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Individual Business Income Tax

Individual Business Income Tax

Chapter 4 of Direct Taxes Act imposes tax on income earned in Iran by individuals from professions and from all other sources not specified elsewhere in the Act (See Art. 93 of DTA). The most important of these income sources is the income derived from running a business. Civil partnerships, to the extent they are comprised of real persons, are also liable to tax on income from such sources (See Note of Art. 93 of DTA). A civil partnership has no legal identity separate from that of its members, simply being an association of parties with a common interest in a property.

 

Assessments are made on the basis of the information of the tax return that has been drawn up and filed by the taxpayer (See Art. 97 of DTA) according to the figures in the books of account.

 

Individual business income is subject to progressive tax rates as stipulated in Article (131) of Direct Taxes Act (Table below) (See Art. 101 of DTA):

 

Table (1): General Individual Tax Rates

Annual Taxable Income (in IRR)

Rate

Up to 500,000,000

15%

500,000,001 to 1,000,000,000

20%

Over 1,000,000,000

25%

In accordance with Article (95) of Direct Taxes Act, the owners of businesses subject to individual business income tax are required to keep books of accounts, records and documents, in conformity with relevant principles and regulations, including those to be drafted subject to the Commercial Law, on how to draw up commercial books, for the assessment of their taxable income, and draw up their tax returns based on the same. However, the Iranian National Tax Administration may partially exempt certain businesses or some groups among them from their obligations such as keeping records and documents or filing tax returns, providing that their annual sales of goods and services amounts maximally to ten times the annual individual income allowance determined by the state annual public budget laws (See Note of Art. 100 of DTA). The applicable taxes of such taxpayers shall be determined and collected by the Iranian National Tax Administration in the form of fixed and final taxes for the tax year in question (See the same).

The administrative bylaw concerning the types of books of accounts, records and documents, the methods for keeping them, whether mechanized or manual, the sample tax returns for the aforesaid taxpayers based on the type and size of activities, and the manner they are assumed to be submitted to relevant authorities for due examinations and assessment of taxable income shall be prepared by the Iranian National Tax Administration and approved by the Minister of Economic Affairs and Finance.

The taxable income of the taxpayers who are subject to individual business income tax consists of the aggregate sale of goods and services plus their other incomes that are not recognized as taxable under the other Chapters of Direct Taxes Act, less the relevant expenses and depreciations (See Art. 94 of DTA; for allowable expenses, see Section II.2.1.4.3.3 and for depreciations, see Section II.2.1.4.3.5).

The taxable income of real persons subject to individual business income tax, who are obliged to file tax returns, shall be determined based on the tax return that has been drawn up and filed by the taxpayer with due regard to relevant regulations, and has been accepted by tax authorities (See Art. 97 of DTA). The Iranian National Tax Administration may accept, without further examination, tax returns so received and suffice to the examination of only a number of them selected through sampling or because of pre-determined criteria as per relevant provisions (See Art. 97 of DTA).

If the taxpayer refrains from filing his tax return within the legal time limits in view of the relevant regulations, then the Iranian National Tax Administration takes due measures for drawing up an estimated tax return based on his business activities and information acquired from the Tax Administration and Reform Automation (TARA) System and claims for the collection of the due tax by issuing a tax assessment notice. In case of taxpayer’s objection, if, within 30 days from the date of service of process of the tax assessment notice, he files his tax return as per the relevant regulations, then his complaint shall be examined in accordance with the provisions of the present Law. This rule does not prevent from the application of fines and sanctions for failure to file tax return within the due time limit (See Art. 97 of DTA).

With the exception of those which are available exclusively to companies, the exemptions for individuals are the same as those listed at Section II.2.1.4.3.2 below. In addition, the following exemptions apply to individuals only (Art. 101 of DTA):

1) the income up to the annual individual income allowance determined by the state annual public budget laws; and

2) the income up to two times the annual individual income allowance for civil partnerships (regardless of the number of partners) to be allocated equally to the partners.

If a real person holds more than one business entity, only one single annual exemption (i.e. annual individual income allowance) shall be deducted from the total income he has derived from all his business entities (See Note 2 of Art. 101 of DTA).

Dividends payable by joint-stock companies and joint-stock partnerships or other forms of legal entities to their individual shareholders, partners, or members are exempt from tax (See Note 4 of Art. 105 of DTA); the exemption is also preserved where such dividends are channeled through other kinds of legal entity before being paid to the individual shareholders or guarantor partners.

Deductible expenses, as it was mentioned above, are the same as those listed at II.2.1.4.3.3 below; depreciation is allowed as outlined at II.2.1.4.3.5 (See Art. 94 of DTA). The Act contains no provisions regarding losses incurred by individuals.

All taxpayers must file a tax return by the end of Khordad (June 21) following the end of the fiscal year which runs from 21 March to the following 20 March (See Art. 100 of DTA). All returns must be sent to the Tax Affairs Office local to the taxpayer’s place of business or where there is no place of business to the office local to the taxpayer’s place of residence. A single return suffices for a civil partnership and also for a manufacturing concern with a number of offices or outlets.

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