The Taxation System for Foreign Investors in Iran
The Taxation System for Foreign Investors in Iran
- How is the taxing system for foreign investors in Iran?
- Is that true that there is no Withholding tax on dividend applicable?
- Is there capital gains tax in Iran, if so, on which type of gains?
- Is there withholding tax on interest?
- How often do private companies have tax audits?
- What the tax implications of the different types are of entitles (branch vs. subsidiary etc.)?
- If an Iranian company formed by a foreign company individually or shared with an Iranian company establish a branch in a third country, will the Iranian government claim any tax duties for the benefits of such a branch or it can be paid to local government?
- What is Article 131 of the Direct Taxing Law?
- What is Article 69 of the Taxing Law?
- With which countries has Iran the Agreement to Avoid the Double Taxation and Foreign Investment Promotion and Protection Act?
- In order to prolong paying less tax, what is the maximum period an accumulated loss of an existing company can be carried forward?
- Is Agricultural production in Iran subjected to a 100% tax exemption?
- Would foreign nationals working in Iran be subject to tax disclosures on their world-wide income or only on their income generated in the Iran?
How is the taxing system for foreign investors in Iran?
All foreign investors doing business in Iran or deriving income from sources in Iran are subject to taxation. Depending on the type of activity the foreign investor is engaged in, different taxes and exemptions are applicable, including profit tax, income tax, property tax, etc.
1. Corporate and Profit Tax:
Prior to the distribution of profits, a company must pay a flat 10% of its taxable profit as corporate tax. Additionally, the company must calculate each shareholders tax liability (25%) plus 3% municipality tax. [Note: public companies listed on the Tehran Stock Exchange are exempt from the 10% corporate tax].
2. Tax on Liaison, Representative and Branch offices:
The same corporate and profit taxes will be applied to the taxable income of branches of foreign companies (contractors, consultant engineers, etc.).
3. Personal Income Tax of Local Employees
Taxable income consists of salary and benefits. As presented in the following table, income is taxed at 0-35%. Employers are required to make the necessary tax deductions from their employees' payroll and submit them to the tax authorities. However, when calculating taxable income, exemptions and deductions are allowed. In addition to income tax, employers are required to contribute to the State Social Security Fund and the Employment Fund. The table below contains the different local and foreign income categories and their relative tax rates:
| Annual Income/Profit (Rials) | Tax Rate |
|---|---|
| Up to 17,400,000 | 0% |
| 17,400,001 to 59,400,000 | 10% |
| 59,400,001 to 89,400,000 | 15% |
| 89,400,001 to 159,400,000 | 20% |
| 159,400,001 to 309,400,000 | 25% |
| 309,400,001 to 1,059,400, | 30% |
| In excess of 1,059,400,000 | 35% |
3. Personal Income Tax of Foreign Employees
Foreign nationals working in Iran are also subject to income tax based on their salary. The government assumes a certain salary for employees depending on their position and country of origin. The following table presents assumed monthly salaries and benefits of foreign nationals. The latest tax circular, issued in 1999, drastically increased the tax liability of foreign nationals working in Iran. As indicated, the assumed minimum monthly salaries range from US$2,500 for unskilled European workers to US$7,000 for European managing directors. The income of foreign nationals are subject the tax rate of 35%. The table below contains the income tax rate of the employees of two main group of the countries:
| W. Europe, USA, Canada, Japan & Brazil | Eastern European countries Turkey, S. Africa, Greece | |
|---|---|---|
| Managing directors | US$7000 | US$3220 |
| Chief representatives (branch offices of foreign companies) | US$7000 | US$3220 |
| Deputy MD or CR, managers, supervisors for installation | US$6000 | US$2760 |
| Division managers, senior experts/technicians | US$5000 | US$2300 |
| Employees, secretaries, translators | US$4000 | US$1840 |
| Skilled workers, technicians, stewards, nurses | US$3000 | US$1380 |
| Unskilled workers | US$2500 | US$1750 |
Is that true that there is no Withholding tax on dividend applicable?
No additional taxes are imposed on shareholders for dividends received. Taxes withheld by the investment company are final. Normally, the investor's record dividend received at the net amount and deducts it in calculation of taxable income as exemptions.
There are withholding taxes on salaries and wages based on the relevant rates.
There are withholding taxes on fees for certain services equal to 5 percent of the fees in addition to other withholding taxes mentioned above.
There are taxation treaties with certain foreign governments to avoid double taxation. Scope of such treaties may differ.
Earnings of an industrial or mineral company, which is apportioned for development or renovation of the existing plants or for construction of new plants, are exempted from 50 percent of the taxes thereon, given certain condition, are met.
In the special case of foreign contractors sub-contracting part of their project to Iranian sub-contractors, the foreign contractor is only required to make a tax withholding of 2.5% from payments to the Iranian contractor.
Extract of different articles of Direct Taxation Act
Is there capital gains tax in Iran, if so, on which type of gains?
If by capital gaining it means economic rent then it will not be subject to any tax.
Taxation Organization of Iran
Is there withholding tax on interest?
According to the Tax Organization of Iran, with regard to tax related to interest and dividend and declared income shall be reflected in Loss and Profit Account of the Institute or organization and shall influence accounting profit and shall be investigated among other incomes of institute and its tax shall be determined and collected.
Article 105: The aggregate income earned by companies and the income earned from various sources in Iran or abroad, through profit making activities by other juridical entities shall, after levying the damages resulting from non-exempt sources and after having deducted tile exemptions as prescribed, excluding the cases subject to different rates under the provisions made in the present Act, be liable to 25% tax rate.
Note 4: The natural persons and legal entities shall not be liable to any other taxes in respect of the dividend or the contribution they may collect from the companies requesting investment.
Taxation Organization of Iran
How often do private companies have tax audits?
Tax auditing for the purpose of determining income subject to tax shall be done once in every fiscal year.
Taxation Organization of Iran
What the tax implications of the different types are of entitles (branch vs. subsidiary etc.)?
Representatives and branches of foreign companies in Iran that are working for parent company to gather economical information and data as well as marketing, without right to carry out transaction, and receive money from the parent company to compensate for their expenses shall not be subject to income tax.
Taxation Organization of Iran
Note 3 of the Article 107 of the Direct Tax Act illustrate this more clearly:
Note 3: The branches and representative offices of foreign companies and banks in Iran which shall proceed to render activities for marketing and gathering of economic data and information in Iran for the holding company, without having the right to enter into a transaction in Iran, and which shall collect amounts from the holding company in order to meet the expenses and its financial requirements, shall not be liable to income tax.
If an Iranian company formed by a foreign company individually or shared with an Iranian company establish a branch in a third country, will the Iranian government claim any tax duties for the benefits of such a branch or it can be paid to local government?
It merely depends only on how the new company is registered in the third country. If it is acting as the agent or branch of the Iranian company, the benefits made by it will be subject to Iranian tax duties but if it is registered as an independent and local company in the third country, it has to follow the duties of the country which produce benefits on it and the Iranian tax authorities will not charge the Iranian based foreign company for eventual benefits of this new company.
What is Article 131 of the Direct Taxing Law?
Article 131 of the Direct Taxing Law is as follows:
The tax rates on the income of natural persons, excluding the instances for which a separate rate has been provided in conformity with the provisions made in the present Act, shall be as follows:
| Amount of (Annual) Taxable Incomes | Taxation Rates |
|---|---|
| Up to 30,000,000 Rials | 15% |
| Up to 100,000,000 Rials | 20% on sums in excess of 30,000,000 Rials |
| UP to 250, 000,000 Rials | 25% on sums in excess of 100, 000,000 Rials |
| Up to l, 000,000,000 Rials | 30% on sums in excess of 250, 000,000 Rials |
| Over l,000,000,000 Rials | 35% on sums in excess of 1,000,000,000 Rials |
What is Article 69 of the Taxing Law?
Article 69 of the Direct Taxing Law is as follow
Final transfer of low and medium price residential units for the first time shall be exempt from payment of the tax stipulated for final transfer of real properties, provided that such residential units are built within ten year from the date of approval of the present Act in accordance with the criteria and at prices to be determined by the ministries of Housing and Town Planning and Economic Affairs and Finance, and also on the condition that they are transferred no later than one year from the expiry of the time limit for implementation of the relevant building project which shall be fixed by the Ministry of Housing and Town Planning or local municipalities, as the case may be.
With which countries has Iran the Agreement to Avoid the Double Taxation and Foreign Investment Promotion and Protection Act
In the framework of the Foreign Investment Promotion and Protection Act, Iran has concluded and signed bilateral investments with many countries.
Please click here to view the list.
In order to prolong paying less tax, what is the maximum period an accumulated loss of an existing company can be carried forward?
Any decision on the transfer of accumulated losses of a company should be based on the company's Board of Director's proposal and made in its ordinary annual session of the shareholders not later than 4 month after the end of the company's fiscal year. The Low doesn't introduce any limit for this operation.
Article 239 of the Commercial Act
100% of the income earned through export of finished industrial products as well as the products of the agricultural sector (including farm and orchard produces, livestock and poultry, fishery products, forest and pasture products) and those of conversion and complementary industries, as well as 50% of' the income earned through the export of other commodities whose export shall contribute to the achievement of national objectives relating to the promotion of non-oil exports shall be exempt from taxation.
Article 141 of the Direct Taxation Act
The income derived from all activities in the field of agriculture; animal rearing; stockbreeding; fish farming; bee-keeping; poultry husbandry; hunting and fishing; sericulture; revival of pastures and forests, horticulture of any type and palm trees, is exempt from payment of taxes. The government is obligated to undertake appropriate studies and investigations in the field of all agricultural operations and on those branches of such activities in respect of which the tax exemption status is to be continued.
Article 88 of the Direct Taxation Act
Would foreign nationals working in Iran be subject to tax disclosures on their world-wide income or only on their income generated in the Iran?
Any non Iranian citizen (legal or real entity) will be subject to tax payment in proportion to incomes earned in Iran and also in proportion to incomes earned in Iran for transferring rights or other rights and privileges and/ or rendering instruction and technical assistance and / or assigning Movies (earned as price or show right or under any other title).
Taxation Organization of Iran