Legal and Juridical Relations for the Investment Protection

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Tax Act

Taxable persons

Taxable persons
Article1: The following persons shall be subject to taxation:

  1. All the owners – whether natural or juridical persons – with regard to their personal and real properties located in Iran.
  2. Every Iranian real person residing in Iran, on all his incomes earned in Iran or abroad;
  3. Every Iranian real person residing abroad, on all his incomes earned in Iran:
  4. Every Iranian juridical person with respect to all its incomes earned in Iran or abroad; and
  5. Every non-Iranian person (whether real or juridical) with regard to his incomes earned in Iran, as well as in respect of the incomes derived by such person from Iranian sources for the provision of training and technical assistance and also for the transfer of cinematographic films (whether the latter income is received as the price, or the fee for the screening, of the films, or under any other titles).

Tax on Income from Agriculture
Article 81: 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 of palm trees, is exempt from payment of taxes.

Tax on Salary Income
Article 82: : The income of a real person employed by another (real or juridical) person, that is derived against services rendered by him with regard to his occupation in Iran, whether on basis of the time spent or the work done, and whether paid in cash or non-cash form, shall be subject to tax on salary income.

Article 84: The amount of annual salary income allowance, which is derived from one or more sources, shall be determined by the state annual public budget laws

Article 85: Salary income of employees of both the public and private Sectors, exceeding the aforesaid amount envisaged under Article (84) of this Act shall be subject to tax at an annual rate of 10% up to an amount seven times the annual allowance, but the amounts in excess shall be subject to a tax rate of 20%.

Article 86: The payers of salaries are obligated, when paying or allocating the same, to compute and withhold therefrom the applicable taxes in view of Article (85) of this Act and to remit, up to the end of the next subsequent month4, the deducted amounts together with a list containing the amount of salaries, names and addresses of recipients, to the local Tax Affairs Office. In subsequent months, the changes of the list should only be reported.

Tax Exemptions

Article 91: The salary income shall be exempt from taxation in the following cases:
  1. Heads and members of foreign diplomatic missions in Iran and heads and members of the extraordinary delegations of foreign states with regard to the salary income received by them from their superior governments subject to reciprocal treatment, and also the heads and members of delegations of the United Nations Organization and its specialized agencies in Iran in respect of the salary income received by them from the said organization and agencies, provided that they are not nationals of the Islamic Republic of Iran.;
  2. Heads and members of foreign consular missions in Iran and the staff of the cultural institutions of foreign states with regard to the salary income received by them from their respective governments, subject to reciprocal treatment;
  3. Foreign experts sent to Iran with the consent of the government of the Islamic Republic of Iran under technical , economic, scientific and cultural gratuitous assistance programs of foreign states or international institutions, with regard to the salaries received by such experts from their respective governments or the said international institutions;
  4. Local employees of the Islamic Republic of Iran's embassies, consulates and missions abroad in connection with the salary income received by them from the government of the Islamic Republic of Iran, provided that they are not citizens of the Islamic Republic of Iran and subject to reciprocal treatments;
  5. Retirement pension, survivors' pension, regular annuities, termination of employment payments, dismissal compensation, payments for buying-out of services, pensions and annuities paid to the heirs, service term allowance and the salary of the period of unusual leave payable to salary receivers at the time of becoming retired or disabled;
  6. Service-related travel expenditure and allowance;
  7. Deleted.
  8. Accommodation provided on site of the factory or workshop for the benefit of workers and low price employer- provided houses outside the factory or workshop that are used by workers.
  9. Compensation received from insurers with regard to physical injury, medical treatment, and the like;
  10. New Year bonus* or year-end bonus up to one twelfth of the tax exemption envisaged under Article (84) of this Act.
  11. ) Employer-provided houses put at the disposal of civil servants by virtue of a legal permission or according to special regulations.
  12. Payments made by the employer, directly or through the relevant employee, to a physician or hospital for the treatment of his employees and persons who are dependent on them, where such payments are substantiated by demonstrative evidence and documents.
  13. Non-cash benefits paid to employees up to two twelfths of tax exemption of Article (84) of this Act at maximum;
  14. Salary income of the members of the armed forces of the Islamic Republic of Iran, whether belonging to the military or disciplinary branches, and the salary of employees subject to the employment law of the Intelligence Ministry, and the salary income of invalids of Islamic revolution and imposed war and released prisoners of war.

Tax on the Profits of Legal Persons
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%, except the cases for which separate rates are provided under this Act.

Note 2: Foreign legal persons and enterprises residing abroad, except those subject to Note (5) of Article (109) or Article (113) of this Act, shall be taxed at the rate set forth in this Article in respect of the aggregate taxable income derived from the operation of their investment in Iran or from the activities performed by them, directly or through the agencies like branches, representatives, agents and the like, in Iran, and with regard to the profit received by such persons and enterprises from Iran for granting of licenses and other rights, or for transfer of technology or provision of training and technical assistance and cinematograph films. The representatives of such foreign persons and enterprises in Iran shall be subject to taxation, according to the provisions of this Act, with respect to the profit they may derive under any titles in their own account.

Note 3: At the time of assessment of the Tax on Profits of Legal Persons, whether Iranian or foreign, the prepaid taxes shall be deducted from the applicable tax according to the pertinent regulations, and any overpaid amount shall be refundable.

Note 4: The persons, whether real or legal, shall not be subject to any other taxes on the dividends or partnership profits they may receive from the capital recipient companies.

Note 5: In cases where in view of to the enacted laws some payments other than the Profit tax are to be collected on basis of taxable profit, the tax of relevant taxpayers shall be computed at prescribed rates after deduction of such no tax payments.

Note 6: Taxable profits declared by companies, conventional cooperative unions, and public joint stock cooperative companies shall be subject to 25 percent of allowances from the rate, provisioned in this Article.

Note 7: Taxable profits declared by companies, conventional cooperative unions, and public joint stock cooperative companies shall be subject to 25 percent of allowances from the rate, provisioned in this Article.

Article 106: The taxable profit of legal persons shall be assessed on the basis of the profitability of their activities, in view of the provisions of Articles (94), (95) and (97) of this Act and Notes under them (except for those types of profits for which another method of assessment is stipulated herein)

Tax on Aggregate Income Derived from Different Sources

Article 131: The rates of income tax of real persons, except where separate rates are provided under the present Act, shall be as follows:

  1. For annual taxable income up to IRR five hundred million (500,000,000), the rate of fifteen percent (15%) shall apply;
  2. For the annual taxable income exceeding IRR five hundred million (500,000,000) up to IRR one billion (1,000,000,000), the rate of twenty percent (20%) shall apply; and
  3. For the annual taxable income exceeding IRR one billion (1,000,000,000), the rate of twenty five percent (25%) shall apply.

Note: it received by such persons and enterprises from Iran for granting of licenses and other rights, or for transfer of technology or provision of training and technical assistance and cinematograph films. The representatives of such foreign persons and enterprises in Iran shall be subject to taxation, according to the provisions of this Act, with respect to the profit they may derive under any titles in their own account.

Exemptions
Article 132: Declared income from manufacturing and non-manufacturing plants or mineral mining legal entities of the date of implementation of this provision of the exploitation license issued by the ministries concerned for their extraction and sale or contract entered into as well as revenues of hospital services, hotels, and the people the stay of tourists centers Remember that the stated date of the relevant regulatory authorities for their exploitation license or permit issued from the start date or mining operations or activities for five years and in less developed regions for ten years the zero rate is tax.

A) Zero-rate taxation refers to a method whereby the taxpayers in question are obliged to file returns and submit their statutory books or their accounting documents, if any, to the Iranian National Tax Administration in accordance with the arrangements and deadlines required by this Act with regards to their incomes. The Iranian National Tax Administration shall be obliged to investigate such tax returns and assess the taxable income of such taxpayers based on the supporting documents and the tax returns information and shall apply a zero tax rate to the resulting taxable income.

B) As for producing or service-oriented enterprises and other centers mentioned in the present Article, if, during the period of exemption, they have more than 50 employees, the term of application of the aforementioned exemption shall increase, providing that they raise the number of employees at least for 50% annually. Consequently, there will be an increase of one further year of tax exemption for each annual increase of at least 50% of their employees. The number of employees working in such enterprises, as well as the rate of increase in the number of employees shall be determined upon the confirmation of the Ministry of Cooperatives, Labor and Social Welfare based on documents relevant to the lists of employees’ social security insurance. In case the minimum rate of increase in the number of employees is lowered down in the subsequent year for which the tax incentive prescribed in this Paragraph has been granted, then, the tax amount exempted for that particular year shall be claimed and collected. Cases of retirement, redemption or resign are not regarded as decrease.

C) The term of application of the zero rate taxation for enterprises mentioned in the present Article shall increase for 2 further years, if they are located in special economic zones, and for 3 further years, if they are located in industrial towns or special economic zones of less-developed regions.

D) The requirement for entitlement to any tax exemptions by real and legal persons engaged in free zones and other regions of the Country is filing tax returns within the due deadline. The legal persons’ tax returns include the balance sheet, as well as profit and loss account in accordance with samples prepared by the Iranian National Tax Administration.

E) In order to promote and increase the levels of economic investments in entities subject to the present Article, in addition to the protection period for zero-rate taxation, investments in less-developed regions and other regions shall also be supported in other ways as follows:

  1. For less-developed regions: In the computation of taxes relevant to the subsequent years following the zero-rate taxation period pursuant to provisions prescribed in the present Article, as long as the aggregate taxable income is twice the registered and paid-up capital, the zero rate shall still apply but beyond that level, the due taxes shall be computed and collected at the rates prescribed in Article (105) of this Act and the Notes under it.
  2. For other regions: In the computation of taxes relevant to the years following the zero-rate taxation period pursuant to provisions prescribed in the preamble of the present Article, 50% of the taxes shall still be zero rated and the remaining 50% shall be computed and collected at the rates prescribed in Article (105) of this Act and the Notes under it. This provision will persist unless the aggregate taxable income of the enterprise in question equals its registered and paid-up capital, but beyond that level, 100% of the due tax shall be computed at the rates prescribed in Article (105) of the present Act and the Notes under it.

The tax incentives mentioned in Sections (1) and (2) of the present Paragraph shall also apply to the income derived from transportation activities by non-government legal persons. If such non-government legal persons have been established prior to the present amendment, they shall be entitled to the tax incentive mentioned in this Article, if they have any reinvestment.

Any investments authorized by receiving legal licenses from relevant legal authorities for the establishment, development, reconstruction and renovation of the enterprises in question to create fixed assets, except for lands, shall also be subject to the rule of this Paragraph.

F) The exception stipulated for lands at the end of Paragraph (E) is not applicable in cases of investment by non-government legal persons on enterprises of transportation, hospitals, hotels and touristy residential centers, but merely to the extent prescribed in legal licenses issued by relevant authorities.

G) In cases of decrease in the registered or paid-up capitals of the abovementioned persons who have already taken benefits from the tax incentive granted by the present Article for increasing their capital, the tax due and the fines thereof shall be claimed and collected.

H) If the investments subject to the provisions of the present Article have been made in partnership with foreign investors under the license of the Organization for Investment, Economic and Technical Assistance of Iran, 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.

I) Foreign companies that produce well-known brand products in Iran by exploiting capabilities of domestic producing enterprises, shall be subject to the provisions of the present Article as of the date of conclusion of their cooperation contract with the Iranian producing enterprise all throughout the zero-rate taxation period granted to that producing enterprise, provided that they manage to export at least 20% of their products. Moreover, after the expiry of the zero-rate taxation period, such foreign companies 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 stipulated in this Article.

J) 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-kilometer radius from the center of Tehran Province or within 50-kilometer radius from the center of Isfahan and within a 30-kilometers radius from the administrative centers of provinces and cities with a population exceeding 300,000, according to the latest population and housing census.

However, producing enterprises involved in the area of information technology, upon the confirmation of relevant ministries and the Vice Presidency for Science and Technology shall be entitled to the privileges provided by this Article. Moreover, producing and mining enterprises established in all special economic zones and industrial townships, except for special economic zones and industrial townships established within the 120-kilometer radius from the center of Tehran Province shall be zero-rated and shall be entitled to the tax incentives provided by this Article.

As regards the special economic zones and industrial townships or producing enterprises located within the territory of two or more provinces or cities, the criterion for making decision on the territory to which such zones or townships belong shall be stipulated in a bylaw to be approved by the Council of Ministers, within three months from the approval of the present Act, upon the joint proposal of the Ministry of Industry, Mine and Trade, the Ministry of Economic Affairs and Finance, the State Organization of Management and Planning and the Department of Environment of the Islamic Republic of Iran.

K) The list of less-developed regions, including the names of provinces, townships, counties and rural districts, shall be prepared, within the first three months of the 5-year term of each development plan by the State Organization of Management and Planning in collaboration with the Ministry of Economic Affairs and Finance and will be approved by the Council of Ministers to be applicable until a new list is approved. The date of activity start up, as verified by relevant competent authorities, will be the basis for granting tax incentives for less-developed regions

L) All enterprises for internal and international tourism that have, prior to the entry into force of the present Article, received their exploitation licenses from relevant legal authorities shall be exempt from the payment of 50% of the tax on their declared income up to 6 years after the date of entry into force of this Article. This provision, however, does not apply to incomes derived from sending tourists abroad.

M) 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, provided that such income has been derived from foreign tourists or from sending pilgrims to Saudi Arabia, Iraq or Syria.

N) Zero-rate treatment as provisioned by the present Law shall only apply to the income declared by taxpayers and does not apply to hidden incomes. This exclusion shall be applicable in regard with all cases of zero rate taxation provisioned in the present Act or in any other relevant laws.

O) 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 holding finalized licenses from the Ministries of “Science, Research and Technology” or “Health and Medical Education”, within the framework of the State Comprehensive Scientific Map. The latter mentioned contracts shall be eligible for the concerned purpose, only if research councils of the universities or research centers involved have already approved the annual progress reports of the contracts. Moreover, for the entitlement to the exemption, the income declared by such enterprises for producing and industrial activities shall not be less than IRR 5,000,000,000. The study and research costs, which are taken into account as the tax paid by such persons, shall not be accepted as allowable expenses for tax purposes.

The administrative bylaw of this Paragraph will be approved by the Ministers of “Economic Affairs and Finance”, “Industry, Mine and Trade”, “Science, Research and Technology” and “Health and Medical Education” upon the proposal of the Iranian National Tax Administration.

Note 1: The executive regulations of this material and its provisions within six months after the notification law by the Ministries of Finance and Industry, Mine and Trade in collaboration with the National Tax Administration prepared and approved by the Cabinet

Note 2: the administrative bylaw of the present Article and the paragraphs under it, will be prepared, within 6 months of the date of entry into force of this Act, by the Ministries of “Economic Affairs and Finance” and “Industry, Mine and Trade” in collaboration with the Iranian National Tax Administration to be approved by the Council of Ministers.

Article 138:
Deleted

Article (138 bis) 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 as deductible expenses for tax purposes for the payer of the interest.

Note 1: Beneficiaries of the exemption granted by this Article are not allowed to withdraw their cash contributions from the production enterprises for two years. Otherwise, in lieu of such decrease of the cash contribution, an amount equal to the then market value of the exemption granted shall be added to the tax due of the year of cash contribution withdrawal.

Note 2: The relevant Tax Affairs Office shall determine whether or not the cash contributions have been used for financing the project or the provision of the working capital.

Article 141:
One hundred percent (100%) of the income derived from exportation of non-oil services and goods, and products of the agricultural sector, as well as 20% of the income derived from the exportation of raw materials shall be subject to zero-rate taxation. A list of raw materials and non-oil goods subject to this Article shall be jointly proposed by the Ministries of “Economic Affairs and Finance”, “Industries, Mines and Commerce” and “Petroleum” and Iran Chamber of Commerce, Industries, Mines and Agriculture and shall be approved by the Council of Ministers.

Note 1: The income derived from exportation of different goods that are imported to Iran on transit, and are exported without making any changes in the substance thereof or doing any works on them, shall be subject to zero rate taxation.

Note 2: Provisions of the present Article shall become effective as of the end of the enforcement period of the Law of the Fifth Economic, Social and Cultural Development Plan of the Islamic Republic of Iran approved on January 5, 2011.

Article 143: Ten percent of the Tax on Income derived from the selling of commodities accepted and sold in the Commodity Stocks, and 10% of the Tax on Profits of companies listed in the domestic or foreign stock exchanges, and 5% of the Tax on Profits of companies listed for OTC transactions of domestic or foreign stock exchanges, shall be rebated after the approval of the Stock Exchange Organization as of the year of enlistment until the year they are unlisted from the stock exchange. The abovementioned exemptions shall be doubled for companies listed in the domestic or foreign stock exchanges or OTC markets of domestic or foreign stock exchanges, provided that at the end of the fiscal period, and based upon the approval of the Stock Exchange Organization, they have at least 20% of free floating shares.

Note 1: Out of each transfer of shares and the partners’ shares, priority rights of shares and the partners’ share in other companies, a flat rate of 4% of their nominal value are collected. No any other payment is due, as the tax on the abovementioned transfers. Transferors of shares, partners’ shares and preemptive rights shall be required to settle the due tax to the Iranian National Tax Administration before the transfer.

Note 2: The flat rate of 0.5% of tax shall be applied to the share premium reserve of the joint stock companies and no any other tax shall be applied to the aforesaid gain. Companies shall be required to settle to the Iranian National Tax Administration Account, the applicable tax, up to the end of the next subsequent month1 following the date of registration of the capital .appreciation

Article 143 (bis): A flat tax of half percent (0.5%) of the sale value of shares and preemptive rights shall be applied to any transfer of shares and priority rights of shares of companies, whether Iranian or foreign, in the stock exchanges or in the licensed OTC markets, shall be collected and, in this respect, no more tax on the income from the transfer of shares and preemptive rights and value added tax on the purchase and sale shall be claimed.

Brokers of stock exchanges and OTC markets shall be required to collect the aforesaid tax from the transferor during each transfer and settle it to the account assigned by the Iranian National Tax Administration and within ten days from the transfer date, shall send the relevant receipt along with a list containing the number and amount of shares sold and the preemptive rights so transferred to the local Tax Affairs Office.

Note 1: All incomes of the investment fund within the framework of this Law and all incomes derived from investment in securities, subject to Paragraph (24) of Article (1) of the IRI Securities Market Law legislated in 2005 and the gains from the transfer of such securities or the gains from issuance and redemption of the same shall be exempt from Income Tax and value-added tax on the strength of the Value-Added Tax Act legislated on May 22, 2008 (Khordad 2, 2008) and no tax whatsoever shall be claimed for the transfer, issuance and redemption of the foregoing securities.