Tax Exemptions for Legal Persons in Iran
Exemption | Name of Act and Number of Article stipulating the
exemption | Persons Enjoying the Exemption | |
| 1 | The level of tax exemption of industrial and mining units located in the less developed regions is increased to level of tax exemption stipulated for the free trade and industrial zones ( i.e. 100% exemption for a duration of 20 years) | Clause B of article 159 of the 5th Five-Year
Development Plan Act | Legal Persons Engaged in Manufacturing or Mining
activities in less developed regions |
| 2 | Natural and legal persons engaged in any kind of economic activity in a Free Zone are exempt from payment of income and property tax subject to Direct Taxes Act as for a duration of 20 years from the date of the commencement of the operation mentioned in the permit with respect to any type of economic activity in the Free Zone. | Article 13 of Law on the Administration of Free
Trade- Industrial Zones (ratified in 1993) and its Amendment (2009) | Legal and Natural Persons Engaged in any Kind of
Economic Activity in FreeZones |
| 3 | The income incurring from exports of non-oil commodities (except that of raw materials or goods with low level of value-added) and services are exempted from tax payment during the Fifth Five-Year Development Plan (until 2016). | Clause B of Article 104 of the 5th Five-Year
Development Plan Act | All legal Persons |
| 4 | Income earned from all activities of agriculture, animal rearing, pisciculture, apiculture, poultry husbandry, hunting and fishing, sericulture, pastures restoration, reforestation, horticulture are free of income tax. | Article 81 of Direct Taxes Act | All Legal Persons Engaged in Agricultural
activities |
| 5 | For the branches and agencies of foreign banks and companies in Iran conducting marketing and market research for the head office without being authorized for doing business, the repayments of their expenses received from their head office, are free of income tax. | Note 3 of article 107 of Direct Taxes Act | Agencies of foreign banks and companies |
| 6 | Those reservations for which tax has not been paid till due date of this amendment, in case transferred to capital accounts are free of tax. | Article 108 of Direct Taxes Act | All legal persons |
| 7 | Transferring assets between merged companies is free of tax, on a case by case base and according to the book value of the assets. | Clause B of article 111 of Direct Taxes Act | Merged companies |
| 8 | The section on income tax stipulated in the Direct Taxes Act is not applied to the operation of companies merged or integrated into a new company or into the existing company. | Clause C of article 111 of Direct Taxes Act | Merged or integrated companies |
| 9 | Declared taxable income earned from manufacturing or mining activities in co-operative and private sectors with exploitation license or extraction and sale contract granted since year 2002 from respective authorities are %80 free of tax referred to in article 105 of Direct Taxes Act for a term of 4 years since the beginning of their operation or extraction. | Article 132 of Direct Taxes Act | All Legal Persons Engaged in Manufacturing or
Mining activities |
| 10 | All travelling and tourism institutions licensed by Ministry of Culture and Islamic Guidance enjoy %50 tax exemption every year. | Note 3 of article 132 of Direct Taxes Act | All Legal Persons Engaged in Tourism activities |
| 11 | Income earned from education of private elementary, middle and high school, vocational, universities and higher education institutes and income earned from caring for disabled in nursing facilities that are licensed under relevant authority and income earned solely from sport activities of sporting clubs under license of sporting organization, are exempted from income tax. | Article 134 of Direct Taxes Act | Education centers, nursing homes, sporting clubs |
| 12 | That part of profit of co-operative and private companies which are spent for developing or renovation of industrial and mining units or creating new units with license from the relevant Ministry is %50 exempted from tax subject of article 105 of Direct Taxes Act in the same year. In case the expense of these projects is more than profit of the same year, company can claim this exemption in the next three years. | Article 138 of Direct Taxes Act | Co-operative and private companies |
| 13 | All publishing, press, cultural and artistic activities licensed by Ministry of Culture and Islamic Guidance are exempted from income tax. | Clause L of article 139 of Direct Taxes Act | Publishing, press, cultural and artistic activities |
| 14 | Exemptions stipulated in Note 2 of article 132 of Direct Taxes Act are extended to production units of IT industry. | Clause A of article 6 of the Act for amendment of
article 113 of the 3rd development plan Law | Legal persons Engaged in IT industry |
| 15 | When companies or enterprises are merged to form bigger companies, the following measures are permitted:Merging of commercial companies referred to in chapter 3 of commercial law with approval of fourth fifth of stock holders or capital owners, as far as it doesn’t create monopoly, is permitted. Capital of this newly created company is exempted from tax stipulated in article 48 of Direct Taxes Act and its amendment up to total capital of merged companies. | Clause A of article 40 of 4th Development Plan | Companies and enterprises |
| 16 | For the purpose of spreading science and developing international collaborations, research, technology and engineering institutes located in science and tech parks can enjoy same exemptions of free trade zones. | Article 47 of 4th Development Plan | Legal persons and research institutes and tech
companies |
Guide on Iranian Taxation System for Foreign Investors
Similar Taxation for Iranian and Foreign Investors
Foreign investors in Iran enjoy the same supports and privileges that are offered to the Iranian investors. In this connection, the Direct Taxation Law passed in 1987 and the following amendments have considered no discrimination in taxation of domestic and foreign investors. This means both Iranian and foreign investors pay the same amount of taxes. Tax exemptions and discounts are also equally granted to domestic and foreign investors.
The Direct Taxation Law, passed in 1987, is regarded as the core of the taxation system in the Islamic Republic of Iran. The law was extensively reviewed and reformed in 2001 to be in tandem with the ongoing economic conditions in the country. Production and investment promotion in line with the economic development of the country was one major factor behind the need for amendment of the law (supporting the newly established manufacturing and mineral units according to Article 132 and investment promotion according to article 138).
Taxable Real and Legal Entities According to Direct Taxation Law
1. All owners, whether real or legal, for their properties inside Iran according to the taxation rules under Chapter 2 of the Direct Taxation Law
2. Any real person residing in Iran for the incomes earned inside and outside the country
3. Any Iranian real person residing abroad for all the income he makes in Iran
4. Any Iranian legal entity for the incomes earned inside or outside the country
5. Any non-Iranian real or legal entities for the income earned in Iran and also for the income gained through delegation of authority, dealership, technical and educational assistance or movie contracts (for any sort of income earned as rental, right of display and the like) in the territory of the Islamic Republic of Iran
Types of Taxes in Direct Taxation Law
a) Property Tax:1
Inheritance tax
Stamp duty (It is a type of tax levied on some documents such as checks, bills of exchange, promissory notes, negotiable instruments, stocks and shares, … according to Articles 44 through 51 of Direct Taxation Law.)
b) Income tax:
Property income tax
Agricultural income tax
Salary income tax
Self-employment tax (the type of income a person earns in Iran through self-employment)
Corporate income tax (special for legal entities)
Since manufacturing units and economic enterprises are usually active as legal entities, we will hereunder focus on rules and regulations for taxation of legal entities income and their exemptions.
Legal Entity Income Tax
The aggregate income of companies, and also the income from the profit-making activities of other juridical persons, derived from different sources in Iran or abroad, less the losses resulting from non-exempt sources and minus the prescribed exemptions, shall be taxed at the flat rate of 25%, except the cases for which separate rates are provided under the present Direct Taxation Law. Persons, whether legal or real, will not be taxable for the stocks or the dividends of their shares in other capital corporations.
The Direct Taxation Law and other pertinent legislations have considered certain exemptions for the legal entities as the following:
Factory owners and legal entities are obligated to, even within the exemption period, submit declaration and profit and loss balance sheets, provided from their official statutory books, maximum four months after their tax year (March through February in Iran)2 along with the list of partners and shareholders
1 (Three other types of property taxes (annual real estate tax, vacant real estate tax, tax on barren land) have been deleted from the Direct Taxation Law amendment in 2001).
2 Financial year in Iran starts in March through February next year. For the companies with different tax year, the financial year is taken into account and their shares and addresses to the tax department within the area of the activity of the legal entity (Article 110). If these legal entities do not submit the documents within the stipulated time span, the tax exemption will be null and void (Article 193)Highlights of Tax Holidays
| Activity | Level of Exemption | Duration of Exemption |
| Agriculture | 100% | Perpetual |
| Industry and Mining | 80% | 4 Years |
| Industry and Mining in Less- Developed Areas | 100% | 20 Years |
| Tourism | 50% | Perpetual |
| Export of services & non-oil goods | 100% | During 5th development Plan |
| Handicraft | 100% | Perpetual |
| Educational & sport services | 100% | Perpetual |
| Cultural activities | 100% | Perpetual |
| Salary in Less-Developed Areas | 50% | Perpetual |
| All Economic Activities in Free Zones | 100% | 20 Years |
Tax Exemptions Stipulated in the Law on Fifth Five-Year Development Plan
In order to:
Facilitate and promote industrial and mineral investment in the country
Develop non-oil exports
The Law on Fifth Five-Year Development Plan has stipulated the following tax exemptions:
1. Article 159 – A: 15 percent increase in tax exemption relevant to Article 138 of Direct Taxation Law
2. Article 159 – B: Increasing tax exemption period of industrial and mineral units in the less developed regions to the same level as the exemption of free trade-industrial zones (from 10 years to 20 years)
3. Article 104: Levying any tax and tolls on non-oil exports and services during the Fifth Development Plan (except raw materials or commodities with low value-added)
Value-Added Tax Act (VATA) in Iran
The Value-Added Tax Act (VATA) was ratified by the Parliament in 2007.
Value-added tax (VAT) in Iran is levied on the sale of all goods and services and their imports, except 17 items listed in Article 12 of VATA as the exempted ones. VATA, however, does not include the export of goods and services through official Customs gates. Therefore, the taxes paid for the export of goods and services will be refundable by submitting the Customs clearance sheets (for goods) and valid documents (Article 13).
Currently, the VAT rate stands at 4% (VAT rate for two special goods of cigarettes and jet fuel is relatively high).
To reduce the country’s dependency on oil incomes, the Law on Fifth Five-Year Development Plan has anticipated an annual one-percent increase in the VAT rate to put it at 8% in the end of the plan (year 2016).
Economic activities in free trade and industrial zones are exempted from value-added tax.