All foreign investors doing business in Iran or deriving income from sources in Iran are subject to taxation. Depending on the type of activity the foreign investor is engaged in, various taxes and exemptions are applicable, including profit tax, income tax, property tax, etc. The Ministry of Finance and Economic Affairs is the government agency authorised to levy and collect taxes.
According to the Economist Intelligence Unit, Iranian taxation laws are highly complex and inconsistently applied. Iranian taxation generates particular unease among foreign firms because they appear to be arbitrarily enforced – tax bills are initially based on 'assumed earnings' calculated by the Finance and Economy Ministry according to the size of the company and the sector in which it operates. Factors such as the quality and location of a company's offices are also widely believed to have an impact on tax assessment.
Income tax exemptions are available to new factories established in special areas, and last from four to eight years, from the first day of operations. In addition, 20% of the reported profit of all manufacturing, mining, assembly plant and related engineering companies are exempt from income taxes. Tax incentives, meanwhile, are available to manufacturing, mining, agricultural activities, exports and investment in special areas
Tax Rates for Resident Companies
The Law Amending Certain Articles of the Law of Direct Taxation which was passed by the Iranian Majlis (parliament) on 16 February 2002, came into force on the first day of the current Iranian year of 1381 (starting 21 March 2002). All companies with their fiscal year starting 21 March 2002 will be subject to the new tax rates and regulations.
The total income of companies and other legal entities, earned from their profitable activities in Iran or abroad, shall be subject to a flat rate of 25% after deduction of the losses and exemptions.
All contracting work performed by foreign contractors, whether or not the company is registered in Iran, is taxed. For contracts signed before March 21st 2003, gross taxable income is calculated as gross contract receipts less the cost of imported material. Income is then taxed at 12% of gross taxable income less contract retention. For contracts signed after March 21st 2003, taxable income is the gross contract receipts less contract expenses. Income is taxed at 25% less 5% taxes withheld at source.
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