Abbas Hoshi, Senior Partner of Hoshiyar Behmand & Co, and Member of Crowe Horwath International, on what foreign investors expect and find in Iran.
In every country, foreign investors are thinking about where to find the right location to make a profit. In a world of multinational companies and corporate interactivity, business leaders are looking for locations that can offer higher profits, and because of the high level of competition it is not possible to make a good profit just by selling your products and services. Higher profits are now the result of the savings that can be found on taxes, levies, raw materials, labor, and other inputs. As a result, foreign investors look to countries that can provide low-cost labor, cheap and abundant energy and raw materials, and attractive tax regulations. Foreign investors take many risks when they invest abroad, and they want to be sure that when they do there will be a higher level of return.
In Iran, the law governing, attracting, and encouraging foreign investment, commonly called FIPPA, provides a number of major facilities for foreign investors. First, if the business makes a profit, investors are able to transfer all dividends and profits out of the country. If the registration is based on exports, they will be allowed to withdraw all funds from exports depending on the level of permission. In the past there were some restrictions on the transfer of funds out of Iran. The advantage of this law is that even if there are any restrictions imposed, these will not affect foreign investors and they will be able to withdraw their funds. The second advantage is that an investor’s capital investment is guaranteed by the government. As a result, investors have the security they need for their capital, and the responsibility of making a profit lies with them.
If there are safeguards for local investment, there is confidence that the rules and regulations exist to support companies and you will trust that country. Investors look at the regulations and environment that local companies act in. In the past, we had a tax law that was a little bit complicated. The rules and regulations depended all too often on the tax officers. In 2000, the tax code was changed. Full implementation of the law is still being pursued, but this is the first step to provide evidence to a foreign company that if it follows the rules and regulations and prepares proper accounts then these can act in its favor. We also have some labor restrictions from the point of view of the foreign investor. Employers cannot easily terminate the contract of an underperforming employee, and for foreign investors this can be a problem. Local companies face similar difficulties, and all sides should act together to recommend beneficial changes.
Often, local companies complain that foreign investors ask for too many exemptions, like tax exemptions, work permit exemptions, free energy, and the like. On the other hand, some foreign investors say that in some countries these privileges are written into the law, and any country that wants to attract foreign investment should legalize these incentives. However, I have never seen either case. As an expert in international tax, I have attended many conferences precisely on these issues. I also acted as a local consultant for the World Bank for many years on its projects in Iran, but I have never seen any of these kinds of facilities in any rule book or regulations.
The most important thing for a foreign investor is the security of their investment, and the stability of the laws and regulations; Iran is trying to show that this is actually the case here. OIETAI, the state agency in charge of implementing FIPPA, has provided extensive support for those seeking to resolve work and residence permit issues, helping them to deal with ministry officials on exports, and getting permissions for the import of machinery and materials. This is what foreign investors want: A committed state agency that will look after their interests.
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