All foreign investments in Iran can obtain protection under FIPPA in relation to two types of investments:
- Foreign Direct Investment in those fields that private sector activity is authorized;
§ Foreign Investment in all sectors within the schemes of “civil partnership,” “buy backs,” and “build, operate and transfer (BOT)” where the return of principal and profit arises solely through the activity of the same investment project and does not rely on any guarantee by the government, government companies or banks;
Any foreign investors can register a fully owned mainland-based subsidiary and also receive FIPPA protection for that investment (i.e. government guarantees to secure the principal investment as well as to transfer future dividends outside the country).
Under Iran’s Commercial Code (the main piece of commercial legislation in Iran which was issued in 1932. The section on joint-stock companies was significantly amended in 1969), the most common form of company in Iran is the joint-stock company, or ‘sherkat-e sahami’, in which the liability of a shareholder is limited to the capital invested in the company.
Joint-stock companies may be either public or private. For a public company, a proportion of the capital is offered to the public. For a private joint stock company, the promoters of the company subscribe for its entire share capital. A private joint stock company needs to have at least three shareholders, but it is also possible to appoint trustees to hold a minimum amount of shares to fulfill this legal obligation.
Private joint-stock companies are the most appropriate vehicles for long-term foreign investors in Iran. This type of company is attractive for foreign investors because they are regulated entities, have limited liability and offer investment security.
To set up a wholly owned foreign company (100 percent of the capital being funded by foreign investors), used to require government approval and a FIPPA license. However that is no longer the case. It should be noted that although FIPPA registration is not mandatory for foreign participation of less than 49%, the protection offered makes a strong case for voluntary registration by the foreign participant.
FIPPA is a tested mechanism for foreign investors in Iran. In its current form, FIPPA was introduced in 2002 and it has been the main basis for foreign investment during the past decade. Its predecessor (LAPFI) was heavily utilized by many foreign companies who lost their assets as a result of the 1979 Iranian Revolution or the Iran-Iraq war (1980-1988). Registration of the foreign investment with FIPPA is feasible and straight forward.
Requirements for establishing a privately held joint-stock company:
The following are the requirements for a private joint-stock company:
The minimum amount of capital required to establish a private joint-stock company is 1m IR (around €70). The registered capital will also be the ceiling for investors’ liability. Thirty-five percent of the capital must be deposited in a special bank account in the company’s name before the company seeks registration. The rest will have to be paid up by shareholders after the registration process.
Joint-stock companies must hold annual general meetings of shareholders and are required to have an annual audit, depending on the size of the activity. Auditing firms must be members of the Iranian Association of Certified Public Accountants (IACPA), and designated as official accountants. The Commercial Code requires all joint-stock companies to appoint one or more inspectors at the annual general meeting.
There is a nominal fee for registering joint-stock companies based on the authorized capital of the company. The fee is nominal and there is also a stamp duty equal to 0.2% of the capital.
Types of Shares
The Commercial Code allows for the creation of different classes of shares, such as preference shares as well as common shares. Shares may be in either registered or bearer form (even bearer shares need to be assigned to a shareholder, but can be their transfer process is easier). The shares of joint stock companies are freely transferable.
A joint-stock company must have a board of directors, consisting of shareholders or representatives of shareholders. At least two directors must be appointed. The board of directors is elected for a two-year period at the general meeting. The meeting also appoints the managing director of the company. Should a board member reside abroad, delegation of power to resident board members is permitted, but the Articles of Association of the company must authorize such delegation of power.
The registration process for a joint-stock company can take between 2 (takes 2 weeks from submission) and 4 (could take additional 2 weeks for preparations of forms) weeks and requires the following submission to the Registrar of companies:
- Translation and Articles of Association of the foreign company;
- Translation and original of declaration of registration of the foreign company;
- Translation of notice of establishment of the foreign company in the country where the company is registered;
- Translation and original agreement between Iranian and foreign company in relation to the establishment and registration of the new company in Iran. Although this needs to be in place, it does not need to be disclosed. (This is not ;
- Introduction of a single representative as a member in the board of directors who will attend general meetings of the new company, only if the foreign company also wishes to be elected as director;
- Translation and original full power of attorney with delegation rights to the representative;
- The representative’s signature and foreign company’s stamp on the new company’s registration documents; and
- The Articles of Association of the company should be divided into Persian and foreign parts. The foreign part should be signed by the foreign company’s representative and the Persian part should be signed by the Iranian partners. The Persian part is the only operative part, and the English part is only for the benefit of the foreign shareholder.
Iranian private joint-stock companies with foreign participation are often referred to loosely by the business community as “joint venture companies”.
Companies established under the Commercial Code may also be in the form of a limited-liability company (sherkatbamassouliatemahdood), which is roughly comparable to French SARLs, German GmbHs or British private companies.
The Commercial Code also governs partnerships, which include the following main types:
This is an association of two or more persons who are jointly liable for partnership debts to the extent of their entire personal wealth;
This may have two types of partners: general partners, who have unlimited liability, and limited partners, who are liable for the debts of the partnership only to the extent of their investment in the partnership; and
Proportional Liability Partnership
This is where the liability of each partner is proportionate to his capital contribution.
Although Iranians, particularly family members, often use general and limited partnerships to engage in business, these entities are not appropriate for use by foreign investors because the liability of general partners is not limited.
Establishing a Branch Office
Under a law that came into force on March 31st 1999, on condition of reciprocity, foreign companies may establish a branch in Iran for carrying out the following activities:
§ providing after-sales service;
§ carrying out contracts concluded with Iranian public or private sector;
§ conducting economic surveys and preparing the ground for investment of the foreign companying Iran;
§ co-operating with Iranian technical and engineering firms for taking up work in third countries;
§ increasing Iran’s non-oil exports;
§ providing technical and engineering services and transfer of technology and know-how; or
§ engaging in business activities that require prior approval of the government, such as transport, insurance, inspection, banking or marketing.
The Iranian branch office is the local arm of the foreign company and conducts its business activities under the name and responsibility of its head office. Branches and representative offices of foreign companies registered in Iran are required to have an annual audit. Auditing firms must be members of the Iranian Association of Certified Public Accountants (IACPA), and designated as official accountants (where appropriate).
The foreign company applying for establishment of branch in Iran should provide the following documents to the Registrar of Companies:
Written request for branch registration;
- Company’s Articles of Association and details of original registration;
- Most recent financial statements of the company;
- Report covering the following:
- company activities;
- reasons for registration in Iran
- levels of authority and branch location;
- domestic and foreign human resource requirements
- local and foreign exchange resources for running the branch;
§ Production of a reference letter from the appropriate governmental institution if there is contract with that institution;
- Declaration related to registration of foreign branch
- Approved proof of registration of foreign company;
- Authorization letter of representative or representatives of foreign company
- Letter stating that if the company’s permit is cancelled by the relevant authorities, that within the specified time period communicated by the Registrar of Companies, appropriate steps with regard to the dissolution of the branch will be taken and a liquidator introduced; and
- Subsequent to approval of all company documentation prepared in the foreign country, by the relevant authorities in that country, further approval will be required by the Iranian embassy or Islamic Republic of Iran representative in that country. The officially translated and Department of justice approved originals and copies of documents should be provided to Registrar of Companies.
The registration process of a branch office can take between 2 and 4 weeks.
Typically, the following companies have registered branches in Iran:
- Foreign oil companies have registered branches to manage their service contracts with the National Iranian Oil Company (buy back and exploration agreements)
- Foreign companies making sales to Iran of various products. These branches act as both marketing vehicles as well as after sale service coordinators where required
- Foreign banks with offices in Iran to promote relations and manage contracts between the parent and the Iranian banking system and clients
- Foreign companies wishing to establish a presence in Iran and to use the branch as means of learning more about the market, marketing, relationship building etc
Agent / Representative
According to the Commercial Code and a new law that came into force on March 31st 1999, a commercial agent is a person or company appointed by a foreign company, the principal, to transact business in Iran on the principal’s behalf. Under the law, the agent is liable for all acts done for and on behalf of the principal.
The Commercial Code does not require agents to be of Iranian nationality. However, according to Ernst &Young Tehran, the law of March 31st 1999 implies that the agent should be Iranian. Moreover, in practice, since only Iranian nationals or Iranian companies can obtain a license to import commercial goods into Iran, the representation has to be through Iranian businesses.
The principal may appoint as many agents as he wishes. Multiple agents can act either jointly or individually for a specific region, or for different regions or for the country as a whole. The goods are imported into the country in the name of the agent.
After a principal appoints an agent in Iran, the responsibilities of the two parties are recorded in an agency agreement. Such responsibilities may vary widely, and detailed legal advice is required to determine the detailed obligations of an agent and his legal liability.
Generally speaking, if the agency agreement is signed outside Iran, it will be governed by the laws of the country where it was signed. If signed in Iran, it will be governed by Iranian law. Such agency agreements must be registered with the Office of the Registrar of Companies. This could become complicated in case of potential conflicts of Law.
The remuneration of an agent is a matter of agreement between the agent and the principal. In general, an agent is paid either a fixed fee or a commission.
Foreign Investment Licensing
According to Foreign Investment Protection Act, all foreigners investor can be establish company or joining in local company with every percentage as even 100%.The foreigners investors must be get special permitted from Ministry of Economic Affairs and Finance, Organization for Investment, Economic and Technical Assistance of Iran (OIETAI). This investments are under cover of “Foreign Investment Promotion and Protection Act =FIPA”. In the other hand by new circular of (OIETAI) foreigner investors can set up entity with 100% without any permitted from governance that these entities are not under protection. The Companies Registry, after receiving the above letter, proceeded with the registration of all types of Iranian companies in which foreigners may possess up to 100% of the stocks. Under FIPPA, application procedure for investment licensing is designed in a very short and simplified manner.