2010

Dayarayan Auditing & Financial Services Firm

[TAX FLASH]
Summary tax regulation in Iran
IRANIAN INCOME TAX FOR NATURAL
PERSONS
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.

IRAN CORPORATE TAX RATE

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.
VALUE ADDED TAX (VAT) IN IRAN
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.

IRAN TAX RATES - OTHER

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.