A company is resident in Iran if it’s established under the Iranian Commercial Code, or if it is managed from Iran. For tax purposes, the Iranian calendar year, starting 21 March and ending 20 March of the following year is generally used, but a company or branch may use its own accounting year if different.
Tax filings in Iran are based on a company’s fiscal year. All Iranian entities and branches of foreign companies must file an annual corporate income tax return and submit their balance sheet and ‘profit and loss’ account within 4 months of the end of the fiscal year. Iran has no rules on tax on transactions between connected companies and there are no specific rules about capital gains tax. Here we present to you some important highlights about taxation in Iran.
Currency: Iranian Rails (IRR)
Foreign exchange control: Generally no but recently yes
Accounting principles/financial Statements: IAS/IFRS. Financial Statements must be prepared annually.
Principal business entities: These are the public and private limited liability company, partnership and branch of a foreign corporation.
Corporate taxation: Residence- A Company is resident in Iran if its management and control is exercised in Iran. Registration in Iran is not decisive. Basis-Resident companies are taxed on worldwide income. Foreign-source income derived by tax resident companies is subject to corporation tax in the same way as Iran source income. Branches are taxed the same way as domestic companies.
Taxable income: Corporation tax is imposed on business profits; interest and discounts; rents, royalties, remunerations or other profits from property, and net consideration in respect of trade goodwill. Expenses incurred for the production of income are tax deductible. Losses brought forward or surrendered by company can be set off against taxable profits.
Taxation of dividends: Dividends received from companies located in Iran are exempt from corporation tax but dividends received from companies located out of Iran are subject to corporation tax.
Capital gains: sale value of securities and listed companies are taxable at .05% and 4% for face Value of unlisted companies.
Real State Tax: Final transfer of real properties as well as the transfer of goodwill is subject to a fixed rate. The basic of taxation shall be taxable value in case of real state at 5% of the so called and 2% value received by the owner or possessor of the right in case of goodwill.
Losses: Tax losses can be carried forward and set off against taxable income of subsequent years without any time limit.
Tax rate: Companies, includes all kind of corporate bodies, and are subject to corporation tax at affixed rate of 25%. Certain types of income (i.e. dividends, interest and rent) for foreigners residing abroad subject to a special defense contribution at the rate of 5% and 7.5% respectively.
Alternative minimum tax: No
Foreign tax credit: Relief for taxes paid abroad is granted against Iran tax due in the form of a tax credit. The relief is given unilaterally regardless of the existence of a tax treaty. When a treaty applies, the treaty provisions apply if more beneficial.
Participation exemption: See under “Taxation of dividends”, see also “Capital gains”.
Incentives: Special taxation regimes exist for ship-owning companies that have Iran flag vessels and ship management companies.
Withholding tax: 3%
Dividends: Dividends paid to resident or nonresident (individual & companies) are not subject to withholding tax.
Interest: There is no withholding tax on interest and fees paid made to Iranian banking, cooperative funds and authorized non-bank credit institution but interest paid or nonresidents. Interest more than 2.5% plus labor paid to nonresidents is subject to a 5% special defense contribution deducted at source.
Royalties: Royalties paid to nonresidents for the use of rights in Iran are subject to a final withholding tax of 5% for manufacturing and governmental section and , and 7.5% on all other royalties. These rates may be reduced under a tax treaty. Withholding tax. There is no withholding tax on the payment of royalties by a resident company to another resident company.
Branch remittance tax: No
Tax treaties: Iran has concluded more than 40 tax treaties as Germany, France, Armenia, South Africa, Kazakhstan, Turkmenistan, Lebanon, Georgia, Ukraine, and Belarus,China,Switzerland,Pakistan,Austria,Uzbekistan,Turkey,Tunis,Kyrgyzstan,Spain,Poland,Bulgaria,Venezuela,Bahrain,Jordon,Malaysia,Croatia,Bosnia&Herzegovi,Qatar,Indonesia,Tajikistan,Kowait,Zimbabve,Indonesia,Malsia,Romania,Sudan,Oman,Algeria,Yaman,Kenya, Vietnam.
Free Zone: Iran has several industrial & trade free zone that are tax exemption for 20 years.
Value added tax: Taxable transactions – VAT is levied on the sale of goods, the provision of services and the import of goods from outside the Iran.
Rate: The current year is 9% Registration – All Local & Foreign entity should be registered for VAT
Source of tax law: Direct Income Tax Law, Special Defense Contribution Law, VAT Law
Open Iran Group, Afarin Law Firm