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. What objectives are to be achieved by foreign investment?
The main objectives are:
- Enhancing economic growth;
- Increasing employment opportunities;
- Access to and development of new technologies and managerial skills;
- Upgrading quality of products and boosting export capabilities.
3. 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 (Foreign Direct Investment) and/or contractual arrangements. By contractual arrangements we mean all forms of project financing methods within the framework of civil participation, buy back arrangements, and different types of Build, Operate and Transfer (BOT) schemes.
4. How do you define foreign investment?
Foreign investment is defined as employment of capital in an activity in which a level of risk involved.FIPPA classified foreign investment under two broad categories:
- a) Legal participation (direct investment): is defined as a direct involvement of a foreign investor in the equity capital of a new or existing Iranian company. There is no restriction on the level of shareholding as well as percentage of shares belonging to foreign investors in Iranian companies. The right of foreign investor to run and control a company emanates from and is dependent upon his direct contribution in the equity capital of the concerned company.
- b) Contractual arrangements: is defined as a set of mechanisms under which the utilization of foreign capital is solely based on agreements reached by the parties to a contract. In other words, the rights of the foreign investor is not yielded with his direct participation in the capital of the recipient Iranian firm, but through the arrangements agreed upon under a contract. This type of investment may be carried out in all sectors of economy. Under contractual arrangements, the return of capital and accrued profits have to be sourced only out of the economic performance of the project in which the investment is made without being dependent upon a repayment guarantee by the government, by the banking system as well as state owned companies.
5. In what sectors foreign direct investment is permissible?
Foreign direct investment is permissible in all areas open to Iranian private sector.
6. In what sectors foreign investment under contractual arrangement is permissible?
Foreign investment under contractual arrangement is permissible in all sectors of economy. However, foreign investment in sectors reserved for the Government may only be carried out under contractual arrangements.
7. 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 (For further information please refer to “Establishing a Joint Stock Company in Iran” published by OEITAI).
8. Is it obligatory to have local partner(s)?
Of course not. It is by no means obligatory to have local partner, but in most 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 locally available.
9. 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.
10. 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. As formerly explained, no restriction with respect to the ceiling of foreign participation is imposed in Iranian companies. In fact, these ratios illustrate the proportion given to the value of goods and services produced by foreign investment in the global economy in each sector and subsector respectively, verified at the time of issuance of the foreign investment license (i.e., value of foreign products in GDP).
11. Is foreign investment permissible in oil and gas upstream activities?
Foreign investment in oil and gas upstream activities within the framework of contractual arrangements is permissible, but Foreign Direct Investment (FDI) in such areas is not permitted.
12. Is it permissible to use foreign trade marks and names in foreign investments?
Application of trade marks and names is permissible in all areas of economic activity.
13. 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.
14. How do you define Special Economic Zones in Iran and in which areas of the Country these so-called zones have so far been established?
Special Economic Zones are restricted customs areas in which import of goods, machinery and equipments is not subject to the general import/export regulations. The zones may have been established for different reasons and objectives. Some of them are established for the purpose of warehousing whereas some, in addition to warehousing of goods, are designed for setting up processing and production line. At present the number of Special Economic Zones reaches to 17 (For more information please refer to website www.freezones.ir).
15. Is there any difference between investments made in Free Trade Industrial Zones, Special Economic Zone and the mainland?
Investment in Free Zones is subject to especial regulations governing such investments. Iranian Free Zones at present comprise six areas by the name of Gheshm, Kish, Chahbahar, Arwand, Aras and Bandar Anzali. Areas known as Special Economic Zones are part of the mainland in which all investments are considered to be investments in the mainland. Taking into consideration the applicability of Foreign Investment Law to the territory of the Islamic Republic of Iran, all foreign investments realized in Free Trade and Industrial Zones may also enjoy the privileges of FIPPA, provided that the relevant formalities for obtaining the investment license have been followed.
16. 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.
17. Is it possible for foreign companies to establish legal bases in the form of branches or representative offices in Iran?
Of course 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.
18. 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 way of establishing a new Iranian company, participation in an existing Iranian company and/or entering into contractual arrangements with Iranian recipient entities.
19. What are the features of Industrial Estates and what facilities are available in those areas?
Industrial Estates are prefabricated Estates designed and constructed by the Industrial Estates Company of Iran, affiliated to the Ministry of Industry and Mines, readily available for investors in all industrial poles throughout the Country. Even in certain Estates, factories and industrial workshops are offered for purchase. The important feature of these estates is availability of infrastructural utilities such as water, power, gas, telephone and quick access to the main transportation network of the Country.
20. 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.
21. What is the role of the regulations governing investment in Free Zones?
Although foreign investment in Free Zones is governed by especial regulations, foreign investors may also invest in such zones under Foreign Investment Law and take advantage of its protections.
22. What is meant by the term protection under FIPPA?
The term protection refers to a series of certain rights and privileges which are extended to investors under FIPPA. In other words, investments carried out under any law other than FIPPA shall not be eligible to enjoy such rights.
23. What are those rights and privileges?
Fundamental rights recognized under FIPPA in favour of foreign investors are as follows:
– The right to transfer profits (dividends) as well as capital and gains on capital in foreign exchange;
– The right to receive compensation resulting from expropriation (deprivation of ownership) and nationalization of foreign capital;
– 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;
– The right to enjoy equitable treatment accorded to domestic investors.
24. Are there any other facilities and privileges available to foreign investors?
Other facilities and privileges contemplated under FIPPA and its Implementing Regulations are as follows:
– 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.
25. What issues are specified in the investment license?
Many issues such as area of investment, Iranian and foreign shareholders, type and method of investment, volume and percentage of foreign investment, the manner for transfer of dividend and profit gained as well as other terms and conditions pertinent to a foreign investment project are to be specified in the investment license.
26. Who is qualified to invest in Iran?
All foreign natural and juridical persons, international organizations, institutions and companies as well as Iranian natural and juridical persons are qualified to invest in the Country in accordance with the provisions of FIPPA.
27. 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.
28. 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.
29. 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.
30. Are foreign state-owned companies authorized to invest in Iran in accordance with FIPPA?
Foreign state-owned companies may invest in Iran in accordance with FIPPA, and enjoy privileges available under the law.
31. 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.
32. Does FIPPA consider pure commercial activities as foreign investment?
Indeed, pure commercial activities are not considered as foreign investment. However, should they be complementary to the producing activities in connection with an approved project, they can be taken into account as foreign investment.
33. What type of service activities are eligible to be covered under FIPPA?
Foreign investment in service sector including tourism is eligible to be covered under FIPPA.
34. Is the legal protection under FIPPA extended to foreign investments automatically?
Extension of legal protection to foreign investments is not an automatic phenomenon, but subject to obtaining the required investment license.
35. How and under what condition an investment already carried out but not covered under FIPPA can enjoy FIPPA’s coverage?
Investments already carried out but not covered under FIIPA may, upon application for obtaining an investment license and subject to creating added value, enjoy the protections available under FIPPA.
36. Is foreign investment permissible in existing firms? If yes how?
From the standpoint of FIPPA, there is no difference between investment in a greenfield project – a new company – and investment in an existing economic entity. All prospective foreign investors may at any time proceed for investment in a new (greenfield) project and/or an existing economic entity. However, admission of foreign investment in existing firms is subject to creation of new added value which may result from increase in investment, upgrading managerial skills, development of exports, and improvement of technology level in the same entity.
37. How foreign investment can take place in an existing Iranian company?
From the standpoint of admission regulations, such investments can be covered under FIPPA and enjoy its privileges upon completion of admission procedure and obtaining the investment license, on the condition that they bring about value addition.
38. In what manners a foreign investor can invest in an existing Iranian company and become a shareholder?
There are two ways:
- Acquiring shares of a company based on agreed terms and conditions.
- 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.
39. Under what legal framework BOT contracts are implemented?
For the purpose of conducting BOT contracts including BOOT, BOO, etc., the foreign investor may proceed either by establishing a branch office in Iran or by way of incorporating an Iranian company (i.e., Project Company).
40. What is meant by proprietary rights?
Proprietary rights are certain rights arising from having ownership over property and assets and/or rights assigned to the recipient under a contract. This right has been recognized in FIPPA and is applicable to a series of rights including right of ownership, right of operation and profitability, as the case maybe.
41. What is meant by assignment of proprietary rights in BOT contracts?
In BOT contracts assignment would cover the ownership right as well as the rights acquired under the contract which can be assigned to Iranian party of the contract.
42. 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 earning. 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.
43. 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.
44. 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 subrogee may apply for compensation resulting from the rights the investor is originally entitle to claim.
45. 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.
46. How investment disputes may be settled?
Investment disputes may be classified in 3 categories, each of which may be settled in a different manner:
- Disputes between local and foreign investors: This type of dispute may be settled, in the first place, through friendly negotiations. In the event a settlement is not reached, the dispute may be referred to domestic courts, foreign courts and/or international or ad hoc arbitral tribunals. There is no legal impediment for accepting any of the aforementioned methods as is mutually agreed between the parties to the disputes.
- Settlement of disputes between an investor and the host government: As contemplated in Article19 of FIPPA, in the event a dispute between an investor and the Iranian Government is not settled through negotiations, the investor may approach through either of the following options:
- a) Referring to domestic courts;
- b) Referring the dispute to the competent arbitration tribunal stipulated in the Agreement on Reciprocal Promotion and Protection of Investment with the investors` respective government (i.e. Bilateral Investment Treaties: BITs).
- Settlement of disputes between host and home governments: This type of disputes are not usually of the same nature as disputes raised between investors. Moreover, they are attributed to the commitments and obligations of the respective governments vis-à-vis in respect of the implementation and interpretation of the contracts. Settlement of such disputes is also included in the bilateral and multilateral investment agreements.
47. 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.
48. Is it permissible to own land by foreign nationals for the purposes other than personal use (i.e. industrial, agricultural, services, etc.)?
The answer is no. On the overall, the ownership of land for the aforementioned purposes which are considered to be beyond personal use, is not permitted.
49. Then how the “ownership of land” in foreign investment projects is resolved?
As explained in previous answer, ownership of land in the name of foreign nationals is not permitted. However, in the event the implementation of foreign investment project results in establishment of an “Iranian Company”, ownership of land in the name of that company which bears an Iranian identity, would be permissible.
50. What is meant by the term “ Iranian Company”?
Iranian company is a company established and registered in Iran in accordance with Iranian Commercial Code, regardless of the identity and nationality of its shareholders or partners.
51. What is the definition of an industrial unit?
It is a specified place in which the owner could do one or more industrial activities through legal or natural personality.
52. What is an establishment permit?
It is a permit that would be issued by the Industry, Mine, & Trade after meeting the requirements for the investment in doing
53. How long would the issued establishment permit be valid and how could it be extended?
The establishment permit would valid for a year after its issuance date and could be extended provided that executive actions
such as buying the land and embarking on the construction operations are done and the report of the physical progress of
the job is sent to the Organization every two months.
54. What does a pilot production mean?
A pilot production is meant to install and run the machineries and equipments relevant to production of the product and also the
mass production within a given period. The Industry, Mine, & Trade Organization of the province would determine the pilot
55. What are engineering establishment & service permits?
Establishment permit: It is a kind of permit that is issued by the Industry, Mine, & Trade Organization of the province after the
expert analysis in case of being qualified and having all the required documents. It would be valid for a year after the date
of issuance & could be extended at most twice and would last a year each time.
Permit: It is a kind of permit that would be issued by the Industry, Mine, & Trade Organization of the province after the
establishment permit (in case of not having the establishment permit, provided that it is qualified) and having the complete
required documents and facilities and after the visit of relevant specialist.
56. How many specified economic zones and free zones are there?
There are 17 specified economic zones and 7 free zones in Iran.
57. What is a free zone?
It includes a zone of a country that is created to pave the way for the facilitation and development of export and attracting
foreign investments. In other words, a free zone is totally free in exporting goods and attracting foreign investments.
Through these zones, governments attempt at creating appropriate backgrounds for investment and development of
export as well as obtaining foreign exchange income through strategies that are really facilitative.
58. What are the legal advantages of free zones?
- Enjoying various tax exemptions
•Possibility of entering machineries, parts, and raw materials for the industries of the region without
customs toll, enjoying the Act of advantage of added value for the production units of the region
•Total freedom to enter and exit the asset and income of economic activities
•Special regulations for export and import and customs affairs in free zones
•No need for Visa for the entrance and exit of the foreigners from the permitted entrance and exit of the
•Regulations of obtaining specific tolls of Anzali Free Zone and exemption from the common tolls of the
59. Who could invest in the free economic-industrial zones?
According to the Free Zones Regulations, all the natural and legal people and institutions including the
Iranian and foreign ones and the international organizations could invest in the free zones, either
independently or through cooperation with the Organization and its subordinate companies, or by
cooperation with each other.
60. What is meant by domestic investment?
All the investments in Rails that are done by the domestic investors.
61. Is foreign investment in the free zones permitted?
One of the main goals of creating free zones is to have foreign investments. Hence, foreign investment is
permitted in these zones. However, the investments would enjoy the legal advantages of the zones,
provided that they obtain the required permissions.
62. Is foreign investment possible in the existing units? How?
- According to the regulations of foreign investment, there is no difference between new investment and
the one in an economic unit. All the foreign investors could embark on having a new plan of investment
or a business firm at any time.
63. What sectors include direct foreign investments?
It would be permitted in all the fields in which a private sector’s activity is permitted.
64. Is having a local partner required for the foreign investors?
No. It is not obligatory for foreign investors to have local partners. However, since Iranian parties are familiar with working
conditions, regulations, and official rules, ways to use the local facilities, etc., foreign investors usually tend to have local
65. What is the permitted limit of foreign investment in Industry, Mine, & Trade?
In terms of the percentage of cooperation and investment amount, there is no limitation for direct foreign investment in the I.R.
66. What is meant by specified economic zones?
They are customs surrounded zones to which the import of goods, machineries, and equipments does not include the export and
import regulations. Each of these zones might have been established for specific purposes. Some of them have been established
to keep the goods for import to the country or export to abroad, and others might have been for doing production and industrial
activities as well as keeping the goods.
67. Is forming a legal basis as a branch or representative of foreign companies possible in Iran?
Yes. In order to develop its trade activities and doing the arbitrary responsibilities and marketing activities, etc., each foreign
company could have a legal basis in Iran, through registering a branch or a representative of the original company. There are
special regulations for the establishment of a branch or representative. Hence, the applicants must directly refer to the
Corporation Registration & Industrial Ownership Administration.
68. What are the qualities of the industrial parks and what kind of facilities do they have?
The industrial parks are pre-fabricated parks that have been made by Iran’s Industrial Park Corporation, a subordinate of Ministry
of Industry, Mine, & Trade, in the industrial hubs nationwide and ready to be used by the foreign investors. It should be
mentioned that in some of these parks, there are pre-fabricated factories, and industrial workshops ready to be assigned. The
point in these parks is enjoying the basic services including water, electricity, gas, telephone, and access to major networks of
transportation of the country.
69. What are the permitted fields of foreign investment in Iran, according to Foreign Investment Act?
There are various permitted fields of foreign investment in Iran and all the industrial, mining, agriculture, and services that lead
to construction and production activities are included.
70. Do the foreign investments automatically enjoy the legal support?
No. In order to enjoy the legal support for the foreign investments, obtaining the permit of investment is required.
71. How could a foreign investment that was done before but wasn’t legally supported become legal?
The investments that were done before but were not legal could become legal any time after passing the
acceptation stages, provided that they bring about new added value.
72. How would the land ownership be in the foreign investment plan?
Foreign investors could not own the lands. However, if the foreign investment plan leads in the formation of
an Iranian corporation with an Iranian identity, it would be permitted.
73. Is it possible to register the right to invent and trade marks in Iran?
The industrial and intellectual property including the right to invent, right for the trademarks, etc, could be
registered and legally supported, based on the Marks & Inventions Registration Act of the country.
74. Does the settlement of the units in the deprived zones end in the increase of the amount and period of tax exemption?
Yes. 100% of the income including the tax for all the units that are placed in the deprived zones would be
exempted from tax for 10 years (according to the Article132 of Direct Tax Act)