● The Iranian legal system defines the “taxable income” of a legal entity as the income gained during a fiscal year after deduction of losses, exemptions, depreciations & amortizations, acceptable expenditures and duties; levies; and taxes already paid. A fix tax rate of 25% shall ordinarily apply to the “taxable income”.
● The list of “acceptable expenditures” includes numerous items such as: purchase price of the sold goods, purchase price of materials used in the sold goods, payments for services rendered by professionals, personnel costs (including salary, non-recurring benefits, health and treatment expenses, health and life insurance, retirement pension, payments to the Social Security Organization, funds reserved for financing the retirement pension; survivors and termination of employment payments), rental fees paid for the premises; machineries; and equipment, costs of water and power, payments to buy insurance policies for operation and assets, royalties paid, R&D and education expenses, payments for indemnification of accidental damages, expenses incurred for maintenance and upkeep of the premises, transportation expenses, Interests; fees; and fines paid or allocated to banks & funds, cost of repair and maintenance of machinery and work equipment or replacement of spare parts, currency exchange losses, normal wastage of production, etc.
● Subject to certain technical conditions, all amounts paid to the universities and qualified research institutes for R & D purposes shall be deducted from the payable tax up to 10% of its amount. The amounts declared and applied for this, should be kept out of the calculations related to the “acceptable expenditures”, of course.
● for every 10% increment in the declared “taxable income” in comparison with the “taxable income” declared for the immediate previous tax year, 1% point (up to a maximum of 5% points) shall be deducted from the applicable tax rate.
● The “dividend” is tax exempted.
● The income resulted from agricultural activities is tax exempted.
● The income resulted from exportation of products, subject to well performance of certain formalities and requirements, is tax exempted.
● Knowledge Based Companies are fully tax exempted during their first 15 years of operation.
● The income resulted from producing / mining activities of a factory established in an Industrial Town or a Special Economic Zone located in a less developed area benefits from zero-rate taxation for the first 13 years of its operation and for the first 10 years of its operation if the factory is not in an Industrial Town or Special Economic Zone but still in a less developed area. This will continue thereafter until the “taxable income” of the relevant producing company exceeds two times of its registered and paid capital.
● The income resulted from producing / mining activities of a factory located out of less developed areas but still sufficiently far from determined urban areas benefits from zero-rate taxation for the first 5 years of its operation. This will continue for 50% of the incomes until the “taxable income” of the relevant producing company becomes equal to its registered and paid capital.
● The incomes gained in a Free Trade Zone or a Special Economic Zone for the goods or services supplied in such zones by a company established there benefit from zero-rate taxation for the first 20 years of its operation.
● For a producing / mining company with more than 50 employees, there will be an increase of one further year of tax holiday for each annual increase of at least 50% of the number of its employees during its zero-rate taxation period.
● Where a producing / mining company attracts foreign direct investment for its establishment or development, the tax incentives grantable to it shall increase 10% (but no more than 50%) for any 5% of the foreign participation in its registered and paid capital.
● The zero-rate taxation applicable to the incomes of a local producing entity shall equally applies to the incomes of the foreign company who has concluded a contract with the said producing entity with an aim that the foreign company produces reputable brand products in Iran by use of capabilities of the said local entity, conditional upon exportation of at least 20% of the goods produced thereby.
● No specific taxes & fees apply for repatriation of foreign investments and or their related profits.
For more information and advice, please contact us in Tavakoli & Colleagues law firm.
