Foreign Investment in Iran
In addition to Foreign Investment Law and its Executive By-law which provide the basic rights of foreign investor, the investors are recommended to check following laws as well:
Trades Law for Joint Stock Company
Export and Import Laws
Direct Tax Act
Labor Law for information on the procedure of using services of foreign nationals
Patents and registry of trademarks and inventions for information on industrial and intellectual rights
Based on current laws of the country, foreign investment is allowed in Islamic Republic of Iran. Any foreign investor can invest capital in any areas, including industry, mining, agriculture and services, for the purpose of development, prosperity and performing production activities. In view of the Islamic Republic of Iran’s government, only those investments which have already received the relevant permit based on this law could benefit from the benefits and supports provided in Foreign Investment Promotion and Protection Act (FIPPA).
Foreign investment is possible in framework of any legal participation and partnership procedures and methods (in form of direct investment) and/or, through contract terms. By contract terms, it means methods of financing which take place in form of civil partnership, counter purchase and different types of building, utilization and transfer.
Foreign investment means using foreign capital in activities in which, the investor undertakes the risk of capital return and its benefits. Based on the law, foreign investment is classified into two general categories:
A: Legal partnership (direct investment): This means the proportional investment by a foreign investor in an Iranian company, whether it is a new company or already established company. No limitation has been put on the share or number of stocks of foreign investor in such Iranian company and the investor can have a role in managing and running the company proportion to its capital or share in the company.
B: Contract terms: It means a series of methods in which, using foreign investment is solely governed by agreements reached by the parties to the contract. In another word, the rights of the foreign investor are not established as an outcome of its direct share in capital of the Iranian investee company; rather, those rights are based on the contract terms and agreements of the parties. Foreign investment in contract terms is allowed in all sectors. Capital return and benefits earned in such investments; too, are results of the economic performance of the plan subject of investment without relying on the securities provided by the government, banks and governmental companies.
Direct foreign investment is allowed in any areas the private sector is allowed to work.
Foreign investment is allowed in framework of contract terms in any economic sectors of the country; however, it must be reminded that foreign investment in sectors which are under control of the government is allowed solely within contract terms and template.
According to the Iranian trade law, there are seven types of companeis or legal entities that could be established, among which, joint stock company in which capital is divided into stocks or shares is prescribed as the most common and popular form of legal entity establishment.
No; it is not mandatory to have local partner; however, foreign investors usually decide to have a local partner as the Iranian parties are more familiar with working conditions, office formalities, ways to use local facilities, etc.
In terms of participation and amount of investment, there has been no limitation set for direct foreign investment in Iran.
Those ratios have nothing to do with the percent of foreign partnership in any given investment. In fact, those ratios govern determining the share of the value of goods and services produced through foreign investment plan to the whole economy of the country; which is to be calculated and determined separately for each sector and subsector (line) of business when the foreign investment permit is being issued.
There is no ban for foreign investment in companies enlisted in securities exchange market. Such foreign investors can enjoy the benefits provided via foreign investment law in the same way as investment in companies outside SEO.
Special Economic Zones are restricted customs zones in which, importing goods, commodities, machinery and facilities is accepted from exports and imports regulations. Each one of those zones might have been established for special purposes; some for keeping the cargo to be imported to the country or to be exported; and some, in addition to maintaining the cargo might have been designed for production and industrial affairs. There are presently 17 special economic zones in Iran.
Foreign investment in the free zones has been already recognized. There are presently six free zones; Qeshm, Kish, Chabahar, Bandar Anzali, Arvand and Aras.
Investment in the regions which are named as Special Economic Regions, Trade-Industry Free Zones of Islamic Republic of Iran can benefit from the benefits from the supports of that law provided they have met legal formalities in receiving investment permit. The special free zones are parts of main land and in this regards, investment in those regions; too, is considered as investment in main land. In any event, due to the coverage of foreign investment law and governing the territory of Islamic Republic of Iran, foreign investments are subject of specific investment regulations in those regions.
The law that protects foreign investment in Iran, “FIPPA” passed in 2002 contains a series of “foreign investment law”. The range of inclusion of this law governs the entire territory of Islamic Republic; and all foreign investors can make investment in the country based on that law and benefit from the privileges thereof. Foreign investment promotion and protection Act (FIPPA)
Although foreign investment in free trade-industrial zones is governed by investment regulations in those regions, it has provided the possibility for foreign investors to invest in free zones based on foreign investment law and benefit from the protection coverage secured by that law.
By support, it means benefitting from particular rights and advantages which will belong to the investor by virtue of foreign investment Act. In another word, investments which are not carried out via this law will not benefit from such rights.
The most significant rights which will belong foreign investor based on the mentioned law include followings:
Transport of interest, the capital and its benefits in foreign currency;
Receiving damage compensation from dispossession and nationalization of foreign capital;
Receiving damage compensation caused by legislating rules or government resolutions that would lead to ban or stop in executing financial contracts of foreign investor;
Benefitting from same and equal conduct as local investors.
Other facilities and benefits stipulated in foreign investment law and its executive by-law are as follows:
Conversion and transporting the funds gained by different investment contracts and technology transfer in foreign currency;
Conversion and transport of principal and interest of financial facilities related to foreign investment;
Referring investment disputes to the international arbitration court;
Using foreign experts in the matters related to the investment projects;
Exportation without signing affidavit and obligation for the return of foreign currency gain to the country;
Keeping the foreign currency earned by exportation outside the country;
Direct access and the possibility of collecting foreign currency resulted from exportation from deposit banking accounts outside the country;
Exclusion from pricing criteria, distribution, non production and requirement of local manufacturing.
In the investment permit, the ground of investment, the Iranian and foreign partners, the type and method of investment, percent of participation, and the amount of foreign investment, quality of transporting the profit, the gained benefits and other conditions of the plan subject of investment are mentioned.
All foreign natural persons, legal entities, companies, international institutes and organizations, and the Iranian natural persons and legal entities can invest in the country according to the foreign investment law.
The Iranian investment can be subject of foreign investment law if its capital has foreign source and the investor; too, presents documents that indicate its economic and trade activities outside the country.
Yes. If foreign investor after the issuance of permit in a specific period which will be determined as per the necessity of the plan subject of investment and at the discretion of foreign investment committee does not import a suitable portion of the capital to the country, its investment permit will be invalidated.
Foreign investor is able to request for extending the validity date before expiry of deadline of permit validity by presenting convincing reasons. The investment council; too, studies the extension application and if it approves it, it will set a new deadline for the capital entry.
Yes. Foreign governmental companeis can make investment in the framework of foreign investment law; however, the law’s conduct on this type of investments will be the same as private sector investments and benefit from the benefits of the mentioned law.
There is a vast range of foreign investment grounds in Iran and all industrial, mining, agriculture and service activities that lead to the development, prosperity and production activities are included in this category.
Performing mere trades’ activities is not considered foreign investment; however, trade activities that are supplementary to the production activities in the approved plans can be regarded as foreign investment.
Foreign investment in service affairs including tourism can receive coverage of foreign investment law and benefit from its benefits.
No. Establishing legal supports for foreign investments requires receiving investment permit.
Investments which had been performed in past and were not under coverage of law can be put under the coverage of law at any time after going through acceptance stage, provided they have already created added value.
n terms of foreign investment legal regulations, there is no differences between the new investment and investment in an existing firm and all foreign investors will be allowed to invest in one new project and/or in the existing economic firms. It should be further explained that receiving investment in the existing firms depends on creating new value added as a result of investment increase, management promotion, exports development and improvement of technology level in the same firm.
In terms of acceptance regulations, those investments; too, in any time after taking the acceptance steps and receiving investment permit could be put under coverage of law, provided it created new value added, and benefit from the support of law.
There are two ways for this:
Purchasing a portion of existing stocks in agreed price;
Partnership in increase in capital through subscribing new stocks by using the priority right of existing stockholders.
No. Generally, no obligations or affidavits are obtained for returning the foreign currency gained by exports and the foreign currency will be under control of the exporter to use it in any way it plans.
Foreign investor is allowed to insure its capital against non-trading (political) risks before an investment insurance institute in its subject country. If according to the insurance policy, the investor receives any amount, the insurance company can claim for damage payment emerged from the right which originally belonged to the investor as the investor’s substitute.
In general, settlement of disputes between Iranian and foreign investors and referring it to the local and foreign courts or the international arbitration committees will be governed by the agreement made by the investors. However, if the party of the case is an Iranian company or governmental company of Iran, referring the dispute to a foreign court or international arbitrator depends on observing the relevant formalities by the Iranian governmental party. Based on this rule, the principle of referring the dispute to the international court and arbitration depends on the previous agreement between Iranian government and the subject government of foreign investor in the bilateral contracts is an acceptable matter.
Investment disputes could be divided into three groups and there is one particular approach for settling each:
A: Settlement of disputes between local and foreign investors: The dispute settlement between local and foreign investors depends on the agreement of investment parties which might be initially through friendly negotiations and agreement. In case of reaching no understanding, the case will be referred to local courts, foreign courts, international arbitration authorities and/or arbitration per case. There is no legal ban to select any of the aforementioned procedures.
B: Settlement of disputes between foreign investor and government: Based on article 19 of Foreign Investment Law, if the dispute is not settled through negotiations, the investors will have two options; if the dispute is between investors, the matter could be investigated and judged in local courts and/or; in the framework of the agreement letter on improvement and counter support of investor with foreign investor subject government; in which case, the dispute will be referred to the arbitration authority as forecasted in the agreement letter.
C: Settlement of disputes between government of Iran and the government of foreign investor: This type of disputes usually has nothing to do with the investors and mostly address the governments, execution and interpretation of contracts. Settlement of such disputes; too, will be forecasted in the bilateral and multilateral agreements.
The Iranian Investment and Economic & Technical Aids Organization is the only central governmental body which has the authority over accepting and providing protection to foreign capitals. Permit for foreign investment too; is issued by this organization in the framework of foreign investment law.
Yes. It is required to receive permit for foreign investments which are done based on foreign investment law. The permit of such investment will be issued by signature of the Minister of Economy and Finance Affairs.
Yes, any foreign investment under this law requires special (independent) permit.
Stages for investment permit issuance are short and simple. The foreign investor sends an official letter, addressing the Investment Foreign. The subject will be reported to the foreign investment delegates within 15 business days and the investment permit will be issued afterwards. The necessary documents include investment application form and other doucments listed in the mentioned form.
The organization can be consulted in all issues the foreign investor faces. In this connection, the investor is in direct contact with the organization via the Foreign Investment Services Center stationed in the Organization. This arrangement will save time and costs.
The Foreign Investment Services Center, as the center of foreign investors’ referring has been established in the organization place. In this center, the representatives of the executive organizations related to the investment affair are established, and are responsive to all questions as well as following up the relevant executives of foreign investments in their responsibilities scope.
In addition to consultation services, the Organization also provides following services to the investors:
Information on all the laws and regulations that govern and relate to foreign investment;
Introduction of foreign investment opportunities in the country to potential foreign investors;
Coordination and making necessary inquiries with different organizations on the investment proposals;
Finding suitable local and foreign partners and parties;
Performing current affairs and efforts for settling disputes between investors;
Making necessary planning and procurement for meetings and holding sessions with different organization.