In The Name of God How to Do Business With &Within IRAN A Comprehensive Guide to the Iranian Market BY:R.Salehkhou WWW.ITSR.IR The Islamic Republic of IRAN Your Partner In Trade First Edition Printing: June 1996 ACKNOWLEDGMENTS IV How to Do Business With &Within IRAN V CONTENTS FOREWORD 1 CHAPTER 1:Panorama 3 a. Iran at A Glance 5 b. A Brief Historical Review 25 c. Contemporary Politics 31 d. Other Major Forces 41 CHAPTER 2:Economy 61 a. Iranian Economy at a Glance 63 b. Development Plans & Privatization 69 CHAPTER 3: Economic Sectors 103 3.1 Oil & Gas 105 3.2 Mining & Manufacturing 132 3.3 Agriculture, Agro-Industry, Forestry & Fishing 148 3.4 Power Generation 161 3.5 Transport 172 3.6 Telecommunications 191 3.7 Free Trade-Industrial Zones & Special Economic Zones 201 3.8 Tourism Industry 223 3.9 Environment & Sustainable Development 232 CHAPTER 4:Set up a Business 239 in Iran 239 Set up a Business in Iran 241 a. Business Frameworks in the Islamic Republic of Iran 241 CHAPTER 5:Financial Rules & 255 Regulations 255 a. Iranian Accounting Standards 257 b. Taxation Rules & Regulations 260 c. Legal System 273 d. Legal Frameworks for Arbitration 289 e. Intellectual Property Rights 291 f. Litigation in Commercial Matters 298 CHAPTER 6:Banking & Financial 303 Markets 303 6.1 Banking Structure 305 VI How to Do Business With &Within IRAN 6.2 Banking Regulations 318 6.3 Capital Market 328 6.4 Insurance Industry 350 CHAPTER 7: Business Environment 367 in Iran 367 7.1 Forms and Frameworks of Business Links with Iran 369 7.2 Social and Work Environment in Iran 369 7.3 A Brief Review of the Iranian Customs and Social Etiquettes 375 CHAPTER 8:Labour Law & 379 Regulations 379 Nanotechnology in Iran 397 Aircraft Manufacturing in Iran 399 Mission Accomplished by Omid Satellite 400 Iran Satellite Launch Puts Rat, Worms & Turtles in Space 401 Satellite Carrier Simorgh Launched 401 Iranian Scientists Clone Goat in Hope of Treating Stroke Victims 402 1 FOREWORD 2 How to Do Business With &Within IRAN CHAPTER 1 Panorama CHAPTER 1: Panorama 5 a. Iran at A Glance Topography of Iran Iran, located in southwest Asia, with an area of 1,648,000 square kilometers is one of the largest countries in the Near and Middle East. It ranks sixteenth, in terms of size, among the countries of the world. Iran shares its northern borders, extending for more than 2,000 km, with three “CIS” states, namely, the Republic of Azerbaijan, Armenia and Turkmenistan. The length of the common border between Iran and the three afore-said countries includes almost 650 km of water along the southern shore of the Caspian Sea, which is the world’s largest lake. The altitude of this lake is about 25m below sea level. Iran’s eastern borders are with Afghanistan, on the north, and Pakistan, on the south. To the west lie Turkey, on the north, and Iraq on the south, terminating at a shared river called “Arvand Rud” or “Shatt al-Arab” by, respectively, the Iranians and the Iraqis. 6 How to Do Business With &Within IRAN Furthermore, the Persian Gulf and the Sea of Oman, providing Iran with its main access to international waters, make up for the entire 1,770 km southern border of this country. From the historical point of view, it may be asserted that Iran’s mountains have contributed, at a notable degree, to shape both the economic and political circumstances of the country for several consecutive centuries. This country consists of uneven mountainous rims surrounding high interior basins. Rimming the Caspian Sea littoral is the Alborz mountain range with the volcanic mount Damavand (5,610 m) as the country’s highest peak. Damavand is also the highest mountain on the Eurasian landmass west of the Hindu Kush. CHAPTER 1: Panorama 7 Iran has two expanses of lowlands, i.e. the Caspian Sea coastal plain in the north and the Khuzestan Plain in the southwest. The former being both longer and narrower extends for about 640 km along the Caspian shore. However, its widest point is less than 50 km, while at some places less than 2 km separate the shore from the Alborz foothills. The Khuzestan Plain should be considered a roughly triangular-shaped extension of the Mesopotamia Plain which averages about 160 km in width. It extends for some 120 km inland, rising a few meters above sea level, then meets sharply with the first foothills of the Zagros. A sizable portion of the Khuzestan Plain is covered with swamps. Meanwhile, the Persian Gulf coast south of Khuzestan and the Sea of Oman coast have no real plains because the Zagros in these areas come right down to the shore. Iran, at its centre, comprises several closed basins that collectively are termed as the Central Plateau. The Central Plateau is mostly sand or rock desert with an average altitude of about 900m. A number of the mountains that tower over the said plateau exceed 3,000m. There are two salt deserts, namely, the Dasht-e-Kavir (Great Salt Desert) and the Dasht-e Lut on the eastern side of the said plateau. Excluding some scattered settlements, these deserts are almost entirely uninhabited. Karun, with a length of 830 km, is the main navigable river in Iran, where the shallow-draft boats can navigate from the port of Khorramshahr to Ahvaz (the provincial seat of Khuzestan), a distance of about 180km. Other major rivers include the Karkheh (700km long) which flows into Tigris, and Zayandeh Rud (300km long). Several other permanent rivers and streams drain into the Persian Gulf, while a number of small rivers that originate from Zagros or Alborz drain into the Caspian Sea. Moreover, there is a permanent salt lake in the northwestern part of 8 How to Do Business With &Within IRAN Iran, called Lake Urmiyeh, whose brine content is too high to support fish or other species of aquatic life. Climate Iran which has a variable climate, experiences four distinct seasons, ranging from very cold winters in most parts of the country to hot and dry summer time. The northwest being the coldest section of the country, enjoys winters with heavy snowfall and subfreezing temperatures from December to February. On the Central Plateau and along the coastal zone rimming the Persian Gulf, the average daily temperatures can even reach, sometimes, 50°C (122°F) during summer. However, winters are generally mild in the latter-mentioned areas of Iran. Humidity can extremely be disturbing in the summer months. The extreme climatic diversity between the north and south of Iran implies the fact that while one can ski down the slopes in the vicinity of Tehran in late winter, he/she would have also the chance to take a dive in CHAPTER 1: Panorama 9 the warm water of the Persian Gulf later the same day after a short flight from the capital city to Kish Island or Bandar Abbas. In general, Iran has an arid climate in which most of the annual precipitation falls from October through April. In most parts of the country, the annual precipitation is around 25cm; the major exceptions are the mountainous areas in the north, the higher mountain valleys of the Zagros and the Caspian coastal plain, where precipitation averages at least 50cm yearly. In the western part of the Caspian, rainfall exceeds 100cm annually and is distributed relatively evenly throughout the year. This contrasts with some basins of the Central Plateau that receive around 10cm or less of precipitation annually. 10 How to Do Business With &Within IRAN Flora & Fauna The land covered by Iran’s natural flora is four times that of the Europe’s. There are more than 2,000 plant species throughout the country. Over one-tenth of the entire area of Iran is forested. The most extensive growths are located on the mountain slopes along the Caspian Sea, with stands of oak, ash, elm, cypress and other precious trees. Moreover, on the proper parts of plateaus, areas of scrub oak grow on the best-watered mountain slopes, where the local inhabitants cultivate orchards and grow the plane trees, poplar, willow, walnut, beech, maple and mulberry. Wild plants and shrubs spring from the barren land in the spring season which provide for pasturage, but are burnt away by the summer sun. The major types of forests that exist in Iran and their respective areas are as follows: 1.The Caspian forests of the northern parts of Iran (19,000 km2). 2.Limestone mountainous forests in the northeastern districts, i.e., juniperus forests (13,000 km2). CHAPTER 1: Panorama 11 3.Pistachio forests located in the eastern, southern and southeastern districts of the country (26,000km2). 4.Oak forests in the central and western districts of Iran (35,000km2). 5.Shrubs of the desert districts in the central and northeastern parts of the country (10,000km2). 6.Sub-tropical forests of the southern coast rimming the Persian Gulf, such as the Harra forests (5,000km2). On the other hand, the wildlife of Iran are varied. Domestic animals of this country include sheep, goats, cattle, horses, water buffalo, donkeys and camels. Bears in the mountains, wild sheep and goats, gazelles, wild asses, wild pigs, panthers and foxes abound. The Persian leopard is said to be the largest of all the subspecies of leopards in the world. The main range of this 12 How to Do Business With &Within IRAN species in Iran closely overlaps with that of Bezoar Ibex. Hence, it is found throughout Alborz and Zagros mountain chains, as well as smaller chains within the Iranian plateau.