According to the Direct Taxes Act (Article 105), the aggregate profits of companies, and the profits from the profit-making activities of other legal persons, derived from different sources in Iran or abroad, less the losses resulting from non-exempt sources and minus the prescribed exemptions, shall be taxed at the flat rate of 25%. Although, based on the approval of Act 2017, production and import goods and services, except 17 cases mentioned in Article 12 of Value Added Tax Act (VATA), would be accounted as Value-Added Tax. The tax would not cover goods and services exported through the customs official. Already, the rate of Value Added Tax stands at 9%. Moreover, the government considered exemptions and incentives for motivating investors to the investment and finalized economic activities as follow:
- According to the Direct Taxes Act (Article 132), the income declared for producing and mining activities, which is derived by non-government legal persons in producing or mining enterprises, for whom exploitation licenses are issued, or with whom extraction and sale contracts are concluded by relevant ministries as of the date of entry (after 2016) into force of the present Act, shall be subject to a zero tax rate for a period of 5 years beginning from the date of exploitation or extraction or activity start up. As regards the less-developed regions, the provision shall apply to a period of 10 years. The zero-rate taxation and incentives provisioned in this Article shall not apply to the income of producing and mining entities established within a 120 km radius from the center of Tehran Province or within 50 km radius from the center of Isfahan and within a 30 km radius from the administrative centers of provinces and cities with a population exceeding 300,000, according to the latest population and housing census.
Moreover, special economic zones and industrial townships are exempted from the geographical restrictions.
However, enterprises involved in special economic zones and industrial townships within the mentioned regions shall be entitled to the privileges provided by this Article. Enterprises involved in special economic zones and industrial townships within the 120 km radius from the center of Tehran Province (except for industrial townships of Qom and Semnan) shall not be entitled to the tax incentives.
In order to develop the industrial townships, the legislator determined special privileges for special economic zones and industrial townships and shall increase for 3 further years, if they are located in the less-developed regions and for 2 further years, if they are located in the other region. Therefore, zero-rate taxation for enterprises located within the special economic zones and industrial townships of other regions increased to 7 years and for the less-developed regions reached to 13 years.
- The type of activity and the legal authorities are important. The exemption is only regarded for the non-government legal persons; legislator supported all producing and mining enterprises considered the activities in the private section of mines and industries. Although, only embraced special sections of services delivered by hospitals, hotels and touristy residential centers, and IT centers. The important issue is zero-rate taxation; therefore, the abovementioned exemptions are implemented in accordance with filing tax return, profit and loss account, and balance sheet to Iranian National Tax Administration within the due deadline.
- After passing the period (between 5-13 years), tax exemption could be extended and the legislator supports all the reinvestments including new established enterprises or earlier ones (before 2016) and would grant tax exemptions. In this regard, the tax incentives shall also be applied to the reinvestment by non-government legal persons (producing, mining, delivering services such as hospitals, hotels, touristy residential centers, and transportation centers), in case of investment issuing permit and capital increase by the relevant authorities and registered capital increase.
- For enterprises in less-developed regions, the zero rate shall still applied in the computation oftaxes, relevant to the subsequent years following the zero-rate taxation period, as long as the aggregate taxable income is twice the registered and paid-up capital. For instance, if the registered capital increase is 100 mn IRR, as long as the aggregate taxable income reaches 200 mn IRR, the mentioned tax would be computed at zero-tax rate.
- Enterprises in the other regions, are exempted as much as 50% of aggregate taxable income in the subsequent years up to the registered capital limit. For instances, if the aforementioned enterprise was in the other regions, only 50% of the income would be received tax exemption and the taxes shall be zero rated. Tax exemption limit equals to the registered capital at 100 mn IRR.
- A one-year tax exemption would be applied to enterprises with work forces of over 50 (in addition to their current tax exemption) in case their workforces increase 50% from the previous year.
- Foreign companies that produce well-known brand products in Iran by using capacities of domestic producing enterprises, provided that they manage to export at least 20% of their products, all throughout the tax exemption period (listed in table) producing enterprise shall still be subject to the 50% relief in the tax rate with regard to the profits derived from the sale of their products during the period (12.5% instead of 25% tax rate to the sale profit).
- If the investments subject to the provisions of the present Article have been made in partnership with foreign investors, then for any 5% of foreign investment partnership, there will be a 10% increase in the tax incentive prescribed by this Article, which shall not exceed 50% of the registered and paid-in capital. For instance, if an enterprise has got 100 mn IRR of capital increase and 5 mn IRR of the foreign capital has permit, the tax exemption shall be as follow:
- In the case that the producing enterprise located in the less-developed region, as aforementioned the enterprise would be exempted as twice of the registered capital which equals 200 mn IRR in the normal situation while 10% is increased to it, the tax exemption limit of the income would be increased to 220 mn IRR.
- In the case that the producing enterprise located in the other regions, the enterprise would be exempted as 50% of the tax on income equals 100 mn IRR in the normal situation. In the case that the foreign investor presented, the amount is increased to 10% is increased to it, the tax exemption limit of the income would be increased and 110 mn IRR equals 50% of the tax on income subjected to the tax exemption.
- According to Article 30 of the Law for Removing Obstacles to Competitive Production and Promoting the Country's Financial System and Article (138 bis) to Direct Taxes Act, those persons that contribute in cash to the financing of projects and the provision of the working capital of production enterprises in the form of partnership contracts shall be granted an income tax exemption equal to the minimum interest expected from partnership contracts as approved by the Money and Credit Council. Moreover, the interests paid shall be deemed tax deductible for the payer of the interest.
- According to Article 33 of the Law for Removing Obstacles to Competitive Production and Promoting the Country's Financial System and Article (143 bis) to Direct Taxes Act, the transfer of negotiable papers belonging to market makers holding licenses from the SEO in the stock exchange or OTC markets shall be exempt from the 0.5% final tax stipulated in the present Article.
- Tax exemption on EPS and stock rights
- Tax exemption on DPS
- Tax exemption on Investment Fund Earnings
- Tax exemption on trade based on investment fund certifications
- Tax exemption on the commodities exchanged on the Stock Market
Sport, Services and Education Activities
The income derived from education and training activities by non-profit schools, whether elementary, junior or senior secondary, technical or vocational, or by non-profit universities and higher education institutions, as well as the income derived from taking care of mental and physical invalids by the institution engaged in such activities, shall be exempt from tax, provided the aforementioned institution having permission from the respective authorities. The income of sporting institutions and clubs having permission from the physical training organizations shall also be exempt from tax, if it is derived purely from sport activities.
Specific Legal Incentives and advantages and implementation of Foreign Investment Promotion Regulations and Protection Act (FIPPA)
- Investment by foreign real and legal entities and Iranians living abroad
- Lack of restrictions on the percentage of foreign shareholding investors
- Foreign state-owned enterprise Facilities
- Enjoyment of same and equal treatment for foreign investors, as accorded to domestic investors
- Allowing investment in all areas permitted to the private sector
- Registration of Iranian companies with %100 foreign capital
- Transfer of principal capital, dividend and the profits abroad, gained through the utilization of capital in the form of foreign currency or goods
- Granting protection coverage to different foreign investment schemes
- Quick approval of the Foreign Investment Application
- Sale/lease of land for Iranians and long-term lease for foreigners
- Application of MIGA insurance
- Settlement of the investment-related disputes between the foreign investors and Iranian partners by unrestricted agreement
- Coverage of prior and current foreign investment for businesses and enterprises
- State Coverage (procurement and payment) for damages, in case laws or government regulations lead to prohibition or cessation of approved financial agreements within the framework of this Act
- Issuance of a three-year multiple-entry visa for Foreigners
- Issuance of a five-year residency permit for foreign Investors, directors, experts as well as their immediate family members
- Issuing work permits for foreign Investors, directors, experts
- Establishment of national and provincial investment centers to provide special services to foreign investors and facilitate their activities
- Possibility of foreign investment based on types of agreements:
- Lack of limitation in the type and admission of Foreign Investments:
-Machinery and equipment
-Tools and spares, CKD parts and raw, addable, auxiliary materials
-Patent rights, technical know-how, trade marks and names, and specialized services
-Transferable dividends of Foreign Investors
-Expropriation or nationalization
-Unlimited transfer of capital and dividends
-Guarantee of purchase of goods and services resulting from investment projects in BOT investment schemes, with the State as the sole purchaser
Salary Income Exemption
50% of the salary tax of the employees working in less-developed regions, as per the list prepared by the State Organization of Management and Planning shall be spared. All real persons (Iranian and foreign) working in the less developed regions can enjoy tax exemption until their workplace is included in the above-mentioned list.
Regional Incentives & Advantages
Investment incentives and advantages in the industrial Estates and zones
- Presenting on time fundamental services to the applicants of establishing industrial enterprises by the lowest price
- Providing appropriate land for industrial plans according to the location and projects based on the technical and latest construction technics.
- Appropriate foundation facilities and land grants with easy conditions.
- Non requirement to obtain separate licenses from different organizations. (Applicants for establishment of industrial enterprises within the industrial Estates would not need to obtain separate permits from different organizations such as environment, natural resources, water, power, land affairs, cultural heritage, real estate registration, roads and urban development, etc. and such permits shall be received from the related organizations when the industrial Estates are established.)
- Municipality regulations shall not apply to industrial Estates.
- Issuance of Construction Licenses and Certificate of Completion of Construction.
- Purchase or lease of ready silos to facilitate exploitation of production enterprises.
- Using facilities and installations of industrial Estates such as asphalt walking sides, green spaces, water canals, water reservoirs, power distribution (high voltage, walking side lights, emergency medical centers, fire station, internet center, consulting center, banks, insurance office, amphitheater, restaurant and other facilities.
- Receiving separate official deeds for enterprises within industrial Estates and allowing aforementioned certificates as mortgages to be possessed for bank facilities.
- Proximity to the industrial enterprises in the similar fields of activity and synergy among the different industries within the industrial Estates as well as using production, expert work force, and experienced enterprises within the industrial Estates.
- Providing appropriate fields to establish the related networks for a single industry in the industrial Estates and zones
- Decreasing investment expenditures such as water, power, phone, gas, wastewater treatment plant, telecommunication and accessibility to the routes
- Embedded tax exemptions of Article 132 of Tax Act (within a 30 km radius from the administrative centers of provinces, Isfahan and cities with a population exceeding 300,000)
- Embedding the advantages of Article 138 Note 3 of Direct Tax Act approved (1987), in case of transfer of the enterprise to within a 120 km radius from the center of Tehran Province and in the metropolises (Mashhad, Tabriz, Ahvaz, Arak, Shiraz, Isfahan) to the industrial Estates at 50% rate.
- Receiving the purchasing cost of the real estate in the city territory in case of transfer to the industrial Estates through 5-year payment instalments after two years
- Possibility to grant discount letters of credit at 10% and increase of 48-month instalments for knowledge-based companies, veterans, elites and inventors
- Many uncompleted projects shall be available for the investors to re-establish and complete the construction at lower costs.
- Part of cost of profits derived from the installations shall be granted to the enterprises provided that payments on instalments have been made earlier than the requisite time. The main condition is construction of approximately 30% of the foundation area.
- Exemption of 100% of the purchase price of land for the enterprise, possessing technical, economic and financial justification, becoming operational within two years.
- Tax exemption for enterprises from production activities within less-developed industrial Estates and zones shall be 7 years and within the other regions shall be 13 years.
- Power subscription fees for enterprises on a 5-year instalment plan, with interest free instalments.
- Granting discount letters of credit at 10% for the great areas within unstable industrial Estates and zones
- Receiving cost of profit derived from lands and installations within the industrial Estates and zones shall be as follow:
- - 30% of contract in cash
- - Others received in 30-month instalments (10 three-month instalments), increased by approval of BoD.
Production, Mine, and Tourism Activities
- All enterprises for internal and international tourism that have, prior to the entry into force of the Article 31 of the Law for Removing Obstacles to Competitive Production and Promoting the Country's Financial System, received their exploitation licenses from relevant legal authorities shall be exempt from the payment of50% of the tax on their declared income up to 6 years after the date of entry into force of this Article.
- One hundred percent (100%) of the income declared by tourism and pilgrimage travel agents that have received their licenses from relevant authorities shall be zero rated.
- Study and research costs of legal persons from the private and cooperative sectors engaged in producing and industrial enterprises, holding exploitation licenses from relevant ministries shall be exempt from the payment of a maximum of 10% of such persons’ declared tax in the year of accrual, provided that such study and research activities have been carried out through contracts concluded with universities or other research and higher education centers.
- According to Article 14 (Note 9) of the Mining Act approved on June 13, 1998, the government is not obliged to assign price on the non-exclusive mineral substances supplied in the competitive market since the price is assigned by supply and demand.
- According to Article 14 (Note 10) of the Mining Act approved on June 13, 1998, exploiters of mineral deposits assigned contracts with universities and centers of higher education and research to mining researches approved by Ministry of Industry, Mine and Trade shall be exempted up to minimum of 10% to maximum of 50 bn IRR from payment of royalty in the year of accrual.
- Granting facilities from the managed funds to develop greenhouse according to Article 50 of Law by Removing Obstacles to Competitive Production and Promoting Iran’s Financial System
- Facilitating the admission of collateral for the bank facilities of agricultural, according to Act 51 of Law for Removing Obstacles to Competitive Production and Promoting the Country’s Financial System, based on assignment to the banks in order to admit the legal certifications of the isolated agricultural areas through joint ownership and the location of agricultural projects, deed contracts of state-owned lands by Ministry of Agriculture Jahad, agricultural complementary processing industries, and title deeds in rural areas as collateral of agricultural bank facilities
- Facilitating the repayment of the received facilities of banks through release the collaterals according to the Article 19 of Law for Removing Obstacles to Competitive Production and Promoting the Country’s Financial System
- According to Article 8 of Tourism Development Act, tariffs and regulations of industries shall be granted to fuels, water and power, charges, tax, bank facilities, etc. of all enterprises for internal and international tourism and travel agencies as well as other similar institutions
- Allocation of free land (in cased of estate-owned property), making infrastructures such as routes accessibilities, transmission of water, power, telephone and other fundamental infrastructures at top tourism region from the Cultural Heritage, Handicraft and Tourism Funds.
- Allocation of bank facilities for establishment for tourism enterprises, at the industrial rate, in order to encourage investors, according to Article 5 of Tourism Development Act.
- Utilization of investment social acts insurance fund for enterprise risk exposure in exploration, exploitation, and processing of the mineral sector.
- Assigning of long-term contracts and guaranteed purchase of power from renewable energy resources with priority on the private and cooperative sectors.
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.
- 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.
- 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.
Incentives & Advantages for Investment in Trade-Industrial Free Zones
- 20-years tax exemption from the date of operation for all economic activities
- Freedom of entry and exit of capital and profits
- Flexible banking and financial services
- Freedom in exchange of commodities and services for the economic activists reside in the region as well as import of foreign commodities and services in the region and export of foreign commodities and services to the abroad by using Value-Added Tax
- Elimination of paid custom duties on imports of raw materials and industrial machineries for manufacturers
- Simple registration for companies, industrial and cultural institutions, tangible and intangible properties
- Simple formalities for export and transit
- Simple regulations for import of authorized commodities
- Possibility of export the commodities to the main lands based on a Value-Added system
- Abolition of entry visas and easy issuance of residence permits for foreigners
The revenues from handicraft and carpet-weaving workshops the relevant cooperative firms and unions are tax-free. All real and legal persons can enjoy above mentioned exemption by observing the regulations below.
- Zero-tax exemption shall be subjected to 100 % of income derived from Export of Services, Non-oil goods, Agricultural Products and 20% of income derived from Export of Non – Processed goods.
- Zero-tax exemption shall be subjected to 100% of the income derived from export of different goods which have been, or will be, imported to Iran on transit, and are exported without making any changes in the substance, or doing any works on them.
- Custom exemption for production line machineries and equipment (Unused with no domestic production)
- Refund of customs charges and payment for raw material utilized in the export products
- Possibility to issue short entry permit for production and processing, Article 51, of Customs Regulations
- According to the Article 12 of Export and Import Act, import before export of materials and goods used in manufacturing, finishing, preparation, and packaging of export commodities, in the form of temporary imports against submission of valid undertaking or promissory note of the I.R of Iran Customs Administration (IRICA) will be exempted from import duties except taxes levied on pertinent costs or commissions.
- According to the Article 14 of Export and Import Act, the sum “difference” collected by the Organization for Consumer and Producer Protection and all funds, except those designated as expenditures and fees, in respect of any foreign goods, materials, components and parts incorporated in the manufacture, finishing, processing and packaging of export goods, shall be refunded to the exporter in accordance with a directive set forth in the ordinance.
- According to Article 38 of Law for Removing Obstacles to Competitive Production and Promoting the Country’s Financial System and bylaw of 29, May 2019, of Removing Obstacles to Competitive Production and Promoting the Country's Financial System
- Possibility of keeping part of commodity as deposit for the right of import including clearance through receiving letter of guarantee, clearance of raw material and spares by the producing enterprises, removing the expiration date of warrantee for temporary import commodities; Article 51 0f Custom Act except wheat and materials and Article 20 of Removing Obstacles to Competitive Production and Promoting the Country’s Financial System.
- Establishment of customs and special storages for delivering services to the enterprises and companies for producing activities; Articles 23 and 27 of Custom Act.
- Commodity assessment of the companies and enterprises; Article 67 of Custom Act
- Transit the commodities to the producing enterprises; Article 60, Note 1 of Custom Act
- Exemption of paying custom duties for temporary licensed commodities; Article 74 of Custom Act
All cultural, artistic, and journalistic activities licensed by Iran’s Islamic Culture and Guidance Ministry are tax-free. All the real and legal persons (Iranian and Foreign) can enjoy the mentioned exemption by observing the regulations.
100% of the income derived from cooperative companies formed by villagers, tribesmen, farmers, hunters, workers, clerks and students are tax-free.
The income derived from all activities in the field of agriculture; animal husbandry; stockbreeding; fish farming; apiculture; poultry farming; fishing; sericulture; revival of pastures and forests, horticulture of any type and palm trees, is exempt from payment of taxes.