The advantages of doing business in Iran are best summed up by looking at the basic rules of the numbers game.


Iranian companies and individuals are subject to income tax on their income earned inside and/or outside Iran. Foreign companies and individuals are subject to income tax on their income earned through work performed in Iran. Amendments to the Tax Law approved in February 2002 provide more favorable tax rates than those found in the previous tax law.


All companies, including branch offices, are subject to a corporate tax rate of 25% on their taxable income or profit.


Corporate income tax is applicable to company and branch revenues after deduction of the cost of goods and services sold, payroll costs, bank interest charges, depreciation, and other expenses. Certain specific expenses, such as traveling costs and bonuses, are allowed only up to a maximum ceiling amount (according to special regulations on deductible expenses). Capital gains are taxable at normal income tax rates.


Should foreign companies earn income in Iran through contract work, taxable income is determined on a deemed-revenue basis at the rate of 12% of the gross amount received during each year. For contracts signed after March 21, 2003 the income tax rate will be determined based on the net income extracted from the books and accounts.

For companies earning income from Iran through “royalty or copyright contracts", taxable income is determined on a deemed-revenue basis at an arbitrary rate ranging from 20 to 40% of the contract price.

Finally, when the local books of accounts of Iranian companies or branches are rejected because they do not follow legal requirements, the reported net income or loss is also not accepted. In these cases, taxable income is also determined on a deemed-revenue basis of 7 to 60% of gross income depending on the industry and is subject to a corporate tax rate of 25%.


The corporate income tax rate is 25% of taxable income. For individuals the applicable tax rates are stated in Article 13 of the Direct Taxation Act (15% to 35%). There is no further tax on remaining profits, and dividends are not taxable.


In the case of foreign contracting companies, there are fixed social security charges on contract amounts in connection with work performance, which depending on the nature of the contract is either 7.77% or 16.67% of the contract amount.


A value-added tax (VAT) became effective as of September 22, 2008 in Iran. According to the new law, a 3% tax is applicable to specific items from both the manufacturing and service industries at the point of sale (PoS). Out of the withheld sales tax, 1.5% goes to the municipalities and 1.5% to the Ministry of Finance. There are a limited number of goods and services that are exempt from this tax.


Employees' salaries and wages are subject to a salary income tax that is withheld by the employer and is paid to the Tax Office. An annual salary of up to IR52.5 million is exempt, and any salary in excess of this amount is subject to income tax rates as stated in Article 131 of the Direct Taxation Act, which ranges from 10 to 35%. The exempt amount is adjusted at the beginning of each year. Employees receiving non-cash benefits, such as housing or cars, are subject to income tax on these benefits.


Employers must report the full salary packages of their expatriate employees on the monthly payroll. The actual salary's allowance and benefits, which are in connection with their assignment in Iran, either paid in Iran or in their home country, must be reported. The worldwide income of such an expatriate employee is not subject to tax in Iran. In the case of the absence of appropriate documents, a monthly deemed salary is in use ranging from $1,000 to $7,000 depending on nationality and the job position of the expatriate employee.


Payrolls are subject to a social security deduction, which is 30% of monthly salaries and wages up to a monthly ceiling amount of IR21,210,000, and this figure is adjusted at the beginning of each year. Seven percent is withheld from the employee's salary while 23% is paid by the employer, including 3% in unemployment premiums. In the case of contracting companies, these charges are treated as an advance payment against the fixed social security charges on the total contract amount, as explained above. The salary ceiling subject to the said premium is announced at the beginning of each Iranian new year (March 21).

Foreign employees who are from a country with which Iran has a tax treaty agreement or who produce documents showing that they pay the same premium in their home country are exempt from such charges in Iran.


Employers are subject to a fixed charge on any foreign employee's salary (including unemployment charge), payable to the Ministry of Labor. This charge must be paid before a work permit is issued. At present claiming such charges is stopped.


Double taxation treaties were signed with Germany in 1968 and France in 1973 and these are still valid. New tax treaties have also been signed during 1998-2002 with certain Central Asia Republics (Armenia, Kazakhstan, Turkmenistan), Ukraine, Syria, and South Africa. Furthermore “Double Taxation Treaties" regarding the guarantee of investment and economic cooperation have been signed with more than 40 countries mainly from Europe, Japan, and South Asia.


In accordance with the Iranian Direct Taxation Act, companies or branches must withhold certain amounts from each payment at source and pay them into the Tax Office's bank account on behalf of the income earner.

The above withholdings are treated as a tax credit against the tax liability of the income earner.

In the case of foreign contractor companies, 5% of the contract amount is to be withheld by the owner of the contract as a social security deposit. The refund of this amount together with the payment of last invoice is done when the contractor has obtained a social security clearance letter.



1 In all cases where a taxpayer is required to maintain a statutory book of accounts and file a tax return, but fails to do so within the time limit prescribed by law, he/she shall be subject to a fine equal to 10% of the applicable tax.

2 As for a taxpayer who is required to submit statements, lists, contracts or specifications related to his/her activities, but fails to do so within the prescribed time limit, or submits false documents, the applicable fines shall be 2% of the paid salary in respect of salaries, and 1% of a contract's total price in the case of contracts.

3 Any taxes paid after the time limit shall result in the imposition of a fine equal to 2.5% of the relevant tax per month.

Note: All tax fines are forfeitable on the judgment of the tax authorities.


Acceptable expenses for the assessment of taxable income, as specified under the provisions of the present law, shall consist of expenditures that are within the prescribed limits and are supported—to the extent required by custom and usage—by documentary evidence and are exclusively connected with the earning of the enterprise's income during the relevant fiscal term. If expenditure is not envisaged under the law or if it is beyond the limits stipulated herein, but the payment thereof is effected by virtue of a law or decree of the Council of Ministers, then it shall be acceptable. The expenditures that are described hereunder and meet the conditions stated in the above Article will be acceptable in tax computations:

1 Cost of goods and services sold,

2 Personnel costs,

3 Rent of premises and assets,

4 Sales and distribution expenses,

5 Banking and financial expenses and charges, and currency exchange losses,

6 Legal charges, levies, duties, and taxes,

7 Depreciation expenses,

8 Bad debts and allowance for doubtfulreceivables,

9 Losses carried forward against futureincome, and

10 Other administrative expenses, such as office supplies, utilities, insurance, repair and maintenance, transportation, and accruals.


All taxpayers (both legal entities and individuals) are required to file an annual tax return with the tax office within the fourth month after the end of each year. This tax return is subject to tax review, which will be carried out within the following 12 months. The result of the tax review is issued through the Tax Assessment Sheet, which may either be accepted or appealed by a taxpayer. Further tax procedures for making such appeals are done by filing an appeal letter with the first and second tax hearings and upon issuance of the second hearing ruling, a final tax assessment is issued. The collection of taxes due and related penalties and charges are done through the execution and collection office, which is fully explained in the Tax Law. Final taxes are also subject to further claim/appeal through the Higher Tax Council or Article 251 via a special hearing.



General accounting and auditing principles are in practice in Iran. The sources of the accounting principles and practices are mostly from the IAS. The Audit Organization of the Ministry of Finance and Economic Affairs publishes the relevant guidelines and books.


In accordance with local regulations, a company or branch should keep the following local books:

1 Daily journal ledger, which records daily transactions.

2 General ledger, which includes the journal ledger transactions and must be written within 15 days after each month's transactions on a monthly basis.

The company or branch should prepare the following annual financial statements:

1 Balance sheet.

2 Statement of income.

3 Statement of cash flows.

4 Notes to the accounts (financial statements).


The presence of a public accountant or public accounting firm (as a legal inspector) in a joint stock company is required. Auditors are professionals and members of the Iranian Association of Certified Public Accountants. Some accountants are also members of international institutes of accountancy and are associated with international accounting firms.

Shareholders or the board of directors appoint auditors. The auditor's report is issued in connection with the annual financial statements and includes the auditor's opinion on whether the audited financial statements represent a fair review of the company or branch's position and activities.

In general, the legal inspector's report is based on the requirements of the Commercial Code of Iran and includes the inspector's opinion on the company's financial position and board of director's report and also on the directors' transactions with the company.

The branch office may appoint an auditor if required by the parent company.


Upon the request of a taxpayer, a tax audit on the said financial statements may also be carried out by independent auditors.


The payment of contract amounts and invoices are carried out through the following means.


Most payments are made via letters of credit opened by buyers at an Iranian bank in favor of sellers through acceptable and authorized banks. Letters of credit are on cash-basis terms. Furthermore, purchase through a bill of exchange has also been started since the year 2002. Importers should have a commercial card issued by the Ministry of Commerce and the applicants must be a member of the Iranian Chamber of Commerce, Industries and Mines.


The term “usance" refers to a letter of credit that matures within a period of six or 12 months. A usance is similar to a bill of exchange. At present, most suppliers accept the usance and discount it with international banks, financial institutions or Iranian banks outside Iran.


The registered entities/industries may purchase goods from foreign suppliers without the transfer of hard currency in advance, based on the terms of the “Order Registration".


Most payments in connection with five-year development projects and buy-back contracts are through “financing". In fact, this is a loan to the buyer by a bank in the seller's country of domicile. The bank acts as the “financier" and pays the contractor's or supplier's invoices. An Iranian bank usually guarantees the finance (loan). In some cases, the financier may ask that the Central Bank of Iran or a government ministry act as the guarantor. The “cost of finance" or loan interest is paid by the buyer, where repayment of the finance and its cost is by installments, which usually start after the concerned project's operational start.

Currently, companies and financial institutions from Austria, Canada, France, Germany, Japan, and the Republic of Korea are among those that have provided financing facilities to Iranian companies in connection with the development of their existing production lines and the transfer of new technology and know-how.


Buy-back contracts are used for contract work in oil, gas, and mine exploration where a foreign contractor finances the contract's funds, and the total cost, including management fees and financing charges, will be reimbursed from the date that the project is put into operation through the purchase of products by a foreign contractor, where said products will be valued at market price. Furthermore, the Ministry of Energy has entered into negotiations with foreign companies for Build-Operate-Transfer (BOT) contracts. Payments to such investors/contractors are done through an energy sales agreement when the project becomes operational.

TBY would like to thank Hoshiyar Behmand & Co. for compiling this analysis.