The recent lifting of financial and economic sanctions against Iran opened new opportunities for businesses aiming at expanding in Iran, the second largest economy in the Middle East. Currently, the trade between the EU and Iran amounts to annual EUR 7,5 billion. However, due to the new trade opportunities, this amount is expected to grow four times in the next two years. Although Iran is not considered to be a low-tax jurisdiction, tax rates that apply to Iranian natural and legal persons are relatively moderate. This article will provide a short overview of the main aspects of the Iranian individual and corporate tax system.
- Iranian resident companies are taxed on their income derived worldwide.
- Non-resident companies are taxed in Iran on their income derived from Iran.
- If a foreign company registers a branch in Iran, such a branch will be taxed in Iran only on the profits derived from the work that has been done inside the country.
- Corporate taxable income includes incomes derived by companies from the following sources: (1) a trade or business; (2) interest; (3) discounts; (4) capital gains; (5) dividends; (6) rents; (7) royalties; (8) management fees, etc.
- The standard corporate income tax rate in Iran is 25%. Companies that are quoted on the Stock Exchange and Commodity Exchange are eligible to a reduced corporate income tax rate of 22,5%.
- A withholding tax rate of 3% applies to payments made by companies:(1) to service providers;and (2) for rental payments.
- The final transfer of real property is taxed at 5% and the transfer of goodwill is taxed at 2% on the transferred goodwill’s value.
- Iranian legislation provides a list of tax-exempt activities, such as operating cooperative societies and conducting business in less-developed regions.
- Certain tax incentives can be applied to businesses, which (1) operate in free trade zones, or (2) carry business activities in the fields of manufacturing, industry, and mining.
- In Iran, both resident and non-resident individuals are taxed (1) on the income received from employment relationships within the territory of Iran and (2) on all other income received from sources in Iran.
- Iranian tax legislation provides for the exemption of income derived by individuals from:(1) employment relationships in free trade zones;(2) business activities carried in less-developed regions; and (3) profits derived through operating cooperative societies (e.g., rural-area, tribal, agricultural, and fishermencooperative societies).
- All salaries, wages and allowances paid to individuals (i.e., residents and non-residents working with a work permit in Iran) are subject to a personal income tax.
Personal income tax rates
- According to the new employment income tax law that came in force in March 2015, employees are exempted from taxation on employment income if their annual taxable income is less than 4.090 EUR. A 10% tax is levied on employment income amounting between 4.090 EUR and 28.600 EUR. The annual employment income exceeding 28.600 EUR is subject to 20% tax.
- Business and professional income derived by individuals are taxed following a progressive tax scheme. The maximum tax rate of 35% is applied on annual business or professional income that exceeds 32.500 EUR.
- Iran does not levy any net wealth tax.
- The tax rates of 5% and 2% are levied on the transferring of immovable real estate and goodwill, respectively.
- Inheritance and gift taxes are calculated according to a progressive tax scheme. The rates of such taxes depend on the class to which the heirs belong and on the worth of the taxable object. The inheritance and gift tax rates vary between 5% and 65%.