Establishing a Business in Iran
Mohammad Reza Allahverdi
Managing Director, Elite Elements Pte Ltd
IE Singapore Seminar: Doing Business in Iran
September 2016
The Ruling Establishment
Election & Supervision
Supreme Leader
Assembly of Experts
Guardians Council
President
Expediency Council
Parliament
Head of Judiciary
First Vice President
Elected through
public vote
Assigned by the
Leader
Appointed by the
President
Partially by the Leader
Vice Presidents
Cabinet of Ministers
The Big Picture
Administrative
Commercial
Business
Entity
Regulatory
Financial
Administrative Process
Administrative
Jurisdiction
Business
Entity
Regulatory
Financial
Incorporation of Business Entity
Local
Company
- Several ways of structuring the local entity
- Local agent to manage the administrative process
- Will be treated as an Iranian company
Foreign
Company
- Choice of obtaining Foreign Investment License to
benefit from foreign investment protection laws
- Can simply be incorporated as a representative
office or branch of foreign company
Foreign
Entity
 A joint stock company is defined by 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. A joint stock
company may be either a public or a private company.
 The law specifies that a joint stock company must have a minimum of three shareholders
 Min capital of Rls. 1,000,000 is required for the private company at the time of formation
 At least two directors, one managing director, 28 items in Articles of Association
Organization for Investment, Economic and Technical
Assistance of Iran
 OIETAI: Organization for Investment, Economic and Technical Assistance
of Iran. It is a division in the Ministry of Finance responsible for foreign
investments in Iran. OIETAI is responsible for implementation of the
Foreign Investment Promotion and Protection Act (FIPPA).
 Receives all investment applications, issues foreign investment license,
safeguards all rights and entitlements of foreign investors in approved
investment projects.
 Responsible for all transfers and repatriation affairs of foreign
investments as well as all negotiations related to bilateral agreements for
the promotion and reciprocal protection of investments.
 Oversees and assists the investment of Iranian firms in overseas ventures.
Application for Foreign Investment License
1.
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7.
Application form
Establishment license: Preliminary agreement of the pertinent Iranian
organisation
Official letter of the foreign investor to OIETAI
CV of foreign investor: Company background, areas of activity, passports
A list of machinery, equipment and other items that are to be claimed later
as the foreign investor’s capital
In case a part of foreign investor’s share is in the form of technical knowhow, a draft of the contract outlining the conditions for the transfer of
technology to the local entity will be required
Any further useful information
Investment Licensing Procedure
Request for
Reconsideration
Submission
of
Application
to OIETAI
Report to
Foreign
Investment
Board
5 days
Review of
Application
by FIB
Issuance of
Draft
License
Issuance of
Investment
License
Import of
Investment
Items
Max 10 days
6 months
Companies in Free Trade Zones
 A company is treated as an Iranian entity subject to the Iranian laws
unless incorporated in one of the Free Trade Zones (FTZs) approved by the
Government.
 Kish Island, Qeshm Island and Chabahar Port
 Difference between FTZs and Special Economic Zones
 Contract law
 International arbitration
 Tax free
 No import duties for production machinery
 Full capital repatriation
 No visa requirement
Joint Ventures
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Joint venture agreement vs. joint venture company
Can be 99% foreign share, except bank, insurance, aviation
Tax liability of JV company, bank interest rate deducted from tax
Managing the “Deadlock Risk”, Non-Compete Clause
JV Co bidding for BOT, EPCF, BOO
Collection of royalties by JV company
Termination of the JV Co’s contract with local government will result in
termination of JV arrangement?
 Agreed arbitration mode of JV partners will be applied to their subcontracts as
well?
 Termination: Russian Roulette, Tag Along, Drag Along
 Ministry of Finance repayment guarantee only subject to IR Iran laws
Presence of Foreign Companies
FDI via
Tehran
Stock
Exchange
Local Sales
Centre
Joint
Venture
with
OIETAI
License
Foreign
Investment
Full Branch
Local
Factory
Rep
Office
Free Zone
Company
Henkel
Porsche
Renault
Pars
Pomegranate
Investments
Siemens
Nestle
Petronas
Sinopec
Kish
Service
Qatar
Airways
PeugeotIran
Khodro
BehTotal Japan
Buhler
Total
Japan
Drilling
Kish (Pars)
Lufthansa
Danieli
Persian
Metallics
Danone
Danette
Sahar
Bayer
Parsian
Mercedes
Benz*
OMV
KLM
AirFrance
MTN
IranCell
Legrand
Alborz
Novo
Nordisk
Pars
Galperti
Foreign
Banks
Tobacco
Int’l (JTI)
Finance & Taxation
Administrative
Jurisdiction
Business
Entity
Regulatory
Financial
Finance & Corporate Tax
 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 and property tax.
 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.
 Expenses which are deductible in the assessment of taxable income include: taxes
paid in country of origin, transportation expenses, cultural & welfare expenses,
transport costs, rent of machinery, business insurance, royalties...
Tax Incentives for Foreign Investors
Activity
Level of Tax
Exemption
100%
80%
Duration of Exemption
Incentive Type
Perpetual
4 Years
100%
20 Years
Permanent Exemption
Tax Holiday
Tax Holiday
50%
Perpetual
Export of Services & Non-oil Goods
100%
During 5th Development Plan
Handicrafts
Educational & Sport Services
Cultural Activities
Salary in Less-Developed Areas
100%
100%
100%
50%
Perpetual
Perpetual
Perpetual
Perpetual
All Economic Activities in Free Zones
100%
20 Years
Profits of Private and Cooperative
Companies used for development,
reconstruction and renovation
of existing industrial and mining units
50%
Perpetual
Agriculture
Industry and Mining
Industry and Mining in LessDeveloped Areas
Tourism
Tax Credit
Tax Holiday
Permanent Exemption
Permanent Exemption
Permanent Exemption
Tax Credit
Tax Holiday
Tax Credit
Local Banks
The Central Bank of Iran (CBI) regulates all activities related state-run and private
banks, licensed funds, financial institutes and foreign exchange dealers
Commercial
Specialised
Private
Melli
Export Development
Eghtessad Novin Shahr
Sepah
Maskan (Housing)
Parsian
Ansar
Mellat
Keshavarzi (Agriculture)
Karafarin
Day
Saderat
Post
Pasargad
Sina
Tejarat
Industry & Mine
Saman
Iran Zamin
Tose’e Ta’avon (Cooperatives)
Middle East
Sarmayeh
Refah
Tourism
Ayandeh
Banking System, LCs and Finance
 No credit cards, no more than Rls 150 million cash per withdrawal
 At least 3 months of turnover, choice of branch & contract
 Cash collateral, T bonds, valid bank letter of guarantee, listed shares, land,
real estate, machinery
 Order registration with the Ministry of Commerce (Import Permit)
 Issues with LCs in USD, Standby LCs, Silent Confirmation
 Not more than 20% of credit facilities of one bank
 Central Bank of Iran: Native Project / Native Bank Preference
 Master Facility Agreements
 ECAs and Country Risk Rating
 Service LC: Requirements of the Central Bank
Regulatory Framework
Administrative
Jurisdiction
Business
Entity
Regulatory
Financial
FIPPA and Mixed Interpretations
 FIPPA: What’s considered investment, what’s not? Challenges.
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Cash
Machinery & Equipment
Spares & Raw Material
Transferrable Dividends
Patent Rights, Technology & Brand
Other items subject to cabinet approval
 Should not pose a threat to national security, public interests & environment
 Must not put the foreign investor in a monopoly position
 Ownership of “immovable property” by foreign nationals not allowed
 The ratio of goods/services supplied through foreign investment (to the local
market) shall not exceed 25% in each economic sector and 35% of each field
Labour Law (Local)
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Regular: 44 hours per week
Stressful Occupations: 36 hours per week
Probation: 1-3 months
Fridays, Overtime (+40%) and Ramadan (reduced hours)
Maternity Leave: 9 months
Paternity Leave: 2 weeks
Basic Insurance vs Full Coverage
Military Service
Termination Notice: One month
Severance Package: One month salary net of tax for every year of service, min 1 year of
seniority, renewable short-term contracts
Annual Bonus: Gov’t vs private sector, 60 days gross / 90 days net
Contractual: 23 days of paid annual leave + 52 Fridays + 26 public holidays
Labour Law (Expatriate)
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Valid visa and work permit (except foreign missions and the press)
No local work force with similar expertise
Proven academic and professional track record for the respective post
Replacements to be trained from the local work force
One year, renewable
Insurance: Home country’s insurance policy attested by Iranian Embassy
Tax: Home country’s tax clearance attested by Iranian Embassy
Tax clearance required for exit of foreign employees of Iranian companies
Local employer to report the termination of expatriate contract within 15 days
Different treatment of file in case:
 Over 10 years of consecutive expatriation in Iran
 Iranian spouse
Business Setting
Administrative
Commercial
Business
Entity
Regulatory
Financial
Understanding the Iranian Business Environment
A number of decisive forces shape the Iranian business environment today:
1. Islamic Revolution: Certain firms cannot win the government projects
2. Iraq War: Updates on P&L, corporate details not regularly published
3. Sanctions: Relying on intermediaries for simple to complex matters
4. Banking Embargo: KYC issues, stress on Iranian banks and LCs
5. JCPOA (Lifting of Sanctions):
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Recovering the lost market share / regional competition
Transfer of technology is the focal point in choice of foreign partners
Insisting on JV / BOT / EPCF arrangements
Reconsidering the cooperation model with certain countries / companies
Foreign companies urged to involve their banks for Iran business
Challenges
 KYC Requirements
 E-Government
 Communication in English
 Direct Banking Lines & Rebate Schemes
 Export Finance Facilities
 Resident Embassies / Ambassadors
 Direct Flights
 Visa Requirements for Iranians
 Joint Chamber of Commerce / Trade Association
What your local partner may tell
 If your bank accepted my LC or TT, then we wouldn’t have any complication.
 If instead of “sight LC” you accept my “deferred payment LC”, I will be able to buy
more from you.
 When you open an LC, you pay 2.5% bank charges; when I open LC I have to pay
18% of bank charges; so you should give me a credit line.
 If you reduce your prices by 3%, we’ll increase your market share by 10%.
 Don’t ask me to make a selling point of your “reasonable prices”, I’m competing
with Chinese firms here.
 Don’t push me to emphasize on your “advanced technology”, I’m competing with
German companies here.
 Don’t expect me to promote your “competitive prices and advanced technology”
in Iran, we are competing with foreign companies who have set up a state-of-theart factory in Iran.
Intellectual Property
 In lack of strong copyright laws worsened by the
years under embargoes, an underground counterfeit
market has evolved.
 Consumer electronics, automotive parts, FMCGs,
IT hardware, books, luxury clothing brands and audiovisual products the main targets of counterfeit abuse.
 Victims can obtain court order provided that
their brand is already registered with OIETAI or
provided that their local partner holds an official and
valid letter of distribution or representation.
 Breach of copyright laws carries harsher penalties.
Singapore as Viewed by Iran
 A credible name, politically endorsed, economically trusted
 Some Industries of Interest:
 Shipping
 Port Management
 Aviation
 Water Desalination
 Banking
 Jack-ups & Offshore Drilling Rigs
 Commodity Trading
 Palm Oil
 Tourism & Hospitality ■
THANK YOU
All rights reserved. The material herein has been prepared for presentation at IE Singapore’s “Doing Business in Iran”
Advisory Seminar. The contents herein may not be in any form reproduced or distributed, in whole or in part, without
prior written consent of Elite Elements Pte Ltd.
For further information, please contact:
Elite Elements Pte Ltd.
Reg 201532949H
30-01 South Beach Tower, 38 Beach Road, Singapore 189767
Tel: (+65) 6228 1212, Fax: (+65) 6228 1177
Email: [email protected]