New changes and amendments applied to Iran tax law

How recent changes to tax law affect foreign companies

The Amendment to Iran Direct Tax Law was finally published in the official gazette in August 2015 and shall become applicable from next Iranian year (21st of March, 2016). The amendment includes changes which could significantly affect foreign investors in Iran positively. The law also intends to result in more clarity and less tax evasion.

Below we have attempted to list some of the most important changes from foreign companies point of view:

I. Regarding the Tax on rental income under revised art. 54, where the lessee is a company, the income subject to tax shall be calculated based on the actual rent being paid by the lessee company and the referred company shall deduct the applicable tax from any payment to lesser.

II. As per art. 107, Material and equipment are exempted from tax deduction in following circumstances :

a- Local purchases of material and equipment up to gross amount of acceptable invoice.

b- Foreign purchases up to the value of equipment and material mentioned in Green Certificate issued by customs office.

If the value of Materials and equipment is not separately determined under the Contract and/or its amendments, the whole contract value will be subject to tax deduction.

III. Where a foreign company appoints Iranian subcontractors, the segment of contract price, in the main contract, pertaining to procurement of goods and equipment, which is then subcontracted to Iranian subcontractor, will be exempted from income tax.

IV. The branches and Agents of foreign companies who are solely doing marketing and collection of economic data for their mother company, without any right to enter into transaction on the latter’s behalf, are exempt from tax for that part of their money they receive from the mother company to cover their costs.

V. The taxable gross revenue for the foreign contractors defined in this regulation is based on the location of the services performed and the nature of services provided.

VI. All the ratios mentioned in the attached regulation will be multiplies by 25% as per article 105, for determination of withholding tax (WHT) rate for Foreign Companies. For instance, for the training services the taxable revenue will be calculated as follows :

Total received revenues as per the gross amount of invoices * (15% * 25%) which means the applicable rate is 3.75%.

VII. Also WHT as per article 104, (WHT for Iranian registered companies) is totally removed from direct tax law which means 3% WHT deduction for Iranian companies is not applicable as of 20 March 2016.