Tax and Customs considerations

Taxation in Iran

Tax in Iran is calculated through a self-assessment system.

Company profits are taxed at the corporate level in Iran and dividends distributed to shareholders are exempt from tax.

Iranian residents are taxed on worldwide income. Foreign entities are taxed on income derived from sources in Iran or from activities performed in Iran.

A company is resident in Iran if it’s established under the Iranian Commercial Code, or if it is managed from Iran. For tax purposes, the Iranian calendar year, starting 21 March and ending 20 March of the following year is generally used, but a company or branch may use its own accounting year if different. Tax filings in Iran are based on a company’s fiscal year.

All Iranian entities and branches of foreign companies must file an annual corporate income tax return and submit their balance sheet and ‘profit and loss’ account within 4 months of the end of the fiscal year.

Iran has no rules on tax on transactions between connected companies and there are no specific rules about capital gains tax.

Tax registration in Iran

Companies must register with the State Tax Organization and Social Insurance Organization for:

• value added tax
• corporate income taxes
• customs related tariffs
• social taxes and employment-related taxes

You must have an economic code (similar to a tax identification code) to operate in Iran. This is either a commercial code for companies registered in Iran or a comprehensive commercial code for foreign companies. This comprehensive commercial code is needed for these companies to let Iranian customers pay them.

Any payment made to a supplier without an economic code will be added back to the profit and loss account of the Iranian entity and no tax deduction will be allowed for the expense.

Value Added Tax (VAT) in Iran

The standard VAT rate in Iran is 9%. VAT rates applied to special goods are:

• 15% on cigarettes and tobacco products
• 30% on gasoline and aircraft fuels
• 11% on fuel oil

Corporate tax rate in Iran

The corporate tax rate is 25% and applies to both resident and foreign entities (except insurance enterprises and non-Iranian airline and shipping companies).

Resident entities are assessed on an actual profits basis. Non-resident entities are taxed on a deemed profits basis of 10% to 40%. This means the effective tax rate is 2.5% to 10%).

Withholding taxes in Iran

There is no withholding tax on dividends paid by Iranian companies. Interest paid to a non-resident is subject to a 3% withholding tax. Royalties paid to a non-resident are subject to corporate tax on a deemed profits basis of 10% to 40%.

Income tax in Iran

Income tax is levied at progressive rates up to 20%. The rates for the fiscal year to 20 March 2016

Income tax is levied on salaries, allowances and all types of remuneration.

Non-Iranian nationals are subject to Iranian tax on any income earned in Iran.

Other taxes in Iran

Iran imposes an environmental tax amounting to 1% of the sales on contaminating production units, including refineries and petrochemical factories.

Iran also levies a car transfer tax and excise on intra-city transport services and motor vehicles.

Tax incentives in Iran

Iran offers incentives for manufacturing and mining companies, which apply automatically if the specified conditions are met.

Manufacturing companies set up in special economic zones can qualify for a tax exemption (of 80% or 100%) for up to 10 years.

Companies that are registered and licensed to operate in a free trade zone (FTZ) are exempt from corporate tax for 15 years on income derived from their activity in the FTZ. Income derived from operations carried out outside the FTZ is taxable on the same basis as non-FTZ companies.

Customs in Iran

Duty rates in Iran can be as high as 75%.

The customs value of imported goods is generally calculated on the basis of the cost, insurance and freight value.

The Islamic Republic of Iran’s Customs Administration is responsible for customs laws and regulations.

Iran has observer status at the World Trade Organization (WTO) and is a signatory to international treaties including:

• the customs convention on the ATA carnet for the temporary admission of goods
• the convention on the international transport of goods under cover of TIR carnets
• the harmonized system convention
• Iran’s main customs legislation comprises:
• the export-import regulation act
• the executive ordinance to the export-import regulation act
• the regulations on exports, imports and customs in the free trade industrial zones

Free trade zones (FTZ) in Iran

Goods imports from outside Iran into its FTZs are not subject to import duties provided they’re sold within the FTZ or re-exported from Iran.

Imports of items such as construction materials, production equipment, spare parts and tools are duty free provided they are used for production or construction within the FTZ.

Goods manufactured in the FTZs are subject to customs duties when imported into mainland Iran in proportion to the amount of non-Iranian raw materials and components used in their production.