CORPORATE TAXES
GENERAL NOTE
Income tax information is based on the Taxation Act approved March 1988 and as amended May 1992. The taxes and levies to be included in the annual budget are described in the text below.
TAXES ON CORPORATE INCOME
Registered business entities in lran are taxed at different rates, depending on the type of entity. The types of entity are as follows.
1.Corporation (public or pricate) (i.e., joint stock company, limited liability company).
2.Partnership.
3.Branch of foreign corporation.
In accordance with the Constitution Law, foreign investment in lran is not allowed unless permission is given by the Parliament. Parliament has delegated the power to register foreign companies to the Office of Protection and Attraction of Foreign Investment (a part of the Ministry of Finance). Likewies, a Board of Ministers can issue permission for
registration of branch offices of foreign companies. Each ministry office is allowed to issue the necessary permission for registration of a branch operation, provided the parent company of the branch has a contract with that particular miniry. In addition, registration is obtainable if permission is issued by the government for establishing a joint venture in manufacturing companies with participation of foreign
shareholders.
The law on Attracting and Protecting Foreign Investment approved in 1958 is still valid. Foreign investments registered with the government under this law are protected, and the dividends resulting from such investments are transferable in the same foreign currencies in which investments are registered. The ceiling of foreign investment is 49% of
the share capital, but an increase in this ceiling, as well as changes in some of the articles of the law (which will create more facilities for the foreign investor), are under review.
Branches that were registered before 1979 are still allowed to do business in lran.
Foreign companies that are not registered in lran are taxed on their income earned from lran (such as royalties, technical assistance fees and contract work).
Corporation and partnership taxes/The net income of a corporation is taxed as follows.
1.The taxable income of a company (private or government-owned) is subject to a 10% company tax, and the balance is subject to income tax. After deducting the 10% company tax, the balance of 90% is treated as (deemed) dividends, which are subject to income tax.
a.Corporations (joint stock companies):
i.In the case of corporations with bearer shares, corporate tax will be calculated on the basis of the rates stated in Article 131;
ii.In the case of corporations with registered shares, the rates specified in Article 131 apply, based on the portion of taxable income that is available to each individual or company owning such shares.
b.Partnerships: The rates specified in Article 131 apply, based on the portion of taxable income of each partner.
c.If part of the profit is to be set aside as a reserve, this reserve, based on its appropriation between shareholders (or partners), will be separately subject to income tax. If in the future such a reserve is to be distributed, there will be an additional 25% tax thereon.
2.Stock dividends (bonus shares) re possible if issued against a
general reserve. They are also exempt from income tax if the general reserve has been an exempt source (or net of tax).
3.An individual (investor) who receives a dividend will report the gross dividend as income, and the tax withheld on the dividend (which has been paid by the company) will be treated as a prepayment against the general income tax of the investor.
Branch of a foreign corporation/Iranian branches of foreign
corporations are taxed on their total income earned in lran, including income derived from their investments in lran, income from activities carried out in lran either directly or through agencies, and income earned in lran through the assignment of contracting, industrial rights or royalties or by providing technical assistance or training. Branch income is taxed on the basis of Article 131 of the Taxation Act (see below).
Special industries-Contractors/For tax purposes, contractors are defined as legal or natural persons that contract for any type of construction work, technical and capital installations, designing and planning of buildings and installations, drawings or topographical surveys, or supervision of various technical calculations. Contractors, whether they perform their work as individuals, domestic corporations or branches, are usually taxed on net reported profit and deemed profit, respectively. The detailed procedure is explained below.
1.Entities for which the construction work is being performed are required to withhold 5% of every payment made to a contractor. They must
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