A Review of the Iranian Tax System 
1. Tax Bases and Rates
The Iranian tax system is divided into two general categories of direct and indirect taxes. The share of direct taxes from the total tax revenues is almost 63% currently. There are two major types of direct taxes including income taxes and property taxes.  Each category of direct taxes, in turn, is divided into sub-parts. Indirect taxes include taxes on imports and Value Added Tax (VAT). Taxes on imports are currently collected by the Islamic Republic of Iran Customs Administration (IRICA) and are not within the jurisdiction of INTA. Table 1 briefly shows various types of taxes in the Iranian taxation system

                                                                             Table (1):  The Iranian Tax System

Some of the most important tax rates are as follows:

                                                                     Table (2):  Most Important Tax  Rates

2. Taxation from foreign investors in Iran
   Direct Taxes 
   All non-Iranian real or legal entities for the income earned in Iran and also for the income gained through granting of license or other rights, technical and educational assistance or movie contracts in the territory of Iran are subject to taxation. Depending on the type of activity of the foreign investor, various taxes and exemptions are applicable, including profit tax, income tax, property tax, etc. 
   Foreign investors in Iran enjoy the same supports and privileges that are offered to the Iranian 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. 
   Since foreign investments are usually active as legal entities, we will hereunder focus on rules and regulations for Corporate Income Tax.
    
   Corporate Income Tax
   a) General Issues 
   Foreign legal 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 in Iran.
   The legal entities shall not be subject to any other taxes on the dividends or partnership profits they may receive from the capital recipient companies.
   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 the tax year (March 21 each year until March 20 next year)  along with the list of partners and shareholders, their shares and addresses to the tax department within the area of the activity of the legal entity. If these legal entities do not submit the documents within the stipulated time span, the tax exemption will be null and void
3. b) Exemptions
   
   Iran Direct Taxes Act (IDTA)and other pertinent legislations have considered certain exemptions for the legal entities as table (3):

                                                                                                 Table (3):  Highlights of Tax Exemptions

1. c) Deductions
   Expenses which are deductible in the assessment of taxable income are listed in the Direct Taxes Act. These expenditures must be supported to a reasonable degree by documentary evidence and are exclusively connected with the earning of income during the year in question. 
   The categories of deductible expenditure are as follows:
                                                                      Table (4):  Deductible Expenses

Other expenses that are not referred to in the above Table, but are related to the earning of the enterprise s income, shall be accepted as deductible expenses on basis of the proposal of the INTA and approval of Ministry of Economic Affairs and Finance.

1. d) Losses
   Losses sustained by all taxpayers engaged in trading and other activities are accepted by the tax authorities; will be carried forward and written off against future profits for a period of three years.
2. e) Withholding taxes
   *The payers of salaries are obliged, when paying or allocating the same, to compete and withhold therefrom the applicable taxes and to remit, within thirty days, the deducted amounts together with a list containing the names and addresses of recipients and the amount of the payments, to the local tax assessment office.

* 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 (see the same Note).

* 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 IDTA).

* 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).

* 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.

1. f) Depreciation
   Depreciation of assets is deductible in the assessment of taxable income. Depreciation rates range from 5% to 100% and the period over which assets may be depreciated ranges from 2 to 15 years.
2. Value Added Tax (VAT) in Iran 
   The VAT in Iran is levied on the sale of all goods and services and their imports, except 17 items listed in Article 12 of the VAT Act (VATA) as the exempted ones. The 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 and valid documents. 
   Currently, the VAT rate stands at 9% (VAT rate for two special goods of cigarettes and jet fuel is relatively higher).
   Economic activities in free trade and industrial zones are exempted from the VAT.
3. Agreements for the Avoidance of Double Taxation 
   To facilitate cooperation between Iranian and foreign residents and to promote trade and economic exchanges with foreign countries, the Government of the Islamic Republic of Iran has applicable mutual Agreements for the Avoidance of Double Taxation:

 Table (5):  List of Iran s Applicable Agreements for the Avoidance of Double Taxation