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Regulations for Monetary, Banking Operations in Iran’s FTZs

At Least
$3 Million in Cash

The executive procedure for banking and monetary operations in Iranian Free Trade/Industrial Zones were finally put into effect by the First Vice President Hassan Habibi. The announcement came after months of debate by experts, and anticipation by many investors, manufacturers and traders. The banking procedure was approved by a majority of ministers who are members of the High FTZ Council, but had not been effective in FTZs until recently. Since the Procedure is highly important for those who intend to export and import commodities to and from FTZs, Iran International presents the full text of the Procedure in six Chapters and 35 Articles.

Chapter One: Terminology

Article 1 – The following terms will be used for the definitions in front of them throughout this text:
Law: The law for the administration for Industrial and Free Trade Zones of the Islamic Republic of Iran and its amendments.
Procedure: Executive procedure for the administration of FTZs
CBI: Central Bank of Iran
HC: High Council for Industrial and Free Trade Zones
Organization: The organization in charge of that specific Free Trade Zone
Zone: Each of Iranian Free Zones
Bank: Those banks which are authorized to operate in a Zone
Branch: A division of a bank or credit institute in the region or outside, which operates in the framework of the Zone’s rules and regulations
Institute: A credit institute authorized to operate in the Zone
Banking Units: Iranian or foreign authorized banks, institutes and bank branches
External Banking: Performing banking operations using foreign currency
Agency: Agencies belonging to credit institutes and banks which are opened in the Zone

Chapter Two: Requirements for setting up banks and institutes

Article 2– Setting up banks and institutes and engaging in banking operations and using the title of “bank” or “institute” in the region is only permitted if relevant laws as well as this procedure are fully observed by them.
Note: Banking units which have a permit for external banking operations, are obliged to use the word “external” with their names.

1. Banks: $10 million, 100% of which must be deposited in cash with the CBI.

2. Institutes: $5 million, 100% of which must be deposited in cash with the CBI.

3. Branches of foreign banks and institutes: $3 million, 100% of which must be deposited in cash with the CBI.

Note 1: The Issuance of permits for setting up banking units mentioned in paragraphs A, B and C, with foreign capital is dependent upon offering the sale notice of forex to one of the banking units in the Zone at a value equivalent to the capital of the foreign national.

Note 2: The funds deposited with the CBI would be used by the banking units once they have registered themselves and offered their registration documents.

Note 3: The CBI can, at its own discretion, change the minimum required cash capital of banking units.

Article 8 – Operating banks or institutes in the zone can set up branches upon the approval of the organization and the CBI.

Article 9 – Buying and selling all foreign currencies with rial or all transactions and transfers in FTZs by legal and real entities are permitted.

Article 10 – Transfer of all foreign currencies from Zone into/out of the mainland is permitted.

Article 11 – The exchange rate in Zone will be determined based on the balance between supply and demand.

Article 12 – Banks, institutes and their branches can start activity in the Zone once they receive permits (Article 4) and register themselves with the Zone registration authority. They are required to observe the requirements of this Procedure in their activities, while submitting the following documents to the organization:
Registration notice which should be published in the “Official Newspaper”, a copy of the Articles of Association and the address of the legal location.

Article 13 – Rules for activity of banking units in the Zone include:
1. All banking units in the Zone must follow this Procedure and other relevant regulations.
2. All banking units in the Zone must observe Islamic banking regulations in transactions they perform in rial, and must observe international banking regulations in transactions they perform in forex.

Article 14 – Monetary and credit regulations set by the CBI for the banking unit active in the Zone, are directed at facilitating and encouraging investments in the Zone, while preserving international competition.

Article 15 – External banking units are not permitted to perform banking operations in Iranian rial.

Article 16 – Banking units must obtain the CBI permit for their forex transactions. The said unit can request for forex transaction at the time of presenting their application for setting up their unit.

Article 17 – Banking units which have the permit to operate foreign exchange operations, can render the following services, depending on the type of their permit, while observing this Procedure:
1. Establishment of agency relationship with other banks
2. Undertaking various monetary transactions for customers or themselves
3. Undertaking all transactions of buying and selling forex in cash with their own account or that of their customers
4. Undertaking deposit and current accounts
5. Keeping term deposits with various maturity dates
6. Receiving credit facilities
7. Issuing, buying, selling, offering stock subscription and keeping participation bonds and general bonds
8. Granting various credit facilities
9. Buying and guaranteeing all kinds of trade bonds
10. Undertaking all operations that relate to opening L/Cs, drafts, promissory notes and guarantees
11. Managing properties and rendering investment services to the customers’ accounts
12. Undertaking all trust services and other managerial tasks
13. Other authorized banking operations.

Note: Institutes are allowed to open current accounts in forex for their customers.

Article 18 – In international banking operations, the transaction fee, the interest of the received credit facilities, various deposits and the interest to granted facilities will be determined based on the free market conditions.

Article 19 – Banking units, except for external units, can procure their necessary resources through the following needs, while observing the “rules for non-usurious banking” and other existing rules and regulations:
1. Accepting current and deposit interest-free (Qarz-ul Hassaneh) accounts
2. Accepting term investment deposits
3. Issuing participation bonds
4. Receiving credit facilities from real and legal entities

Note: Credit institutes are not allowed to receive interest-free current deposits in rial from customers.

Article 20 – Banking units, except for external units, of the Zone can grant credit facilities in rial in the framework of regulations for banking operations.

Article 21 – Banking units, except for external units, of the Zone can undertake other authorized banking operations in rial based on their articles of association.

Article 22 – Banks and institutes in the Zone are not allowed to increase their capital from re-evaluation of their properties.

Article 23 – Banks and institutes as well as foreign bank branches and institutes of the Zone must always return part of their returned deposits with their own banks to the CBI as a legal deposit, depending on the amount and kind of forex that the CBI would determine.

Article 24 – Banks and institutes as well as foreign branches and institutes in the Zone must keep a part of their annual net profit as a legal saving. The amount of this saving would be 15% of the net profit in the minimum. Creation of this saving would be voluntary after the time that the amount of the saving reaches that of the capital.

Article 25 –Assets and forex debts of banking units in the Zone must be converted at the end of the fiscal year based on the free market rates. The difference between converted assets and debts, which mature within a year or less, must be considered in the profit and loss account at the time of conversion.

Article 26 – banking units in the Zone are not allowed to offer their own shares as a guarantee for the facilities they receive.

Article 27 – Banks and institutes in the Zone are not allowed to undertake the following operations:
1. Buying and selling goods to their own account in order to trade them unless they are directed at the implementation of the non-usurious banking operations and in order to fulfill their own needs.
2. Immovable transaction except for banks and institutes whose main objective is performing immovable deals over the ceiling approved by the CBI.
3. Purchasing shares and partnership in capital of one or more companies or purchasing other bonds to their own account to the level over the ceiling approved by the CBI.
4. Granting credit facilities over the ceiling approved by the CBI, to the CEO, board members and the companies in which the said persons have an interest.
5. Granting credit facilities to the board members and managers of the organization and the members of the divisions and managers and inspectors of the CBI, unless done by observing special regulations approved by the CBI.

Article 28 – In case the capital of the bank or institute, because of sustained loss, drops to a level less than what is mentioned in Article 8, then the bank or institute must increase its capital within a duration of six months.

Article 29 – All banks and institutes as well as branches of foreign banks and institutes in the Zone must act under the supervision of the CBI and must observe the following:
1. Monetary and credit policies adopted by the CBI
2. Their legal deposits for the return in the framework of defined forms
3. Keep their account headings and financial reports in the way which is confirmed by the CBI
4. Standards and regulations of the CBI particularly the required level of capital
5. Required statistics and information must be dispatched to the CBI in due time and according the desired forms, as follows:

• Summary of the ledger and the account of legal deposit calculation

• Financial accounts, including the balance sheet and profit and loss account, certified by the independent auditors which are approved by the CBI.

6. Other necessary information at any time that the CBI determines should be submitted to it.

7. Cooperation with the CBI inspectors, who will attend the location having a written order from the CBI, and provide them with necessary information.
Article 30 – In case that if, at the discretion of the CBI, the continuation of the activity of the banking unit in the Zone would be accompanied with risk, the CBI is authorized to deploy a supervisor in place.

Chapter Six: Other Regulations

Article 31 – Members of the board of directors, CEO and deputy or members of the board of banks and institutes, as well as heads of branches of Iranian and foreign banks and institutes in the Zone, must be approved by the CBI.

Article 32 – Banking units in the Zone should be held accountable, and compensate, for the damages on the customers caused as a result of their operations.
CEO and board members of every bank or institute in the Zone are also responsible before the customers for damages which are caused as a result of violation of these regulations or their own articles of association.

Article 33 – In order to facilitate the exchanges of checks or banking documents, a clearinghouse would be set up in the Zone by banking units, to be approved by the CBI. The operational costs must be provided by the said unit.

Article 34 – The conditions under which the documents, bonds and books are kept, the way through which violations are dealt with, the trend of dissolution and failure of banking units and other cases which are not predicted in this Procedure, should be according to the Banking and Monetary Law, approved in 1972.

Article 35 – The instructions concerning the execution of this Procedure will be approved by the CBI.

The above text is a replacement for the Act No. 51866/T 17992H approved on May 20, 1997.