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| Your Tax Exemption Period
Tax. This is one of the most
frequently-discussed questions of foreign investors who have an eye on the Iranian marekt.
Therefore, the post-conference seminar of “Investing in Iran” summit aims at
shedding light on the current taxation system in Iran as well as relieving any fears
foreign investors may have of becoming entangled in the system.
Dr. Ali Akbar Samiei, chairman of the Supreme Council of Taxation, recently talked to Iran
International on the major issue of tax exemption in the Iran taxation system and how
foreign investors would be able to enjoy the advantages that Iran has to offer. After 32
years in the Ministry of Economic Affairs & Finance, Dr. Samiei easily makes a
reference to all the laws, articles and clauses while maintaining a vision on economic
growth, industrial progress, justice and the benefit of all. Excerpts:
Tax Incentives: There are a number
of incentives which may prove effective in attracting foreign investment and foreign
presence in any country. Topping the list are rates of taxation. High rates would in fact
prove very discouraging. Too high tax rates discourage the citizens of a country
themselves from investing in any sector of the economy, and even if they do make
investments, they would be inclined to practice tax evasion. The issue of tax rates is
highly important to foreign companies and investors. They would compare the condition in
their country with that of Iran while considering the wage rate, return on capital, and
investment security among other factors. If the prospective investor does not find the
comparison desirable and encouraging, he might be discouraged altogether. Tax rates are a
linchpin of any decision on investment.
The income earned on the export of non-oil products is 100% tax exempt.
Here, foreign investors can spend less on production and earn more on exports |
Even when the tax exemption
period ends, our rates are quite likely to have been adjusted for the better. There is no
industry that would go into operation overnight. It would take at least three to four
years to adopt the right decisions, conduct the feasibility studies, install the
machinery, and get started. It is only then that the exemption period begins.
At present, fertile grounds for investment, and economic, business and production
activities in Iran are countless. The only cause for concern could be high tax rates which
are already undergoing adjustments and by the time foreign investors and companies enter
the Iranian scene they might be faced with new legislation.
Tax Exemption in Urban Areas: If a
manufacturing or industrial unit is set up outside the 120-kilometer radius of Tehran, it
will be exempted from taxes for a period between four and eight years beginning the date
the unit becomes operational provided that it has already obtained the required
authorizations for operation from the authorities. The exemption is granted according to
the type of product or products supplied. There is an international classification for all
the products such as the ISPGS list or the International Nomenclature list. If the same
unit is set up in undeveloped areas, the period of exemption would be increased by 50
percent. The exemption granted to many industries which are regarded as key or priority
industries is eight years. We can classify industries and determine their tax exemption
period accordingly.
In Free Trade Zones (FTZs): The
issue of tax exemption in FTZs is considered under specific laws. Here, the exemption is
not restricted to the type of products. Once you are granted authorization from the FTZ
authorities to start activities of any kind, you will enjoy 15 years of tax exemption,
again starting the date the unit becomes operational. Units not exempt from taxes due to
their location, say, 50 kilometers outside Tehran, would enjoy 15 years of exemption in
any FTZ.
Double
Tax Treaty: We have signed a treaty with a number of countries for avoidance
from double tax collection. One of the advantages of the treaty is that citizens of
foreign parties to the contract would pay taxes at rates lower than current rates in Iran.
For instance, citizens of these countries who hold shares in Iranian companies would pay a
dividend tax at a rate of only 15 percent, while their Iranian peers would pay the same
tax at a rate of 45 percent under Iranian laws. The tax rate would increase by a meager
five percent if foreign nationals hold more than 25 percent of the shares.
Proper Enforcement of Law: Another
issue which may cause worries on the part of foreign investors and companies would be the
proper enforcement of the existing laws, which is their natural right. Sometimes
authorities responsible for enforcing the law such as ourselves [the Supreme Council of
Taxation] make inferences from the law which might run counter to those made by taxpayers.
If companies, whether Iranian or foreign, come to the conclusion that the law has not been
enforced properly in their case, they would be entitled to request a review. This has not
been predicted by the law only to the advantage of foreigners, but that tax laws and
regulations are the dividing line between the assets and income of the private sector and
those of the public sector.
Settlement of Disputes: Also,
disputes usually arise between tax auditors and taxpayers. To us there is absolutely no
difference between an Iranian and a foreign taxpayer. As the Iranian taxpayer has the
right to lodge a complaint with tax dispute settlement bodies, the right to an attorney,
to appeal to the Supreme Council of Taxation against decisions of tax dispute settlement
bodies and in turn to the Administrative Court, so can the foreign taxpayer. In the Direct
Taxes Act it is stipulated that should any taxpayer, which is not restricted to Iranian
taxpayers only, not be able to have his claim decided by any other authority whatsoever,
he can lodge a complaint with the Minister of Economic Affairs & Finance by presenting
the right documentation. And the minister would refer such a case to a three-member
committee appointed by himself.
Export Tax: Under the Direct Taxes
Act and Third Development Plan Act export income is completely tax-free. This has provided
a great opportunity for foreign companies to produce their goods with the same technical
specifications here while employing cheaper labor and spending considerably less on
exporting their products. However high their export incomes may be, they would be tax
exempt and this is not periodic. Article 141 of the Direct Taxes Act says the income
earned on the export of non-oil industrial end-products exported from Iran are 100 percent
tax exempt, and under the Third Development Plan Act such exports would be entirely
duty-free. |
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