Dayarayan Auditing & Financial Services Firm

Summary tax regulation in Iran

The tax rates of the income of natural persons, except those for whom different rates have been determined in the law, are as in the income tax table below: Annual taxable income / Tax %: Rls. 0-30,000,000: 15% Rls. 30,000,000-100,000,000: 20% Rls. 100,000,000-250,000,000: 25% Rls. 250,000,000-1,000,000,000: 30% Rls. 1,000,000,000 and over: 35%. Who is liable to pay taxes in Iran? 1. Companies and all legal entities of Iranian nationality with respect to all income earned in Iran or abroad. 2. Every natural person of Iranian nationality residing in Iran, with respect to income earned in Iran or abroad. 3. Every natural person of Iranian nationality residing abroad, with respect to all income earned in Iran. 4. Any non-Iranian natural person or legal entity with respect to income earned in Iran, as well as income accrued through the transfer of a license or right, provision of training and technical assistance, and royalties on movie films.

Corporate tax rate in Iran is a flat 25%. How are corporate taxes calculated? According to Article 105 of the Law, the total income of companies and other legal entities, earned from their profitable activities in Iran or abroad shall be subject to a flat rate of 25% after deduction of losses and exemptions. Tax Year in Iran For a corporate entity the tax year is defined as an Iranian year starting from 1st of Farvardin (21st of March) and ending on the last day of Isfand (20th of March). However, in the case of legal entities with different financial year it is possible to assume their financial year as the basis for tax assessment. The deadline for submitting the returns and accounting records is 4 months after the end of the financial year.

The VAT rate in Iran is 3% Law on the Value Added Tax was passed on 29 January 2008 and executive from September 23,2008 to be implemented for five years on a temporary basis. According to Article 1 of the law, offer of goods and services in Iran as well as export and import are subject to the VAT law. The exemptions are foreseen in the Law. The rate of the VAT is 3%. For certain goods higher rates have been set.This rate includes 1.5% for tax and 1.5% for municipal. Tax payers are obliged to calculate the tax subject to the VAT law at the time of applicability of the tax and receive the same from the other transacting party.

What is the taxation regime of foreign companies operating in Iran?

Foreign legal entities must pay taxes on all taxable income earned through investments in Iran or from direct or indirect activities (through branch offices, agencies etc.) in Iran, at the flat corporate tax rate of 25% as mentioned in Article 105 of the Direct Taxation Act. As for the assessment of taxable revenues of foreign legal entities earned by the assignment of their royalties and license and their other rights and ceding of movie films (earned as price, screening rights, or otherwise), depending on the case, the taxable corporate income shall be 20 to 40% of the total sum acquired by the entity within one tax year. The tax assessment basis for each case shall be determined and approved by the Council of Ministers. Direct tax on the income earned by foreign airlines and shipping companies through transporting passengers and cargo from Iran, is a flat corporate tax rate of 5% on all sums received from these activities in Iran, en route, or at the final destination. Foreign insurance companies which earn their profit through reinsurance, shall be subject to a tax at the rate of 2% of the premium collected and the interest accrued from their deposits in Iran. In cases where Iranian insurance companies acting in the country of origin of the foreign reinsurance company, are exempt from payment of corporate taxes on reinsurance activities, the foreign establishments shall also be exempted from payment of taxes to the Iranian government. Corporate tax for foreign contractors in Iran, active in such areas as construction and installation works and the related commissioning, transportation, designing plans for buildings and installations, topographical surveying, drawing, supervision and technical calculations, training and technical assistance, transfer of technology and other services, shall be calculated on the basis of 12% of their total annual receipts in all instances.

What type of tax incentives are there for investments and activities in the Free Trade-Industrial Zones in Iran? According to Article 13 of the Law Concerning the Manner of Administering the Free Trade-Industrial Zones of the Islamic Republic of Iran, natural persons and legal entities economically active in such areas, are exempt from payment of direct income tax for a period of 15 years, from the date of operation as stated in their license. Are there safeguards against being re-taxed in the Direct Taxation Act? Iran has concluded agreements on avoidance of double taxation and tax evasion with a large number of states. The tax arrangements made in such pacts are applicable and binding under the Iranian law. Are the activities of agents of foreign companies in Iran also subject to corporate tax? Branches and agencies of foreign companies which have been registered according to the relevant regulations in Iran, and by virtue of their articles of association are not authorized to engage in profitable activities but can do marketing and collect economic information, are not liable to any taxation on the sums received from the mother company as a revolving fund. However, if it is proven that the said branches and agencies are engaged in profitable activities in Iran and are acquiring an income there from, the sums earned shall be subject to corporate taxation according to the respective rules. What regulations define taxes on salaries of foreigners working in Iran subject to?
According to the Direct Taxation Act, every natural person residing in Iran, shall be, with certain exceptions, liable to taxation with respect to the income earned as salary in Iran or abroad. Salary of the employee (whether Iranian or foreign national) received for working in Iran, as well as the fringe benefits related to the job are liable to taxation on the basis of the progressive rates foreseen in Article 131 of the Act. Income earned in cash or in kind by any natural person in the service of another person (natural or juridical) against his working power for employment in Iran on either a period of time or piecework basis shall be liable to salary tax. According to Article 57 of the Direct Taxation Act, the total annual income of the employee shall be subject to taxation, and after deduction of the amount equal to the salary tax exemption (mentioned in Article 84 of the Act), a 10% tax rate shall apply up to the amount of Rls. 42,000,000 (forty two million rials), and for the amounts exceeding the said sum, the tax rates prescribed in Article 131 of the Act shall apply. The Iranian government may prohibit exit of the tax debtors from country. By virtue of Article 202 of the Direct Taxation Act, the persons owing more that 10,000,000 rials as tax debts are subject to such leave restriction. The Iranian or foreign managers of companies are held liable for outstanding tax debts of the related entity created during their term of office. They may also be disallowed to leave the country, unless the payment is made or an acceptable guarantee is placed.