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Doing Business in Iran Legal & Financial Aspects Doing Business In Iran Legal & Financial Aspects Esmaeil Karimiyan Saleh Jaberi LLD Saeed Soltani August 17, 2015 Contents Preface i 0.1 About This Book ........................ i 0.2 About ESK Law Firm ...................... ii 1 Introduction 1 1.1 Geographical Location and Population ........... 1 1.2 Economic advantages ..................... 2 1.3 Investment & Business Opportunities ............. 3 1.4 Political System ......................... 5 1.5 Currency ............................ 5 1.6 Business Hours/Time Zone .................. 6 1.7 Iranian Public Holidays 2015 ................. 6 1.8 Country Background at a Glance: .............. 7 2 Foreign Investment 9 2.1 Methods of Foreign Investment ............... 9 2.1.1 Foreign Direct Investment (FDI) ............ 10 2.1.2 Contractual Schemes ................. 12 2.1.2.1 Joint Ventures ................ 13 2.1.2.2 Iran’s Petroleum Contracts ......... 14 2.1.2.2.1Buy-back Agreement ....... 14 2.1.2.2.2Iran Petroleum Contract (IPC) .. 15 2.1.2.3 Build, Operate, Transfer Contract (BOT) . 17 2.1.2.4 Investment in Iran's Construction Projects . 17 CONTENTS 2.1.2.4.1Construction Contracts ...... 18 2.1.2.4.2Selection of a Contractor .... 18 2.1.2.4.3Pricing Methods .......... 19 2.1.2.4.4Dispute Resolution ........ 19 2.1.3 Foreign Portfolio Investment (FPI) ........... 20 2.1.3.1 Iran's Stock Exchange ............ 20 2.1.3.2 Tehran Stock Exchange ........... 21 2.1.3.3 Buying and Selling Stocks ......... 22 2.1.3.4 Global Relationship ............. 24 2.1.4 Issuance of Foreign Investment License ....... 24 3 Special Economic & FTZ 27 3.1 Trade-Industrial Free Zones .................. 28 3.1.1 Incentives and advantages .............. 28 3.1.2 The list of the TIFZ ................... 29 3.1.3 Regulations on Investment in TIFZ .......... 30 3.2 Special Economic Zones ................... 31 3.2.1 Incentives and advantages .............. 31 3.2.2 The list of the SEZ ................... 32 3.2.3 Regulations on Investment in SEZ .......... 33 4 Establishing Legal Presence 35 4.1 Incorporating a Local Entity .................. 35 4.1.1 General ......................... 35 4.1.2 Capital ......................... 38 4.1.3 Formation ........................ 41 4.1.4 Board of Directors ................... 45 4.1.5 Shareholders Meetings ................ 49 4.1.6 Miscellaneous ..................... 53 4.1.7 Differences between Public and Private Joint stock Companies ....................... 54 4.1.8 Checklists of Articles of Association ......... 55 4.2 Branches and Representative Offices ............ 57 4.2.1 The Authorized Companies for Registration ..... 57 CONTENTS 4.2.2 Agency, Representative & Branch Offices: differ- ences .......................... 58 4.2.3 The Fields of Activities ................. 58 4.2.4 Branch Office of a Foreign Company ........ 61 4.2.5 Documents Required for Registration of Branch Offices of Foreign Companies ............ 61 4.2.6 Responsibilities of a Foreign Company ....... 63 4.2.7 Agents (local) and Representatives .......... 63 4.2.8 Documents Required for Registration of Represen- tative Offices ...................... 63 4.2.9 Responsibilities of Branch Office and Agent(s) ... 65 4.2.10 Management of Affairs of Agent(s) .......... 66 4.2.11 Reports in Respect of Activities of Agents ..... 66 4.2.12 Tax Provisions ..................... 67 5 Taxation 69 5.1 Tax Bases and Rates ...................... 69 5.2 Taxation from Foreign Investors ................ 72 5.2.1 Direct Taxes ...................... 72 5.2.2 Corporate Income Tax ................ 73 5.2.3 Value Added Tax (VAT) in Iran ............. 76 5.2.4 Agreements for the Avoidance of Double Taxation 77 5.2.5 Standard audit systems in Iran ............ 78 5.2.6 audit financial statements by independent auditors . 79 6 Labour force 81 6.1 FIPPA Rules and Regulations ................. 82 6.2 Work Permit Outside FIPPA .................. 83 6.3 Validity Period of Work Permits ................ 84 6.4 Extension of Work Permits ................... 84 6.5 Renewal of Work Permit .................... 84 6.6 Legal Punishments ....................... 85 6.7 Fees ............................... 85 6.8 Unique Advantage ....................... 85 CONTENTS 7 Intellectual Property 87 7.1 Trade Mark ........................... 87 7.1.1 Not Registrable Mark ................. 88 7.1.2 The Documents Required for Registration ...... 89 7.1.3 Membership in International Trade Mark Convention 93 7.2 Patent .............................. 93 7.2.1 Types of patentable discoveries and inventions ... 94 7.2.2 Un-patentable discoveries and inventions ...... 94 7.2.3 The Required Documents for Registration ...... 95 7.2.4 Membership in International Patent Convention ... 101 8 Appendix 102 References 104 Preface 0.1 About This Book This guidebook has been prepared by Partners of ESK Law Firm. It is written to give the busy executive a quick overview of the legal and professional regulation, investment climate, taxation, forms of business organization and business practices in Iran. Making decisions about foreign operations is complex and requires an intimate knowledge of a country's commercial climate, with a realization that the climate can change overnight. Companies doing business in Iran - or planning to do so - are advised to get current and detailed information from expe- rienced professionals. This book reflects information current as of July 2015. i ii PREFACE 0.2 About ESK Law Firm ESK Law Firm is a leading law firm with its origin in Iran. Its focus and core competencies lie in the fields of International Commercial Con- tracts, International Investments Contracts; Construction Contracts and Dispute Resolution. We of ESK Law Firm particularly customized our ad- visory activities to the requirements of internationally active enterprises. Our one-stop-shop concept ensures all-round support in corporate fi- nance, international trade law; international investment law; banking and finance law; energy law, company law as well as conduct due diligence for entities and represent clients for negotiating. Our major clients are enterprises form European and American countries. We serve our clients not only over the whole territory of Iran, but also in all over the world through our partners and associates. Head Office: Unit 5, #3, Yas Blind Alley, Between Mirdamad St. & Zafar St., Shariaati St.,Tehran, Iran TEL: +98-21-77152141 FAX: +98-21-88526712 Branch Office: #101, Baran Building, Shahid Rajaey St., Shiraz, Iran TEL: +98-713-6334766 FAX: +98-713-6334766 WWW.ESKLAWFIRM.COM [email protected] MOBIL: +98-9126407688 Chapter 1 Introduction 1.1 Geographical Location and Population Islamic Republic of Iran with an area of 164,819,6 sq.km and nearly 80.8 million populations has been located in South West Asia. The country neighbors with Turkey and Iraq in west, Afghanistan and Pakistan in East, Armenia, Azerbaijan, Russia, Kazakhstan and Turkmenistan in North and Kuwait, Saudi Arabia, Qatar, Bahrain, United Arab Emirates and Oman in South through Persian Gulf and Oman Sea. Therefore, Iran, as a strategic country, has got common borders with states of ESCWA in South and West, SAARC in East and CIS and Caucasus as well as UNECE in North. The country is regarded as one of the richest countries in hydrocarbure reserves, so that it ranks the second for gas reserve and its export as well as the second for exporting crude oil in the world. According to the reports of the international institutions like the World Bank, Islamic Republic of Iran, with having more than 700 billion dollars GDP, scores the eighteenth out of twentieth outstanding economies, eighteenth and sixteenth for population and area respectively. Comprising a land area of 1,648,196 sq.km, it is the second-largest nation in the Middle East and the 18th largest in the world; with 80.8 million inhabitants, Iran is the world's 17th most populous nation. It is 1 2 CHAPTER 1. INTRODUCTION the only country that has both a Caspian Sea and an Indian Ocean coastline. Iran has long been of geostrategic importance because of its central location in Eurasia and Western Asia, and its proximity to the Strait of Hormuz. 1.2 Economic advantages Based on World Bank Survey, Iran is the second largest economy in the Middle East and North Africa (MENA) region after Saudi Arabia, with an estimated Gross Domestic Product (GDP) of US$D 406.3 billion in 2014. It also has the second largest population of the region after Egypt, with an estimated 80.8 million people as of individuals in July 2014. Iran’s economy is characterized by a large hydrocarbon sector, small scale agriculture and services sectors, and a noticeable state presence in manufacturing and financial services. Iran ranks second in the world in natural gas reserves and fourth in proven crude oil reserves. Aggregate GDP and government revenues still depend to a large extent on oil revenues and are therefore intrinsically volatile. Petroleum and natural gas are two of the predominant natural re- sources in Iran which encourage investment and trade. Iran has contin- ued to grow to become one of the largest economies in the Asia and specifically Middle East. The country offers endless investment oppor- tunities to local and international investors and attracts trade due to a number of free zones located throughout the country which offer lucra- tive incentives attracting investment. Currently there are over 20 free zones and special economic zones in Iran which offer differing benefits throughout the region allowing investors to choose the favorable option for their
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