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Corporate Income Tax

Corporate Income Tax

 

 

Direct Taxes Act imposes a tax on the income of “legal entities”, a term which encompasses companies, partnerships, cooperatives and other bodies of similar nature.

 

Type of tax system

 

The Iranian system of corporate taxation is a two-tier system, a combination of both the classical and the imputation systems. On one hand, the profits are first taxed at the corporate level and no credit is granted at the shareholder level and, on the other hand, dividends distributed by the companies among the shareholders are exempt from taxation.

 

Taxable persons

 

Iranian entities are subject to tax on all their income wherever earned. Non-Iranian entities are subject to tax on income earned in or received from Iran through the granting of licenses and other rights or through the provision of training and technical assistance, and/or the supply of films.

 

Government ministries and institutions, government budgeted enterprises, and municipalities as well as the Islamic Republic foundations and statutory bodies authorized to be exempted from taxation by the late Imam Khomeini and the Supreme Leader are exempt from tax.

 

Residence

 

The term resident means any person who under the laws of the Islamic Republic of Iran is liable to tax therein by reason of his residence, domicile, and place of registration, place of management or any other criterion of a similar nature.  

 

Taxable income

General

 

The aggregate profits of companies, and the profits from the profit-making activities of other legal 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 Iranian Direct Taxes Act (see Art. 105 of DTA).

 

With regard to the Iranian noncommercial legal persons that are not established for distribution of profits, should they engage in profit-making operations, the total taxable income derived from such activities shall be taxed at the rate of 25% (see Note 1 of Art. 105 of DTA).

 

Taxable profits declared by companies, conventional cooperative unions, and public joint stock cooperative companies shall be subject to 25 percents of allowances from the standard rate of 25% provisioned in Article (105) of the Direct Taxes Act (see Note 6 of Art. 105 of DTA).

 

Foreign legal persons and entities residing abroad shall be taxed at the flat rate of 25% in respect of the aggregate taxable income derived from the operation of their investment in Iran or from the activities performed by them, directly or through the agencies like branches, representatives, agents, and the like, in Iran, and also the income received by such persons and entities from Iran for granting of licenses and other rights, transferring technology and/or providing training services, technical assistance and cinematographic films. The representatives of such foreign persons and enterprises in Iran shall be subject to taxation with respect to the income they may earn under any titles in their own account (see Note 2 of Art. 105 of DTA). There are two exceptions in this regard:

 

  • Foreign insurance enterprises earning income by accepting reinsurance from Iranian insurance institutions shall be taxed at the rate of 2% on their premium income and on interest on their deposits in Iran; where the Iranian insurance institutions are engaged in insurance business in the country of their foreign reinsures, and enjoy tax exemption in that country on their own reinsurance operations, then the said foreign reinsures shall also be exempted from taxation in Iran (see Note 5 of Art. 105 of DTA).

 

  • The tax charged on foreign airline and shipping concerns shall be 5% of all amounts received by them for the carriage of passengers, freight, etc. from Iran, whether such amounts are received in Iran, at the destination or en route (see Art. 113 of DTA). Where the tax applicable to Iranian airline For shipping concerns in a foreign country is more than 5% of the fairs received by them, and the situation is declared by the respective Iranian organization, the Ministry of Economic Affairs and Finance shall increase the tax of the airline and shipping concerns of such country on par with the rates so applied to the Iranian concerns (see Note of Art. 113 of DTA).

 

At the time of computation of the income tax of legal persons, whether Iranian or foreign, the pre-paid taxes shall be deducted from the applicable tax according to the pertinent regulations, and any overpaid amounts shall be refundable (see Note 3 of Art. 105 of DTA).

 

The legal persons shall not be subject to any other taxes on the dividends or partnership profits they may receive from the capital recipient companies (see Note 4 of Art. 105 of DTA).

 

In cases where some payments other than income tax are to be collected on the basis of taxable income, the tax of relevant taxpayers shall be computed at the flat rate of 25% after deduction of such non-tax charges (see Note 5 of Art. 105 of DTA).

 

Exempt income

(See also Section “incentives” below)

 

All enterprises for internal and international tourism that have, prior to March 20, 2016, received their exploitation licenses from relevant legal authorities shall be exempt from the payment of 50% of the tax on their declared income up to 6 years after the aforementioned date; this provision, however, does not apply to incomes derived from sending tourists abroad (see Para. L, Art. 132 of DTA).

 

In the same line, One hundred percent (100%) of the income declared by tourism and pilgrimage travel agents that have received their licenses from relevant authorities shall be zero rated, provided that such income has been derived from foreign tourists or from sending pilgrims to Saudi Arabia, Iraq or Syria (see Para. M, Art. 132 of DTA).

 

Study and research costs of legal persons from the private and cooperative sectors engaged in producing and industrial enterprises, holding exploitation licenses from relevant ministries shall be exempt from the payment of a maximum of 10% of such persons’ declared tax in the year of accrual, provided that such study and research activities have been carried out through contracts concluded with universities or other research and higher education centers holding finalized licenses from the Ministries of “Science, Research and Technology” or “Health and Medical Education”, within the framework of the State Comprehensive Scientific Map. The latter mentioned contracts shall be eligible for the concerned purpose, only if research councils of the universities or research centers involved have already approved the annual progress reports of the contracts. Moreover, for the entitlement to the exemption, the income declared by such enterprises for producing and industrial activities shall not be less than IRR 5,000,000,000. The study and research costs, which are taken into account as the tax paid by such persons, shall not be accepted as allowable expenses for tax purposes (see Para. O, Art. 132 of DTA).  

 

One hundred percent (100%) of the income derived by the Fund for Development of Agricultural Sector or by rural, tribal, agricultural, fishers, workers, employees, university and school students’ cooperative companies and their respective unions shall be exempt from taxation (see Art. 133 of DTA).  

 

The income derived from educational and training activities by nonprofit schools, whether elementary, junior or senior secondary, technical or vocational schools, free technical and vocational schools licensed by Iran Technical and Vocational Training Organization or by nonprofit universities and higher education institutions and kindergartens located in less developed regions and villages, as well as the income derived from taking care of mental and physical invalids by the institutions engaged in such activities, shall be exempt from taxation, provided that the aforesaid institutions have permission from the respective authorities (see Art. 134 of DTA). The income of the institutions and clubs having permission from the Physical Training Organization shall also be exempt from taxation, if it is derived purely from sport activities (see the same Art.)

 

One hundred percent (100%) of the income derived from exportation of non-oil services and goods, and products of the agricultural sector, as well as 20% of the income derived from the exportation of raw materials shall be subject to zero-rate taxation provided they are included in an approved list (see Art. 141of DTA).

 

The income derived from exportation of different goods that are imported to Iran on transit, and are exported without making any changes in the substance thereof or doing any works on them, shall be subject to zero-rate taxation (see Note 1, Art. 141of DTA).

 

Publishing, journalistic, and Quranic activities (licensed by the Ministry of Culture and Islamic Guidance and relevant authorities) as well as cultural and artistic activities performed based on the permit of the Ministry of Culture and Islamic Guidance shall be exempt from taxation  (see Para. L, Art. 139 of DTA).  

 

Income of workshops, cooperatives and guilds engaged in production of handmade carpets and handicrafts are exempt from taxation (see Art. 142 of DTA).

 

In case of contract works, any part of the contract price, which is used for the purchase of supplies and equipments shall be exempt from taxation up to a maximum of the purchase invoice price for domestic purchases or up to the sum of customs value, customs surcharges and other payments mentioned in the Customs Green Licenses for foreign purchases, provided that the amounts relevant to those supplies and equipments are included, apart from other items, in the contract or in its further amendments or supplements (see Note 1 under Art. 107 of DTA).

 

In cases where the foreign contractors wholly or partly assign contract operations to Iranian legal persons as sub-contractors, then an amount which is used for the purchase of supplies and equipments mentioned in the original contract, which is purchased by the sub-contractor and is borne by the original contractor shall be exempt from taxation, subject to the provisions described in the latter part of the previous paragraph (see Note 2 under Art. 107 of DTA).

 

Branches and agents of foreign companies and banks in Iran, that, without having the right to make transactions, are engaged in marketing and gathering economic information in Iran for their parent enterprises, and receive remuneration from them against their expenditures, shall not be subject to taxation in respect of such remuneration (see Note 3 under Art. 107 of DTA).

 

The following kinds of income are also all tax-exempt:

 

  • Interest or bonuses accrued to saving accounts and various deposits held by the Iranian banks or authorized non-bank credit institutions but not where the deposit is made by another bank (for this item and the next three items see Art. 145 of DTA);
  • Bonuses accruing on government and treasury bonds;
  • Interest paid by Iranian banks to the banks outside Iran on overdrafts and time deposits, subject to reciprocal treatment;
  • Interest and bonuses accrued to participation bonds;
  • Interest payable on land reform bonds (see Note of Art. 146 of DTA;
  • Endowments and donations received by sanctuaries, mosques, hosainiyehs, takyehs and similar religious institutions (for this item and the items below see Art. 139 of DTA) [Hosainiyehs and takyehs are two religious institutions for Shiite Muslims in which they mourn for those imams who have been martyred at the beginning of the Islamic era.];
  • Cash and non-cash donations received by the Red Crescent Society of Iran;
  • Cash and non-cash donations or payments received by pension saving funds, the Organization of Health Services Insurance and the Social Security Organization as well as insurance premiums and pension contributions;
  • Cash and non-cash donations received by Islamic schools;
  • Cash and non-cash donations received by foundations of the Islamic Republic of Iran;
  • Amounts paid out of the State Fund for Development Endowments;
  • Income of persons arising from benevolent contributions schools;
  • Amounts paid out of public endowment funds and used for religious, educational or scientific purposes or for the alleviation of suffering as a result of a natural catastrophe;
  • Cash and non-cash donations received by charitable organizations provided the amounts received are used for charitable purposes;
  • Cash, non-cash donations and membership fees received by professional associations, parties and non-government organizations that are appropriately licensed; and
  • Endowments of donations to societies and missions of religious minorities provided these are approved by the Ministry of Interior.

 

Deductions

 

Expenses which are deductible in arriving at taxable income are listed in Article (148) of Direct Taxes Act. Other expenses that are not mentioned in Article (148) of the Direct Taxes Act, but are considered to be related to the earning of the enterprise s income, shall be accepted as deductible expenses based on the proposal of the Iranian National Tax Administration and approval of the Ministry of Economic Affairs and Finance (see Note 1, Art. 148 of DTA).

 

Expenditure must be supported, to a reason able degree, by documentary evidence and be exclusively connected with the earning of income during the fiscal year in question. Specific provisions allow the deduction of reserves for deductible expenses related to the current year and the deduction of deductible expenses related to previous years, payment of which becomes due in the current year.

 

The categories of deductible expenditure listed in the Act are as follows (see Art. 148 of DTA):

 

  1. The cost of goods and raw materials sold or used to produce goods sold or to provide services;

2) Personnel costs including:

  • Basic salaries, wages and regularly recurring benefits in cash and in kind (the deductible amount for benefits in kind is the cost to the employer);
  • Payments which do not recur regularly such as New Year bonuses, overtime payments and traveling expenses;
  • Health and safety expenditure and medical, accident and life insurance premiums of personnel;
  • Retirement pensions and payments made in connection with termination of employment;
  • Social security contributions;
  • Funds reserved for financing the retirement pensions, supervisors pensions, termination of employment payments, dismissal compensation and payments for buying-out of services of the enterprise s employees up to the amount of the latest monthly salaries and wages and the balance resulted from the adjustment of the previous years salaries (This rule shall apply to the reserves already deposited in bank accounts as well);
  • Payments to retired employees of the enterprise up to a maximum of one twelfth of the annual individual income allowance;

3) Rental of enterprise s premises in case of being rented. The amount of rental shall be determined on basis of the official deed (if any), otherwise within the normal range;

4) Rent of machinery and equipment;

5) Costs of fuel, electricity, lighting, water and communication;

6) Business insurance;

  1. Royalties, duties and taxes paid. Income tax, withholding tax imposed by Direct Taxes Act and fines paid to government bodies are not, however, deductible;
  2. Research and development (R & D) and training expenditure;
  3. Compensation paid for damages resulting from the operations or assets of the business provided that the extent of the liability is established and provided that no other party can be held responsible and provided that the damages in question cannot otherwise be recovered;

10) Cultural, sports and welfare expenditures paid in respect of workers to the Ministry of Cooperatives, Labor and Social Welfare up to a maximum amount of IRR 10,000 per each worker;

11) Reserves against doubtful claims (in the event that the claims are connected with the business) are unlikely to be recovered and the reserve is administered under a special heading in the company accounts until the claim is either recovered or becomes a definite loss;

12) Losses of legal persons, if established according to their statutory books of accounts and in conformity with the regulations. Such losses can be carried forward and be offset against the income of subsequent year or years;

13) Small expenses incurred in connection with the premises of the enterprise that are customarily borne by the tenant, in case the place of business is rented;

14) Expenses incurred in the maintenance and upkeep of the premises;

15) Transportation expenses;

16) Expenses related to the services of transportation of employees, enterprise s teahouse and warehousing costs;

17) Fees paid in proportion to the services rendered such as commission, brokerage, legal fees, consultation fees, conference fees, auditors fees and fees for administrative and financial services;

18) Interest, fees, and fines paid or allocated to banks, the Cooperative Fund, agricultural development funds, authorized non-bank credit institutions and leasing companies licensed by the Central Bank of the Islamic Republic of Iran for the carrying out of the enterprise’s operations;

19) Price of office supplies and office equipment that are usually consumed within one year;

20) Cost of repair and maintenance of machinery and equipment and also the cost of replacement of spare parts, provided it would not be considered as a basic repair;

21) Abortive mine exploration expenditure;

22) Membership and subscription fees in connection with the business activities of the enterprise;

23) Bad debts in excess of the reserve for doubtful receivables, if it is proved by the taxpayer to be unrecoverable;

24) Currency exchange losses computed in accordance with accepted accountancy practice, provided it is applied consistently from year to year by the taxpayer;

25) Normal wastage of production;

26) Reserve of payable acceptable expenses related to the assessment period;

27) Acceptable expenses related to previous years, the payment or allocation of which is realized in the tax year under examination;

28) Expenses for purchasing of books and other cultural and art goods for employees and their dependents, up to a maximum amount equal to 5% of the annual exemption threshold in respect of each individual; and

29) Reserve related to after sales (guarantee) services by legal persons.

 

Valuation of inventory

 

The cost price method is used for the valuation of inventory. To calculate the cost price, the companies are allowed to choose among the specific identification method, FIFO, or weighted average.

  

 

 

Depreciation and amortization

 

Any part of depreciable assets, whose value is subject to a decrease resulting from utilization, lapse of time or any other causes, regardless of price changes, as well as establishment costs may be depreciated and their depreciation costs are deemed tax-deductible expenses (see Art. 149 of DTA). Regulations relevant to depreciable assets including the depreciation schedules and how to implement them shall be prepared by the Iranian National Tax Administration in accordance with accounting standards and shall be confirmed by the Minister of Economic Affairs and Finance within six months from the approval date of the present Act.

 

An increase of the price resulting from the reappraisal of legal persons’ assets, with due regards to accounting standards, shall not be subject to income tax and the depreciation cost resulting from the reappraisal shall not be regarded as a deductible expense; in case of the sale or exchange of reappraised assets, the difference between the sale price and the book value shall be taken into account in computing the taxable income without any application of the reappraisal (see Note 1, Art. 149 of DTA).

 

If a depreciable asset is sold or machineries become unusable and, as a result, a loss is sustained by the enterprise, then the loss, equal to that part of the value of the asset that has not been depreciated minus the sale proceeds (if the asset is sold) shall, in total, be taken into account in the computation of the profit and loss account of the same year (see Note 2, Art. 149 of DTA). In regard with reappraised assets, the rule of this provision shall be applicable in respect of the book value without any application of the reappraisal (see the same).

 

 

Reserves and provisions

 

Provisions which are set aside as equal to depreciation costs are deductible.

 

Reserves against doubtful claims are deductible in computing the taxable income, provided that they are connected with the business, they are unlikely to be recovered and the reserve is administered under a special heading in the company accounts until the claim is either recovered or becomes a definite loss (see item 11 under Art. 148 of DTA).

 

Reserve of payable allowable expenses related to the assessment year shall be deductible (see item 26 under Art. 148 of DTA).

 

Reserve related to after sales (guarantee) services by legal persons shall also be deductible (see item 29 under Art. 148 of DTA).

 

One per thousand of the sale of factories and workshops shall be reserved and consumed for controlling or compensating for pollutions and/or in creating green spaces. The costs thereof are deductible (see Para. D under Art. 45 of the Law for Collecting Certain Government Revenues and Consuming Them in Certain Cases, approved on 19/03//1995).

 

Capital gains

 

There is no explicit separate regulation about capital gains taxation in Iran but in accordance with Article (105) of the Direct Taxes Act in which the aggregate income of companies is subject to the corporate tax, all gains derived from selling fixed assets, except for immovable properties and real estates, and shares, are subject to taxation as a part of the taxable income of the corporate tax.

 

Losses

Ordinary losses

Losses of legal persons, if established according to their books of accounts in conformity with relevant regulations, can be carried forward and be offset against the income of subsequent year or years (see item 12 under Art. 148 of DTA). There is no limit for the number of years for which losses may be carried forward. Ownership change has no impact on carrying losses forward.

 

Losses, however, may not be carried backward.

 

Capital losses

If a depreciable asset is sold or machineries become unusable and, as a result, a loss is sustained by the enterprise, then the loss, equal to that part of the value of the asset that has not been depreciated minus the sale proceeds (if the asset is sold) shall entirely be taken into account in the computation of the profit and loss account of the same year (see Note 2 under Art. 149 of DTA).

 

Rates

Income and capital gains

According to the Art 105 of the Direct Taxes Act, entities are subject to a corporate income tax at a rate of 25% of net income except where the aforementioned Act provides for different rates.

 

The taxable income of foreign legal persons residing abroad in respect of incomes derived in Iran or from Iran shall be assessed as follows: In regard with the preparation of design for buildings and installations, surveying, drawing, supervision and technical calculations, provision of training and technical assistance, transfer of technology and other services, as well as the granting of royalties and other rights and transfer of cinematograph films, whether the latter profit is derived in or from Iran as the price or the fee for the screening of films, or under any other titles (except for those types of profits for which another method of assessment is stipulated in the law), the taxable profit shall consist of 10% to 40% of the total annual receipts with due regards to the type of activity and the level of profitability (see Art. 107 of DTA). Therefore, such income may be subject to an effective corporate tax rate of 2.5 to 10%.

 

Withholding taxes

 

In the investor-agent partnerships, the agent (mozareb) is required, at the time of filing his tax return, to withhold the tax applicable to the share of the owner of capital without applying any exemptions, and to remit the same, as an on account payment of the investor s tax, to the relevant tax account (see Art. 102 of DTA). He should present the receipt of his payment to the respective Tax Affairs Office and to the owner of capital (see the same). Should the owner of capital be a bank, the agent or "mozareb" shall be relieved from the task of withholding the relevant tax of the investor (see Note under Art. 102 of DTA) [Mozareb = Commanditaires; Mozarebe = commandite; a type of partnership under Islamic law in which partner Aor ‘mozareb’ gives a sum of money to Partner B to manage on his or her behalf].

 

Ministries, government institutions and companies, establishments whose budget is wholly or partially financed by the government, foundations of the Islamic Revolution, municipalities and their affiliated companies and firms, as well as other legal persons are required to withhold the "real estate income taxes" thereof from any rental payments they make and to pay it, up to the end of the next subsequent month, to the Tax Affairs Office of the district where the property is situated, and to hand over the receipt of the same to the relevant landlord (see Note 9 under Art. 53 of DTA).

 

The payers of salaries are obligated, when paying or allocating the same, to compute and withhold therefrom the applicable taxes and to remit, up to the end of the next subsequent month, the deducted amounts together with a list containing the amount of salaries, names and addresses of recipients, to the local Tax Affairs Office. In subsequent months, the changes of the list should only be reported (see Art. 86 of DTA).

 

Payments made by employers to real persons other than their own employees who are not subject to payment of retirement or insurance contributions, under such titles as consultation fees, meetings attendance fees, teaching fees, or study and research fees, shall be taxed at the flat rate of 10%, without taking into account the annual individual income allowance (see Note under Art. 86 of DTA). The employers are required to deduct, at the time of each payment or allocation of it, the applicable tax and remit the same, to the relevant Tax Affairs Office, up to the end of the next subsequent month, announcing the particulars of recipients in accordance with the sample prepared by the Iranian National Tax Administration (see the same Note). In case of non-observance of the above obligation, the employers shall be responsible for the payment of the due tax and applicable penalties (see the same Note).

 

Those making any payments to foreign legal persons residing abroad in respect of the income they derive in Iran or from Iran shall be required to withhold the applicable tax at the rates stipulated in Article (107) of the Direct Taxes Act by taking into account the total payments made from the beginning of the year up to the date of each relevant payment. They should remit the withheld amounts, up to the end of the next subsequent month, to the relevant Tax Affairs Office. Otherwise, the above-said payers and the receivers shall be jointly and severally liable for the payment of the basic tax and the fines related thereto (see Art. 107 of DTA).

 

Incentives

 

The income declared for producing and mining activities, which is derived by non-government legal persons in producing or mining enterprises, for whom exploitation licenses are issued, or with whom extraction and sale contracts are concluded by relevant ministries as of the date of March 20, 2016, as well as the income derived from services delivered by hospitals, hotels and touristy residential centers, namely, non-government legal persons, for whom exploitation licenses or permits are issued by relevant legal authorities as of the aforementioned date, shall be subject to a zero tax rate for a period of 5 years beginning from the date of exploitation or extraction or activity start up. As regards the less-developed regions, the provision shall apply to a period of 10 years (see Art. 132 of DTA).

 

As for producing or service-oriented enterprises and other centers mentioned above, if, during the period of exemption, they have more than 50 employees, the term of application of the aforementioned exemption shall increase, providing that they raise the number of employees at least for 50% annually (see Para. B, Art. 132 of DTA).

 

In order to promote and increase the levels of economic investments, in addition to the protection period for zero-rate taxation, as described above, investments in less-developed regions and other regions shall also be supported in other ways as follows (see Para. E, Art. 132 of DTA):

 

1) For less-developed regions:

In the computation of taxes relevant to the subsequent years following the zero-rate taxation period pursuant to provisions prescribed above, as long as the aggregate taxable income is twice the registered and paid-up capital, the zero rate shall still apply but beyond that level, the due taxes shall be computed and collected at the rates prescribed in Article (105) of the Direct Taxes Act and the Notes under it.

 

2) For other regions:

In the computation of taxes relevant to the years following the zero-rate taxation period pursuant to provisions prescribed in Article (132) of the Direct Taxes Act, 50% of the taxes shall still be zero rated and the remaining 50% shall be computed and collected at the rates prescribed in Article (105) of the aforementioned Act and the Notes under it. This provision will persist unless the aggregate taxable income of the enterprise in question equals its registered and paid-up capital, but beyond that level, 100% of the due tax shall be computed at the rates prescribed in Article (105) of the aforementioned Act and the Notes under it.

 

The tax incentives mentioned in Sections (1) and (2) above shall also apply to the income derived from transportation activities by non-government legal persons; if such non-government legal persons have been established prior to the date of the latest amendment of Direct Taxes Act (i.e. July 22, 2015), they shall be entitled to the tax incentive mentioned above, if they have any reinvestment (see Para. E, Art. 132 of DTA).

         

If the investments subject to the provisions of the Article (132) of the Direct Taxes Act (see above) have been made in partnership with foreign investors under the license of the Organization for Investment, Economic and Technical Assistance of Iran, then for any 5% of foreign investment partnership, there will be a 10% increase in the tax incentive prescribed by the aforementioned Article, which shall not exceed 50% of the registered and paid-in capital (see Para. H, Art. 132 of DTA).

 

Foreign companies that produce well-known brand products in Iran by exploiting capabilities of domestic producing enterprises, shall be subject to the tax incentives stipulated in Article (132) of the Direct Taxes Act, as described above, as of the date of conclusion of their cooperation contract with the Iranian producing enterprise all throughout the zero-rate taxation period granted to that producing enterprise, provided that they manage to export at least 20% of their products; moreover, after the expiry of the zero-rate taxation period, such foreign companies shall still be subject to the 50% relief in the tax rate with regard to the profits derived from the sale of their products during the period stipulated in the Article (132) of the aforementioned Act (see Para. I, Art. 132 of DTA).

 

The zero-rate taxation and incentives described above shall not apply to the income of producing and mining entities established within a 120-kilometer radius from the center of Tehran Province or within 50-kilometer radius from the center of Isfahan and within a 30-kilometers radius from the administrative centers of provinces and cities with a population exceeding 300,000, according to the latest population and housing census (see Para. J, Art. 132 of DTA).

 

However, producing enterprises involved in the area of information technology shall be entitled to the privileges described above; moreover, producing and mining enterprises established in all special economic zones and industrial townships, except for special economic zones and industrial townships established within the 120-kilometer radius from the center of Tehran Province shall be zero-rated and shall be entitled to the tax incentives provided by Article (132) of the Direct Taxes Act (see Para. J, Art. 132 of DTA).

 

Those persons that contribute in cash to the financing of projects and the provision of the working capital of production enterprises in the form of partnership contracts shall be granted an income tax exemption equal to the minimum interest expected from partnership contracts as approved by the Money and Credit Council (see Art. 138-bis of DTA).

 

Ten percent of the Tax on Income derived from the selling of commodities accepted and sold in the Commodity Stocks, and 10% of the Tax on Profits of companies listed in the domestic or foreign stock exchanges, and 5% of the Tax on Profits of companies listed for OTC transactions of domestic or foreign stock exchanges, shall be rebated after the approval of the Stock Exchange Organization as of the year of enlistment until the year they are unlisted from the stock exchange (see Art. 143 of DTA). The abovementioned exemptions shall be doubled for companies listed in the domestic or foreign stock exchanges or OTC markets of domestic or foreign stock exchanges, provided that at the end of the fiscal period, and based upon the approval of the Stock Exchange Organization, they have at least 20% of free floating shares (see the same).

 

All income earned from activities carried out in Free Trade Zone Areas is exempted from tax for a period of 20 years (by virtue of Art. 13 of the Act for the Management of Free Trade and Industrial Zones of I.R.I. approved on 29/08/1993).

 

Administration

Taxable period

 

The tax year is a solar year beginning at the first day of Farvardin (21 March) of each year and ending at the last day of Esfand of the same year (19-20 March) of the next year; however, in case of taxable legal persons, whose fiscal year does not coincide with the tax year stipulated in Direct Taxes Act, the income of their fiscal year shall be taken as the basis for assessment of their taxable income (see Art. 155 of DTA). The time limit for the submission of tax return, balance sheet, and “profit and loss” account of such persons shall be 4 solar months after the end of their fiscal year (see the same Art.).

 

Tax returns and assessment

 

Tax returns, supported by the balance sheet, profit and loss account, other statutory books of account and shareholders’ details must be submitted to the relevant Tax Affairs Office (in the case of foreign companies this is either located in the town in which their registered office is situated or, where there is no registered office, in Tehran) within 4 months from the end of the fiscal year (see Art. 110 of DTA). Companies enjoying tax exemptions are not excused from the obligation to file returns and failure to do so results in the cancellation of the exemption for the tax year concerned (see the same Art.). An unforgivable fine equal to 30% of the applicable tax is payable for the failure to file the tax return (see Art. 192 of DTA). Failure to submit the tax return or the statutory books carries a penalty of 20% of the tax due, for each instance (see Art. 193 of DTA).

 

The taxpayer may object to an assessment within 30 days of service of the notice of assessment (see Art. 238 of DTA). Objections must be supported by documentary evidence and must be made direct to the relevant Tax Affairs Office (see the same Art.). If the matter cannot be resolved by the relevant responsible officer, it is referred to the Board of Settlement of Tax Disputes (BSTD) (see the same Art.). Any appeal against the decision of the BSTD must be made in writing within 20 days (see Art. 247 of DTA). Further appeal may be made against the decision of the BSTD to the Supreme Tax Council within 1 month of the service of the BSTD’s decision (see Art. 251 of DTA).

 

Finalized taxes which cannot be referred to any other court of appeal may still be contested to if sufficient grounds exist to prove that the rulings received hitherto have been inequitable. The Minister of Economic Affairs and Finance can refer the case to a three-member committee whose verdict shall be final and binding (see Art. 251-bis of DTA).

 

If the complaint against the verdict of the Board of Settlement of Tax Disputes is filed by the taxpayer, and he deposits a cash amount or a bank guarantee equal to the amount of the tax computed under the verdict, or introduces a creditable guarantor, whose creditability is accepted by the assessor general, then the enforcement of the verdict shall be suspended till the Supreme Tax Council delivers its opinion about the case (see Art. 259 of DTA).

 

Payment of tax

 

Legal persons are obligated to submit their tax return to the Tax Affairs Office of the district where they reside, and to pay the applicable taxes, not later than four months after the expiry of each fiscal year (see Art. 110 of DTA). The place for the submission of tax return and payment of taxes for foreign legal persons and enterprises residing abroad without having residence or agency in Iran shall be Tehran (see the same Art.).

 

In the case the taxpayer fails to pay his finalized tax within 10 days from the service of the final notice, the Tax Affairs Office shall notify him by a writ of enforcement to pay, or arrange for the payment of, all his tax dues to the said office within one month from the date of service (see Art. 210 of DTA).

 

The Ministry of Economic Affairs and Finance or the Iranian National Tax Administration may agree with the taxpayers unable to settle their tax liability, including the principal tax and the fines, at once, to pay their liabilities in installments, but not later than three years from the date of notification of their tax liability (see Art. 167 of DTA).

 

If the balance sheet, profit and loss account, books of account and documents of the taxpayers who are required to keep such legal books are accepted during three consecutive years and if their tax liability for each year is paid in the year of filing of the tax return without applying to the Board of Settlement of Tax Disputes, then, a sum equal to 5% of the principal amount of their taxes for the said three years shall be paid to them out of the current collected funds, or the same will be credited to their tax account of subsequent years, as a reward for being an upright pay (see Art. 189 of DTA). This reward shall be exempt from taxation (see the same Art.).

 

On account payment of the tax applicable to the turnover of each fiscal year, before the deadline set forth in Direct Taxes Act, will result in the accrual of a reward equal to 1% of the prepaid amount per each month till the prescribed deadline (see Art. 190 of DTA).

 

Any taxes paid after the time limit shall result in the imposition of a fine equal to 2.5% of the relevant tax per each month (see the same Art.).

Related Pages
A Review of the Iranian Tax System
Employment Income Tax
Full-Text of VAT Act
Individual Business Income Tax
Letters of Circular
Property Taxes
Real Estate Income Tax
Tax on Incidental Income
VAT
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