Iran has a rather simple tax system. While in practice finalizing tax for companies can take up to several years a good tax advisors can assure you that there is nothing much to worry about. Taxation for natural persons and foreigners are more straightforward though. But the most interesting part is when you look at the taxation from a foreign investor’s perspective.
Investors who come to Iran cannot believe their eyes when they find out about a fixed 0.5% tax rate on transfer of shares in stock exchange, tax exemption on interest received from fixed-income instruments and absence of double taxation as there is no tax on dividends received. Tax reliefs and exemptions can last for decades if you start a right business in the right region especially if you intend to export your goods and services to outside of Iran.
Let us have a closer look at taxation in Iran:
Who pays tax?
Basically all properties and estates owned and any income earned inside Iran is taxable. Iranian natural persons who reside inside Iran and Iranian legal persons pay also tax based on the income that is earned outside Iran.
When do we pay tax?
Fiscal years starts March 20th and end in March 19. Companies may chose fiscal year base on their articles of association. Deadline for the submission of tax self-assessment is June 20th for professions and companies must submit the self-assessment up to 4 months after the end of each fiscal year.
Do we pay tax on capital gains?
Nope! There is a 4% tax on transfer of shares and based on the book value. For companies listed in stock exchanges there is an unbelievable fix 0.5% tax rate on transfer of share. No other tax is provisioned in this matter. There is no extra capital gain tax. The downside is that one cannot offset capital loss with other taxable incomes. This tax is paid by brokerage companies on taxpayer’s behalf.
Do we pay tax on interest received?
Nope! Interest received on treasury bills, bank deposits and Sukuk that are issued by entities under the license of central bank of Iran are tax exempted
Is there double taxation?
Nope! You do not pay tax on dividends you receive
What is the corporate tax?
Iranian legal entities pay a 25% corporate tax for the income earned inside and outside Iran. Income from nonprofit activities through non-commercial Iranian legal entities are not taxed. For each 10% increase in taxable income in comparison to the previous year’s taxable income there is 1% decrease in tax rate (up to 5% reduction in tax rate). Income from dividends are not taxable.
Foreign legal entities and institutions outside Iran has to pay tax for the income earned inside Iran. Tax rate for services varies between 10 to 40 percent of the total income received. Income earned from use of capital is treated as income on profession. Foreign insurance company pay a 2% tax on reinsurance and interest on its respective deposit. Transportation companies active in Iran pay a 5% tax on total income received from transportation initiated from Iran, whether the income is received inside or outside.
Want a relief? Invest anew! Export! Go Public!
New businesses for activities in industrial, mineral sectors as well as services in healthcare and tourism who have obtained license from respective authorities have a 0% tax rate for 5 years (10 years in less developed regions). Zero tax rate means they have to submit the tax self-assessment to the tax authority.
If the business unit has more than 50 employees for every workforce increase of 50% in each year the 0% tax rate is extended for an extra year. There is also 2 extra years for units located in special industrial or economic zones (3 years for less developed zones). After the end of this period, as long as the earned taxable income has not reached two time of the invested capital in the business unit there is a 50% reduction in payable tax for these units (100% reduction in less developed regions) For every 5% of initial investment by a foreign co-investor, tax rate discrimination is extended by 10% (up to 50%)
Foreign companies who use the Iranian manufacturing capacity to export at least 20% of the products with a respectable brand can enjoy the zero tax rate during this period and a 50% reduction on tax payable after the period.
There is a 100% tax reduction on export of finished goods and services and a 20% tax reduction on export of raw materials and there is a 0% tax rate for re-export of goods.
There is a 10% tax reduction on goods sold on commodity exchange and up to companies listed on stock exchange and OTC can enjoy up to 20% tax reduction.
Property Rent Income! Go energy efficient!
All cash and none cash income from property is taxable after a 25% reduction. Owners of energy efficient building complexes with more than 3 apartments enjoy 100% tax exemption while other owners can enjoy exemption for up to 150 square meters in Tehran and 200 meters in other cities.
Vacant properties in cities with a population more than 100,000 are taxable after 2 years. Tax rate is 50% of the assessed tax in the second year of vacancy, 100% in the third year 150% in the fourth year and afterwards.
There is a %5 property transfer and a 2% tax on transfer of goodwill of the property. This tax is calculated based on transaction value of the property which is an assessment by a special committee. This assessment can be up to 20% of the average price of the property in the region. First transfer of a low to medium priced property is exempted from transfer tax. Income from construction and sale of new properties are also subject to income taxes regarding businesses and corporate tax.
Cultivate! Tax Free!
All agricultural activities are tax exempted.
Do not worry about the big brother! It does pay to work more.
Generally cash income from salary and up to 25% of non-cash incomes are taxable (there are minor exemptions). Tax exemption on total annual income from salary is expressed in annual budget law (currently 138 m IRR). Income up to 7 times of minimum wage is taxable for a 10% and excess income is taxable ate 20% rate. Payments made by employers to natural persons who are not employed (like advisory and other services) have a 10% tax rate regardless of mentioned exemption. Salary tax must be paid by salary payers on behalf of employees and they are held responsible for proper payment of taxes on behalf of taxpayers. The exception to this is the salary paid by a foreign entity who has no official branch inside Iran. In this case the employee has the responsibility of proper payment of tax. Employees on less developed regions have a 50% reduction in their taxes.
Tax on professions
Income earned from practicing a profession or other titles unless otherwise stated in the law is taxable under this title. Taxable income is calculated by subtracting respective cost and depreciation from the total revenue from sale of goods and services. Based on the level of activity they may keep ledgers and other legal books. Taxes are payable based on self-assessment by the taxpayer while randomly a few of the self-assessments are thoroughly reviewed. Professions can enjoy the same tax exemptions stated for salary income taxpayers. Tax rate is subject to tax rate on natural persons
|15%||Up to 500,000,000 IRR|
|20%||Between 500,000,000 and 1,000,000,000 IRR|
|25%||More Than 1,000,000,000 IRR|
For each 10% increase in taxable income in comparison to the previous year’s taxable income there is 1% decrease in tax rate (up to 5% reduction in tax rate). Income from dividends are not taxable.
Occasional income like unremunerated payments (unless paid by charities, government or in case of natural disasters) or discriminatory transactions are subject to taxation. The tax rate is the same as tax on profession.
Simple taxation system in Iran has its obstacles in practice but it has designed to promote entrepreneurship, investment, decentralization, development and transparency. With a good tax advisor, investors can find taxation of the least concern.