INCOME TAXES ON CORPORATIONS
1. Rate
Taxable income of private sector business entities in Iran from all sources is subject to graduated income tax rates ranging between 12% and 54%. The top rate of 54% applies to taxable income in excess of Rls. 300 million. A 10% tax, loosely entitled corporation tax,?is deducted from taxable income of Iranian-registered corporations and enterprises before the graduated rates are applied.
Taxable income of Iranian-registered corporations is deemed to be divided between registered shareholders or partners in proportion to their shares, with the share of each being subject separately to graduated rates. Therefore, in this context, it would be advantageous to have as many shareholders or partners in a company as possible.
Foreign corporations are subject to tax on their income generated in Iran or, for certain types of income, even if merely received from Iran.
Computation of Taxable Income. While maintaining proper books of accounts is a legal necessity for almost all business operations, taxable income is not always determined by reference to book profits. Notable exceptions in this regard are as follows:
q Contracting operations carried out by foreign contractors (see contracting Operations,?below);
q Income of foreign entities derived from the granting of licenses and other concessions, or from technical assistance and training. Taxable income in these categories is deemed to be a fixed percentage of gross receipts, ranging between 20% and 45%.Contracting Operations. Contracting operations within the meaning of the Tax Act include any type of construction work, technical installations, transportation (excluding shipping and aviation), the design and planning of buildings and installations, drawing and topographical surveying, supervision, and technical calculations.
Taxable income of foreign entities from contracts falling within these categories and proposed after February 22, 1988 is 12% of gross receipts. No distinction is made between the prime contractor and the subcontractor.
A 5% withholding is made at source from each payment to a
contractor. The withholding is not a separate tax but merely an advance payment towards the overall tax liability of the contractor.
2. Local Income Taxes
There are no provincial income taxes in Iran.
7. Payment of Taxes.
Taxes must be paid by business entities within four months of the end of a financial year, accompanied by an annual tax declaration, and receipts for taxes already paid, if any. The fiscal year of a nonregistered foreign entity is the Iranian calendar year, which commences on March 21 each year. Full taxes should be withheld at source from nonregistered entities.
Exemptions. Depending on the nature and the geographic location of the business, industrial and mining activities can enjoy tax holiday periods of up to 12 years. All types of agricultural activities are exempt from taxes indefinitely.
INCOME TAXES ON INDIVIDUALS
9. Rates
Earned income from employment, including cash and non-cash benefits, is subject to income tax at graduated rates and is deductible at source by employers on a monthly basis. Monthly net taxable earned income (after allowances and exemptions) of up to Rls. 320,000 is exempt from taxes, with the excess being taxable at rates ranging between 12% and 54%, subject to 25% deduction from income taxes payable on monthly remuneration of Rls. 1,400,000. The following are the applicable
graduated rates:
Annual Taxable Income Tax on Lower Tax on Lower
Amount (without Amount (with
Over Not Over 25% reduction)Rate 25% reduction)
Rls. 0 Rls. 3,840,000 ?exempt
3,840,000 4,840,000 Rls. 0 12% Rls. 0
4,840,000 6,340,000 120,000 18 90,000
6,340,000 7,840,000 390,000 25 292,500
7,840,000 12,840,000 765,000 35 &nbs
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