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A Review of the Iranian Tax System


1. Tax Bases and Rates
The Iranian tax system is divided into two general categories of direct and indirect taxes. The share of direct taxes from the total tax revenues is almost 68% currently. There are two major types of direct taxes including income taxes and property taxes.  Each category of direct taxes, in turn, is divided into sub-parts. Indirect taxes include taxes on imports and Value Added Tax (VAT). Taxes on imports are currently collected by the Iranian Customs and are not within the jurisdiction of INTA. Table 1 briefly shows various types of taxes in the Iranian taxation system

                                                                             Table (1):  The Iranian Tax System

 

 

Tax Category

Tax Type 

Tax Base

Act/

Chapter/Article

Taxable Income

Taxable Persons

Tax Rates

Direct Taxes

Income Taxes

Real Estate Income Tax

DTA - C/I/52-58

Income of persons derived from transfer of rights in immovable properties situated in Iran, less the exemptions: total rent, less a deduction of 25% for expenses, depreciations, and commitments of the owner in regard to the property.

Owners who have rented their immoveable properties to others

15%-35%

Employment Income Tax

DTA -C/III/82-92

Salaries, wages or any other remuneration received by individuals in respect of their employment services.  Payments for works conducted out of Iran, shall be subject to the tax, provided that the payer is an Iranian resident.  

Individuals

10%  for public sector employees and the others 10-35%

Individual Business Income Tax

DTA -C/IV/ 93-104

Unincorporated business activities (aggregate sale of goods and services) less the exemptions provided in the DTA

Individuals

15-35%

Corporate Income Tax

DTA -C/V/105-118

Aggregate profits of companies, and the profits from the profit-making activities of other legal persons, derived from sources in Iran or abroad, less the losses from nonexempt sources and minus the provisioned exemptions

Legal Persons

25%

Tax on Incidental Income

DTA -C/VI/11119-131

Income earned ex gratia or through favoritism or as an award.

Real or legal person

15-35%

Property Taxes

Tax on Transfer of Real Properties

DTA -C/I/59-80

Final transfer of real estates & goodwill shall be subject to taxation at the date of transfer.   

Real or legal person

5% & 2%

Tax on Transfer of Shares

DTA -D/I/143

Nominal value of transfer of shares

Joint Stock Companies and other Companies

0.5% & 4%

Inheritance Tax

DTA -B/IV/17-43

Any estate left from the deceased individual. 

Real person

5-65%

Stamp Duties

DTA -B/5/44-51

Each sheet of check printed by banks (Rls. 200), bill of exchange, promissory notes (0.3%), and other documents and negotiable papers with specified amounts.  

 

As provisioned in Articles 44-51

Indirect Taxes

VAT

Value Added

VATA

Value added resulting from the sale of all goods and services and their imports, except 17 items listed in Article 12 of the VAT Act (VATA) as the exempted ones

Real and Legal Persons

6% currently, to be annually increased for 1% up to 8% by the end of the 5th Development  Plan

   

Taxes on  Imports

Currently collectible by the Iranian Customs Organization.  

Some of the most important tax rates are as follows:

                                                                     Table (2):  Most Important Tax  Rates

Tax bases

 

Tax rates

Company Income Tax

 

25%

Real Persons Income Tax

Rates of the Article 131

Up to IRR 30,000,000

15%

30,000,000 to 100,000,000

20%

100,000,000 to 250,000,000

25%

250,000,000 to 1,000,000,000

30%

Over 1,000,000,000

35%

Public Sector Salaries Income Tax

 

10% on annual income

Private Sector Salaries Income Tax

Up to IRR 42,000,000

10% on annual income

Over IRR 42,000,000

Rates of Article 131

Rental Income Tax

 

Rates of Article 131

Transfer Tax

Goodwill

2%

Real properties

5%

Shares

0.5% (listed companies' shares)

4% (other companies)

Value Added Tax

 

6%

 

 

 

2. Taxation from foreign investors in Iran
Direct Taxes
All non-Iranian real or legal entities for the income earned in Iran and also for the income gained through granting of license or other rights, technical and educational assistance or movie contracts in the territory of Iran are subject to taxation. Depending on the type of activity of the foreign investor, various taxes and exemptions are applicable, including profit tax, income tax, property tax, etc.
Foreign investors in Iran enjoy the same supports and privileges that are offered to the Iranian investors. This means both Iranian and foreign investors pay the same amount of taxes. Tax exemptions and discounts are also equally granted to domestic and foreign investors.
Since foreign investments are usually active as legal entities, we will hereunder focus on rules and regulations for Corporate Income Tax.

Corporate Income Tax
a) General Issues
Foreign legal entities residing abroad shall be taxed at the flat rate of 25% in respect of the aggregate taxable income derived from the operation of their investment in Iran or from the activities performed by them, directly or through the agencies in Iran.
The legal entities shall not be subject to any other taxes on the dividends or partnership profits they may receive from the capital recipient companies.
Legal entities are obligated to, even within the exemption period, submit declaration and profit and loss balance sheets, provided from their official statutory books, maximum four months after the tax year (March 21 each year until March 20 next year)  along with the list of partners and shareholders, their shares and addresses to the tax department within the area of the activity of the legal entity. If these legal entities do not submit the documents within the stipulated time span, the tax exemption will be null and void

b) Exemptions

The Direct Taxation Law and other pertinent legislations have considered certain exemptions for the legal entities as table (3):

                                                                                                 Table (3):  Highlights of Tax Exemptions

Activity

Level  of  Tax Exemption

Duration of    Exemption

Legal Basis

(Act- Article)  

Incentive Type

Agriculture

100%

Perpetual

IDTA- Article 81

Permanent Exemption

Industry and Mining

80%

4 Years

IDTA- Article 132

Tax Holiday

Industry and  Mining  in Less-Developed  Areas

100%

20 Years

IDTA- Article 132; Paragraph B of Article 159 of the 5th Year Development Plan

Tax Holiday

Tourism

50%

Perpetual

IDTA- Article 132- Note 3

Tax Credit

Export of Services & Non-oil Goods

100%

During 5th  Development Plan

IDTA- Article 141

Tax Holiday

Handicrafts

100%

Perpetual

IDTA- Article 142

Permanent Exemption

Educational & Sport Services

100%

Perpetual

IDTA- Article 134

Permanent Exemption

Cultural Activities

100%

Perpetual

IDTA- Article 139- Paragraph L

Permanent Exemption

Salary in Less-Developed  Areas

50%

Perpetual

IDTA- Article 92

Tax Credit

All Economic Activities in Free Zones

100%

20 Years

Article 13- the Free Zones Act

Tax Holiday

Profits of Private and Cooperative Companies used for development, reconstruction and renovation of  existing industrial and mining units

 

50%

Perpetual

Paragraph A of Article 159 of the 5th Development Plan, 15% was added to the exemption as of 2010

Tax Credit

 

 

 

c) Deductions
Expenses which are deductible in the assessment of taxable income are listed in the Direct Taxes Act. These expenditures must be supported to a reasonable degree by documentary evidence and are exclusively connected with the earning of income during the year in question.
The categories of deductible expenditure are as follows:
                                                                   Table (4):  Deductible Expenses

The cost of goods and raw materials

Expenses incurred in the maintenance and upkeep of the premises owned by the enterprise

Personnel costs

Transportation expenses

Rental of enterprise's premises in case of being rented

Expenses related to transportation and entertainment for employees, and warehousing costs

Rent of machinery and equipment

Fees paid in proportion to the services rendered

Costs of fuel, electricity, lighting, water and communication

Interest and fees paid for the carrying out of the enterprise operation

Business insurance

Cost of repair and maintenance of machineries and business equipments

Royalties, duties, rights and taxes paid

Abortive exploration expenditures for deemed mines

Research, development and training expenditure

Membership and subscription fees connected with the business operations

Compensation paid for damages resulted from the business operations

Bad debts, if proved

Cultural, sports and welfare expenditures paid to the Ministry of Labour and Social Affairs in respect of workers

Currency exchange losses computed in accordance with accepted accountancy practice

Reserves against doubtful claims

Normal wastage of production

Losses of legal persons

The reserve related to acceptable expenses of the assessment period

Minor expenses incurred in connection with the rented premises of the enterprise

Expenses for purchasing of books and other cultural and art goods for employees and their dependents

Other expenses that are not referred to in the above Table, but are related to the earning of the enterprise's income, shall be accepted as deductible expenses on basis of the proposal of the INTA and approval of Ministry of Economic Affairs and Finance.

d) Losses
Losses sustained by all taxpayers engaged in trading and other activities are accepted by the tax authorities; will be carried forward and written off against future profits for a period of three years.

e) Withholding taxes
● Five percent of every contract payment may be withheld by the payer and accounted for to tax authorities. Such a withheld tax constitutes an advance payment of the final tax due.
● The payers of salaries are obliged, when paying or allocating the same, to compete and withhold therefrom the applicable taxes and to remit, within thirty days, the deducted amounts together with a list containing the names and addresses of recipients and the amount of the payments, to the local tax assessment office.

 

f) Depreciation
Depreciation of assets is deductible in the assessment of taxable income. Depreciation rates range from 5% to 100% and the period over which assets may be depreciated ranges from 2 to 15 years.

3. Value Added Tax (VAT) in Iran
The VAT in Iran is levied on the sale of all goods and services and their imports, except 17 items listed in Article 12 of the VAT Act (VATA) as the exempted ones. The VATA, however, does not include the export of goods and services through official Customs gates. Therefore, the taxes paid for the export of goods and services will be refundable by submitting the Customs clearance sheets and valid documents.
Currently, the VAT rate stands at 6% (VAT rate for two special goods of cigarettes and jet fuel is relatively higher). To reduce the country’s dependency on oil revenue, the Law on the Fifth Five-Year Development Plan provisioned an annual one-percent increase in the VAT rate to put it at 8% at the end of the Plan, i.e. 2016.
Economic activities in free trade and industrial zones are exempted from the VAT.

4. Agreements for the Avoidance of Double Taxation
To facilitate cooperation between Iranian and foreign residents and to promote trade and economic exchanges with foreign countries, the Government of the Islamic Republic of Iran has applicable mutual Agreements for the Avoidance of Double Taxation:

 Table (5):  List of Iran's Applicable Agreements for the Avoidance of Double Taxation  

France

Turkmenistan

Algeria 

Azerbaijan Republic

Kyrgyzstan

Turkey

Indonesia

South Africa

Kazakhstan

Tunisia

Ukraine

Germany

Qatar

China

Bahrain

Austria

Georgia

Russia

Belorussia

Jordan

Lebanon

Sri Lanka

Bulgaria

Armenia

Poland

Switzerland

Venezuela

Uzbekistan

Kuwait

Syria

Pakistan

Spain

Serbia

Sudan

Romania

Tajikistan

Malaysia

Croatia

South Korea

Oman

 

 

 

Economic advantages:
• The 18h largest economy in the world by purchasing power parity (ppp)
• Consumption and the government plans billions of dollars worth of further investment to increase this share.
• The diversified economy and broad industrial base with over 40 industries directly involved in the Tehran stock Exchange is the industrial base in the MENA region.
• Resource-rich economy
• Labor-rich economy
• Young and educated population
• Large domestic market
• The Middle East market is a prime market opportunity for Iran’s non-oil exports
• An increasingly sophisticated infrastructure and human capital base providing the foundation for an emerging knowledge –based economy.

Employment of Foreign Nationals in Iran

Foreign nationals are prohibited from working in Iran unless they receive work and employment permits (even if they are supposed to receive wage and salary outside the Iranian territory). The work permit serves as the employment license for the foreign nationals in Iran.
The work permit for the employment of foreign nationals in Iran is issued by the “Department General for Employment of Foreign Nationals” (also called Department for Employment of Expatriates) of the Ministry of Cooperatives, Labor and Social Welfare upon a request by Iranian employers. In provincial capitals it is issued by the Foreign Citizens Divisions of the Department General of Cooperatives, Labor and Social Welfare. (The general procedure for admission of foreign investment has been brought separately in the following part.) The Iranian employers are obligated to seek the permission of the Department General for Employment of Foreign Nationals before concluding any contract that may lead to the employment of foreign citizens in Iran. The rules and regulations for acquiring work permit for the foreign nationals are available in the Labor Law of the Islamic Republic of Iran, ratified in 1990 (articles 120 through 129 and executive bylaw of Article 129). Although due to abundance of educated job-seekers in the country and for the purpose of reducing unemployment rate of the educated and skilled job-seekers the Technical Board for Employment of Foreign Nationals has strict rules and regulations (stipulated in Article 121 of Labor Law) for issuance of work permits, the Foreign Investment Promotion and Protection Act (FIPPA), passed in 2002, has considered promising provisions for issuance of work permits for foreign investors, managers and experts in relation with the investments under FIPPA.

 

Admission of Foreign Investment According to FIPPA Rules and Regulations:

By virtue of Article 35 of the Executive Bylaw of FIPPA: “The relevant executive agencies, including but not limited to, the Ministry of Foreign Affairs, the Ministry of Interior, the Ministry of Labor and Social Affairs [since 2011 and after merging of ministries, the Ministry of Cooperatives, Labor and Social Welfare] and the
Disciplinary Forces of the Islamic Republic of Iran (the Police) are required to proceed with the issuance of visas, residence permits and work permits for foreign investors, directors, experts and their immediate family members in relation to the investments covered by FIPPA, at the request of the Organization confirming their status as investors, in the following manner :
The Ministry of Foreign Affair is required, upon receipt of the request of the Organization, to communicate to the Missions of the Islamic Republic of Iran abroad, the authorization for the issuance of single entry visa, or multi-entry visa (for three years) with a three-month residence permit on each entry for the relevant individuals, depending on the type of visa requested.
The above mentioned persons who have obtained entry visa for investment may, after entry into the Country, refer to the Disciplinary Forces of the Islamic Republic of Iran (the Police) and obtain a three-year residence permit, upon submission of the Organization’s formal note confirming the coverage of such investments under FIPPA. The Ministry of Labor and Social Affairs is obliged to issue work permit for such individuals consequent to the issuance of the residence permit.
Obtaining such three-year residence permits by foreign investors, as stipulated above, shall exempt them from entry and exit visas required for traveling to or from the Country.”

Issuing Work Permit outside FIPPA Framework

In cases when Iranian employers need technical specialty of foreign experts, issuance of visa with a work permit privilege as well as work permit for the foreign nationals will be carried out upon request by Iranian employer. According to pertinent rules and regulations, no foreign citizen can personally apply for employment and work permit in Iran, unless he/she registers an enterprise legally. Upon inquiry from the Department General for Employment of Foreign Nationals, before concluding any contract with foreign experts, the Iranian employers should deliver the request and required documents to the department general for verification. The documents are sent for further investigation to the Technical Board for Employment of Foreign Nationals. The approval or disapproval of the Board is thereby announced to the employer through the related experts.
Delegation of Limited Authority for Issuance, Extension and Renewal of Work Permit of Foreign Nationals to the Provincial Departments General of Cooperatives, Labor and Social Welfare:
In the past, the responsibility of issuance, extension and renewal of the work permits of foreign nationals used to be carried out in Tehran (at the Department General for Employment of Foreign Nationals). For the welfare of the applicants, the authority of these affairs to certain degree has been delegated to the Departments General of Cooperatives, Labor and Social Welfare in the provinces. Therefore, employers and foreign nationals can refer to the provincial departments general for issuance, extension or renewal of their work permit.

 

Validity Period of Work Permits

The work permits of foreign nationals is issued, extended or renewed for a period of one year.

Extension of Work Permits

Upon expiry of the work permit, if the Iranian employer still needs the specialty of expatriates, he can apply for the extension of the work permit of his foreign laborer or expert. The application is sent to the Technical Board for Employment and upon approval the permit is extended for a period of one year.

 

Renewal of Work Permit

Foreign nationals with valid work permits whose contracts with employer become null and void for any reason, will be subject to renewal of work permit after changing the employer. The renewal of work permit – upon the change in employer or the type of work – will be carried out by the responsible divisions of the Ministry of Cooperatives, Labor and Social Welfare after the approval of the Technical Board for Employment of Foreign Nationals.

 

Legal Punishments for Employment of Foreign Nationals without Work Permit

 

Employers who hire foreign nationals whose work permits have been expired or have no work permit, or employ them in jobs other than those stipulated in their work permits, or do not notify the Ministry of Cooperatives, Labor and Social Welfare about cases where the employment agreement between them and foreign nationals is terminated, shall be sentenced to prison terms or cash fines.

Fees

At present, the issuance and renewal of work permits for foreign nationals costs 1,400,000. Rls and extension of permits costs 1,000,000.Rls. Expatriates of some countries will be exempted from such charges upon mutual agreement with their respected countries on receiving similar privileges.

 

Unique Advantage for Foreign Investors Employing Labor Force in Iran

Foreign investors employing those introduced by the affiliated units of the Ministry of Cooperatives, Labor and Social Welfare will enjoy growing discounts or exemption from paying part of the insurance duties in case their units are newly established, or there would be no reduction in their employment rate the year before (part of Article 80 of the Law on Fifth Five-Year Development Plan).

 

GENERAL
1.1. Definition
The Joint Stock Company is defined by the law as a company whose capital is divided into shares and the liability of whose shareholders is limited to the par value of their shares. As mentioned in the Foreword, the Joint Stock Company may be either a public company (Sherkat Sahami Am) or a private company (Sherkat Sahami Khass). The main difference between the two is that the public company may offer its shares and debt securities to the public while the private company may not. See Annex A for additional differences between the public and private companies.
1.2. Other Forms of Business Association
In addition to the Joint stock company, the Iranian Commercial Code provides for the following types of business association:
(a) Limited liability company (Sherkat ba Masouliyat Mahdoud)
(b) General partnership (Sherkat Tazamoni)
(c) Limited partnership (Sherkat Mokhtalet Gheyr Sahami)
(d) Mixed joint stock partnership (Sherkat Mokhtalet Sahami)
(e) Proportional liability partnership (Sherkat Nesbi)
(f) Production and consumption cooperative (Sherkat Ta'avoni Towlid va Masraf)
Of the mentioned listed companies, the limited liability company and the joint stock partnership provide for a limitation of shareholders' liability to the value of their shares. In the case of the mixed joint stock partnership, the law provides for both shareholders and unlimited liability partners. The principal difference between the joint stock and the limited liability company is that with the latter, the capital may not be divided into shares and the participants may not transfer their interests therein without the approval of a majority of the participants representing three-fourth (3/4) of the company capital.
1.3. General Features
The shareholders of a joint stock company participate in the ownership, profit and losses, and distribution of assets in liquidation, in proportion to the shares held. As indicated above, the liability of each shareholder is limited to the par value of his shares and in the absence of fraud or other deceptive practices, there should be no recourse to shareholders for the liabilities of the company. The company has a separate juridical
personality by the law and can sue or be sued in its own name. The shareholders possess the usual shareholder rights including, in general, the right to attend shareholders meetings, receive financial reports, elect and replace the board of directors, and vote on major decisions of the company.
1.4. Number of Shareholders
The law specifies that a joint stock company must have a minimum of three shareholders.
1.5. Nationality of Shareholders
There are no legal restrictions with respect to the nationality of persons who may form joint stock companies. As a matter of policy, however, the Iranian Government generally requires Iranian shareholder participation in fields of activity deemed important to the nation's development programs.
1.6 Shares
A Joint Stock company may issue both ordinary and preferred. Shares in either bearer or registered form. While the law does not specifically state what privileges may be accorded to preferred shares, it is understood that priorities as to dividends and distribution of assets in liquidation, and multiple voting powers will be honored under the law. The principal differences between registered and bearer shares relate to the manner of transfer and tax implications. See Section 2.6. below.
1.7. Management
Management of a joint stock company is made the responsibility of board of directors which must be elected by cumulative voting of the shareholders at least once every two years. See Pan IV below for additional information concerning the board of directors.
1.8. Dissolution and Liquidation
General provisions governing the dissolution and liquidation of a joint stock company are provided in the law and companies are authorized to specify in their Articles of Association any particular provisions they may desire so long as they are not inconsistent with the law. Since the provisions of the law on this subject are general in nature, it is advisable, when drafting Articles of Association, to include procedures for dissolution and liquidation.

CAPITAL
2.1. Share Capital

A minimum capital, at time of formation, of Rls. 1,000,000 is required for the private company, and of Rls. 5,000,000 for the public company. Payment for shares may be either in cash or in kind. If payment is made in kind, the value of the property involved must be appraised by an official appraiser of the Ministry of Justice. In the case of payments in cash, only 35% need be paid in at the time of formation and the remainder within five years upon the call of the board of directors or shareholders. In the case of payments in kind, the full amount of the property must be transferred to the company at the time of formation. The share capital may be increased at any time by a two-third (2/3) vote taken at an extraordinary general meeting. Decrease in the capital may also be effected at any time by a two-third (2/3) vote taken at an extraordinary general meeting and there is a legal requirement for the reduction of capital whenever half of the company's capital is lost.
2.2. Subscriptions
Although only 35% of the company's capital need be paid in at the time of formation, 100% of the capital must be subscribed. Notwithstanding the 100% subscription requirement, a procedure has been developed in practice for "authorized but unissued stock", enabling the use of such desirable arrangements as employee stock purchase plans. In general, the procedure involves the holding of an extraordinary general meeting at which the shareholders approve to implement the increase in such amounts and at such times as the board may determine.
2.3. Par Value
A Par Value, or nominal Value, is required to be assigned to the shares of a joint stock company. For the public company, the law prescribes a maximum par value of 10,000 per share. There is no minimum or maximum par value fixed for the shares of a private joint stock company. There is a requirement applicable to both the public and private companies that all shares must be of equal par value and this requirement is apparently applicable to both ordinary and preferred shares. Where both ordinary and preferred shares are issued, all apparently must have the same par value. There is also a related requirement that all calls of the unpaid portion of shares must be made without any discrimination. If provision for the issue of fractional shares is made, the par value of each fraction must also be equal.
2.4. Share Certificates
Specific requirements as to the form and content of share certificates are provided in the law. They must be uniform, printed, and bear a serial number, and be signed by at least two authorized persons. Each certificate must contain the following information:
(1) Name and style of the company and number under which it is registered at the Companies Registration Office.
(2) Registered share capital and paid-up portion
(3) Type of Shares.
(4) Par value of the shares and paid-up portion both in words and figures.
(5) Number of shares represented by the certificate.
2.5. Provisional Share Certificates
The law provides that when share certificates have not been issued, the company must issue provisional certificates to the shareholders indicating the number of shares and the amount paid up. The law also provides that until the full par value is paid on bearer shares, the issuance of bearer certificates is prohibited; however, registered certificates may be issued to the subscribers of such shares before the full par value has been paid and in this case the provisions of law regarding the transfer of registered shares will be applicable to such shares.
2.6. Transfer of Shares
Bearer shares may be transferred by physical delivery while the transfer of registered shares is not complete until the transfer is recorded in the share register of the company. At least, in the case of registered shares, restrictions on transfer may be written into the Articles of Association.
2.7. Reserves
A legal reserve to be funded by transfer of 5% of the net profit of a joint stock company each year until the fund reaches ten percent (10%) of capital is required. Net profit is defined as income derived during the year less the expenses, depreciation and any transfers to reserves (other than the Legal Reserve of five percent (5%) of net profit).
2.8. Dividend
Dividends must be authorized by the shareholders at a general meeting and may be made only out of "distributed profit' which is defined as the net profit earned during the year less (i) losses incurred during preceding years, (ii) other optional reserves, plus distributed profit of the preceding years not previously distributed.
2.9. Preemptive Rights
Shareholders have the preemptive right to subscribe to new shares. This right may be rescinded, however, by a two third (2/3) vote taken at an extraordinary general meeting.

FORMATION

3.1. Articles of Association
The constitutional document of a joint stock company is called the Articles of Association which is roughly equivalent to a combination of the charter and by-laws of a corporation formed in other countries. The subscribing shareholders, or founders must approve the Articles of Association and affix their signatures thereto before the company formation may be registered. See Annex B for a checklist of matters- to be covered in the Articles of Association.
3.2 Payment of Subscriptions
Subscriptions in the required amount must be paid in to a bank account opened in the name of the company before the company may be formed. A receipt of the bank is required as one of the documents to be filed with the Companies Registration Office when the company is registered.
3.3 Founders Meeting
A meeting of the subscribing shareholders, or founders is required by law for the public company but not for the private company. Even with the private company, however, it is advisable to hold such a meeting as the simplest means for accomplishing all of the actions required in connection with the company formation. All of the founding shareholders must :
(a) Approve and sign the Articles of Association

(b)Confirm the required subscriptions and payments thereon have been made

(c) Elect directors and inspectors

(d) Receive acceptances of directors and inspectors

(e) Designate a general circulation newspaper for publication of the company's legal notices.

3.4 First Meeting of the Board of Directors
Before a joint stock company may begin doing business, the Board of Directors must hold. a meeting to:
(a) Elect a Chairman and a Vice Chairman
(b) Appoint the Managing Director and specify his duties
(c) Approve the form of share certificates and designate the company officers to sign them
(d) Designate the officers authorized to sign on behallf of the company
In addition, it is advisable in the first meeting of the Board of Directors to designate the bank or banks to serve as depository of the company funds.
3.5 Registration
In forming a private company the following documents are required to be filed with the Companies Registration Office:

(a) Draft Articles of Association signed by all shareholders
(b) Statement that the shares have been subscribed together with a bank certification that the required amounts have been paid in
(c) A document signed by all shareholders evidencing the election of directors and inspectors
(d) Signed acceptances of the directors and inspectors
(e) Statement designating the general circulation newspaper in which the legal notices of the company will be published
(f) A declaration (on a form furnished by the Companies Registration Office).
A public company is formed when its Articles of Association has been approved by the shareholders at a founders (or statutory) meeting and filed with the Companies Registration Office together with a minute showing the election of directors and inspectors and their signed acceptances of their positions. The public company's promoters, who must subscribe to at least 20% of the company's capital, begin the process of formation by submitting to the Companies Registration Office in Tehran draft Articles, a draft prospectus and a declaration which must state:

(a) Name of the company

(b) Identity and domicile of promoters

(c) Objectives of the company

(d) Capitalization, including separate identification of stock paid in kind and in cash.

(e) Number of registered and bearer shares together with their par value and the number of preferred shares together with a description of the rights of preferred shareholders.

(f) Contributions, cash and kind, of the promoters

(g) Principal office, and

(h) Duration

When the Companies Registration Office is satisfied with the information furnished by the promoters, it will permit publication of the prospectus which must include information and instructions regarding how and where interested investors may subscribe for shares of the company's stock. When the total capital of the company has been subscribed and at least 35% has been paid in, the promoters are required to allot the shares to the subscribing shareholders and then call the founders (or statutory) meeting. At this meeting the subscribing shareholders are to review the Articles of Association, elect the first directors and inspectors and designate a newspaper for publication of the company's legal notices. Upon approval of the Articles by the subscribing shareholders, they must be submitted to the Companies Registration Office together with the minute of the meeting.
3.6. Publication
A notice of the company formation is required to be published both in the Official Gazette and the general circulation newspaper designated by the founding shareholders. Publication of this notice is paid for by company and usually contains the following information:
(1) Name and style
(2) Objects
(3) Location of the head office
(4) Duration and date of formation
(5) Nationality
(6) Share capital, par value of shares and type of shares
(7) Paid-up portion of the share capital and number of bank receipt or receipts evidencing the payments.
(8) Identity of founders and number of shares held by them
(9) Names of first board members and managing director
(10) Managing director's authorities
(11) Persons authorized to sign on behalf of the company
(12) General circulation newspaper in which legal notices will be published
(13) Names of the first statutory inspector and alternate inspector.
(14) Manner of liquidation
3.7. Commencement of Legal Existence
Although the registration and publication requirements must be met to complete the formation process, the legal existence of the company commences on the date the directors and inspectors accept their positions in writing.
3.8. Costs
The following charges and fees will be incurred in connection with the formation of the Company:
(a) Registration fee based on the capitalization of the company payable to the Companies Registration Office.
(b) Charges for publication in the Official Gazette of the notice of registration payable to the Official Gazette at current rates.
(c) Charges for publication in a general circulation newspaper at current rates.
(d) Stamp taxes on share certificates.

3.9. Liability of Promoters
The law provides that the promoters of the company are jointly liable for all acts and functions which they perform in connection with formation of the company.

BOARD OF DIRECTORS
4.1. Number

Although the law prescribes that a public joint stock company must have a minimum of five directors, there is no minimum prescribed for private joint stock companies. However, since the board of a private company, as well as of a public company, is required to elect a Chairman and a Vice Chairman, and a board is required by law, the board of a private company must consist of at least two directors.
4.2. Election and Removal
Directors must be elected from among the shareholders at least once every two years. It is mandatory that the election be by cumulative voting and that it takes place at an ordinary general meeting. Any one or more of the directors are subject to removal by the shareholders. Directors are also eligible for re-election. Legal entities may be elected as directors.
4.3. Duration of Office
The term of office for directors must be fixed in the Articles of Association but may not be for more than two years. However, if the term expires before successor directors are elected, the existing directors continue to be responsible for the affairs and management of the company until the new directors are elected.
4.4. Security Shares
Directors are required to possess the number of shares specified by the Articles of Association and this may not be less than the number required for voting at general meetings. Each director must place the required number of shares in the custody of the company for the duration of his term of office to serve as security against losses which may result to the company through violations by the directors of their duties. These shares must be registered shares. The law provides that failure to comply with the requirements will result in the offending director being considered to have resigned from his office.
4.5. Authority
The law specifically provides the board with all necessary authorities for the management of the company within the limits of the company's objectives as stated in the Articles of Association. However, the board may not exercise any power which have been expressly reserved to the shareholders acting in general meetings, and limitations on the board's authority which will be valid as between the directors and shareholders, but not in respect of third parties, may be written into the Articles of
Association.
4.6. Liability
Directors are not only subject to the ordinary rules of fair play in respect of the company, its shareholders, and third parties dealing with the company, and thus liable for any violations of these rules, but they are also, individually and jointly, subject to criminal prosecution for specified acts and omissions.
4.7. Meetings
The board is expected to act in meeting at which a quorum of a majority of the directors is present. The manner of calling board meetings including any notice requirement should be specified in the Articles of Association. In any event, the law provides the board chairman and any group of directors constituting one-third (l /3) of the board with authority to call meetings. Resolutions will be adopted when passed by the favorable votes of a majority of the directors present at the meeting, unless a higher vote requirement is specified in the Articles of Association.
Minutes for each meeting must be kept and signed by a majority of the directors who attended the meeting. The minutes must show the names of the directors who attended and who were absent, a summary of the deliberations and actions taken, and the date of the meeting.
4.8. Actions without Meeting
Actions of the board are valid without a meeting if approved in writing by all of the directors.
4.9. Proxies
Although there is no specific authority in the 1969 amendments to the Commercial Code for director's proxies, such have been recognized in practice. The Code, prior to the amendments provided for proxies with the caveat that the director remained responsible for his proxy's acts.
4.10. Alternate Directors
Alternate directors are authorized but are not mandatory.
4.11. Managing Director
The law requires that at least one person be appointed by the board as the managing director to manage the daily operations of the company. This person may or may not be a member of the board but he may not also hold the position of chairman of the board unless the shareholders meet
and approve the arrangement by a three-fourth (3/4) vote. The scope of the managing director's authority should be specified by the board at the time of his appointment and he is then considered to be the company's legal representative with authority to sign on behalf of the company.
4.12. Compensation
Directors as such may not be paid by the company except reasonable fees for attending meetings, and a "bonus" voted by the shareholders out of company profits. For the private company this bonus is limited to 10% of dividends and for the public company, to 5% of dividends. Directors may serve as officers or employees of the company, however, and be compensated in such capacities.
4.13. Doing Business with the Company
A director.(and the managing director) may not enter into an enforceable business transaction with the company unless the transaction is approved by the board without the interested director participating in the vote, and the matter is reported both to the company inspectors and the shareholders. Even where this is done, if losses result to the company from the transaction, the directors who approved may be held liable. The law specifically provides that loans and guarantees by the company to directors are void except where the director is a legal entity.
4.14. Competing with the Company
If any director (or the managing director) concludes transactions in competition with the company, and the company suffers a loss of profits as a result, the director will be liable to indemnify the company for the loss.

SHAREHOLDERS MEETINGS
5.1. Types

Shareholders meetings are called general meetings and the law provides for three types. The first is the statutory or founders meeting which is mandatory only for the public company. The second is the ordinary (annual) meeting which must be held once a year and the third is the extraordinary meeting which is held on call. In addition, there are two other species of meetings involving the shareholders. One is a Special meeting' which must be called whenever the rights of holders of preferred shares are to be altered, to enable these shareholders to vote on the intended alteration. The other is called an 'extraordinary session of the ordinary general meeting" and may be called by the board of directors, inspectors, or holders of 20 percent of the company's shares whenever action is required on a matter within the competence of the ordinary meeting at times other than when the ordinary meeting is scheduled to be held.
5.2. Competence of Ordinary Meeting
The ordinary meeting is competent to deal with all of the affairs of the company except those which are expressly within the competence of the statutory and extraordinary meetings. It is expressly required to take action on the following matters:
(1) Review and approval of the balance sheet and profit and loss account and other financial reports.
(2) Review and approval of the directors annual report
(3) Review and approval of the inspectors annual report
(4) Election of directors (if their term has expired) (5) Election of inspector(s) and alternate inspector(s)
(6) Designation of general circulation newspaper in which the company's legal notices will appear.
5.3. Competence of Extraordinary Meeting
The extraordinary meeting is competent to deal with any changes in the Articles of Association or the share capital and dissolution of the company.
5.4. Directorate
The law provides for management of general meetings by a directorate composed of a chairman, a secretary, and two observers. Unless the
Articles of Association provides otherwise, the chairman will be the chairman of the board of directors. The secretary need not be a shareholder but the observers must be.
5.5 Notice
Written notice for general meetings must be given to the shareholders not less than 10 days and not more than forty days before the date of the meeting and such notice must be published in the general circulation newspaper designated for the company's legal notices. The notice must state the agenda and the date, hour, and place of the meeting. Waiver of these requirements is author4zed whenever all of the shareholders attend the meeting.
5.6. Quorum
The quorum requirement for both the ordinary and extraordinary meetings is more than 50 percent of the shares entitled to vote. If an ordinary meeting fails for lack of a quorum upon the first call, the
5.11. Minutes
Written minutes of all general meetings are required to be made by the secretary of the meeting providing a record of the deliberations and actions taken. The minutes must be signed by the directorate and a copy thereof must be kept at the principal office of the company.
5.12. Filing and Registration of Minutes
Whenever a general meeting takes action on any of the following matters, a copy of the relevant resolution must be filed with the Companies Registration Office for registration in a register (book) maintained by that office:
(1) Election of directors or inspectors
(2) Approval of the balance sheet
(3) Decrease or increase in the capital and any change in the Articles of Association.
(4) Winding up of the company and the manner of liquidation.
5.13. Publication of Minutes
In addition to the filing and registration requirements mentioned in Section 6.12 above, notice of action taken by a general meeting (or by the board) on the following matters is required to be published in the general
circulation newspaper designated by the shareholders and in the Official Gazette:
(1) Election of directors or inspectors
(2) Decrease or increase in the capital and any change in the Articles of Association.
(3) Winding up of the company and name and particulars of the liquidators.
(4) Name and power of the Managing Director
(5) Designation of the newspaper in which all the legal notices of the company will be published.
5.14. Adjournment
A general meeting may be adjourned for a period of up to two weeks by the directorate with the approval of the meeting. In such a case, no new notice is required and the quorum requirement for the adjourned session will be the same as for the original session.
5.15. Minority Shareholders Calls
Minority shareholders owning in the aggregate one-fifth (l/5) of the company's shares are entitled to request the board and the inspectors to call a general meeting at any time. If the board and the inspectors fail to call the requested meeting, then the shareholders, themselves, are entitled to call the meeting.

MISCELANIOUS
6.1. Statutory Inspectors (Auditors)

The law requires the election, by the shareholders, of a statutory inspector and alternate inspector once a year at the ordinary general meeting. The election of more than one inspector and alternate inspector is optional. In general, the function of the inspector is to serve as a watchdog over shareholders and third parties interests and he may be prosecuted criminally for violation of his duties. Certain categories of persons such as criminals, the directors and their relatives, and persons doing business with the company are disqualified from serving in this post. Among other things, the inspector is required to submit a report of the ordinary general meeting each year.
6.2. Books of Account
Both the public and private joint stock companies are required to maintain in the Persian language the journal, ledger, inventory and copy book of merchants. These books serve as the basis for determining the company's tax liability and failure to keep them strictly in accordance with the legal requirements may result in the tax authorities making their own determination of what the company's tax liability should be.
6.3. Company Name
The law requires that the words, "Private joint stock company (Sherkat Sahami Khass)" appear with the name of a private company and that these words be displayed in a conspicuous way on all letterheads, publications and notices of the company. As a matter of practice, the Companies Registration Office requires the use of Iranian names and will refuse to register a new company name that is too similar to the name of a company already registered.

ANNEX A
SOME DIFFERENCES BETWEEN PUBLIC AND PRIVATE JIONT STOCK COMPANIES
1. A private company may be formed with a minimum capital of one million Rials (Rls. 1.000.000). The public company must start with a minimum capital of five million Rials (Rls. 5.000.000).
2. The founding shareholders of a public company are required to subscribe at least 20 percent of the initial capital and to pay in at least 35 percent of the subscription. The founding members of a private company must secure subscriptions to 100 percent of the capital and pay in a minimum of 35 percent of the cash capital and 100 percent of the non-cash capital.
3. The board of directors of a public company must consist of a minimum of five directors. A private company may operate with a board of two directors.
4. Directors of a private company are permitted a bonus of 10% of dividends. Directors of a public company may be voted a bonus of only 5% of dividends.
5. When a public company is organized, a founders meeting is required at which a number of formalities must be observed. This meeting is not required for the founders of private companies, although it is desirable to hold such a meeting.
6. The annual financial reports of public companies must be certified by officially recognized accountants. This requirement is not strictly applicable to private companies.
7. The public company is limited in the maximum nominal value which it may assign to each share of stock to Rls. 10.000. The private company is not so limited.
8. The raising of additional capital by a public company requires the preparation and filing of a prospectus with the Companies Registration Office. A private company need only submit to the Companies Registration Office a resolution and declaration when raising its capital.
ANNEX B
CHECKLIST of Matters which in Most Cases should be Covered in the Articles of Association

1. Name of the company
2. Style of the company
3. Duration of the company
4. Objectives of the company expressed and defined
5. Location of the head office and branch offices, if any
6. Details of the share capital of the company specifying the amount paid in cash and the amount paid in kind, separately
7. Number of bearer shares and of registered shares and the par value thereof as well as the number of preferred shares, if any, particulars and the privileges attached thereto
8. Details of the amount of the shares which is paid up 9. Those who will sign the share certificates
10. Manner of call of the par value of shares and the period over which the balance should be paid
11. Manner of transfer of registered shares
12. Manner of conversion of registered shares into bearer shares and Vice-Versa
13. Manner and conditions of increasing or decreasing the capital of the company
14. Period and manner of calling general meetings
15. Regulations governing the quorum for general meetings and the manner of running such meetings
16. Manner of transacting business and the number of votes required to give validity to the actions taken by general meetings
17. Number of directors, the manner of their election, their term of office, the manner of election of the successors of such directors who die or resign or become incapacitated or have been removed from their office or otherwise deprived of their office by any legal impediment
18. Details of the scope of the functions and authorities of the board of directors
19. Time for and the manner of calling the meetings of the board of directors
20. Regulations governing the quorum for the meetings of board of directors
21. The manner of election of chairman and vice chairman of the board and their term of office
22. Manner of transacting business and the number of votes required to give validity to the actions taken by the board of directors
23. Number of directors' security shares to be deposited with the company
24. Whether the company shall have one or several legal inspectors and the manner of their election and their terms of office
25. Whether the company shall have one or several managing directors and their terms of office
26. Date of commencement and end of the fiscal year of the company, the time limit for preparing the balance sheet and profit and loss account and the submission thereof to the legal inspectors and to the annual general meeting
27. Manner of voluntary winding up of the company and the proceedings for liquidating its affairs
28. Manner of making alterations to the Articles of Association

Incentives for investment in Special Economic Zones

• Import of goods from the above mentioned zones for domestic consumption would be subordinate to export and import regulations, and export of goods from these areas will be carried out without  any formalities.
• Import of goods from abroad or free trade zones or industrial area-would be carried out with minimal customs formalities and good internal transit cases would be performed in accordance with the relevant regulations.
• Log entry of merchandise subject to this article will be done without any customs formalities.
• Goods imported from outside or industrial areas or other commercial zones can be exported without any formalities of the country.
• Management of the region is allowed to assign the region to qualified natural or legal persons after classification and valuation.
• Owners of goods imported to the region can send all or part of their goods for temporary entry in to the country after doing customs clearance regulations.
• If the processing of imported goods is to some extent that changes the tariff of goods, the rate commercial benefit of the goods would be calculated equal the commercial benefit of raw materials and spare parts of the country.
• Importers of goods are allowed to hand over to others part or all of their products against warehouse receipt to be issued by the district administration, in this case the breakdown warehouse receipt holder would be the owner of the goods.
• The management of each district is authorized to issue certificated of origin for goods per applicant out of the area with the approval of the customs.
• All the goods imported to the region for the required production or services are exempted from the general import-export laws. Imports of goods to other parts of the country will be subordinated to export and import regulations.
• Percentage of goods produced in the zone, based on paragraph (d) of clause (25) of the law of the second economic, social and cultural development plan of the Islamic republic of Iran imported to the country, the proportion of total value added and domestic parts and materials used in the total price of the commodity production is allowed without any limitation and in addition to not having to order and open letter of credit.
• Goods manufactured in special economic zones, as well as raw materials and imported CKD parts into the country is not subject to price regulation due to unutilized resources and allocated currency

 

The list of the special economic zones of the Islamic Republic of Iran are as follows:
1-Salafchegan special economic zone
2-Shiraz special economic zone
3-Assaluye special economic zone
4-Arge Jadid special economic zone
5-Payam Airport  special economic zone
6-Persian Gulf special economic zone
7-Lorestan special economic zone
8-Amirabad port special economic zone
9-Bushehr Port special economic zone
10-Shahid Rajaee Port special economic zone
11-Sarakhs special economic zone
12-Sirjan special economic zone
13-Yazd special economic zone
14-Bushehr special economic zone

For more information the visitors may go to the website:  www.freezones.ir

 

Supportive Goverment Policies

The Law on foreign investment in Iran under the name of “Foreign Investment Promotion and Protection Act” (FIPPA) was ratified by the parliament in 2002.Some specific enhancements introduced by FIPPA for foreign investment in Iran can be outlined as follows:
1-Broader fields for involvement by foreign investors including in major infrastructure,
2-Broader definition given to foreign investment, covering all types of investments from FDI to different types of project financing methods including :Civil Participation, Buy –Back arrangements, Counter trade and various BOT schemes;
3-Streamlined and fast track investment licensing application and approval process;
4-Creation of a one stop shop called the “Center for foreign investment Services” at the organization for investment for focused and efficient support for foreign investment undertaking in Iran,
5-More flexibility and facilitated regulatory practices for the access of foreign investors to foreign exchange for capital transfer purpose

Trade-Industrial Free Zones

Incentives and advantages for investment in Trade-Industrial Free Zones
1-Tax exemption for 20 years fromy;" the date of operation for all economic activities
2-Foreign investment and nearly a hundred percent of the amount invested.
3- Freedom of entry and exit of capital and profits
4- Protection and guarantees for foreign investments.
5- Abolition of entry visas and easily issue of residence permits for foreigners.
6-Facilitated regulation on labor relations, employment and social security.
7- Transfer of part manufactured goods to the mainland without paying customs duties.
8- Elimination of pay customs duties on imports from outside to the region and vice versa.
9- Employing trained and skilled manpower in all different skill levels and professions.
10- Utilization of raw materials, oil and gas as feedstock and fuel for all industrial activities.

The list of the Trade-Industrial Free Zones of the Islamic Republic of Iran are as follows:
1-Qeshm Trade-Industrial Free Zone
2-Chabahar Trade-Industrial Free Zone
3-Aras Trade-Industrial Free Zone
4-Anzali Trade-Industrial Free Zone
5-Arvand Trade-Industrial Free Zone
6-Kish Trade-Industrial Free Zone
7-Maku Trade-Industrial Free Zone

For more information the visitors may go to the website:  http://www.freezones.ir

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