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Saturday, December 7, 2019

Taxation in Iran

Author: SuperUser Account/Monday, October 26, 2015/Categories: how

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  Guide on Iranian Taxation System for Foreign Investors

 

Similar Taxation for Iranian and Foreign Investors

  Foreign investors in Iran enjoy the same supports and privileges that are offered to the Iranian investors. In this connection, the Direct Taxation Law passed in 1987 and the following amendments have considered no discrimination in taxation of domestic and foreign investors. This means both Iranian and foreign investors pay the same amount of taxes. Tax exemptions and discounts are also equally granted to domestic and foreign investors.

  The Direct Taxation Law, passed in 1987, is regarded as the core of the taxation system in the Islamic Republic of Iran. The law was extensively reviewed and reformed in 2001 to be in tandem with the ongoing economic conditions in the country. Production and investment promotion in line with the economic development of the country was one major factor behind the need for amendment of the law (supporting the newly established manufacturing and mineral units according to Article 132 and investment promotion according to article 138).

 

 Taxable Real and Legal Entities According to Direct Taxation Law

  All owners, whether real or legal, for their properties inside Iran according to the taxation rules under Chapter 2 of the Direct Taxation Law

 Any real person residing in Iran for the incomes earned inside and outside the country

 Any Iranian real person residing abroad for all the income he makes in Iran

 Any Iranian legal entity for the incomes earned inside or outside the country

 Any non-Iranian real or legal entities for the income earned in Iran and also for the income gained through delegation of authority, dealership, technical and educational assistance or movie contracts (for any sort of income earned as rental, right of display and the like) in the territory of the Islamic Republic of Iran

 

 Types of Taxes in Direct Taxation Law

  Property Tax:[1]

  Inheritance tax

  Stamp duty (It is a type of tax levied on some documents such as checks, bills of exchange, promissory notes, negotiable instruments, stocks and shares, … according to Articles 44 through 51 of Direct Taxation Law.)

 

 Income tax:

  Property income tax

  Agricultural income tax

  Salary income tax

  Self-employment tax (the type of income a person earns in Iran through self-employment)

  Corporate income tax (special for legal entities)

 

Since manufacturing units and economic enterprises are usually active as legal entities, we will hereunder focus on rules and regulations for taxation of legal entities income and their exemptions.

 

 Legal Entity Income Tax

  The aggregate income of companies, and also the income from the profit-making activities of other juridical persons, derived from different sources in Iran or abroad, less the losses resulting from non-exempt sources and minus the prescribed exemptions, shall be taxed at the flat rate of 25%, except the cases for which separate rates are provided under the present Direct Taxation Law. Persons, whether legal or real, will not be taxable for the stocks or the dividends of their shares in other capital corporations.

 

 

 The Direct Taxation Law and other pertinent legislations have considered certain exemptions for the legal entities as the following:

 

 Factory owners and legal entities are obligated to, even within the exemption period, submit declaration and profit and loss balance sheets, provided from their official statutory books, maximum four months after their tax year (March through February in Iran)[2]along with the list of partners and shareholders and their shares and addresses to the tax department within the area of the activity of the legal entity (Article 110). If these legal entities do not submit the documents within the stipulated time span, the tax exemption will be null and void (Article 193)

 

Highlights of  Tax  Holidays

 

Activity

Level of Exemption

Duration of Exemption

Agriculture

100%

Perpetual

Industry and Mining

80%

4 Years

Industry and Mining in Less-Developed Areas

100%

20 Years

Tourism

50%

Perpetual

Export of services & non-oil goods

100%

During 5th development Plan

Handicraft

100%

Perpetual

Educational & sport services

100%

Perpetual

Cultural activities

100%

Perpetual

Salary in Less-Developed Areas

50%

Perpetual

All Economic Activities in Free Zones

100%

20 Years

 

 

  Tax Exemptions Stipulated in the Law on Fifth Five-Year Development Plan

  In order to:

  Facilitate and promote industrial and mineral investment in the country

  Develop non-oil exports

 

The Law on Fifth Five-Year Development Plan has stipulated the following tax exemptions:

 

 Article 159 – A: 15 percent increase in tax exemption relevant to Article 138 of Direct Taxation Law

  Article 159 – B: Increasing tax exemption period of industrial and mineral units in the less developed regions to the same level as the exemption of free trade-industrial zones (from 10 years to 20 years)

  Article 104: Levying any tax and tolls on non-oil exports and services during the Fifth Development Plan (except raw materials or commodities with low value-added)

 

Value-Added Tax Act (VATA) in Iran

 

 The Value-Added Tax Act (VATA) was ratified by the Parliament in 2007.

  Value-added tax (VAT) in Iran is levied on the sale of all goods and services and their imports, except 17 items listed in Article 12 of VATA as the exempted ones. VATA, however, does not include the export of goods and services through official Customs gates. Therefore, the taxes paid for the export of goods and services will be refundable by submitting the Customs clearance sheets (for goods) and valid documents (Article 13).

 

 Currently, the VAT rate stands at 4% (VAT rate for two special goods of cigarettes and jet fuel is relatively high).

 

 To reduce the country’s dependency on oil incomes, the Law on Fifth Five-Year Development Plan has anticipated an annual one-percent increase in the VAT rate to put it at 8% in the end of the plan (year 2016).

 

 Economic activities in free trade and industrial zones are exempted from value-added tax.

  

Agreements to Avoid Double Taxation

  To facilitate cooperation between Iranian nationals and foreign nationals and to boost trade and economic exchanges with foreign countries, the government of the Islamic Republic of Iran has signed mutual agreements to avoid double taxation:

 

 List of Countries Signing the Agreement to Avoid Double Taxation with Iran (November 2011)

 

 

Azerbaijan Republic

Algiers

Turkmenistan

France

South Africa

Indonesia

Turkey

Kyrgyzstan

Germany

Ukraine

Tunisia

Kazakhstan

Austria

Bahrain

China

Qatar

Jordan

Belorussia

Russia

Georgia

Armenia

Bulgaria

Sri Lanka

Lebanon

Uzbekistan

Venezuela

Switzerland

Poland

Spain

Pakistan

Syria

Kuwait

 

 



 

[1](Three other types of property taxes (annual real estate tax, vacant real estate tax, tax on barren land) have been deleted from the Direct Taxation Law amendment in 2001).

[2]Financial year in Iran starts in March through February next year. For the companies with different tax year, the financial year is taken into account.
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