FOREIGN INVESTMENT PROMOTION AND PROTECTION ACT (FIPPA)
Frequently Asked Questions (FAQ)

Common Investment Questions:

1. Is Foreign Investment permitted in Iran?
  • Foreign investment is permitted in accordance with the prevailing laws and regulations of the Country.
  • All foreign investors are permitted to invest, for the purpose of development and producing activities, in all areas of industry, mining, agriculture and services.
  • However, from the standpoint of the Iranian government, only those investments shall be eligible to enjoy the privileges and protections under the Foreign Investment Promotion and Protection Act (FIPPA) that have obtained the required license under the FIPPA.
2. Under what legal or contractual framework, foreign investment may be admitted in Iran?
  • Foreign investment in Iran is admitted under all forms of legal participation:
    • 1-foreign direct investment (FDI)
      • and/or
    • 2-contractual arrangements
    • and/or
  • By contractual arrangements we mean all forms of project financing methods within the framework:
    • 1-Civil participation,
    • 2-Buy back arrangements,
    • 3-Different types of Build, Operate and Transfer (BOT) schemes.
3. In what sectors foreign direct investment is permissible?
Foreign direct investment is permissible in all areas open to Iranian private sector.
4. What legal structure do you recommend for foreign investment?
  • There are seven types of juridical entity or company which can be established under the Iranian Commercial Code.
  • From among all these different types, Joint Stock Company, in which the capital is divided by shares, is the most common and acceptable type of company which can be recommended to foreign investors.
5. Is it obligatory to have local partner(s)?
  • No. It is by no means obligatory to have local partner(s).
  • In similar cases foreign investors themselves are willing to take advantage from their local partners for the reason that they are more familiar with the business environment, regulatory and administrative requirements and opportunities.
6. Is there a ceiling for foreign investment in Iran?
There is no minimum and maximum for foreign investment in respect of percentage of shareholding, nor is any restriction on the amount of investment for foreign investment in Iran.
7. If there is no restriction imposed in Iran, then what message a prospective foreign investor should get from the ratios of 25% and 35% referred to in Para (d) of Article (2) of FIPPA?
• The ratios referred to in the said Para have nothing to do with the shareholding percentage of foreign investors in a single investment case.
• These ratios clarify the share given to the value of goods and services produced by foreign investment in the global economy in each sector/subsector.
• correspondingly, verified at the time of issuance of the foreign investment license
• (i.e., value of products by foreign investment in Total GDP).
8. Is foreign investment allowed in companies quoted in the Stock Exchange Market?
• There is no restriction for investment in companies quoted in the Stock Market.
• Foreign investment in these companies are eligible to enjoy the protections available under FIPPA, in the same manner as is available to foreign investment outside the Stock Market.

9. What is meant by the terms Iranian Company and Foreign Company, from the standpoint of Iranian laws and regulations?
• The term Iranian Company refers to a company incorporated and registered in Iran according to Iranian Commercial Code, even if a hundred percent of its shares or stocks belong to foreign natural or juridical persons.
• The term Foreign Company refers to a company incorporated and registered outside Iran
10. Is it possible for foreign companies to establish legal bases in the form of branches or representative offices in Iran?
• Yes. Any foreign company, for the purpose of expanding its commercial activities, performing its contractual obligations, carrying out marketing activities, etc. may establish a legal permanent base in the form of branch or representative office in Iran.
• For establishing a branch or representative office certain procedure should be followed under the Law for Establishing Branches and Representative Offices.
• For this purpose the applicants are advised to refer to the General Directorate for Registration of Companies and Industrial Property.
11. Is the establishment of branch or representative offices considered as foreign investment?
• Establishing a branch or representative office is not considered as foreign investment.
• In fact, foreign investment can be realized by a way of establishing :
• New Iranian company
• Participation in an existing Iranian company and/or
• Entering into contractual arrangements with Iranian recipient entities

12. Is ownership of land by foreign nationals permitted in Iran?
• Yes. Ownership of land to the extent typically required for personal use by foreign nationals is permissible.
• Recognition of such ownership is dependent upon a specific permission from the Ministry of Foreign Affairs.

FIPPA Inquiry:(Foreign Investment Promotion & Protection Act)

13. What law protects foreign investment in the Islamic Republic of Iran?
• The law protecting foreign investment in Iran is the Foreign Investment Promotion and Protection Act ratified in 2002 which is hereinafter referred to as FIPPA.
• The scope of applicability of the FIPPA extends to the territory of the Islamic Republic of Iran under which all foreign investors may invest in the Country and enjoy the privileges available there under.
14. What are those rights and privileges?
• Fundamental rights recognized under FIPPA in favor of foreign investors are as follows:
1- The right to transfer profits (dividends) as well as capital and gains on capital in foreign exchange.
2- The right to receive compensation resulting from expropriation (deprivation of ownership) and nationalization of foreign capital.
3- The right to receive compensation resulting from the passing of laws or Cabinet Decrees causing prohibition or interruption in the implementation of financial contracts of foreign investors.
4- The right to enjoy equitable treatment accorded to domestic investors.
15. Are there any other facilities and privileges available to foreign investors?
• Convertibility and transferability of the funds resulting from various investment and transfer of technology agreements.
• Possibility of submission of investment disputes to international tribunals.
• Recruitment of foreign technicians in affairs related to investment projects.
• Export of goods and services without any commitment to reintroduce export proceeds to the Country (i.e., no surrender commitment requirement).
• Direct access to and possibility of withdrawal of export proceeds out of Escrow accounts established in banks outside the Country.
• Inapplicability of price control, distribution as well as local content and manufacturing requirements.

16. How investments by Iranian nationals can be covered under FIPPA?
Investments by Iranian nationals can enjoy privileges of FIPPA on the condition that their capital has been sourced from foreign origin and, further to that, the investor has submitted documentary evidence proving their economic and commercial activities outside the Country.
17. Is the validity of the investment license limited time wise?
Yes. Upon the notification of investment license, the foreign investor is required to bring an appropriate portion of his capital into the Country, within a period determined by the investment board on the basis of the peculiarities of the investment project; otherwise the investment license shall be null and void.
18. Is it possible to extend the validity, and how?
Yes, foreign investor may apply for the extension of the validity of the investment license, prior to expiration, by way of submission of justifiable reasons. The investment board will review the application and determine a new period for importation of capital, upon the approval of the application for extension.
19. What are the sectors open to foreign investment in Iran under FIPPA?
Sectors open to foreign investment in Iran are vastly diversified and include all producing activities for the purpose of development in all areas of industry, mining, agriculture and services including tourism sector.
20. In what manners a foreign investor can invest in an existing Iranian company and become a shareholder?
There are two ways:
1. Acquiring shares of a company based on agreed terms and conditions.
2. Subscription of the shares resulting from the capital increase of the company by way of assigning the first refusal rights of the existing shareholders to the foreign investor.
21. Are foreign investment companies authorized to open bank accounts outside Iran?
Foreign investment companies are authorized to have bank accounts for the purpose of depositing their export earnings. This would facilitate any and all payments due to the foreign investors by way of having a quick and direct access to export earnings from the export of products and services.
22. Is there any requirement for reintroducing export earnings to the Country for joint venture companies and investee firms?
No, no commitment for the return of export earnings is required. Export earnings are at free disposal of the exporter, to be used at his own discretion.
23. Can foreign investor insure his investment? What kind of insurance?
• Foreign investor may insure his investment against non-commercial (political) risks with an insurance agency of his respective country.
• In the event, a payment is made to the investor under the insurance contract, the insurer in the capacity of the investor’s subrogate may apply for compensation resulting from the rights the investor is originally entitle to claim.
24. Which authority is competent to settle investment disputes between Iranian and foreign investors or between a foreign investor and the Government?
• In general, an investment dispute between Iranian and foreign investors can be referred to domestic or foreign courts or to an international arbitration based on the (prior) agreement of the two parties.
• However, should the Iranian party to the dispute be a government sector or company, referral of the dispute to foreign courts or international arbitration can be done only upon observance of relevant legal formalities by the Iranian (government) party.
• To this effect, referral of disputes to international courts and arbitration based on prior agreement between the Iranian Government and the investor’s respective government has been accepted in bilateral treaties.

Admission System:

25. Which authority is responsible for admission and protection of foreign investments in the Islamic Republic of Iran?
• The Organization for Investment Economic and Technical Assistance of Iran (OIETAI) is the sole government authority which in accordance with FIPPA is legally empowered to admit and extend legal protections to foreign capital.
• The license for foreign investment under FIPPA is also released by OIETAI.
26. Which services could be provided to foreign investors by OIETAI?
• The organization can be addressed and consulted for any and all issues foreign investors come across.
• To this end, the investor is in touch with only one single organization through the Center for Foreign Investment Service, which will result in time and cost saving for them.
27. Does the Organization provide any specific services to foreign investors other than consultancy services?
Yes. The Organization provides the following services:
1- Provision of information related to all laws and regulations pertaining to foreign investment.
2- Introducing investment opportunities in the country.
3- Coordinating with different authorities with respect to applications for foreign investment.
4- Finding appropriate partners/parties, being local or foreign.
5- Contributing towards settlement of disputes between investors.
6- Organizing and arranging meetings and/or appointments with relevant authorities.

Foreign Capital:

28. What are the types of foreign capital?
According to FIPPA, there are various types of foreign capital which, in addition to cash capital, includes all types of non-cash capital comprising of machinery, equipment, parts, and raw material, know-how and expertise services.
29. Are all kinds of foreign exchange acceptable as cash capital?
In fact, those kinds of foreign exchange which are acceptable to the Central Bank of the Islamic Republic of Iran, could be registered as cash capital.
30. Is it obligatory to convert the imported foreign exchange into IRRials?
That portion of imported foreign exchange required to be converted into Rials at the discretion of the investor, shall be purchased by the recipient bank at the current rate, and its equivalent in Rials shall be deposited in the account of the J.V.C. or the investee firm.
31. Is it possible for the foreign investor not to convert the imported foreign exchange into Rials but use it for foreign purchases and orders related to the investment project?
Yes, as the foreign exchange may be converted into Rials, it is also possible to deposit the same in the foreign exchange account of the J.V.C. or the investee firm to be used, under the supervision of the Organization for payments related to foreign orders and/or other necessary expenses of the investment project.
Depositing foreign exchange without conversion into Rials protects the foreign investor against foreign exchange fluctuations, and provides the opportunity to use it at his own discretion, whenever required.
32. Is it necessary to evaluate the foreign imported capital before its registration?
Yes. Valuation of capital, whether in cash or kind, is necessary. In both cases, the bank’s conversion rate on the date of importation shall be the basis for valuation.
33. What formalities are required for importation of machinery, equipment, parts and raw materials (i.e., non-cash capital)?
In principal, importation of non-cash capital items related to foreign investment projects are not subject to the formalities of importation of commercial commodities. Non-cash items of any type can be imported into the Country upon recommendation by OIETAI based on the approved list, and the statistical (order) registration with the Ministry of Commerce.
34. Does it mean that importation of non-cash capital is free from local content requirements, allocation of foreign exchange and opening letter of credit?
That is true. It is not necessary to comply with the local content requirement, allocation of foreign exchange and opening letter of credit.
35. Is there any charge applicable to importation of foreign non-cash (in-kind) capital?
Except for machinery applicable in manufacturing and mining projects, foreign non-cash capital, the same as other goods, is subject to payment of import duties.
36. What criteria are to be considered for importation of know-how?
Technical know-how and specialized services are considered as acceptable types of foreign capital, so should be evaluated and registered then as foreign capital. However, the opinion of the relevant Ministry shall be sought before the importation of technical know-how.
37. Is it permissible to pay license fee or royalty?
Sure. In cases where technical know-how is not considered as part of foreign capital, the relevant sums and/or approved royalty are payable to technology supplier.
38. What criterion is set for payment of license fee or royalty to foreign parties?
In any and all manners of payment, the value of imported raw material shall be the basis for calculation of royalty and or license fee. This net amount, after deduction of imported materials value, shall be paid to whom granted the license. In other words, according to prevailing policy, payment of royalty and license fee is calculated on the basis of domestic added value.
39. Is a prior review of technical know-how necessary?
Agreements related to specialized services, to be imported in the form of capital or to be paid for in other ways, shall be submitted to OIETAI along with the foreign investment application. The Organization will then coordinate and consult with the relevant Ministry on the necessity of the know-how as well as its value.

Foreign Exchange Transfer:

Spoiler title
The term “foreign exchange transfers” refers to transfer of all sums resulting from the performance of a foreign investment and/or other sums to be transferred in the form of foreign exchange. Such transfers are categorized in two:
1- Capital transfers such as dividends, principal capital, and capital gain, sums pertaining to compensation for confiscation or expropriation of foreign capital.
2- Other foreign exchange transfers including those resulted from patent, technical know-how as well as engineering and technical assistance agreements, trademarks and name, and similar agreements.
41. Is there any restriction with regard to the volume of transferable funds?
No, there is no legal restriction with respect to the volume of transferable funds, neither annually nor totally.
42. Which formalities are required for transfers related to a foreign investment?
Principally, any and all foreign exchange transfers shall be made upon formal application of the foreign investor or the joint venture company or investee firm on behalf of the foreign investor. All transfers, after deduction of legal dues, are payable to the foreign investor’s account.

Tax & Customs Issues:

43. What is the rate of income tax for juridical persons in Iran?
The rate of income tax for juridical persons in Iran is 25% of the taxable income (Article 105, Iranian Tax Code).
44. Is an equal rate of tax applicable to all types of company including Iranian as well as foreign companies?
The rate of income tax for juridical persons in Iran is 25% of the taxable income (Article 105, Iranian Tax Code).
45. Are branches and representative offices of foreign companies which are engaged only in marketing and information collection for their parent companies abroad, subject to payment of income tax too?
No, branches and representative offices of foreign companies and banks which are engaged in gathering information or marketing in Iran for their parent companies, without any transaction right, and receive remuneration from them against their expenditures, shall not be subject to taxation in respect of such remuneration ( Note 2, Article 107, Iranian Tax Code).
46. How is the income tax of foreign airlines and shipping companies calculated in Iran?
The tax of foreign airlines and shipping companies for passenger freight cost and the like earned in Iran, is a fixed rate of 5% of such earnings whether collected in Iran, at the destination, or on the way.
47. Shall the income derived from transfer of technology agreements such as technical know-how, engineering and technical services and also payments of license fee and royalty be subject to taxation?
In case of granting of licenses and other rights in such agreements, which is considered as the income of foreign juridical persons, taxable income consist of 20% to 40% of all payments received by them during a tax year and shall be taxed at a rate of 25% (Note 2, Article 105; Parra’s”, Article 107, Iranian Tax Code).
48. What is the manner of computation of salary income tax of foreign employees?
The tax rate of salary income of employees whether Iranian or foreigner, after deduction of annual exemptions provided in Article 84of Iranian Tax Code and up to IRR42,000,000 of the annual salary income, shall be subject to a rate of 10%. The rest shall be subject to a rate ranging from 20% to 35%, in accordance with Article 131of the said Code.
49. What is the rate of tax applicable to transfer of shares of companies listed in the Stock Exchange?
Each transfer of companies’ shares and priority right of shares, shall be taxed at a flat rate of 0.5% of the sale value of such shares and priority rights of shares (Note 1, Article 143, and Iranian Tax Code).
50. What is the rate of tax applicable to transfer of shares of other companies?
Each transfer of stocks, partnership shares, priority right of stocks and partnership shares shall be taxed at a flat rate of 4% of face value of the shares and/or partnership shares (Note 2, Article 143, and Iranian Tax Code).

Tax & customs facilities & exemptions:

51. What is meant by tax exemption, and how they are realized?
Tax exemption means exemption from payment of tax on income derived from industrial, mining and producing activities. Companies in Iran are required to withhold the tax on dividend, which is considered as natural entities’ tax, and pay it to the relevant tax office (Article 132, Iranian Tax Code).
52. What are the tax exemptions, and in what manner they can be applied?
Tax exemption in industry, mining and producing sectors:
1. 80% of the income derived from producing and mining activities of cooperative and private sectors are tax exempted for a term of 4 years as from the date of exploitation or extraction (operation) (Article 132, Iranian Tax Code).
2. Any part of the declared profit of private and cooperative companies that is used in the same year for development, reconstruction, renovation or completion of existing industrial or mining units and/or for setting up of new industrial or mining units, is exempted from 50% of the applicable tax (Article 138, Iranian Tax Code).
3- Tax exemption in agricultural sector:
The income derived from all activities in the field of agricultural, animal rearing, stock breeding, fish farming, bee-keeping, poultry, husbandry, hunting and fishing, seri-culture, revival of pastures and forests, horticulture of palm trees, is tax exempted without time limitation (Article 81, Iranian Tax Code).
4- Tax exemption in tourism sector:
All enterprises for internal and international tourism obtained exploitation permit from the Ministry of Culture and Islamic Guidance shall enjoy an annual exemption with regard to 50% of their applicable taxes (Note 3, Article 132, Iranian Tax Code).
53. What is the tax exemption applicable to transit goods?
100% of the income derived from exportation of different goods that have been, or will be, imported to Iran on transit, and are exported without making any changes in the substance thereof, or doing any works on them, are tax exempted (Article 141, Iranian Tax Code).
54. Do the companies quoted in the Stock Exchange enjoy tax exemptions other than those applicable to industrial, mining, agricultural and tourism units?
All the companies listed in the Stock Exchange whose transition of shares is done by stock brokers are tax exempted equivalent to 10% of their payable tax (Article 143, Iranian Tax Code).

Miscellaneous:

55. Has Iran concluded any multilateral investment agreement?
Yes, the Government of the Islamic Republic of Iran has joined the Agreement on Promotion, Guarantee and Protection of Investment among OIC member countries as well as the agreement among ECO member countries.
56. Has Iran joined the Multilateral Investment Guarantee Agency (MIGA)?
Yes, the Islamic Republic of Iran is a member of MIGA at present, to this end foreign investors can enjoy the guarantee mechanisms of this agency as well. Although FIPPA along with bilateral and multilateral investment agreements signed by Iran, provides sufficient protections against non-commercial risks, membership to MIGA gives a double guarantee.
57. Which facilities are offered by OIETAI for entry visa of foreign investors and experts?
OIETAI facilitates visa formalities of foreign investors, including short and long term as well as single and multi-entry visas (i.e., 3 year multi entry visa with a 3 months residence permit that is renewable for 1 year), by introducing foreign investors, directors, foreign experts and their immediate family members to the Ministry of Foreign Affairs. Foreign investors or joint venture companies can apply for visa by sending the relevant specification form of applicants along with the reasons for their presence to OIETAI. It is worth mentioning that OIETAI is not the only reference for foreign investors to obtain visa, but all foreigners, according to the prevailing regulations, can refer to the Missions of the Islamic republic of Iran abroad, and apply for visa.
58. Are there any facilities available for the issuance of residence and work permits?
If necessary, OIETAI will provide certain facilities and assistance to foreign investors in this regard.
59. Which laws and regulations are necessary for potential foreign investors?
• In addition to FIPPA and its Implementing Regulations which protect rights of foreign investors, OIETAI recommends the investors to acquire knowledge of the following regulations:
• Commercial Code (sections related to joint stock companies);
• Export and Import Regulations;
• Iranian Tax Code;
• Customs Law;
• Labor Law (to find out how to employ foreign services);
• Law for Registration of Patent and Trade Marks (to know about industrial and intellectual property rights).