Country Name: Islamic Republic of Iran
Currency: Iranian Rial (IRR)
Primary Tax Authority: Iranian National Tax Administration (INTA)
Key Legislation:
- Direct Taxation Act
- Value Added Tax (VAT) Law
- Customs Law
- Corporate Income Tax Law
Fiscal Authority Allocation
Centralized Fiscal System:
Iran operates a centralized tax system, with the Iranian National Tax Administration (INTA) responsible for administering and collecting taxes, including corporate income tax (CIT), personal income tax (PIT), and VAT. Local authorities have limited involvement in tax administration.
Corporate Income Tax (CIT)
Standard Rate: 25%
Iran imposes a corporate income tax rate of 25% on the net taxable income of resident companies. Non-resident companies are taxed only on Iran-sourced income.
Corporate Forms and Taxation:
- Domestic Companies: Subject to the 25% CIT rate on worldwide income.
- Foreign Branches: Taxed at the same CIT rate on Iran-sourced income only.
Exemptions and Incentives:
- Free Zones: Companies operating in designated free trade and industrial zones, such as Kish Free Zone and Qeshm Free Zone, benefit from tax exemptions on corporate profits for 20 years.
- Special Economic Zones (SEZs): Companies in SEZs may receive reduced CIT rates, customs duty exemptions, and other fiscal benefits.
Goods and Services Tax (GST) / Value-Added Tax (VAT)
Standard Rate: 9%
Iran applies a VAT rate of 9% on most goods and services. VAT is levied on the sale of goods, provision of services, and imports.
Exemptions:
Basic goods such as foodstuffs, medical supplies, and some agricultural products are exempt from VAT. Additionally, certain financial services, education, and healthcare services are VAT-exempt.
Personal Income Tax (PIT)
Progressive Rates:
Iran applies a progressive personal income tax system for both residents and non-residents:
- Up to IRR 42,000,000 (approximately USD 1,000): 0%
- IRR 42,000,001 to IRR 150,000,000 (USD 1,000 to USD 3,500): 10%
- IRR 150,000,001 to IRR 250,000,000 (USD 3,500 to USD 5,800): 15%
- IRR 250,000,001 to IRR 350,000,000 (USD 5,800 to USD 8,200): 20%
- Above IRR 350,000,001 (over USD 8,200): 25%
Additional Mandatory Contributions
Social Security Contributions:
Employers and employees must contribute to the Iranian social security system, which covers pensions, unemployment, and healthcare benefits.
- Employer Contribution: 23% of gross salary.
- Employee Contribution: 7% of gross salary.
Withholding Taxes
- Dividends: 0%
- Interest: 0%
- Royalties: 5% on payments made to non-residents.
Iran imposes a 5% withholding tax on royalties paid to non-residents. There are no withholding taxes on dividends and interest payments.
Transfer Pricing Rules
Iran follows the OECD guidelines for transfer pricing, and related-party transactions must adhere to the arm’s-length principle. Companies engaging in cross-border transactions with related parties are required to maintain documentation proving compliance with the arm’s-length standard.
Special Tax Regimes
- Free Trade Zones (FTZs): Companies in Iran’s free trade zones benefit from a 20-year tax exemption on corporate profits, 100% foreign ownership, and customs duty exemptions. Popular FTZs include Kish Island, Qeshm, and Chabahar.
- Special Economic Zones (SEZs): Companies operating in SEZs are eligible for various tax incentives, including reduced CIT rates, exemptions from customs duties, and simplified regulatory processes. SEZs focus on industries such as manufacturing, logistics, and technology.
Other Taxes
- Customs Duties: Import duties are levied on goods brought into Iran, with rates varying depending on the type of goods. Essential goods, such as food and medicine, may benefit from lower rates or exemptions.
- Excise Taxes: Iran imposes excise taxes on specific goods such as tobacco, alcohol (for non-Muslims), and luxury items.
- Wealth Tax: Iran does not impose a formal wealth tax; however, property taxes and inheritance taxes apply, with inheritance taxed at rates ranging from 5% to 35%, depending on the relationship between the inheritor and the deceased.
Double Taxation Agreements (DTAs)
Iran has signed more than 50 double taxation agreements (DTAs) with various countries, including Germany, China, France, and India. These agreements help prevent double taxation on cross-border income and reduce withholding taxes on dividends, interest, and royalties.
Local Taxes
Local authorities in Iran do not impose separate taxes. All tax collection and administration, including CIT, PIT, and VAT, are handled centrally by the Iranian National Tax Administration (INTA).
Compliance and Reporting
Annual Filing:
Companies are required to file annual corporate tax returns within four months of the end of their fiscal year. Personal income tax returns are due by the end of July each year for salaried employees. VAT returns must be filed on a quarterly basis.
Penalties for Late Filing:
Penalties for non-compliance or late filing include fines and interest on unpaid taxes. The standard penalty for late tax payments is 2.5% per month on the unpaid amount.
Recent Developments
Tax Modernization Efforts:
Iran has been working to modernize its tax system and improve tax collection through digitalization and the implementation of stricter compliance measures. These efforts include enhanced VAT enforcement and the introduction of transfer pricing regulations to better align with international standards.
Expansion of Free Zones:
Iran continues to promote foreign investment in its free trade and special economic zones by offering extended tax holidays and customs duty exemptions. The government is actively seeking to attract investors in sectors such as manufacturing, logistics, renewable energy, and technology.
Sanctions and International Relations:
Iran remains subject to international sanctions, which impact its ability to engage in global trade and finance. However, the government is exploring alternative markets and trade relationships to mitigate the impact of these sanctions, particularly with China, Russia, and regional partners.
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