Iran Improves Foreign Investment Tax Regime

by Lorys Charalambous, Tax-News.com, Cyprus

02 January 2002

There has been only limited take-up of facilities in the Iranian Chabahar Free Trade Zone, but Iran has recently moved to improve the legal and fiscal environment for foreign investors, hoping in particular to attract investment into its hydrocarbon industry.

Iran has attracted $4.98 billion dollars in foreign investment into its economic and free trade zones since their establishment in 1994, with the three Persian Gulf islands of Kish, Qeshm and Chabahar attracting $1.2bn of investment into their free trade zones.

Iran's parliament last month gave "final" approval to a new law to encourage direct foreign investment in the Islamic republic. The MPs described the Law as updated and more transparent, saying it allows a smooth flow of capital, goods and profits in and out of the country. The bill was tabled first in May, but was opposed by the oversight Guardians Council, saying it was paving the way for foreign investors' domination of the country's economy. The deputies had to make some minor changes to the bill, which still needs to get final approval from the Guardian Council before becoming law. MPs have said that the council would mostly likely approve the pill this time. The present law on foreign investment dates back to more than fifty years ago and imprecise regulations and repeated changes are cited among its shortcomings. European and Asian oil companies, however, have secured dozens or so of oil and gas deals, worth billions of dollars, with the Islamic public and still more could be in the making.

Chairman of Board of Directors and Managing Director of Chabahar Free Trade Zone Mohammad Salehi reminded investors on Sunday at the opening of a conference on free zones that they can make unlimited investments in the zone and benefit from tax exemption as well as other special privileges. He said given the location of Chabahar FTZ on the mainland and its proximity to Central Asian markets, the region enjoys high potential for investment.

The province of Chabahar is part of the Sistan & Balouchestan province in the south east of the Islamic Republic of Iran. The port of Chabahar is the largest oceanic port of Iran on the Persian Gulf. Chabahar Free Trade-Industrial Zone is located in the eastern part of the Chabahar Gulf. It covers a total area of 140 Km2 , of which 100 Km2 are allocated to industrial activities and 40 Km2 to trade, transit, tourism and services. The zone was established in 1993.

Investors in Chabahar benefit from a range of privileges and incentives including a foreign investment guarantee, free transfer and repatriation of capital and profits, 15 years of tax exemption on income and assets, duty free importation of machinery, vehicles, spare parts, raw and construction materials, simplified procedures for the exportation of goods, exemption from entry visa requirements for foreign nationals, employment of up to 10% foreign experts in the Zone, flexible labor and employment regulations.

The only difference between Iranian and foreign investors is that foreigners cannot buy but may only lease land. Labor relations and regulations in the zone are based on written agreements between employer and employee.

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