Projects; • Form 100�4, Buyback and Project Financing Arrangement.

Iran 17


Representatives of relevant government agencies are stationed at the OIETAI and the Centre for Foreign Investment Services (located at the OIETAI), which are focal points for all referrals by foreign-investment applicants. The promoters of a public joint-stock company should deposit with the Registrar of Companies articles of association setting out full details of the proposed company. Once the Registrar of Companies is satisfied that all preliminary legal requirements have been met, the public company may apply for shares. The company�s articles of association must contain, among other points, the following: • name of the company; • whether the company is public or private; • location of the company�s principal office; • purpose for which the company is incorporated; and • amount of the company�s paid-in capital and the number of shares into which it is divided.

Iran�s most important membership is in the Organisation of Petroleum Exporting Countries (OPEC), along with Algeria, Indonesia, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Iran is also a member of the Economic Co-operation Organisation (ECO), along with Afghanistan, Azerbaijan, Kazakhstan, the Kyrgyz Republic, Pakistan, Tajikistan, Turkey, Turkmenistan and Uzbekistan. The ECO is aiming to establish a free-trade zone by 2015. Iran was a candidate for membership in the Shanghai Co-operation Organisation, an intergovernmental organisation among China, Russia, Kazakhstan, the Kyrgyz Republic, Tajikistan and Uzbekistan, as at February 2008.

Recent foreign direct investment

Sinopec (China) signed a deal in March 2008 to develop Iran�s Yadavaran oilfield, which Iran�s oil minister estimated to be worth US$2bn. Gazprom, the Russian gas monopoly, announced on February 26th 2008 that it had penned a memorandum of understanding with the Iranian Ministry of Petroleum to develop two or three blocks of the South Pars gasfield. The Iranian government has also agreed that Gazpromneft, a Gazprom subsidiary, may participate in developing a yet-to-be- named oilfield. Österreichische Mineralölverwaltung (OMV) of Austria signed a memorandum of understanding with the National Iranian Oil Company (NIOC) in April 2007 to develop the South Pars gasfield and to build a liquefied natural gas plant. The NIOC estimates the value of the deal over a 25-year period to reach US$30bn. Daelim Industrial (South Korea) signed a �1.3bn deal in March 2007 with UHDE and Lurgi (both of Germany) and Iranian companies Nargan, Namvaran and Chagalesh to upgrade Iran�s Isfahan oil refinery. The project, which is to be complete in 2011, aims to give Iran more refining ability so that it no longer needs to import fuel. A consortium of four European companies (Axens of France, UOPL of the UK, H. Topsoe of Denmark and Technip of Italy) are working on the engineering and consulting side of the project.

Organising an investment

The public sector dominates Iran�s economy. Both the seventh Majlis, elected in February 2004, and the administration of President Mahmoud Ahmadinejad oppose reducing state involvement in the economy, and they have little interest in encouraging foreign investment.

Iran has two types of laws concerning foreign companies. The first type addresses issues concerning foreign companies directly, such as the Foreign Investment Promotion and Protection Act; the second type is composed of

International agreements

Basic investment approval

18 Iran


general laws with certain articles or byelaws that address foreign companies, such as the Taxation Law and the Labour Law.

The Foreign Investment Promotion and Protection Act (FIPPA) addresses the acquisition of existing firms. No special permission is required as long as the acquisition does not exceed 49% of ownership. Where the acquisition exceeds 49%, special approval by the government is needed. However, there are no readily available examples of a foreign company�s purchase of a full or majority interest in any Iranian entity.

There have been so few mergers, either foreign or domestic, that it is difficult to assess the government�s attitude towards them. Based on the passage of tax regulation and the FIPPA, however, it does not appear that the government intends to restrict or limit such transactions. Article 111 of Iran�s tax code addresses tax regulations related to mergers.

A 2007 United Nations Conference on Trade and Development (UNCTAD) investment report recorded no crossborder mergers and acquisitions for Iran in 2006 and 2005. Such activities had a value of US$77m in 2004, equal to that of 2003, and US$22m in 2002. No Iranian entity purchased a foreign company in 1990�2006, according to the report.

No specific rules or regulations on plant construction apply to a foreign entity. There are some provisions related to new businesses owned and constructed by foreign entities in the free-trade zones (FTZs). Foreign-investment codes for FTZs were passed in 1994 in the Regulations Governing Capital Investment in the Free Trade-Industrial Zones in the Islamic Republic of Iran.

Holding patterns

Repsol (Spain) and Royal-Dutch Shell (Netherlands), both oil companies, signed an agreement in January 2007 with the National Iranian Oil Company (NIOC), stating they would help develop the South Pars gasfield. South Pars, Iran�s largest gasfield, has an estimated 280trn�500trn cubic feet of gas reserves. But Shell delayed finalising the deal, worth an estimated US$10bn, because of the threat to its relationship with the United States. The Iranian government announced in January 2008 that it would give Shell until June 2008 to take a decision, but it would not extend the deadline further. Inpex of Japan won a US$2bn contract from the Iranian government on February 18th 2004 for a 75% stake in the development in the Azadegan oilfield. The field, which is close to the Iraqi border, has potential reserves estimated at up to 26bn barrels, a massive resource equivalent to 20% of Iran�s own proven reserves. However, developments since the signing of the contract have dampened prospects of a deal: intense American pressure on the Japanese not to sign; the election of Mahmoud Ahmadinejad to the presidency in June 2005; and the imposition of UN sanctions against Iran in December 2006. Iran had set a deadline of September 29th 2006 for Inpex to sign the deal, and threatened that if Japan did not sign, it would offer Azadegan to Russian and Chinese firms. In October 2006, following negotiations with Iran, Inpex reduced its share in Azadegan from 75% to 10%, and responsibility for development went to the NIOC and its subsidiaries. Petroiran and the state-owned National Iranian Drilling Company (both local Iranian firms) signed contracts on December 12th 2006 to drill 34 development wells, two appraisal wells and one disposal well during a 40-month period at the field at a cost of US$300m. Essar Group of India announced in March 2007 that it had been negotiating with Iran to develop the Azadegan oilfield. Essar Group maintained that Iranian officials were willing to consider its demand for �development rights� to the Azadegan oilfield. But no agreement had been reached by February 2008.

The Department of the Environment enforces national environmental regulations. Additional regulation and enforcement responsibilities are

Acquisition of an existing firm

Building and related permits

Environmental law

Iran 19


delegated to the 28 provinces (ostan) and various cities and municipalities (shahrdari). Numerous environmental-protection laws cover areas such as air, water, wastewater and hazardous wastes. These regulations target typical industrial and commercial operations. Despite the laws on the books, Iran does not generally enforce environmental regulations. Penalties range from modest fines to long-term imprisonment.

No specific regulations or distinctions apply to foreign investment in industrial and commercial sectors of the economy. Article 20 of the Foreign Investment Promotion and Protection Act indicates that the Centre for Foreign Investment Services (at the Organisation for Investment, Economic and Technical Assistance of Iran) will co-ordinate any required environmental permits from pertinent national/local agencies during the initial investment-licence review process. The centre aims to facilitate dealings among Iran�s opaque state agencies. It recommends appropriate due diligence for businesses involved in waste generation and industrial pollution.

In accordance with the Foreign Investment Promotion and Protection Act (FIPPA), the Law for the Ownership of Immovable Property by Foreign Nationals of 1921 remains in force. The law does not permit ownership of land in the name of foreigners. Ownership of land by foreign companies is permitted only when the foreign investment results in the establishment of an Iranian company and the ownership of land is appropriate to the project, as determined by the Organisation for Investment, Economic and Technical Assistance of Iran (OIETAI). Although the OIETA has not released data on land ownership by foreign companies in Iran, it has indicated that most foreign companies that have invested in Iran have acquired land.

The level of local content required in all types of enterprises was raised from 30% to 51% in 2001, which is where it stood in March 2008. Local industries are using their muscle to ensure that foreign contractors must by law use Iranian subcontractors for their projects.

There is no compulsory membership in any business or industry group. However, there are a few effective associations that might directly benefit a foreign-owned business in Iran. The most prominent national business association is the Iran Chamber of Commerce, Industry and Mines (ICCIM) with several provincial chapters, among which the Tehran ICCIM is the most well-known for facilitating business transactions with foreign companies. The board of directors of the Tehran ICCIM has often enjoyed solid political connections with various centres of power for the past two decades.

Requirements of a joint-stock company (sherkat-e sahami)

Capital. The minimum amount of capital required to establish a public joint-stock company is IR5m. Payment can be either in cash or in kind for a public joint-stock company, and at least 20% of the share capital should be available to the general public. Thirty-five percent of the capital must be deposited in a special bank account in the company�s name before the company seeks registration. For a private joint-stock company, the minimum share capital is IR1m. The promoters of the company subscribe for its entire share capital.

Acquisition of real estate

Local-content requirements

Business associations

20 Iran


Statutory reserve. Public joint-stock companies are required to transfer to a statutory reserve each year an amount equal to 5% of the profits after tax, until such reserve equals 10% of the issued share capital. This reserve may not be used unless the company is liquidated. Governance. Public joint-stock companies must hold annual general meetings of shareholders. Public and private joint-stock companies, branches and representative offices of foreign companies registered in Iran are required to have an annual audit. Auditing firms must be members of the Iranian Association of Certified Public Accountants (IACPA), and designated as official accountants. The Commercial Code requires all joint-stock companies to appoint one or more inspectors at the annual general meeting. Fees. There is a nominal fee for registering joint-stock companies based on the authorised capital of the company. For capital of IR500m and more, this fee is IR525,000. There is also a stamp duty equal to 0.2% of the capital. Types of shares. The Commercial Code allows for the creation of different classes of shares, such as preferred shares as well as ordinary shares. Shares may be in either registered or bearer form. Bearer shares may be transferred by physical delivery whereas the transfer of registered shares is not complete until the transfer is recorded in the share register of the company. For registered shares, restrictions on transfer may be written into the articles of association. Directors. A public joint-stock company must have a board of directors, which must consist of shareholders. At least five directors must be appointed. The board of directors is elected for a two-year period at the general meeting. The meeting also appoints the managing director of the company. Should a board member reside abroad, delegation of power to resident board members is permitted, but the articles of association of the company must authorise such a delegation of power. Time required. Registration of a joint-stock company must be completed within six months of the initial declaration made to the Registrar of Companies.

Companies are established under Iran�s Commercial Code, which is the foremost commercial legislation in Iran. Although the law was issued in 1932, the section on joint-stock companies was significantly amended in 1969. The most common form of company in Iran is the joint-stock company, or sherkat-e sahami, in which the liability of a shareholder is limited to the capital invested in the company.

Joint-stock companies may be public or private. For a public company, a proportion of the capital is offered to the public. For a private joint-stock company, the promoters of the company subscribe for its entire share capital.

Private joint-stock companies are the most appropriate vehicles for long-term foreign investors in Iran. These forms are attractive because they are regulated entities, have limited liability and offer investment security. Foreign participation up to 49% of the capital requires no special permission, but participation exceeding that threshold requires government approval and registration under the Foreign Investment Promotion and Protection Act.

Companies established under the Commercial Code may also be in the form of a limited-liability company (sherkat ba massouliate mahdood), which is roughly comparable to French SARLs (société à responsabilité limitée), German GmbHs (gesellschaft mit beschränkter haftung) or British private companies.

The Commercial Code also governs partnerships, which include the following main types:

• general partnership, which is an association of two or more people who are jointly liable for partnership debts to the extent of their entire personal wealth;

Establishing a local company

Iran 21


• limited partnership, which may have two types of partners: general partners, who have unlimited liability, and limited partners, who are liable for the debts of the partnership only to the extent of their investment in the partnership; and

• proportional liability partnership, where the liability of each partner is proportionate to his capital contribution.

Although Iranians, particularly family members, often use general and limited partnerships to engage in business, these entities are not appropriate for foreign investors because the unlimited liability of general partners.

Joint ventures are not a recognised legal form and are not subject to any registration requirements. The partners of the joint venture must be registered in their own names. Joint ventures are generally used for major engineering and construction projects. Iranian private joint-stock companies with foreign participation are often loosely referred to in the business community as joint-venture companies.

Because licences to trade in Iran through commercial or trading establishments are granted only to Iranian individuals or Iranian companies, foreigners in Iran must conduct operations by establishing an Iranian company or through an Iranian agent who has the necessary trade licences.

The government encourages the establishment of technical-service offices in order to provide support for goods sold in Iran. Indeed, a 1992 law makes the procurement of goods and services from foreign companies contingent on the foreign supplier having an officially registered representative office in Iran. Iran also allows the establishment of agencies with particular mandates (see below).

Under a law that went into effect on March 31st 1999, on condition of reciprocity, foreign companies may establish a branch in Iran for conducting the following activities:

• providing after-sales service;

• carrying out contracts concluded with the Iranian public or private sector;

• conducting economic surveys and preparing the ground for investment of the foreign company in Iran;

• co-operating with Iranian technical and engineering firms for taking up work in third countries;

• increasing Iran�s non-oil exports;

• providing technical and engineering services and transfer of technology and know-how; or

• engaging in business activities that require prior approval of the government, such as transport, insurance, inspection, banking or marketing.

The Iranian branch is the local arm of a foreign company and conducts its business activities under the name and responsibility of its head office.

Establishing a branch

22 Iran


Agencies. Iran permits three kinds of commercial representatives: brokers (who act as intermediaries between the parties to a transaction), commission agents (who undertake business in their own name on behalf of a principal) and commercial agents.

The Commercial Code and a law implemented on March 31st 1999 define a commercial agent as a person or company appointed by a foreign company (the principal) to transact business in Iran on the principal�s behalf. The law makes the agent liable for all acts done for and on behalf of the principal.

Although the Commercial Code does not require agents to be of Iranian nationality, Ernst & Young Tehran says that the law of March 31st 1999 implies that the agent should be Iranian. Moreover, in practice, since only Iranian nationals or Iranian companies can obtain a licence to import commercial goods into Iran, a commercial agency has to be conducted through Iranian businesses.

The principal may appoint as many agents as he wishes. Multiple agents can act either jointly or individually for a specific region, or for different regions or for the country as a whole. The goods are imported into the country in the name of the agent.

After a principal appoints an agent in Iran, the responsibilities of the two parties are recorded in an agency agreement. Such responsibilities may vary widely, and legal advice is required to determine the detailed obligations of an agent and his legal liability. Generally speaking, if the agency agreement is signed outside Iran, it will be governed by the laws of the country where it was signed. If signed in Iran, it will be governed by Iranian law. Such agency agreements must be registered with the Office of the Registrar of Companies.

The remuneration of an agent is a matter of agreement between the agent and the principal. In general, an agent is paid either a fixed fee or a commission.

There is no requirement for a foreign branch operating in Iran to have an Iranian agent.

Consultants and other professionals. Most professionals in Iran are registered as limited-liability companies. A few have incorporated themselves into joint-stock companies.

Incentives

Iran is one of the most important markets in the Middle East for foreign trade. Direct incentives in Iran are mostly geographical and based on tax incentives. In addition, the Iranian Foreign Trade Industrial Zones and the Special Economic Zones also offer some incentives in terms of taxation, visas for foreigners, duty and excise.

It is possible to negotiate a tax-reimbursable contract with a ministry or government agency. Under such a contract, the foreign taxpayer must file a tax declaration, pay tax and agree to the assessment in accordance with the normal rules. The tax paid is then recovered from the contract owner (the entity for

General incentives

Overview

Iran 23


which a project is performed under a contract). Any delay penalties or other fines due to the fault of the taxpayer are not normally recoverable.

Build-operate-transfer arrangements for foreign companies can have up to 100% participation and include sovereign guarantees and long-term concession periods.

The Iranian government is attracting foreign investment in the oil and gas industry by entering buyback agreements. Under these agreements, a foreign contractor funds all investments, receives remuneration from Iran in the form of an allocated production share, then transfers operations back to an Iranian entity after the contract is completed. The foreign company provides finance, technical know-how, equipment, materials and services in return for finished goods.

In addition, the following are some tax-exempt sources of income:

• 100% of income derived from the export of industrial finished goods and agricultural products, and 50% of income from the export of other non- oil products;

• 100% of income derived from export of transit goods, if re-exported without modification;

• 80% of income from industrial and mining units established since March 2002, for periods of four years. For industries in one of the less-developed regions of the country, tax exemption is 100% and lasts for ten years. No such exemptions are available to industries within 120 km from the centre of Tehran, within 50 km from the centre of Isfahan, within 30 km from the centre of provinces or in cities with populations exceeding 300,000;

• 50% of the declared income of companies that is used in the same year to develop, reconstruct, renovate or complete existing industrial and mining units or to set up new industrial or mining units of those companies;

• 50% of income of hotels and other tourist-attraction institutions and activities; and

• interest on deposits with banks in Iran.

Exemption is also given on the value of material and equipment imported into Iran by foreign contractors under contracts with ministries and with companies owned by the government or municipalities.

Iran�s regional incentives are based on proximity to major metropolitan areas. The government has granted tax exemptions of 100% for ten years for industries in less-developed regions far from the major cities. This exemption applies for industrial and mining units established since March 21st 2002 in areas beyond the following distances:

• 120 km from the centre of Tehran;

• 50 km from the centre of Isfahan;

Industry-specific incentives

Regional incentives

24 Iran


• 30 km from the centre of provinces; and

• 30 km from any city with a population exceeding 300,000.

Export incentives include reduced freight rates and the refund of customs duty and the commercial benefit tax on re-exports. In addition, to encourage non-oil exports, the export of handicrafts, agricultural goods and certain manufactured items is permitted without restrictions on the resulting foreign- exchange proceeds.

Nine special economic zones (SEZs) are important destinations for warehousing and shipping goods. Iran�s SEZs include better facilities to load and unload goods, with adequate warehousing and distribution. Several SEZs are near international borders with easy access to road, rail and air transport. Customs duties do not apply on goods and merchandise transshipped overseas from these locations:

• Sarakhs (north-east, on the border with Turkmenistan);

• Sirjan, Kerman Province (central);

• Bandar Anzali Port, Gillan Province (northern port);

• Khuzestan, near Abadan and Khoram-Shahr (Persian Gulf port);

• Salafchegan, near Qom (central);

• Arg-e-Jadid, near Kerman and Bam (central);

• Khoram-Shahr, on the Arvand-Rood (Persian Gulf, along the border with Iraq);

• Julfa, adjacent to the Julfa border Customs House (on the border with Azerbaijan); and

• Imam Khomeini, near Imam Khomeini Port (central Persian Gulf port), which is specially allocated to petrochemical activities.

The free-trade zones (FTZs) operate under a law passed in 1993, known as the Law Pertaining to the Establishment of Free Trade-Industrial Zones in the Islamic Republic of Iran. Foreign investment codes passed the following year, in the Regulations Governing Capital Investment in the Free Trade-Industrial Zones in the Islamic Republic of Iran. These codes permit 100% ownership of capital (though not of land), guarantee the free repatriation of profit and capital, and offer a 15-year tax holiday for business operations in the FTZs. They also provide for greater flexibility in labour�allowing employers to lay off workers after paying them compensation�and social-security requirements. However, the free-trade zones are hundreds of kilometres from Iran�s main population centres in the north, and they have not proved to be a popular base of operations for most investors.

The Secretariat of the High Council of Free Trade-Industrial Zones supervises the activities of these areas. This organisation, based in Tehran, includes 14 ministers and is headed by the president of Iran.

Export incentives and zones

Iran 25


Licensing

Iran�s revolutionary ideology has made its leaders reluctant to accede to binding agreements with international institutions. At present, there are few laws protecting international intellectual-property rights in Iran, and those laws that are in place are poorly enforced. Piracy of computer software is high, and the infringement of industrial designs, trademarks and copyright is widespread. Iranian industry is notorious for its disregard of intellectual-property rights, trademarks and most copyrights; proliferation is common. The US embargo of Iran, in place since the 1979 hostage crisis, has exacerbated the situation. Hence, most conventions are ignored. Indeed, the World Bank�s Doing Business 2008 report, which ranks countries by ease of doing business, ranked Iran 164th out of 174 countries on dealing with licences. The report says that it takes an average of 670 days to establish a licence in Iran, compared with an average of 175.5 days in the Middle East and North Africa (MENA) region, and an OECD average of 153.3 days. The report also says that the cost of setting up a licence is exorbitantly high, at 653.4% of income per capita in Iran, compared with 419.6% in MENA and 62.2% in the OECD.

Nevertheless, Iran has slowly begun to adopt international codes on intellectual property as part of its nascent bid to join the World Trade Organisation. The government quietly applied for WTO membership in 1996, and it has started to modify its regulation of copyright, designs and trademarks. In March 2005 the United States dropped its objection to the Iranian bid to join the WTO �as a show of support for the European diplomatic efforts� to solve the standoff the US had against Iran�s alleged nuclear programme. In May 2005 the WTO General Council established an accession working party for Iran. In March 2006 the government issued a directive to the Ministry of Foreign Affairs to prepare for WTO negotiations. But as at early March 2008, the government had not submitted a Memorandum on the Foreign Trade Regime to the WTO that would launch the formal process of WTO accession.

The Council of Ministers passed Decree H24305T/6921 in 2003, ratifying Iran�s accession to the Madrid Agreement Concerning the International Registration of Marks and its protocol. In accordance with the agreement, nationals of any contracting country may secure protection for their marks in all the other acceding countries by registering them with the World Intellectual Property Organisation (WIPO).

Iran is a member of the WIPO and has acceded to several WIPO intellectual-property treaties. Iran joined the Convention for the Protection of Industrial Property (Paris Convention) in 1959. The Paris Convention requires Iran to grant the same protection to the industrial property of the nationals of the members of the treaty as to that of Iranians. In 2005 Iran joined the Lisbon Agreement for the Protection of Appellations of Origin and their International Registration, which ensures the protection of geographical names associated with products. The Lisbon Agreement went into force in March 2006. As at February 2008 Iran had yet to accede to The Hague Agreement for the protection of industrial designs.

Overview

26 Iran


The Majlis (parliament) approved the Registration of Industrial Designs and Trademarks Bill in 2008 for a probationary period of five years. This law revamps the Law of Registration of Marks and Patents of 1931 to make it compatible with Iranian treaty obligations under the Paris Convention and Madrid Agreement.

The Majlis also ratified a bill in May 2001 to recognise and enforce international arbitration awards, a decision designed to grant companies greater protection over their property. By acceding to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the New York Convention, Iran has agreed to enforce arbitration awards made in other countries. Awards issued in Iran will also be enforceable in other member countries.

The Law of Registration of Marks and Patents of 1931 stipulates that a trademark is any type of logo, design, picture, number, letter, word, seal, wrapper, etc that is adopted to identify and distinguish goods and services. The law provides for registration of various types of marks chosen to identify industrial, commercial or agricultural products and goods. It also provides for registration of service marks. The essential requirement is that the mark presented for registration should be distinctive.

Obtaining a court injunction is a proper remedy to prevent the violation of any right secured by patent. This is provided for in the law, and the complainant can seek compensation of any damages sustained. If the violation falls under the heading of unfair competition, forgery or fraud, the perpetrator faces prosecution.

Article 30 of the law provides that any inventor or discoverer who holds an unexpired patent certificate outside Iran may apply for a patent in Iran valid for the remaining duration of the original one. But if a person or firm has used the invention or discovery in Iran�wholly or partially�prior to the foreigner�s application or has made preparations to exploit the same, the foreign patentee will not have the right to stop the operation of said person or firm.

Intellectual-property law

Conventions. Convention for the Protection of Industrial Property (also known as the Paris Convention), 1959; World Intellectual Property Organisation, 2002; Madrid Agreement Concerning the International Registration of Marks, 2003; Lisbon Agreement for the Protection of Appellations of Origin and their International Registration, 2005. Basic laws. Law of Registration of Marks and Patents, 1931; Law for the Protection of Authors�, Composers� and Artists� Rights, 1970. The Registration of Industrial Designs and Trademarks Law, 2008.

Patents

Novelty. No public knowledge in Iran or abroad sufficient to put into practice. The first person to apply for the registration of an invention in accordance with the law is considered the inventor of the patent, unless proven otherwise. Types and duration. Patents are registered for 5, 10, 15 or 20 years, at the option of the applicant. Unpatentable. Pharmaceutical formulae and compounds are not patentable, but a patent application can be filed for processes related to the manufacture of pharmaceuticals. In addition, any invention or improvement on an invention disturbing public order or considered to be contrary to morality or public health cannot be patented.

Protection of intellectual property

Iran 27


Working. A patent will be vulnerable to cancellation if it is not worked during the five-year period following its date of granting. Although there are no explicit provisions concerning nominal working, in lieu of actual working, it is recommended that there be nominal working before the fifth anniversary of granting.

Trademarks

Types and duration. A trademark may be registered for ten years, renewable indefinitely for additional ten-year periods. Legal effect. Registration gives an owner the exclusive right to use a trademark on the goods for which the trademark is registered. The owner may prevent other parties from using the trademark on competing products. Any trademark, whether already registered or being presented for registration, may be contested by the person who claims that it belongs to him, or that the resemblance is so close that it may mislead the consumer. Any opposition to the registration of a trademark on the grounds of prior use or close resemblance, and/or claims relating to the infringement of a registered trademark, may be filed with the General Courts of Tehran. The right to contest a trademark is in force for three years, starting from the actual date of its registration. The registered trademark then becomes incontestable in the courts. The proprietor is entitled to take civil legal actions and/or lodge complaints involving legal penalties to prevent third parties from infringing his right of ownership. Remedies may include damages, costs, and an injunction preventing further violations. Under Articles 529 and 530 of the Islamic Penal Code (Taazirat), commission of forgery or unauthorised use of registered trademarks incurs civil liabilities and imprisonment of up to two years. Punishment for the forgery of trademarks of governmental and municipal companies and establishment as well as using such forged trademarks varies from 3�15 years and from six months to three years of imprisonment, respectively. Not registrable. The official flag of Iran; any flag that the government has prohibited to be used as a trademark; badges, medals and insignia of the Iranian government; marks of official institutions such as the Iranian Red Crescent or the International Red Cross; words and/or phrases creating an impression of official connection with Iranian authorities; marks contrary to public order and good morals (the standard for this is tougher in Iran than in most other countries); and marks that so closely resemble an already registered mark that it would cause confusion or deceive consumers. Working. If a trademark has not been used in Iran or abroad within three years from the registration date and if the owner or his legal representative fails to furnish a valid reason, any interested party may apply to the court and request cancellation of trademark.

Copyrights

Registrable. Books, pamphlets, plays and all other literary, scientific and artistic writings, irrespective of the way they are written, recorded or broadcast; audiovisual works for stage or screen performances or for broadcasting by radio and television; paintings, pictures, drawings, designs, decorative writings, geographical maps or any decorative and imaginative work produced in any simple or complex manner; sculptures of all types; architectural works, designs, sketches and buildings; photographic works produced by any original methods; original articles of applied handicraft and industrial art, carpet and rug designs; original works based on folklore and national heritage of culture and arts. Duration. The financial rights of the author are transferred to his heirs, or by covenant, for a period of 30 years after his death. In the absence of such heirs or a transfer by covenant, the Ministry of Culture and Arts will hold the rights for public use for the same period of time.

To register a patent, the documents listed below must be presented to the Patent Office within six months of the date of the Iranian application. This period of duration may be renewed only once for a justifiable excuse.

The applicant must present the following information:

• name and address;

• title of the invention or discovery;

• power of attorney duly legalised by the respective Iranian consulate;

Registering property

28 Iran


• certified copy of the corresponding patent certificate (or application if benefiting from Paris Convention provisions);

• certified copy of the transferral document, if the applicant is not the original proprietor; and

• three copies of the related specifications, claims, plans and drawings.

If the patent office refuses an application because of insufficient documentation or because the application is contrary to the governing provisions, the patent applicant has the legal right to refer, personally or through a lawyer, to a competent court and ask for the cancellation of the patent office decision.

To register a trademark, an applicant (Iranian or foreign) should refer in person or through an attorney to the Registration Office for Industrial Property, in Tehran, and file a request for obtaining a certificate of trademark registration. Applications are published in the official gazette so that interested parties may inspect and, if needed, contest them. The registrar examines applications for format, content and consistency in compliance with the relevant rules of registration. If the registrar rejects an application, the applicant may appeal in court.

In addition, the office formally examines trademark applications for any conflict with previously registered trademarks or applications and for compliance with Iranian patent and trademark law. Resemblance of a trademark to a previously registered mark or application takes into account appearance, pronunciation, form of writing or any other similarity.

To register a trademark, the applicant must present the following information:

• full name and address of applicant(s);

• power of attorney duly recognised by the Iranian Consulate (a single power of attorney is sufficient for all trademarks);

• details of the trademark, presented with 12 samples;

• specifications of goods and classes (according to International Classification).

Recent licensing agreements

Chery Automobile (China) in August 2007 entered into a US$370m joint venture with Khodro, an Iranian car company, Iran to produce cars for the Middle East. Chery Automobile is to hold 30% of the venture, and Khodro will hold 49%. Solitac, a Canadian designer of car-parts, is to hold the remaining 21% of the venture. The factory will be in the Iranian city of Babol. Anhui Ankai Automobile (also of China) signed a deal in January 2008 with ARG-Diesel Iran to supply it with 600 buses, valued at �51.35m. The deal is to be complete by October 2008. Tecnimont of Italy and Nargan were granted a contract in February 2008 by Iran�s National Petrochemical Company to construct a polyethylene plant. The contract, worth �428m, is to take force by February 2010, and it calls for transfers of equipment, engineering and technology, as well as job training.

There are numerous associations that assist in matching licensers and franchisers with local partners. The most important of these is the Iran Chamber of Commerce, Industry and Mines. Another important point of

Negotiating a licence

Iran 29


reference is the Internet-based Iran Trade Point Network, which provides information on locating local partners.

There are few restrictions on licensing agreements, but if the provider of the licence obtains protection under Iran�s Foreign Investment Promotion and Protection Act, then the terms and conditions of such agreements also need the approval of the Foreign Investment Board.

Competition and price policies

Iran�s complex foreign-exchange system was long its most egregiously anti-competitive practice, allowing privileged state-owned enterprises (SOEs) and bonyad (charitable Islamic institutions that control large business conglomerates) to purchase foreign exchange at deep discounts compared with their private-sector counterparts. The introduction of a single floating exchange rate ended this advantage from the start of fiscal year 2002/03 (March 21st 2002), though such firms still get privileged access to foreign exchange when low oil earnings leave it in short supply. In addition, SOEs and bonyad such as the large Bonyad-e Mostazafan (Foundation of the Oppressed) continue to enjoy many advantages over competitors, making it difficult for other firms to challenge the tight grip they enjoy on many elements of the non-oil economy. For example, the bonyad are not subject to Iran�s General Accounting Law; moreover, they and the SOEs have privileged access to credit at the state-owned banks. These institutions and politically influential individuals have also demonstrated an ability to use their connections and political status to win contracts with the public sector.

The Foreign Investment Promotion and Protection Act of 2002 addresses potential foreign dominance in Iranian industry. Article 2, Section 4 states that foreign market share may not exceed 25% in any one sector or 35% in an individual industry. These ratios do not apply to foreign investment for the production of goods and services for export purposes, other than crude oil. By law, the Council of Ministers determines the fields and extent of investment in each field.

Except for state monopolies in such industries as defence, tobacco and fisheries and the state-sanctioned monopolies by the bonyads, there are no specific private monopolies that limit participation by foreign companies or foreign direct investment. At the time of the 1979 Islamic revolution, all banks were nationalised, and many were amalgamated into larger entities. The state-owned banks dominate in Iran, although half a dozen private banks now operate in Iran under the authority given in 2002 for the formation of privately owned banks and non-bank financial institutions.

The bazaari dominate internal trade in the private sector. These members of the powerful, conservative merchant community also tend to dominate the import and export sector.

There have been virtually no corporate mergers in Iran in recent times. All banks were nationalised at the time of the 1979 Islamic revolution, and many

Administrative restrictions

Overview

Monopolies and market dominance

Mergers

30 Iran


were amalgamated into larger entities. Also after the revolution, some large quasi-government organisations (bonyad) were created to take over expropriated companies and other assets.

There is no legislation in Iran regulating competition, unfair trade practices or pricing issues. Hence, parties are free to contract the mode of sale and distribution. The only consideration applies to pricing, whereby consumers have a right to make a claim against any person selling items at excessive prices. A producer may sell the same goods to different dealers at varying prices, and it may choose to sell only to a particular distributor.

Absent specific competition legislation, a manufacturer or producer can, in theory, enforce a minimum resale price.

Iran does not regulate pricing for most commercial products with the exception of fuel (such as petrol, natural gas or diesel), residential electricity and water, and wheat for the production of bread. The government partially subsidises these products. No figures are available, however, because these subsidies are not transparent in the annual budget.

Efforts to rationalise energy prices during the Rafsanjani (1989�97) and Khatami (1997�2005) administrations were thwarted by powerful factions within the political leadership. Mahmoud Ahmadinejad won the June 2005 presidential election on the platform of stabilising fuel prices, but his administration rationed fuel in late-June 2007, allocating each car owner 100 litres of fuel per month at IR1,000 per litre. The plan seemed initially to reduce fuel consumption, but Iranians soon took advantage of a loophole in the law that allocates fuel rations every six months, allowing persons access to six months worth of fuel at once. Furthermore, a viable black market for fuel sprang up, where prices averaged IR5,500 per litre. The petroleum minister announced in December 2007 that during the second stage of the rationing programme, which was to start in January 2008, the fuel ration per car would be increased to 120 litres per month. However, stage two of the fuel-rationing programme had not started as at mid-March 2008.

Exchanging and remitting funds

The government adopted and implemented strict exchange controls following the 1979 revolution, but it has relaxed these since fiscal year 2001/02 (ending March 20th). It abandoned the multi-tiered exchange-rate system on March 21st 2002 in favour of a closely controlled single rate. The central bank determines an average and sells and buys foreign exchange in open markets to maintain the stated policy exchange rate. This target rate has hovered around IR9,000:US$1 for the past few years.

The government has delegated the responsibility for monitoring the exchange rate to Bank Markazi, the central bank. Only the official banking system within the country may deal with foreign-exchange transactions. Bank Markazi has authorised and granted licences for the creation of numerous bureaux de change. These authorised bureaux may freely buy and sell foreign exchange.

Freedom to sell

Resale price maintenance

Price controls

Overview

Iran 31


With effect from September 6th 2004, Iran accepted the obligations of Article VIII, Sections 2, 3, and 4 of the International Monetary Fund�s Articles of Agreement. IMF members accepting these obligations agree to refrain from imposing restrictions on payments and transfers for current international transactions, or from engaging in discriminatory currency arrangements or multiple currency practices, except with approval from the IMF.

The import of capital must be authorised by, and registered with, the Ministry of Economic Affairs and Finance. Such foreign-currency capital then may be repatriated without restriction if the foreign investor introduces the capital as equity in an Iranian company. The Foreign Investment Promotion and Protection Act of 2002 also guarantees the repatriation of profit and capital.

Payments to foreign suppliers and contractors may be made in foreign currency only if the purchase agreement and the official contract for services, technical assistance, know-how, etc explicitly provide for payment in foreign currency. Such payments are generally handled through letters of credit.

There are no limits on profit transfers. If an investment accords with the Foreign Investment Promotion and Protection Act, the law guarantees the remittance of profits that arise from the investment.

Branches of foreign companies in Iran may remit only the foreign-exchange portion of their Iranian contracts, in accordance with the terms and conditions stipulated in their contracts. In practice, such amounts are paid abroad through letters of credit opened by the owner of the contract. Any rial receipts and any surplus held by a foreign branch in rials can be exchanged in the free market.

The export of foreign currency by foreign travellers to Iran is limited to the amount of such currency that they brought in and declared at the point of entry.

If the foreign investment is in the form of loan capital�either in cash or in equipment and materials�the loan and its interest may be repaid only in foreign currency from the proceeds of exports.

Any amounts drawn from the external foreign-exchange bank account in a local bank may be freely remitted out of Iran.

Foreign individuals, branches of foreign companies and representative offices are allowed to operate foreign-currency external bank accounts in Iran, as well as accounts in rials. They may also hold officially declared foreign currencies. Such funds may be exchanged at local banks at the official rate.

Iranians are allowed to hold foreign-currency bank accounts.

There are no specific regulations or restrictions on the transfer of royalties and fees.

There are no restrictions on trade-related payments.

Repatriation of capital

Profit remittances

Loan inflows and repayment

Remittance of royalties and fees

Restrictions on trade-related payments

32 Iran


Corporate taxes

Iran�s taxation system is under constant review, and it is subject to frequent change�sometimes retroactively. The government is seeking to boost tax-collection rates and, since most local businesses successfully avoid paying tax, foreign firms have generally borne the brunt of efforts by the Ministry of Economic Affairs and Finance to raise revenues.

Iran taxes foreign individuals and businesses at a higher level than most of its regional neighbours. (Most Persian Gulf nations apply little or no tax.) The tax regime is based on the Iranian Direct Taxation Act (1988), including amendments made in January 1999.

Companies established under the Iranian Commercial Code are subject to tax, and there is no distinction between companies that are wholly owned by Iranians or only partially so. The tax rate is a flat 25%, payable on the profits of corporate commercial entities. Tax rates apply to the company�s profits, adjusted for tax, regardless of whether they are distributed.

The profits relating to the holders of registered shares are taxed on an individual basis, whereas the profits relating to bearer shares are taxed on a collective basis. A joint venture or consortium has no legal status in Iran, so the taxable profit of a joint venture is determined according to the rules relating to resident or non-resident corporations, as appropriate. Each partner in the joint venture is then taxed in accordance with the rules relating to such corporations on its share of profits.

Partnerships are taxed in the same way as corporations. Partners are taxed in the same way as holders of registered shares in corporate commercial entities�that is, individually on their share of profits, irrespective of whether they are distributed.

Article 111 of the Direct Taxation Act addresses mergers and consolidation. These types of activities are exempt from stamp duty (which applies for registering joint-stock companies). Otherwise, there is no net change in liabilities of the newly merged entity, depreciation, etc.

All contracting work performed by foreign contractors, whether or not the company is registered in Iran, is taxed. For contracts signed before March 21st 2003, gross taxable income is calculated as gross contract receipts less the cost of imported material. Income is then taxed at 12% of gross taxable income less contract retention. For contracts signed after March 21st 2003, taxable income is the gross contract receipts less contract expenses. Income is taxed at 25% less 5% taxes withheld at source.

Overview

Corporate tax rates

Iran 33


Taxation of contract income Income on contracts signed before March 21st 2003 IR �000sGross contract receipts during the year 1,850,000

Deduct: price of imported materials (850,000)

Gross taxable income 1,000,000

Deduct: contract retention (taxed when received by the branch) (100,000)

Taxable income 900,000

Deemed taxable profit at 12% 108,000

Income on contracts signed after March 21st 2003 Gross contract receipts during the year 1,850,000

Deduct: expenses (1,350,000)

Taxable income 500,000

Income tax at 25% 125,000

Less: Tax withheld at source (5% of gross receipts) 92,500

Balance of tax payable/refundable 32,500

Source: Tadvin Co/Ernst & Young, Tehran.

Iranian corporations are taxed on their worldwide income, and the source of taxable income is not related to the place of performance of the services.

Tax liability is generally based on actual profits resulting from non-exempt activities, as disclosed in the company�s financial statements and statutory books of account. These profits may be adjusted for tax depreciation, provisions and any other items disallowed by the tax inspector on review.

Gross income includes income from a trade or business, dividends, interest, discounts, rents, royalties, licence fees, premiums, technical services and management fees. It also includes any other gains or profits of an income or capital nature. Any profits or losses from tax-exempt activities are excluded in computing taxable income.

Taxable profits may also be determined on an arbitrary basis in the following circumstances: where the books of account have been rejected; where tax returns and/or supporting documents have not been submitted; where filing or reporting deadlines have been missed; or where false declarations have been filed. Taxable income is then presumed to be 2�80% of one of the following items, depending on the nature of the business: gross receipts, recorded sales, payroll costs, purchases or production costs. The tax authorities announce the applicable coefficients on an annual basis.

Gains from the outright transfer of property are taxed at a flat rate of 25% according to official zonal price.

In arriving at the amount of taxable profits, the tax authorities may make certain adjustments to the actual profits of the company. To be deductible, a company must incur business expenses in the generation of income, either in Iran or overseas. Companies must support such expenses with adequate documentary evidence in original form. Losses incurred on the disposal of capital assets are allowable as deductions from income. In general, interest is deductible only if paid directly by the taxpayer to a bank in Iran.

Provisions, as opposed to accruals, are not accepted for tax purposes, other than those relating to indemnities for staff terminations.

Taxable income defined

34 Iran


Companies normally value inventory at the lower of cost and net realisable value, on a first-in-first-out (FIFO) or average basis.

The Iranian tax authorities have not set any particular criteria for establishing transfer prices for tax purposes.

Depreciation is calculated using either the straight-line method, where the depreciable life is stated in years, or the declining balance method, where assets are to be depreciated according to fixed percentage rates. Accelerated depreciation is not allowed. The government publishes an extensive schedule of depreciation rates.

The Iranian calendar year, which ends on March 20th, generally applies for Iranian tax purposes. However, a company or branch may use its own accounting year if that is different. For the first or last period of an entity�s taxable existence, the taxpayer may file a tax declaration for a period of less than one year.

All business entities, including branches of foreign companies, must file a tax declaration at the appropriate Tax Assessment Office within four months of the accounting year-end. (Most towns and cities have assessment offices.) Extensions of this filing deadline are not granted. Any tax due on the declared results is payable at the time the declaration is filed. If the taxpayer files before the deadline, they are entitled to a bonus deduction of 1% of all taxes due for each month remaining until the deadline. If a taxpayer meets the filing deadline and pays taxes as evaluated by the tax office for three consecutive years, he is entitled to a bonus deduction of 5% of the total amount of taxes paid during those three years.

Independent auditors must audit the tax declaration of public joint-stock companies, foreign branches and representative offices (agents) of foreign companies. Under the present laws and regulations, Iranian certified public accountants must audit the financial statements of Iranian corporations (no matter where they are registered) with revenues of at least IR8bn per year or assets of at least IR16bn.

Companies that enjoy a tax exemption must file annual tax declarations.

The Inspector-General must accept the tax declaration, or issue a revised assessment, within 16 months of the taxpayer�s fiscal year end. The tax assessment issued by the tax authorities is considered final unless it is settled or contested in writing within 30 days of the notification. If the tax due is not finalised during this 30-day period, the taxpayer may submit a written appeal for the Board of Settlement of Tax Disputes to hear the case. The board comprises three persons: a judge, an employee of the tax office with at least six years of experience and a chartered accountant. The next stage of appeal is to the High Council of Taxation. The submission should be made within one month of the board�s ruling, and it can be on procedural grounds only. The appellant needs to deposit a balance making up the full amount of taxes claimed with the tax office for the appeal to proceed. A tax inspector also can appeal against a ruling issued by either the board or the High Council. The final

Depreciation

Schedule for paying taxes

Iran 35


appellate stage within the Ministry of Finance happens when the minister of finance appoints a three-member committee to review the decision by the High Council of Taxation. Only the Court of Administration Justice can overturn a ruling of the Ministerial Appellate Committee. The Court of Administration Justice is a legal body outside the jurisdiction of the Ministry of Economic Affairs and Finance.

Representatives from the Ministry of Economic Affairs and Finance may review the official books of a company in order to conduct a tax audit and to establish that the books are up to date and correctly drawn up in accordance with allowable practices. If such an inspection deems the books to be inadequate or if the company�s officials refuse access to them, an arbitrary tax assessment may be issued.

Various penalties may apply for non-compliance with the tax-filing requirements. Based on the amount of tax ultimately assessed, the penalties are as follows:

• late payment: 2.5% per month (the Ministry of Economic Affairs and Finance can waive or reduce this penalty);

• missed filing deadline: 10%;

• non-submission of tax return or records for a tax audit: 20% for each case;

• rejection of the books and records: 10%.

If a taxpayer fails to comply with the tax code but arranges to pay the due tax without contesting it within one month of the filing deadline, these penalties will be reduced by 80%. If the taxpayer contests the original tax evaluation within the same time period, these penalties will be cut to 60% of the original.

The Direct Taxation Act sets the statute of limitations for tax matters at ten years. However, the rules for time barring such matters are not clearly defined; hence, it is expedient to maintain books and records for a much longer period.

Rental income is taxable at the rates set out in Article 53 of the Direct Taxation Act, after allowing a deduction of 25% of the rent as an expense allowance.

Beginning March 21st 2003, the basis of computation of the taxable rental income of real properties, despite the existence of a rental agreement, is the rental value, as determined by the Real Estates Valuation Committee, for each square metre of properties within the boundaries of cities and villages. Certain adjustments may have to be made to this rental value.

Gains from the outright transfer of property are taxable at a flat rate of 5% according to the official zonal price, which is determined by each square metre of property within the boundaries of cities and villages.

Capital gains on sales of assets, other than real property and on sales of shares in other companies, are treated as normal business profits and are subject to tax at the standard rates.

Capital taxes

Treatment of capital gains

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There is no tax on dividends. After corporate profit is taxed at 25%, there is no further tax on the balance, whether distributed as dividends or retained in the business.

No tax is charged on interest paid to a bank. However, if interest is paid to a non-bank entity, then a deemed profit of 80% applies on the interest; at a 25% tax rate, this translates to tax of 20% on the interest. Interest is a deductible expense.

Income from royalty and licensing fees received from industrial and mining companies, government ministries and municipalities are subject to a deemed taxable coefficient on income of 20%. Income from film-screening rights is subject to taxes of 20�40%, recommended by the minister of finance and approved by the council of ministers on an annual basis. All other income from royalties and licences from foreign companies is subject to a deemed taxable coefficient on income of 30%. The coefficients are based on the standard corporate tax rate of 25%, so that the effective tax rate is either 5% or 7.5%.

Iran has double-tax treaties in effect with Armenia, Belarus, China, France, Georgia, Germany, Kazakhstan, Lebanon, Russia and South Africa. A dividend treaty is in effect with Poland, and agreements have been signed, but are awaiting ratification with Croatia, Jordan, the Kyrgyz Republic, Malaysia, Spain, Sri Lanka, Syria, Tajikistan, Tunisia, Turkey, Turkmenistan, Ukraine and Uzbekistan.

Withholding-tax rates under double-tax treaties (%) Country of recipient Dividends Interesta Royaltiesb Country of recipient Dividends Interesta Royaltiesb Armeniad

10/15 10 5 Lebanon 5 5 5

Austriac,d 5/10 5 5 Macedoniac 10 10 10 Belarusd 10/15 5 5 Poland 7 n/a n/a

China 10 10 10 Romaniac 10 8 10 Franced 15/20 15 10 Russiad 5/10 7.5 5 Georgiad 5/10 10 5 South Africa 10 5 10

Germanyd 15/20 15 10 Switzerlandc,f 5/15 10 5 Kazakhstane 5/15 10 10

(a) If interest is paid to a bank, then there is no tax on that interest; if paid to a non-bank entity, however, then a deemed profit of 80% applies on the interest; at the standard corporate rate of 25%, this translates to tax of 20% on the interest. For treaty countries, the tax is limited to thepercentage mentioned in the tax treaties. (b) The rate is the applicable maximum rate. (c) Treaty signed but not in effect. (d) The lower rate appliesif the recipient company holds at least 25% in the company paying the dividends. (e) The lower rate applies if the recipient company holds at least20% in the company paying the dividends. (f) The lower rate applies if the recipient company holds at least 15% in the company paying thedividends.

Source: Iranian Foreign Ministry

There is no charge associated with the lending of money to a company within the same group.

There are no specific tax rules or procedures for regional management companies.

Taxes on dividends

Taxes on interest

Taxes on royalties and fees

Double-tax treaties

Intercompany charges

Regional management companies

Iran 37


The government proposed a bill to establish value-added tax (VAT) at a relatively low rate of 7% in 2005. Prior to this, there was no VAT in Iran. The Majlis debated the bill in August 2006 and approved it in September 2007 for a probationary period of 18 months. The government plans to implement the law by September 2008.

Except for social-security contributions and real-property taxes, no other significant taxes affect companies operating in Iran. Social-security contributions are as follows: the insured person contributes 7% of earnings; the employer contributes 20% of payroll plus 3% for unemployment insurance (the first five employees in small industrial and technical workshops are exempt); and the government contributes 3% of payroll (it also pays employers� contributions for the first five employees in small industrial and technical workshops).

Taxes apply to foreign airlines and shipping companies at a flat rate of 5% of the income derived from passenger fares or freight originating in Iran. But if a higher rate of tax applies on similar Iranian operations in the foreign country, the same higher rate will apply to the income of those foreign airlines and shipping companies in Iran.

Both movable and immovable assets, whether cash or non-cash, left on the death of an individual are taxed at graduated rates of 5�65%. The rate depends on the size of each legacy, and on the relationship between the deceased and the beneficiary of his estate. There are no laws governing taxes on real property owned by non-Iranians since this is highly unusual.

The Iranian assets of foreigners are taxed on the death of the owner at graduated rates of 15�45%, depending on the size of the assets but irrespective of the number or relationship of any beneficiaries.

Personal taxes

Iranian income tax rates are progressive, at 0�35%. Foreign employees are subject to salary tax on the total of salary and respective allowances for working on their assignment in Iran. Employers of foreign personnel must submit the actual employment agreement of each employee to the Ministry of Economic Affairs and Finance after having it authenticated by the appropriate authorities in the country of domicile of the head office and certified by the nearest Iranian Consular Office. Absent actual employment contracts, the ministry uses a predetermined notional pay rate to calculate the tax. In practice, most foreign companies elect for their expatriate employees to be taxed at the deemed salary rates published by the Ministry of Economic Affairs and Finance.

Foreign nationals working in Iran are subject to income tax based on their salary. Foreign employees cannot obtain an exit visa unless they provide proof that they have paid their taxes, and since they need to obtain an exit permit when their presence in Iran is based on a work permit, the government can easily enforce this rule.

Turnover, sales and excise taxes

Other taxes

Overview

Residence

38 Iran


For tax purposes, the government assumes a certain salary for employees based on their position and country of origin.

Personal taxation applies principally on salaries and on profits from trading and professional operations. All salaries, wages and allowances paid to individuals, subject to certain exemptions listed below, are subject to personal income tax. The tax applies to salaries and wages paid in cash or in kind. In general, the tax applies to salaries and wages paid for work carried out in Iran, but it may also apply to salaries relating to Iranian assignments carried out outside Iran.

For non-cash allowances, notional amounts are included as part of taxable income, calculated as a percentage of the basic salary, as follows: furnished house (25%), unfurnished house (20%), company car with a driver (10%), company car without a driver (5%). Other non-cash allowances are taxed based on the actual cost to the employer.

The following sources of personal income are exempt from tax: New Year (Now Ruz) or other annual bonuses up to a maximum amount determined each year; retirement pensions; termination benefits and similar compensation; pensions received by dependants; and salaries and allowances paid to members of foreign diplomatic missions, subject always to reciprocity.

Exemptions from personal income tax are also given to foreign experts working in Iran on aid missions approved by the government.

Agricultural income is exempt from taxation. Assessments are based on the figures in the statutory books of account (that is, the officially sealed journal and ledger), or on an arbitrary basis.

Personal taxation Income (IR) Tax on bracket (%)0�37,000,000 037,000,001�42,000,000 10

42,000,001�100,000,000 20100,000,001�250,000,000 25250,000,001�1,000,000,000 30

1,000,000,001 and above 35

Source: Ministry of Economic Affairs and Finance.

Tax on salaries is deducted at source, on a monthly basis. The personal income tax rates are 0�35%, depending on income. There are no local (shahrdari) or state (ostan) income taxes.

An individual is permitted to own one piece of property free of real-property tax. Annual tax applies on additional properties valued at IR20m or more. Capital gains from the outright transfer of property are taxed at a flat rate of 25%, based on official zonal price.

Determination of taxable income

Personal tax rates

Capital taxes

Iran 39


Capital sources

In the aftermath of the 1979 revolution, Iran�s banking system was reorganised to conform to the principles of Islam, which prohibits riba (the charging of interest); the Usury-Free Banking Law codified these changes in 1983. Under this system, deposit rates, known locally as dividends, are in theory related to a bank�s profitability. In reality, however, these dividends have become fixed-rate returns offered at the same, often sub-inflation rates by all the commercial banks. Interest charged on loans (often presented as �fees� or a share of corporate profits) can amount to as much as 30% a year for private-sector customers, although much lower rates are set for government agencies and parastatals.

Bank Markazi is the central bank of Iran. Externally, Bank Melli Iran acts for the Bank Markazi and handles most Iranian banking operations. Though the bank�s internal operations have to comply with the Islamic banking legislation of 1983, this requirement was never imposed on its external operations.

All of Iran�s banks were nationalised after the 1979 revolution. In 1994 Bank Markazi authorised the creation of private credit institutions. The central bank also sought to recapitalise and partially privatise the existing commercial banks, seeking to liberalise the sector and encourage the development of a more competitive and efficient industry. The Guardian Council blocked the proposal, though it allowed the central bank instead to press forward with plans to establish private banks to operate alongside the state-owned institutions.

The central bank approved the first private-banking applications in mid-2001, and told three credit institutions they would obtain their licences once they had met a minimum-capital requirement of IR200bn (about US$25m). The central bank issued a licence in August 2001 to Bank-e-Eqtesadi Novin (Modern Economic Bank), making it Iran�s first private bank since the post-revolution nationalisation. The bank met the IR200bn capital requirement following a public share issue organised by state-owned Bank Melli. Founder shareholders of the new bank include Behshahr Industries Development Company, which is quoted on the Tehran Stock Exchange, and the Iran Construction and Development Company. Five other private banks operate in Iran: Parsian Bank, which received a full-service banking licence in September 2001; Saman Bank, licensed in August 2002; Karafarin Bank, licensed in December 2002; Pasargad Bank, licensed in September 2005; and Sarmaye Bank, licensed in January 2006.

The new banks have to comply with a strict supervisory system, which includes maintaining liquidity ratios that match�or exceed�criteria set by the Bank for International Settlements. The effect of the private banks on Iran�s financial system is and will continue to be modest since they are extremely small, even by local standards. Moreover, Bank Markazi restricts their freedom to set market-determined �interest� rates, since it insists that these new banks keep their rates within 2 percentage points of those offered by the state-owned commercial banks.

Overview

40 Iran


The banking reforms and chaos of the post-revolution economic situation resulted in a marked decline in the growth of assets of the banking system. Stringent government controls on the expansion of credit further inhibited the banks� scope for lending. High inflation for much of the post-revolution period has led to negative real rates of return on capital, and savings and deposits have weakened. The bulk of the commercial banks� loan portfolio is in low-return loans to state agencies and parastatals, such as the bonyad (state-run �charitable� foundations).

In the absence of an adequate banking system, moneylenders in the bazaar (marketplace) frequently meet the demand for seed or working capital. Indeed, currency exchange and money-lending has become a major source of business for bazaari traders (Iran�s traditional import-export merchants) in Iran�s distorted economy. This further exacerbates a tendency among Iranians to invest in businesses with a cash-based return, such as residential construction for the rental market or the importation of consumer goods.

In August 2004 the conservative-dominated Majlis (parliament) rejected major articles of the fourth five-year economic plan (2005�09) that would have allowed the privatisation of existing state-owned banks. Having branded the lending practices of state-owned banks as unfair and counter-productive during the 2005 presidential campaign, President Mahmoud Ahmadinejad has both lowered interest rates and attacked the lending practices of Iran�s private banks. Shortly after his election in June 2005, Mr Ahmadinejad replaced the heads of major state-owned commercial banks at the beginning of his tenure. The bank chiefs had staunchly advocated liberalisation, which Mr Ahmadinejad opposes, and some of them had openly sided with Hashemi Rafsanjani in elections. The president has targeted Parsian Bank, Iran�s largest private bank, as a symbol of economic injustice, which he accuses of corrupt lending practices. In October 2006, on orders from Mr Ahmadinejad, the Iranian central bank dismissed Abdollah Talebi as the bank�s CEO. In a surprising ruling, the Administrative Justice Court reversed President Ahmadinejad�s decision. Nevertheless, Mr Talebi stepped down in April 2007.

In April 2006 the government lowered interest rates from 16% to 14% for state-owned banks and from 24% to 17% for private banks in the hope of increasing access to capital. In May 2007 President Ahmadinejad issued a directive ordering the central bank to lower interest rates further, to 12% for both state-owned and private banks, where it stood at end-February 2008. This move in effect cut the rates paid to depositors to 7�14%, state banks reduced services for customers, and private banks have refused to grant new loans. Since the only alternatives are the high rates offered by the bazaar (30�40%), depositors have shifted their assets to gold and foreign exchange. Powerful borrowers from state-owned banks have made profits by borrowing low-interest funds from the official money market and lending to speculators in the high-interest informal money market.

Iran�s domestic state-owned commercial banks are the country�s primary sources of financing for business enterprises. Credit is available to local companies in various forms under the interest-free Islamic banking system.

Short-term capital

Iran 41


Overall, unsecured credit is generally unavailable to individuals and corporations. As a result, most banking loans and credit are issued against secured collateral or goods, for example. Virtually all lending is short term.

The 1979 revolution stifled growth on the previously busy Tehran Stock Exchange (TSE) since investors either left the country altogether or became wary of investing. After the end of the Iran�Iraq war in 1988, the government reactivated the exchange as part of its commitment under the first five-year plan to sell 391 firms from the state-owned portfolio. Trading resumed in 1989, and the bourse moved to purpose-built offices in downtown Tehran in early 1992. It joined the International Federation of Stock Exchanges (now the World Federation of Exchanges) later the same year.

Listing on the TSE is not a practical option for foreign companies seeking financing in Iran because of a real lack of liquidity and disposable income. Foreigners may buy shares on the bourse, but there has been virtually no external involvement�or interest�in the exchange. In March 2002 Henkel (a German detergents group) became the first foreign company ever to purchase a majority share in a local company listed on the TSE.

Islamic-law restrictions on speculation do not affect operations in the equity market since the law regards the purchase of shares as �productive investment� involving an element of risk. However, the 1983 Usury-Free Banking Law prohibits commodity dealing, since it is not viewed as �productive investment�.

Other financial instruments�from basic products such as mutual funds (unit trusts) to more-advanced derivative instruments�do not exist on the TSE.

Human resources

Basic literacy rates in Iran exceed the regional average, although uncertain reporting standards give a wide margin for error. Bank Markazi (the central bank) estimates that literacy rates reached 84.6% for those over six years old and 97.2% for the crucial 6�29 age group in 2006 (latest available information). The labour force of about 23.7m in 2007, as estimated by the Economist Intelligence Unit, is generally highly skilled. Nevertheless, the revolution distorted educational output, as wealthier Iranians started to send their children abroad for education, creating a brain drain. Iran experienced a massive �baby boom� after the 1979 revolution, especially during the Iran�Iraq war (1980�88); as a result, in 2006 about 28% of the country�s population was younger than age 14, and the median age was 25. The official unemployment rate in Iran was 12% in 2007, but the more commonly accepted figure is 25�30%.

Iran�s comprehensive Labour Law (dated February 17th 1991 and promulgated on March 5th 1991) replaced the older Law of 1959. It covers all labour relations in Iran, including hiring local and foreign staff. The Labour Law provides a very broad and inclusive definition of the individuals it covers; it recognises all written, oral, temporary and indefinite employment contracts.

The Iranian Labour Law is very employee friendly and makes it extremely difficult to lay off staff. Employing personnel on consecutive six-month

Medium- and long-term capital

Overview

Labour law

42 Iran


contracts is illegal, as is dismissing staff without proof of a serious offence. Labour disputes are settled by a special labour council, which usually rules in favour of the employee. Workshops with fewer than five employees are not subject to the labour laws.

A 1991 regulation under Section 35 of the Labour Code prohibits employers from paying employees less than the authorised minimum wage; it provides that employees are entitled to leave and paid holidays and that employees working on Fridays or official holidays and leave are entitled to 40% more than their usual pay; and it provides for wages if contracts are suspended.

The employer may require the employee to be subject to a probationary period. But the probation time may not exceed one month for unskilled workers and three months for skilled and professional workers. During the probation period, either party may immediately terminate the employment relationship without cause or payment of severance pay. The only caveat is that if the employer terminates the relationship, he must pay the employee for the entire duration of the probation period.

Fundamental indicators: labour force Labour market 2006 actual 2007 estimate 2008 forecastLabour force (m) 23.0 * 23.7 24.3

Unemployment rate (%) 11.6 * 12.0 12.5Income and consumer prices GDP per head (US$ at market exchange rates) 3,170 3,610 4,200GDP per head (US$ at PPP) 9,860 10,560 11,230Consumer prices (% increase) 11.6 17.0 19.0

* Economist Intelligence Unit estimates.


The government dissolved trade unions after the 1979 revolution, fearing their power to instigate civil disturbances. In response to popular pressure, however, the government decided in 1996 to re-legalise unions. Since then, union membership has grown modestly, and some labour groups are beginning to wield limited political power. So far, however, the union movement has generally failed to develop an effective political voice.

The most prominent union, the Labour House, an informal grouping of workers� associations, has put forward candidates for parliamentary elections. As at early March 2008, no more than 50 deputies in the Majlis could be considered sympathetic to the Labour House. Other bodies, such as the Islamic Association of Engineers and the Islamic Association of Physicians, also have begun to act like political parties and have proposed candidates for election to parliamentary posts.

There were no large strikes reported in 2007 or early 2008, though there had been increasing reports of labour strife in previous years. On several occasions, laid-off workers have protested in Tehran. In early September 2006, around 150 factory workers out of more than 500 laid off by the Rasht Electrical Company in Gilan province gathered in front of the Ministry of Mines and Industries. In late August 2006 around 200 part-time and short-contract teachers from all over the country demonstrated outside both the Ministry of Education and the

Industrial labour

Iran 43


Majlis. The teachers� complaints included low wages, unpaid holidays and the lack of health insurance.

In January 2006 the Greater Tehran Transportation Authority drivers syndicate organised a strike, demanding higher wages and better working conditions, but the Ahmadinejad administration quelled their demonstrations and ultimately arrested the syndicate�s leader, Mansour Asanlou. Mr Asanlou has been serving a five-year prison sentence since June 2007.

The minimum wage for an unskilled worker is IR1.83m per month for 2007/08 (starting March 21st 2007). The High Labour Council, which sets minimum wage, is chaired by the minister of labour and includes three labour representatives, three business representatives and two individuals appointed by the minister of labour. The present minimum wage will expire in March 2008. The High Labour Council was to set the new minimum wage for 2008/09 by early March 2008, but had not done so as at mid-March.

Labour, business and government representatives agreed in 2007 to base subsequent annual increases in the minimum wage on the annual inflation rate announced by the central bank. However, the central bank�s latest quarterly report, for mid-January 2008, revised the rate of inflation to 17.2%, from the initial 11.9%. This has caused some dissent among labour and business representatives, who will probably not agree to such a dramatic increase in the minimum wage. The minister of labour has hinted at a possible compromise that it would assign varying minimum wages to workers in different industries. Employees have leave on all official state holidays (about 22 days a year) and on Fridays. Any employee working during these holidays is entitled to overtime pay. Employees are also entitled to one month of annual paid holiday; annual leave for employees engaged in hard and hazardous employment is five weeks a year. Employees may carry over to the next year up to nine days of their annual leave. For termination, disability or redundancies, employees must be compensated for any accrued leave. Finally, employees are entitled to three days of paid holiday leave for marriage or for the death of a spouse, father, mother or child.

Female employees are entitled to 90 days of maternity leave. The employee�s salary during maternity leave is paid according to the provisions of the Social Security Act. Maternity leave must be considered part of an employee�s service record, and employers must provide returning employees with the same position.

A 1992 law requires employers to pay their workers the equivalent of two months wages as a New Year�s gift and annual bonus, if they have completed one year of work; if not, a pro-rata amount must be paid to them.

The workweek in Iran is based on a 44-hour week. Employees typically work Saturday through Wednesday (eight hours per day) and a half a day on Thursday (four hours). Any hours worked beyond these entitle the employee to overtime. The law mandates a payment of 40% above the hourly wage to

Wages and fringe benefits

Working hours

44 Iran


employees for any accrued overtime. The employee must consent to overtime work.

Annual salary costs for new staff members, 2006 Base salary (US$)

Top management 51,897Senior sales 39,045

Middle management 38,514Sales 18,538

Professional/administration/ junior management 14,918Clerical/technicians 8,452Manual/junior clerical 4,939

Source: Watson Wyatt.

Part-time and temporary work is permitted, but rare. Iran�s labour laws strongly favour hiring full-time workers. If an employment contract specifying the hours and days to be worked is signed, the company must add the part-time worker to its payroll. The worker may then receive all benefits based on a pro- rata formula.

To avoid the complexities associated with directly employing part-time workers, most companies requiring part-time help sign short-term service contracts. This way, the employee is not added to the company�s payroll. Contract tax of 5% is deductible from payments to the worker under both part- and full-time service contracts, and the worker is not entitled to any benefits. Foreign firms are strongly advised to consult labour professionals and a local attorney before hiring local staff on either a full-time or a part-time basis.

An employer may dismiss an employee only upon approval of the Islamic Labour Council or the Labour Discretionary Board. Grounds for dismissal include an employee�s neglect in carrying out his/her duties or violation of disciplinary byelaws of the employer. The employer must provide a written notice, informing the employee of the violations. If the board is not convinced that the employee�s dismissal is justified, the employer must reinstate the employee. Once an employee is dismissed, the employer is legally obligated to provide the severance package.

The law mandates the following compensation for suspended, terminated or disabled employees.

Suspended employees. Where an employee is suspended without cause, the employer must reinstate the employee and pay for all damages and compensation that resulted from the wrongful suspension. Suspension and mandatory reinstatement of the employment contract is allowed under the following conditions: period of military service (active, contingency and reserve) and also voluntary enlistment during conflicts (this period is considered part of the employee�s service record at the place of employment); closure of a workshop or parts thereof because of force majeure; educational leave for up to four years; and a period of detention that does not lead to conviction. Once the conditions giving rise to the suspension of the contract are removed, the employer must allow the employee to return to work. If the

Part-time and temporary help

Termination of employment

Iran 45


position has been filled or eliminated, the employer must provide a similar position for the employee. Failure to do the above is considered wrongful discharge and subject to legal action.

Terminated employees. An employer is under legal obligation to provide 30 days salary for every year of service for employees made redundant or retired. The law allows for termination of the employment contract only under the following instances: death of employee; retirement; total disability of employee; expiration of the duration of the employment contract; conclusion of work in task-specific contracts; and resignation of the employee.

Disabled employees. The employer must pay 30 days salary for every year of service. If disability of an employee is the result of working conditions, the employer must pay 60 days salary for every year of employee�s service period.

Citizens of all foreign countries (except Turkey, Japan, Slovenia and Macedonia) require a valid entry visa before arriving in Iran. The nearest Iranian consulate can provide details on such visas. The entry visa will specify the period of stay in Iran, although it is usually possible to obtain an extension once in the country.

Israeli nationals or individuals holding passports with evidence of past or proposed visits to Israel are prohibited from obtaining visas to Iran.

Visas are issued for business or tourism purposes. Business visas are issued to employer-sponsored or business-sponsored applicants. It is possible to obtain 72-hour business visas at Imam Khomeini International Airport. Tourist visas may be obtained through a sponsor or host in Iran.

Work permits. Employers are responsible for obtaining work permits for their foreign employees. The employee must obtain the work permit from the Ministry of Foreign Affairs through the appropriate Iranian consulate overseas before entering Iran. If an employee initially travels to Iran on a business visa while the work permit is being processed, that person must leave Iran before returning on a work permit. If the foreign ministry deems a job necessary, it will grant a permit within 7�14 days; otherwise, 6�8 weeks is the norm.

Iranian labour law forbids employing a foreign national without a proper work permit. Exemptions apply for diplomats, United Nations employees, foreign-press reporters and workshops with fewer than five employees.

A work permit will be issued to a foreign national only if the following conditions are met: there is a lack of expertise among Iranian nationals; the foreign national is qualified for the position; and the foreign national will train an Iranian who may later replace the foreign national. However, there are no specific rules on what constitutes training and how the training should be carried out.

Work permits are issued, renewed or extended for a maximum period of one year. It should be noted that an exit visa will not be granted unless the foreign national has paid all required fees, such as taxes.

Employment of foreigners

46 Iran


Few foreign ministries, if any, issue reports on the number of visa applicants they admit or reject. Iranians have taken this a step further: visa figures are classified information.

Residence permits. Upon arriving in Iran, an employer should apply for a residence permit with the Ministry of Foreign Affairs. A residence permit for a foreigner is not normally issued unless that person has a work permit and employment in Iran. A foreigner holding a residence permit who wishes to leave Iran requires an exit permit, which will be issued only upon producing evidence of tax clearance. Foreigners who reside Iran must carry an identification document with them at all times. They are also advised to register with their respective embassies.

Foreign trade

Iran ran a trade surplus in goods from the 1960s through the mid-1980s. Its trade balance has fluctuated wildly since then, largely reflecting shifts in international oil prices but also spending on imports, which in turn tended to reflect Iran�s external debt situation. Crude oil remains the dominant export earner; however, there have been sharp swings in earnings, from a low of just US$9.93bn during the oil-price slump of 1998/99 to a high of US$60bn for fiscal year 2006/07 (ending March 20th).

West Germany, the United States and the UK were Iran�s major suppliers before the 1979 revolution, but trade with the US and the UK plummeted during the post-revolutionary period. Nevertheless, according to the Iranian Customs Administration, imports from the UK have steadily increased in recent years, from US$887m in 2003/04 to US$1.7bn in 2007.

Throughout 2007 the German government indicated it wanted to downgrade commercial ties with Iran because of the latter�s refusal to end uranium enrichment. According to the German embassy in Tehran, however, UN sanctions did not hurt German exports to Iran in 2007. The Iranian Customs Administration estimates that the value of direct German exports to Iran increased by 2.4% in 2007 compared with 2006, to reach US$4.6bn. German firms have continued to play a major role as suppliers of capital goods to Iran. Iranian imports from France, the Netherlands and Belgium decreased by 7.2%, 2.8% and 4.2%, respectively, in 2007. Trade data released by the European Union in January 2008 shows that Iran�s imports from the EU decreased by 16.6%, from US$14.7bn in 2006 to US$12.2 in 2007. In contrast, Iranian imports from Asia increased in 2007. Imports from China totalled US$3.4bn; those of Japan reached US$1.2bn. Imports from the United Arab Emirates totalled US$9.3bn. However, the importance of the UAE as a trading partner is misleading, since the overwhelming majority of the goods traded with the UAE come from or bound for other markets, according to many Iranian businessmen working in the UAE.

The EU was Iran�s largest export market in 2007, with US$17.6bn of exports, followed by Japan with US$10.1bn. In 2006 Japan was Iran�s largest export market, followed by China, according to the Economist Intelligence Unit. Sales of crude oil represent the bulk of Iranian exports. Japanese companies have

Overview

Iran 47


become the largest foreign oil producers in Iranian fields after US companies had to abandon Iran in 1995; in April of that year, the US president at the time, Bill Clinton, imposed a comprehensive commercial embargo on Iran that included the oil industry. Chinese energy firms trail the Japanese, but they are expected to close more deals with the Iranian government since the Japanese firms have been hesitant to launch energy projects under intense pressure from the US. In February 2004, Inpex of Japan signed a deal with Iran to develop the Azadegan oilfield, which has an estimated 26bn barrels in reserves. However, under intense pressure from the US, Inpex negotiated with the Iranians to reduce its share in the Azadegan field from 75% to 10% in October 2006.

Iran has made strenuous efforts to diversify its oil markets, with particular success in Asia and South Africa. However, the vulnerability that exposure to such emerging markets entails became apparent following the Asian financial crisis in 1997�98, when oil demand contracted sharply. The present resurgence of Iranian energy exports to Asia is mainly attributable to strong growth in energy demand from China. Iran and China signed a long-term oil and gas deal on October 28th 2004; under the agreement, China will buy 250m tonnes of liquefied natural gas for 30 years and 150,000 barrels of crude oil per day for 25 years, at market prices, from Iran.

Regulations for the control of imports and exports are revised annually, with effect from the Iranian New Year, which begins on March 21st. The public sector controls most of Iran�s imports of goods and services. Such imports are through international tenders arranged under strict control by various government agencies that have been set up for that purpose. These controls may be bypassed for certain exclusive goods and services, but the government still retains control over the selection of the supplier.

Customs duty applies on virtually all goods imported into Iran. Duty is set on an ad valorem basis, applied to the cif (cost, insurance, freight) value. Iran follows the Harmonised Commodity Description and Coding System for classification of goods for this purpose.

The Duty Unification Act, which passed in January 2003, unified various taxes and levies on goods and services, whether imported or manufactured in Iran. The law set the customs duty on all imports at 4% of the cif value of the import. A �commercial benefit tax�, however, varies depending on the good being imported. In addition, there are various other minor charges for cargo handling. The Iranian Customs Office issues an annual Import/Export Regulations booklet, which lists the customs duty and commercial-benefit tax rates for all goods, according to their Harmonised codes.

Machinery, equipment, spare parts and raw materials imported by industrial, mining, agricultural, health and educational units and institutions may be fully or partially exempt from customs duties and the commercial-benefit tax. Machinery and equipment imported under buyback arrangements or by foreign investors also are exempt from import-registration fees.

Exemptions from customs and other duties are available for diplomatic goods, certain military equipment and supplies, and in crossborder trading. Travellers

Tariffs and import taxes

48 Iran


to Iran may import non-commercial goods for personal use up to a maximum value that is revised from time to time. Iran has established many minimum-quality standards, based on a combination of other countries� standards.

Imports of consumer goods generally incur tariffs of 30�50%; capital and intermediate goods attract slightly lower rates. Medicines, wheat and �strategic� goods are zero rated. But tariff rates and customs levies are subject to frequent change, often at the whim of state-owned producers, so it is critical to check regularly for specific information. In August 2001, for instance, the Ministry of Commerce imposed higher tariffs on steel imports to protect the Iranian national steel producers from cheaper imports from Kazakhstan, Russia and Ukraine. Tariff rates jumped to 50% (from 5%) on high-quality steel and to 10% (from 1%) on low-quality steel. The Iranian automotive industry is heavily protected, but the government has recently allowed imports�albeit with tariff rates that start at 170%.

All goods must be cleared from warehouses at seaports within four months of unloading, or they may be sold at auction. Those of value may be entered against bond or by guarantee of a reputable Iranian merchant that they will be re-exported within a specified time.

Iran has entered into bilateral most-favoured-nation (MFN) agreements with Armenia, Morocco, Russia, Syria and Turkmenistan. Iran has also signed an MFN agreement with the Economic Co-operation Organisation, a regional trading unit comprising Afghanistan, Azerbaijan, Kazakhstan, the Kyrgyz Republic, Pakistan, Tajikistan, Turkey, Turkmenistan and Uzbekistan.

Fundamental indicators: foreign trade Foreign trade (% growth) 2006 estimate 2007 estimate 2008 forecastExports of goods and services 2.0 2.9 8.6Imports of goods and services 4.0 9.0 6.0Foreign trade (% of GDP) Exports of goods and services 28.1 27.5 26.7Imports of goods and services 23.0 21.3 18.4

Trade figures (US$ bn) Current-account balance 20.7* 21.2 20.8 as percent of GDP 9.3* 8.3 6.9

Goods: exports fob 75.5* 81.3 86.4Goods: imports fob -49.3* -53.7 -56.4

Trade balance 26.2* 27.6 30.0Services: credit 1.7 1.8 1.9Services: debit -11.5 -12.6 -13.2

Services balance -9.8 -10.8 -11.3

* Actual.


Certificates of origin are required to enable goods to enter the country. Certain suppliers or countries may be blacklisted from time to time. Certain other countries may receive preferential treatment for various reasons, including their having a balance-of-payments position favourable to Iran. Iran forbids the import of goods from Israel. It also bans the import of pork products and alcohol (Islamic rules and beliefs prohibit these items).

Import restrictions

Iran 49


Certain classes of goods, such as firearms, explosives and drugs require special import licences. Restrictions also apply to the use of certain food additives. All foodstuffs are subject to regulations on packaging, labelling, description of contents, and dates of manufacture and expiration.

All importers must have a commercial licence issued by the Ministry of Commerce, and all imports must be registered with that ministry. Documents for goods exported to Iran must be authenticated by an Iranian consular office and by the chamber of commerce of the exporting country.

Foreign contractors are allowed to bring in machinery and equipment on a temporary basis for use on their contract, so long as they are re-exported upon termination of the contract.

Goods exported from Iran are not subject to duties.

Chief export markets, 2006% of total

Source: Economist Intelligence Unit Country Profile Iran, October 2007.

Japan 14.1

China 12.9

Turkey 7.3

Italy 6.3

South Korea 5.7

All others 53.7Germany 12.1

China 10.6

UAE 9.4

South Korea 6.2

France 5.6

All others 56.1

Chief import sources, 2006% of total

Under a decree issued in 1990, the government has established three free-trade zones (FTZs) on its southern coast: Kish Island (western coast, Persian Gulf), Qeshm Island (central, Strait of Hormuz) and Chahbahar Port (eastern coast, near Pakistan).

The Secretariat of the High Council of Free Trade-Industrial Zones, based in Tehran, supervises the activities of Iran�s FTZs. The president of Iran serves as the head of this organisation, which includes 14 ministers.

The following benefits are available for investors:

• business or industrial activity within any FTZ is exempt from all taxation for 15 years;

• travelling in or out of any FTZ does not require an entry visa;

• all sales, imports and exports are duty free;

• foreign investment is guaranteed (in accordance with Foreign Investment Promotion and Protection Act), as on the mainland;

• 100% foreign ownership is permitted;

Taxes on exports

Free ports, zones

50 Iran


• there are no restrictions on repatriation of capital;

• there are liberal currency regulations;

• off-shore banking is permitted; and

• registered trademarks and intellectual-property rights are protected.

The FTZs also offer easy access to international waters, consumers and markets in the central Asian states and the Persian Gulf littoral states. The FTZs also have access to Iran�s enormous natural resources (including the world�s cheapest oil and gas) and relatively high-quality and inexpensive Iranian expertise and labour.

An export licence is required for most exports, and the export of certain goods may require prior government approval. Certain goods may not be exported; this is usually enforced when local supplies of such goods have become scarce.

With the exception of handicrafts, agricultural goods and certain manufactured goods, the foreign-exchange proceeds from exports, up to the export price levels set by the government, must be brought back into Iran and sold to local banks.

The Export Guarantee Fund of Iran (EGFI) is Iran�s only official export credit insurance agency. The EGFI was set up in the 1970s, but it was inactive for ten years because of the eight-year war with Iraq and subsequent export difficulties. The EGFI was re-established in 1994 as an independent entity affiliated with the Ministry of Commerce.

The EGFI covers traditional commercial risks (such as bankruptcy or insolvency) and political risks (such as war, nationalisation or imposition of trade restrictions) associated with exporting goods.

Iranian exporters who intend to purchase their export commodities on credit terms from domestic manufacturers may submit EGFI�s guarantee to the manufacturer as collateral to guarantee fulfilment of their obligations to the supplier. The EGFI evaluates the credit status of the Iranian exporter and obtains the minimum possible collateral prior to issuing the guarantee. It charges a minimum commission fee for this guarantee.

Domestic banks or financiers may ask for appropriate collateral as security for the due repayment of the foreign-exchange facilities granted by them to the Iranian exporters. Iranian banks and financial institutions that intend to grant short-term local currency facilities or loans to domestic exporters (with the aim of financing their export activities and providing their working capital) may obtain the EGFI�s local-currency credit guarantee as a substitute for collateral to insure the debtor�s repayment of the granted facility on the due date. Hence, under this guarantee, the EGFI is responsible for payment to the beneficiary (lender) if the debtor does not repay the amount of the loan on the maturity date. To issue this guarantee, it assesses the borrower�s credit status. It obtains a minimum security, and charges a minimum commission fee.

The EGFI also provides a buyer�s credit guarantee, which is considered an appropriate substitute for the collateral required by a creditor. This guarantee,

Export restrictions

Export insurance and credit

Iran 51


once issued on behalf of the creditor/Iranian bank, will insure against the risk of non-repayment of the credit by the debtor (foreign buyer) on the maturity date.

E-commerce

E-commerce in Iran is years away from becoming a viable avenue for businesses. The rate of connectivity is low, as is the availability of home computers for most Iranians.

Iran�s telecommunications sector has expanded over the past decade. According to data released by the International Telecommunications Union (ITU) in 2007, there were about 37.4m telephone subscribers at end-2006, the equivalent of 532 per 1,000 persons. This compared with 937 per 1,000 persons in Saudi Arabia and 799 in Oman. The ITU data also show that there were 22m landlines in 2006, compared with only 10.9m in 2001. This growth reflects both the pace of demand growth and the relative success of the capital-intensive expansion programme by the Telecommunications Company of Iran (TCI), a state-owned telephone monopoly. TCI is also improving other aspects of its infrastructure�for example, by introducing fibre-optic cable and more-modern switching and exchange systems.

Internet-use figures for Iran vary widely, but according to the most recent data issued by ITU, for every 1,000 persons there were 254 Internet users in 2006, up from 100 in 2005. TCI is the main Internet service provider. A host of state and private companies servicing urban areas operates the wide-area networks. TCI issued regulations in June 2001 requiring Internet service providers to filter all materials presumed to be immoral or contrary to state security, including the websites of political opposition groups. In December 2006 the government issued a directive requiring web bloggers to register their blogs with the government. The directive was largely ignored, and the government initiated a persistent crackdown on blogs, arresting several (whose local reporting and opinion articles gained popularity amid restrictions on the independent media) on national security charges. According to an April 2007 report, State of the Blogosphere, by Technorati, an independent blog tracker, Persian is the tenth-most common language for blogs worldwide.

With the passage of the Foreign Investment Promotion and Protection Act in May 2002, foreign firms appear not to face any regulatory obstacles to e-commerce. Iranian expatriates (mainly those based in the United States) invested in the e-commerce sector in the early 2000s; however, investment by expatriates in e-commerce has dwindled since 2005, mostly because the Ahmadinejad administration eyes the expansion of the Internet with suspicion and has increasingly tightened control over private Internet service providers.

The Majlis (parliament) adopted the Electronic Commerce Law on January 7th 2004. Articles 62�66 of this law specify that Iran�s existing intellectual-property laws apply to all electronic transactions. Article 62 protects the author�s information, software, algorithms, procedures, databases and integrated circuits

Forms of e-commerce

Growth of e-commerce

Foreign investment

Intellectual property

52 Iran


used in e-commerce. Article 63 exempts temporary copying, installation and execution of software needed to implement e-commerce transactions from Article 62. Article 64 outlaws the acquisition of trade secrets for personal or other gain. Article 65 defines e-commerce trade secrets. Article 66 protects trademarks such as domain names and online logos.

Articles 33�49 of the Electronic Commerce Law of 2004 seek to ensure consumer protection in electronic transactions. This legislation ensures the right of consumers to complete disclosure of information by suppliers before, during and after electronic transactions. Also specified are the terms under which contracts for electronic commerce may be broken. Article 37 gives consumers seven days to withdraw from any contract without penalty. Article 42 stipulates that the protections of this law do not apply to financial services, immovable property, automatic vending machines, transactions over public payphones and auctions.

Article 44 of the Electronic Commerce Law of 2004 stipulates that �in the case of a dispute or uncertainty, the case shall be examined by judicial authorities�.

Neither the Electronic Commerce Law of 2004 nor any other Iranian legislation deals specifically with taxation arising from e-commerce.

Neither the Electronic Commerce Law of 2004 nor any other Iranian legislation classifies electronic transactions.

Articles 66�77 of the Electronic Commerce Law of 2004 stipulate prison sentences of up to three years and fines of up to IR100m for the following: fraud; forgery; violations of consumer rights and advertising regulations; breaches of privacy; violations of intellectual property; violations of trade secrets; and violations of trademarks.

Key contacts

• Central Bank of Iran, 144 Mirdamad Boulevard, PO Box 15875/7177, Tehran; Tel: (98.21) 29951; Internet: http://www.cbi.ir/default_en.aspx.

• Export Development Bank of Iran, 4 Gandhi Avenue, Tehran 15167; Tel: (98.21) 879 8213. • Export Guarantee Fund of Iran, 46 16th Street, Bucharest Street, Argentina Square, Tehran; Tel: (98.21) 873 3370; Fax:

(98.21) 873 3376; Internet: http://egfi.org.ir. • Interests Section of Islamic Republic of Iran, 2209 Wisconsin Avenue NW, Washington, DC 20007; Tel: (1.202) 965-4990;

Fax: (1.202) 965-1073; Internet: http://www.daftar.org/Eng/default.asp?lang=eng. • Iran Trade Point Network (http://www.irtp.com) is a web-only agency that provides useful information for doing

business in Iran and for finding local partners for business and licensing. • Iranian Association of Certified Public Accountants, 4 16th Street, Shahid Behzad Hesari Avenue, Mirdamad

Boulevard, Tehran; Tel: (98.21) 226 8935; Fax: (98.21) 227 8878; Internet: http://www.iacpa.ir. • Iranian Chamber of Commerce, Industry and Mines, 254 Taleghani Avenue, PO Box 15875/4671, Tehran; Tel: (98.21) 883

0066; Fax: (98.21) 882 5111; Internet: http://www.iccim.org/english/LDefault.aspx?nid=32. • Ministry of Economic Affairs and Finance, Sour Esrafil Avenue, Nasser Khosro Street, Tehran 11149/43661; Fax: (98.21)

391 6791; Internet: http://www.mefa.gov.ir. • Ministry of Foreign Affairs, Ebn-e Sina Street, Imam Khomeini Square, Tehran; Tel: (98.21) 672 7503; Fax: (98.21) 311 3149.

Consumer protection

Contract law and dispute resolution

Basis of taxation

Classification of e-commerce transactions

Compliance and enforcement issues

Iran 53


• Organisation for Investment, Economic and Technical Assistance of Iran (OIETAI), Ministry of Economic Affairs and Finance, Tehran, PO Box 11365/4618; Tel: (98.21) 393 9281; Fax: (98.21) 390 1033; Internet: http://www.investiniran.ir.

• Registration Office for Industrial Property, Khayam Street-Varzesh Street, Tehran; Tel: (98 21) 670 2826; Fax (98 21) 670 4358.

• Secretariat of the High Council of Free Trade-Industrial Zones, 53, Esfandiar Boulevard, Africa Expressway, Tehran 19679; Tel: (98.21) 205 4960; Fax: (98.21) 205 8657; Internet: http://www.iftiz.org.ir.

• Tehran Stock Exchange, 228 Hafez Avenue, Tehran; Tel: (98.21) 670 4130; Fax: (98.21) 670 2524; Internet: http://www.tse.ir.