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Investment Climates >> Taxation
INTRODUCTION
Summary of Principal Iranian Taxes:
The principal taxes in Iran are corporate and personal taxes on income. The Iranian tax law is formulated in a way to encourage investments in producing activities, mainly industry and mining. This is done through low tax rates and various facilities and exemptions.
Iran Tax Law on Profits and Other Income:
Profits of Iranian corporate entities are subject to Corporate Income Tax Law of The Direct Taxation Act of1988asamendedonMay1992. Personal profits and income are subject to the same act.
The Ministry of Economic Affairs & Finance and The AdministrationofTaxLaw:
The Ministry of Economic Affairs and Finance is the authority responsible for tax arrangements, including such national taxes as customs and excise duties. The assessment of taxable income is undertaken by district tax auditors who are, as defined by the above mentioned Act, competent authorities in respect to technical, specialized and administrative tax issues.
CORPORATE TAXES
The taxable income of all corporateentities including local-foreign joint ventures is assessed on the basis of their book accounts.
Resident Companies:
Corporate income tax is assessed by way of deducting a “corporate tax” of 10% of the taxable income. Theremaining90%oftaxableincome is taxedaccordingto the progressive incometaxtableprescribedinthe tax law:
amount of income
Rls (mil)
tax rate
(%)
up to1
excess1up to 2
excess2up to 4
excess4up to 9
excess9up to 25
excess25 up to 50
excess50 up to 100
excess100 up to 300
excess300
12
18
25
35
40
45
50
52
54
Non-Resident Companies:
1.Inthe case of non-resident companies operating in Iran, whose income is earned through granting licences and concessions, the income tax is assessed at rates ranging from 20% to 45% (the above mentioned progressive table will apply to non-resident companies, on their part of taxable income):
a)inthecasewhereagovernment company is the party receiving such services from a non-resident company, 20% of the incomeearned within a tax year is assessed as taxable income;
b)inthecasewheretheproducingunit is located in a deprived or semi deprived area, and provided that the activity in questionis not one of the tax exempted activities, 20% of the income earned in a tax year is assessed as taxable income;
c)in the case ofothernon-residentcompanies45%oftheir income earned in a tax year is assessed as taxable income
2.In the case of non-resident companies operating in Iran, whose income is earned through providing technical training and assistance the incomeisassessedatratesrangingfrom 20%to 45% (the fore- mentioned progressive income tax table will apply on their part of taxable income):
a)in cases where a government company is the party making payment, if at least 35% of the total income earned by a non-resident companyin a tax year is spent on salaries in Iran, 20% of the income earned in a tax year is assessed as taxable income, otherwise a rate of 30% will be applied;
b)in cases where at least 35% of the total income earned in a tax year is spent on salaries in Iran, if the producing unit is located in a deprived or semi deprived area, 20% of the total income earned in a tax year is assessed as taxable income, otherwise a rate of 25% will be applied;
c)incaseswherethe amount spent on salaries in Iran is less than 35% of the total income earned in a tax year, if the producing unit is located in a deprived or semi deprived area, 35% of the income is assessed as taxable income and in the case of producing units located in other areas a rate of 40% will apply;
d)inthe case of other companies, if the minimum amount spent on salaries in Iran is 35% of the total income earned in a tax year the taxable income is assessed at 35%, otherwise a rate of 45% will apply.
3.Thetaxableincome of contractual activities of companies or non-resident natural persons operating in Iran in relation to any operation concerning construction, technical installations, transportation, preparation of construction and installation drawings, surveying, supervising, and technical calculations is assessed at a rate of 12% of their annual income.
LOCAL TAXES
Resident and non-resident companies are subject to municipal tax at a rate of 3% of their taxable income. Governmental companies and individuals' salaries are an exception to this rule.
ALLOWABLE DEDUCTIONS
General Rule:
Allowable deductions include all expenses directly connected with the conduct of the business. These expenses mainly include: the price of purchased goods or the price of consumer goods used as part of sold goods and services, personnel expenses, rent, rented equipment, overhead expenses, insurance premiums, expenses related to research, testing and training, compensations, transportation, unsuccessful mining exploitations, losses arising from exchange of currency, auditing and administrative expenses and others.
Depreciation:
Generally, all assets owned or used by a company for the purpose of its trade are depreciable, whether tangible or intangible, new or used, if their values necessarily diminish with time or by usage. Depreciation is calculated on the first day the asset is made available for use by the entity. Establishment expenses such as registration fees and consultancy fees are depreciable upto a maximum period of 10 years. The depreciation rates are indicated in the depreciation table which is prepared by the Ministry of Economic Affairs and Finance and approved by the Council of Ministers. Depending on the case, the calculation method could be straight-line or declining-balance. Overall, expenses arising before the exploitation period is depreciable upto a maximum period of ten years starting from the exploitation date.
Textile & Clothing Ind. 8years
Plastic Ind. 10 years
Pharmaceutical, Health & Medical Ind. 8-10 years
Printing & Copying & Graver Ind. 10% or 100%
Construction Materials Ind. 10 years
Glass Ware Ind. 8 or 10
Cement Ind. 10 years
Food & Beverage Ind. 8 & 10 years
Chemical Ind. 6,8,10 or 15 years
Oil & petrochemical Ind. 10 years
Cellulose & Wood Ind. 10 or 12 years
Paper & Pulp Ind. 10 years
Electricity & Electronic Ind. 8 or 10 years
Household Ind. 8 or 10 years
Lastic, Tyre & Tube Ind. 10 years
Leather & Shoe Ind. 10 years
Telecommunication Ind. 8 years
Steel & Steel Mill Ind. 8%-15%
Water & Sewage Ind. 10 or 15 years
Agriculture & Animal Husbandry Ind. 8 or 10 years or 30%
Tractor & Combine Manufacturing Ind. 10 years
Cinema & Film Ind. 10 years
Paint & Adhesive Ind. 10 years
Motor Vehicles 15%-35%
Road & Construction Machinery 25%
Tools & Equipment 100%
Mining Machinery 2-5 years
Workshop Buildings & Factory, Resident Buildings 7%-10%
Office Equipment 10 years
Tax Free Reserves:
Contributions made to pension schemes, the social security organization, insurance companies and amounts up to 10% of annual payments saves for pension, retirement, compensation given on dismissals and repurchasing of employee services are considered tax free reserves provided that:
a)such reserves are kept under the supervision of The Ministry of Economic Affairs and Finance;
b)such amounts are kept within a separate account with an Iranian Bank, and
c)the reserve is not used for purposes other than those prescribed by the law.
TREATMENT OF LOSSES
Expenses related to compensation of damages incurred upon the assets and activities of an entity are considered as allowable deductions provided that:
a)there is adequate evidence for its certainty;
b)its nature and amount is specified and that;
c)a second party is not liable for its compensation.
LIQUIDATION AND DISSOLUTIONS
Income arising during the course of liquidation and dissolution is subject to corporate income tax at the normal rates, so that capital gains arising on the disposal of fixed assets are added to taxable income in the normal manner.
TAX INCENTIVES
Government incentives on taxation are available to investors as a range of chronological exemptions on priority producing activities.
Housing Projects:
The income resulting from low and medium cost housing projects, subject to the actual transfer of ownership, is fully tax exempted provided that the criteria prescribedby The Ministry of Housing, and Economic Affairs & Finance are met.
Agricultural Activities:
The income resulting from agricultural, husbandry, forestry, bee keeping activities and the like are fully tax exempted.
Producing and Mining Activities:
A.The income earned by producing and mining units upon the permission obtained from the relevant ministries and subject to prioritiesprescribed as (1), (2) & (3) will enjoy tax exemption for 8, 6 and 4 years respectively, provided that they are located outside the 120km radius of Tehran and 50km radius of Isfahan. As an advantage to Iran-foreign company joint ventures the minimum exemption period will be 6 years. The list ofpriority projects is prepared and made availableby the government at the beginning of each 5 year development plan.
B.Moreover, the producing and mining units located in less developed areas enjoy an additional extension equal to half amountof the exempt period. For example a priority 1 pharmaceutical project will enjoy an 8 year tax exemption if located outside the 50km radius of Isfahan, but if located in a less developed area such as Hashtroud ( a town in East Azerbaijan Province) it will enjoy(8-2=4 , 8+4=12) a 12 year tax exemption period.
The list of less developed areas is prepared by the Plan and Budget Organization at the beginningof each 5 year development plan.
C. 20% of the declared taxable income resulting from producing, mining, design and engineering, and design and assembly activities is tax exempted provided that the related exploitation permit is acquired.
D. The declared profit resulting from industrial and mining activities appropriated for the renovation, expansion, completion of existing industrial and mining units and/or being reserved for setting up new industrial and mining units is tax exempt.
E. 100% of income resulting from the export of finished industrial goods, agricultural products, and the related convertible & supplementary industry products and 50% ofincomeresulting from export of other goods and commodities intended for promoting the export of non-oil commodities are tax exempt. The list of tax exempt products is suggested by the Ministries of Economic Affairs & Finance, Commerce, Agriculture, Construction, and Industry during each development plan and approved by the Council of Ministers.
F. 100% of income resulting from transited commodities through Iran is tax exempt provided that no modification is made to the nature of the commodity(s) in question.
G. Companies withenlisted shares on the stock exchange are exempted from 10% corporate income tax, provided that the related equity transactions are registered by the stock exchange agents.
Moreover, the dividend allocated or paid to shareholders is tax exempt provided that:
a) the share of the company are enlisted;
b) the shareholder' share of equity is less than 5%;
c) the number of shareholders within the company is not less than 100.
H.All tourist institution, agencies, hotels etc. which have obtained the related permit from the Ministry of Culture and Islamic Guidance are exempted from 50% of their annual tax (5 star hotel are an exception to this rule).
TAXYEAR
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 possibleto 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.
RETURNS, ASSESSMENT & APPEALS,DELAYS
An annual return must be filed, usually within four months of the close oftheprecedingfinancialyear. On those returns which are submitted and paid within the legal time an amount equal to 4% of the payable tax is deducted as “good pay prize”. In cases where accounting records have not been kept according to the prescribed regulations an estimated assessment isissued.Inthisevenit is on the taxpayer toprovide sufficient proof that the amount so assessed is excessive.
Assessments are issued every year within 12 months after the deadline for submitting returns. Objections to the assessment could be made within one month after the receipt of the official notice. If the documents presented by the taxpayer are accepted and approved, final agreement could be reached with the head tax auditor. Otherwise, the case is referred to The Initial Board of Tax Disputes for further investigation. Taxpayers withapprovedaccountingrecordswhohave, in threeconsecutive years, paid their due tax without referringto The Initial Board of Tax Disputes will enjoy a “good pay prize” on their credit tax account equal to 5% of the total 3 year tax amount. In case the taxpayer again has objection the case may be referred to the High Council for Tax Affairs.
TAX AUDITS
Tax or fiscal audits of companies and businesses are undertaken periodically by district tax auditors.
SampleCalculationofCorporateIncomeTax
Assumption:
Taxableincomeof hypotheticalproducingjointventurecompany isRls.2,000,000,000afterallowabledeductions. The shareholdingratiois40%foreignand60%Iranian.
25%oftheincomederivedfrom exports(taxexempted)
20%oftheincomereservedforexpansion(taxexempted)
Totalincome
less:25%incomefromexportsexempted : Rls. 2,000,000,000
less:20%incomeforexpansionexempted :Rls.500,000,000
Calculationofforeignshareaccordingtoincometaxschedule
(Art. 131amended )
Taxable Income ( Rls.)
TaxRate (%)
TaxAmount (Rls.)
First
1,000,000
12
120,000
Next
1,500,000
18
270,000
Next
1,500,000
25
375,000
Next
5,000,000
35
1,750,000
Next
16,000,000
40
6,400,000
Next
25,000,000
45
11,250,000
Next
50,000,000
50
25,000,000
Next
200,000,000
52
104,000,000
Next
96,000,000
54
51,000,000
396,000,000
201,005,000
TaxpayablebytheJ.V.C.
10%corporatetax Rls. 110,000,000
TaxonincomeofforeignShare Rls. 201,005,000
Taxonincome ofIranianShare Rls. 307,925,000
3% MunicipalSurtax 33,000,000
Total Rls. 651,930,000
-
Totaltax % oftotal profit 32.60%
-
Taxpayable bythe foreign shareholder
10% corporatetax (40%shares) Rls.44,000,000
Taxonincome Rls. 201,005,000
3%Municipalsurtax(40%shares) Rls.13,000,000
Tax % oftotalforeignprofit 32.28%
Rls. 400,000,000
Total exemption
Rls. 900,000,000


Taxableincomeless exemptions Rls. 1,100,000,000
Less:10%corporatetax
Rls. 110,000,000
-
Dividendspayable Rls.990,000,000
40%foreign shareholders Rls.396,000,000
60%Iranianshareholders Rls.596,000,000
PriorityActivitiesEnjoyingTaxExemption
intheIranianMainland
( AnnextoArticle132 oftheDirectTaxation Act.)
Tableone ( 8yearsTaxExemption )
No. ICGS Code FieldofActivity
1 3112-000 DairyProducts *
2 3116-000 FlourMill
3 3411-000 Production ofPaperPulp, Paper, PasteboardCarton
4 3420-000 Production ofPublishing&printingRelatedIndustries
5 3522-000 PharmaceuticalProducts
6 3710-0001
7 3710-0002 Steel & IronForging
8 3710-0004 Steel & IronCasting
9 3710-0013 ProductionofRails
10 3710-0014 ProductionofSteelBars
11 3710-0101 Productionof CastIronIngots
12 3710-0110 ProductionofSteelandFerroAlloys
13 3710-0111 ProductionofFerro - Manganese
14 3710-0112 ProductionofFerro - Silicon
15 3710-0113 ProductionofFerro - Chromium
16 3710-0114 ProductionofFerro - Nickel
17 3710-0115 ProductionofotherIronAlloys
18 3710-0150 IronPowder
19 3710-0151 SteelPowder
20 3710-0152 ProductionofSpongeIron
21 3710-0153 ProductionofSpongeSteel
22 3710-0160 IronorePellets
23 3710-0161 SteelPellets
24 3710-0162 ProductionofIronIngots
25 3710-0163 ProductionofSteelIngots
26 3710-0170 ProductionofLargeIronIngots
27 3710-0171 ProductionofLargeSteelIngots
Industriesunderthiscode,asbelow, do notenjoyTaxExemption:
ProdofIce Cream
3112-0001
Water-iceCream
3112-0174
DifKinds ofIce Cream
3112-1710
CacaoMilk Shake
3112-0175
FruitIceCream
3112-0172
Strawberry Milk Shake
3112-0176
ChocolateIceCream
3112-0173
BananaMilk Shake
3112-0177
No. ICGS FieldofActivity
28 3710-0172 ProductionofSmallIronIngots
29 3710-0173 ProductionofSmallSteelIngots
30 3710-0174 ProductionofIron Stabs
31 3710-0175 ProductionofSteelSlabs
32 3720-0101 CopperMatte
33 3720-0104 CopperforRefining
34 3720-0105 CrudeIngots
35 3720-0106 RefinedCopper
36 3720-0107 CopperIngots
37 3814-0842 HeyShreddingMachines
38 3821-0000 ProductionofMotors & Turbines
39 3822-0000 ProductionofAgriculturalEquipments& Machinery
40 3823-0000 ProductionofMachinery forWood & MetalWorking
41 3824-0000 ProductionofothertypesofMachinery ( thana.m. 40)
42 3841-0000 Production&RepairofSeaVessels( ShipBuilding )
43 3845-0000 AircraftsManufacturing
44 3511-0000 Production ofBasicChemicals ( other than Fertilizers)
45 3512-0000 Production ofFertilizersandAgriculturalInsecticide
46 3513-0001 Production ofSyntheticFibers
47 3551-0000 Production ofTires& Tubes
48 3851-0000 Production ofProfessional, ScientificandMeasurementInstrumentationandControlEquipments
49 3831-0000 Production ofIndustrialEquipment
50 3117-0001 ProductionofBakeryEquipment
51 3114-0000 Processing & Preserving ofFishandother SeaFoods
52 3115-0000 Productionof EdibleOils&Fats
53 3117-0111 BabyFoods - SpecialProductsforChildren
54 3825-0000 ProductionofOffice&ComputingMachinery
55 3832-0000 CompleteCommunicationMachinery&Equipment
56 3720-0005 AluminumCasting
57 3720-0006 BrassCasting
58 3720-0007 LeadCasting
59 3720-0008 CopperCasting
60 3710-0009 CastIroning
61 2301-0000 IronOreMining
62 2302-0000 Non- FerroOresMining
63 2901-0130 Refractory
64 2100-0000 CoalMining
65 2901-0120 Kaolin
TableTwo(6YearsTaxExemption )
No. ICGSCode FieldofActivity
1 3118-0000 Production&RefiningofSugar
2 3122-0000 Production ofCattle&PoultryFood
3 3211-0000 TextileIndustries
4 3215-0000 CordIndustry
5 3231-0000 LeatherIndustry
6 3240-0000 ShoeProductionother thanPlastic andRubberone
7 3311-0010 Production ofChip- Board
8 3513-0002 Production ofSolid&LiquidResins
9 3513-0003 Production ofPVC Materials
10 3530-0000 RefinedProducts
11 3540-0000 Productsderived fromPetroleumandCoal, Flues Tars, andSolvents
12 3620-0000 Production ofGlass& GlassProducts
13 3692-0002 Production of Cement
14 3832-0000 Production of MassMediaEquipment
15 3833-0000 Production of HouseholdElectricalDevices
16 3839-0000 Production of otherElectricalEquipments
17 3852-0000 Production of Visual & PhotographicEquipment
18 3710-0007 MetalRollMilling
19 3710-0012 Production of Iron Beams
20 3710-0015 Production of AngleProfiles
21 3710-0016 Production ofSteelTubes&Pipes
22 3710-0100 Production of SpiegelCastIron
23 3710-0102 Production ofotherCastIrons
24 3710-0140 Production ofIron Granular
25 3710-0141 Production of SteelGranular
26 3710-0176 Production ofIronSteel & IronIngots
27 3710-0180 Production ofSemi - FinishedIronCoilProducts
28 3710-0181 Production ofSemi - FinishedSteelCoilProducts
29 3710-0190 Production ofWideIronStrips
30 3710-0191 Production ofWideSteelSteps
31 3819-1562 FoodAluminumCans
32 3809-0192 IronCans
33 3819-0030 Production ofMetalCans
34 3819-0032 Production ofGasCylinders
35 3819-0594 AleppoCans
36 3819-0193 SteelCans
37 3819-0195 1KgCans
38 3819-0196 1/2KgCans
39 3412-0006 ProductionofPasteboardBoxes
40 3412-0155 PasteboardCans
41 3412-0156 PasteboardBarrels
42 3819-1561 SpecialAluminumCans forPoisonPackaging/Transport
43 3819-1563 AluminumCasks
44 3819-1564 Aluminum Barrels
45 3819-1565 Aluminum LargeCans
46 3819-1566 AluminumTubes
47 3819-1580 AluminumUtensilsforCompressedGas
48 3819-2140 Iron / SteelLidsforfoodUtensilsofGlass
49 3819-2141 Iron/ SteelLidsforGlassBottlesofNon-Alcoholic Drinks
50 3560-0569 PlasticPharmaceuticalUtensils
51 3412-0153 PasteboardBoxes
52 3819-1691 AluminumLidforGlassBottles
Tablethree
( ListofProducingActivitiesExcluded
fromtheThirdPriorityofTaxExemption )
No. ICGSCode FieldofActivity
1 3119-0002 ProductionofChewing - gum
2 3112-0001 Production ofIceCream
3 3116-0002 Ricemill
4 3134-0102 Production of ( Non - Alcoholic )Drinks
5 3119-0239 Production of anykind ofSweets
6 3117-0125 3117-0115 3121-0007 Production ofanykindofChipsand saltyCracker andsaltypea - shooterandsimilargoods
7 3523-0015 Production ofCosmetics
8 2523-0001 2523-0003 ProductionofanykindofAirFresheners
9 3522-0007 ProductionofPolish
10 3529-0006 Productionof Candles
11 3320-0100 Productionof Furniture
12 3111-0431 3311-0441 ProductionofDoors, Windows&Decorations
13 3813-0121 3813-0010 Productionof anykindofBlinds
14 3211-1541 3233-0010 Production ofBlind - Stripes&SafetyBelts
15 3411-0440 ProductionofWall - Papers&design
16 Services ExpressWashings
17 Services CarWashing & TransportationMeansServices
18 3901-0000 Adornments
19 3902-0000 MusicInstruments
20 3909-1280 3909-1283 ProductionofandkindofCigaretteLighters
21 3819-0851 3620-0404 Production ofLuster
22 3121-0004 Production ofCoffee&Cocoa
23 3220-1000 Production ofHats
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