Foreign investment: grounds, basics and functions


Foreign investment legal system needs recognition of its aspects, basics and functions. Present paper attempts to study grounds, legal basics as well as structures and entities related to foreign investment in Iran and reveals its ambiguous aspects. Readers are expected to get familiar with legal rules and frameworks of foreigners’ investments in Iran and can achieve preliminary recognition on Iranian markets.


Foreign investment, foreign companies, the law on encouraging and supporting foreign investment, rising foreign investment, foreign investment facilities

1.Foreign investment general grounds
     1.1.Foreign investment definition
Foreign investment is to use foreign capital in activities in which the risk of capital return and its interests are borne by investor.

    1.2.;The aim of accepting foreign investment
The aim of accepting foreign investment is to help economic growth and development, to promote job opportunities, to obtain and develop technology and managerial skills and to promote the quality of products and to improve domestic exportation capacity.

    1.3.The status of Iran membership in Multiple Investment Guarantee Agency (MIGA)
The government of the Islamic Republic of Iran has become a member of MIGA and it can uses this agency’s guarantee covers based on the relevant laws and regulations for foreign investors.

    1.4.The permission of investment in Iran
Foreign investment in Islamic Republic of Iran is permitted by current domestic laws. Any foreign investor can invest for constructive and manufacturing activities in all industrial, mineral, agricultural and service fields. According to Iranian government, only those investments are encouraged and supported by legal benefits that have obtained the relevant permission by this law.

    1.5.Necessary consideration in investment
In investment permit, different items are mentioned including investment field, domestic and foreign partners, investment method, partnership percentage, foreign investment rate, how to transfer profit and interests and other conditions on investment plan.

    1.6.Authorized persons for investment in Iran
All legal and business persons, international companies, institutes and organizations as well as Iranian legal and business persons can invest in the country based on foreign investment law.

    1.7.The validity of foreign investment permit
In the first steps of issuing foreign investment permission, investor is obliged to transfer a part of its capital into the country within a certain period based on the conditions of investment proposal (4 – 6 months) determined by the Board in order to show his will to execute the plan. If the investor does not transfer a part of its capital to the country or does not extend it by convincing reasons, his investment permit is considered as void.

    1.8.How to extend the validity of investment permit
Foreign investor can request to extent his permit validity before its expiry by providing convincing reasons. The board would study extension request and if agreed, a new period will be determined for capital entry.


2.Foreign investment legal basics

     2.1. The law on supporting foreign investment in Iran
The law on supporting foreign investment in Iran or “the law on encouraging and supporting foreign investment” was approved in 2002 which is called “Foreign Investment Law”. It covers all territory of the Islamic Republic of Iran and, by this law; all foreign investors can invest in Iran and use its benefits.

    2.2.Legal and contractual frameworks of foreign investment
Foreign investment is conducted by below methods:
      (a)Investment based on legal contribution (direct investment):
Direct investment refers to the share of foreign investor in Iranian company whether incumbent or startup. The share of foreign investment in such Iranian company has no limitation and the investor can play its role in running the company based on his capital and/or share.
      (b)Contractual investment (indirect investment):
It refers to a set of methods by which using foreign capital is only based on agreements between contract parties. In other words, foreign investor’s rights are not created through his direct contribution in the capital of Iranian country; rather, it simply depends on parties’ contractual agreements. Foreign investment in the framework of contractual arrangements is possible in all sections. Capital return and achieved interests in such investments are achieved through economic performance of investment plan without any reliance upon guarantees by government, banks and governmental companies.

    2.3.Foreign investment legal advantages and supports
The most explicit rights grated to foreign investor by this law include:
      (a)Transferring capital and its interests through foreign currencies; receiving compensations due to ownership deprivation and foreign capital nationalization;
      (b)Receiving compensations on adopting governmental laws or approvals which lead into prohibition or stop of executing foreign investor’s financial contracts;
      (c)Equal treatment as same as domestic investors;
      (d)Conversion and transfer the sums from different investment contract and technology transfer through foreign currencies;
      (e)Conversion and transfer the principle and interest of financial facilities related to foreign investments;
      (f)Submitting investment dispute to international arbitration authorities;
      (g)Using foreign experts in investment project affairs;
      (h)Exportation without any commitment to return obtained foreign currencies to the country;
      (i)Keeping obtained foreign currency from exportation out of the country;
      (j)Direct access and the possibility of drawing currencies obtained from exportation from banking accounts out of the country.

    2.4.The operation of foreign companies by law
Foreign governmental companies can invest in Iran under the framework of foreign investment law and enjoy mentioned legal advantages. Legal behavior against such investments is as same as private sector investments.

    2.5.How foreign investors are protected by law
It requires obtaining investment authorization to be protected by law. Past investments not protected by law can be covered by law upon passing the conditions to generate new added value.

    2.6.The norms to accept know – how and invention registration in foreign investment
Know – how and specialized services are recognized as acceptable foreign investment types and upon appraisal by relevant ministry, it will be registered as a non-cash foreign investment.
Likewise, industrial and spiritual ownership laws including patents, signs and brands can be registered and protected by Signs and Inventions Registration Law.

    2.7.How to transfer capitals related to foreign investment
Principally, any transfer of foreign currencies whether capital items or not can be conducted by official request of foreign company and/or the joint venture or capital-taking firm on behalf of foreign investor and all transfers are payable to foreign investor upon legal reduction.

    2.8.The norms on employees’ salaries income tax in foreign investment
Income rate for employees’ salary is similar for both Iranian and foreign staff and upon legal deductions, it is calculated as 10% to 7 times of salary tax exempt and 20% for any figure above this threshold.

    2.9.How to calculate the value of imported goods
Customs value of imported goods is the value of purchasing the goods in origination plus insurance, transportation (CIF) and other costs till the entrance into the first customs office which is determined by invoice or other submitted documents by goods owner based on announced foreign currency rate by Iranian Central Bank on the date of declaration.

    2.10.Posable exempts for foreign investment
According to article 119 of customs law, the importation of production line machinery is allowed by the determination of Industries and Mines Ministry (Ministry of Industry, Mine and Commerce) through those manufacturing, industrial and mineral units by tax exempts that for whom Ministry has issued a relevant decree.

    2.11.Authorities which investigate customs disputes
The authority to investigate customs disputes in recognizing tariffs, merchandise value, penalties except than smuggling, force majeure and customs regulations is the Commission of Customs Disputes Investigation. The issued verdict is executable otherwise in cases that difference between customs and accepted by taxpayer and/or customs values for merchandise valued more than 50 million Rials for which taxpayer can ask to refer the case to Revise Commission with 20 days upon verdict communication.

3.Foreign investment structures and guideline
  3.1.The possibility of investment in economic units  
In terms of regulation on foreign investment, there is no difference between new investment and an incumbent economic unit and all foreign investors can invest in a new plan or an incumbent economic unit. However, acceptance of investment in incumbent units depends on added – value generation which can consequently lead into rising the investment, management promotion, exportation development and technology level improvement in the same unit.

     3.2.Guidelines to increase foreign investment
There are two guidelines, if a foreign investor tends to invest in an incumbent company and owns a part of its shares:
       (a)Purchasing a part of current shares by agreed price;
       (b)Contribution in increasing the capital through new shares endowment by using shareholders’ priority right

     3.3.Type of foreign currency for investment and its exchange rate
All foreign currencies accepted by Iranian Central Bank can be registered as cash capital or after being exchanged to other currencies.
Likewise, that part of cash currency which should be exchanged to Rials by the discretionary of investor can be purchased through banking system in terms of day price announced by Iranian Central Bank and its Rials equivalent can be drawn into the joint account of company.
In this vein, cash currency can be exchanged to Rials or equally it can be deposited in joint account of the company as foreign currency and used to pay the value of foreign orders or other necessary costs of the approved plan under the super vision of investment organization. Keeping the capital as currency would not only protect investor from foreign current fluctuations but also allows him/her to use it in proper time by his/her own discretionary.
The calculated foreign currency rate for foreign investors is determined by Iranian Central Bank and by law on protecting and encouraging foreign investors.

     3.4.The steps of issuing foreign investment permit
The steps to issue investment permission are too easy and short. By foreign investor’s official request from investment organization, the issue will be reported to Foreign Investment Board within 15 business days and then investment permit is issued. The needed documents include: investment application form along with other documents in this form.

     3.5.Services provided by Foreign Investment Organization
In addition to consultancy services, Foreign Investment Organization provides below services to investors:
       (a)Submitting information on all laws and regulations concerning foreign investment; introducing foreign investment opportunities in the country to potential foreign investors;
       (b)Coordination and requests from different organizations concerning investment proposals;
       (c)Finding proper domestic or foreign partners and parties;
       (d)Conducting current affairs and efforts to resolve investors’ disputes;
       (e)Planning for visits and meetings with different organizations.

     3.6.Facilities provided by Foreign Investment Organization
What kind of facilities on issuing visas for foreign investors and experts can be provided by Iranian Foreign Investment and Economic and Technical Aids Organization?
By introducing foreign investors, managers, experts and their relatives to Ministry for Foreign Affairs, Foreign Investment Organization facilitates all affairs on issuing visa including single or multiple entry visas with the validity of three years and three months residence for each entry. Those foreign investors with joint companies can apply for visa by sending the specification form of relevant individuals and clarifying the way of their residence in Iran.
According to article 35(a) of executive recipe attached to the law on protecting and supporting foreign investment and upon issuing foreign investment permission, one can issue long term visa through the request of Foreign Investment Organization which confirms that foreign organization is an investment one and by providing needed documents.
Likewise, considering article 35(a)(b) of the same recipe and based on Labor and Residence Law, long term (three-year) visa is issued for main investor and those nationals who do not have permanent job in Iran based on the request of foreign investors for their needed workforce and for those forces who plan to stay and work in projects, foreign investor would apply for work permission and residence after receiving three – month entry visa and consequent correspondences to use article 35(b) of abovementioned law.

     3.7.Residence and other facilities for foreign nationals’ investment
Upon obtaining work permission for Foreign Nationals’ Work Department of the Cooperatives, Labor and Social Welfare Ministry, foreign nationals can refer to Police and receive their working residences.
Likewise, based on article 1(a) of executive recipe attached to article 129 of Iranian Labor Law, work permission of those foreign nationals whose visas with the right of working is agreed by technical board of foreign national’s job occupation (subjected to article 121 of Labor Law) will be issued by Cooperatives, Labor and Social Welfare Ministry (Foreign Nationals’ Job Occupations units).
According to article 12(b) of executive recipe attached to article 129 of Iranian Labor Law, technical board of foreign national’s job occupation would decide on issuing work permission for foreign national upon necessary investigations.
Likewise, those employers who demand to employ foreign nationals’ services must provide foreign national’s job occupation units with relevant documents within one month of their entry in to the country.
The maximum period to issue work permission for foreign nationals is five business days.
Technical board of foreign national’s job occupation agrees three – year operation of investing companies upon needed considerations and the work permissions of foreign nationals are extended for one year upon two consecutive years.
Considered facilities for foreign investors include:
The steps of work permission issuance process are shorter than other foreign nationals. Likewise, foreign investor’s work application is discussed one time in technical board of foreign national’s job occupation and if confirmed, three – year operation of foreign investor is agreed and for the next two terms, work permission will be extended without any need to be discussed in technical board of foreign national’s job occupation.

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