(Last updated: 2 Jul 2011)

Business etiquette

Business tips

Iran is an Islamic Republic and as such presents local customs and standards of behaviour which differ greatly from those of Australia. These Islamic standards are to be adhered to not only to ensure acceptability in a different environment but also because these are legally enforceable. Non-observance can result in criminal charges being laid.

Iranians are very formal and it will take several meetings before a more personal relationship can be established. This is particularly true for government officials, representatives of state controlled companies and foundations.

Negotiations will be long, detailed and protracted.

Tenders are strictly required for government contracts for purchasing or projects. These are rarely competitive. Breaking up contracts into smaller parts is a common practice to try and incorporate local capability and also to negotiate on specific prices. It is recommended to maintain a package approach.

Many approaches by state companies and organisations are aimed at obtaining information to be used in negotiations with a preferred supplier.

Shaking hands with male counterparts and the exchange of business cards is the usual form of introduction. Shaking hands with women is forbidden.

Tea, fruit and/or cakes are served at any meeting and you are encouraged to sample.

With local agents and Iranians working with foreign companies who have had a greater exposure to Western norms cultural differences are less constraining.

Government employees will only attend 'dry' functions and usually only if they are held in a neutral environment, eg. a restaurant.

Although ties are not worn by Iranian men, the usual business attire for foreigners is a suit and tie when attending meetings and receptions. Women must wear an ankle length overcoat (ropoush) and headscarf (hejab) at all times in public. However, in some major cities these regulations are becoming more relaxed and today’s norm is served by an all-purpose outerwear knee-length coat. Shorts are not allowed.

Exchange of gifts is a tradition among private sector business people.

Alcohol is prohibited. You cannot legally import nor consume alcohol in Iran.

Tariffs and non-tariff barriers

Tariff

Iran follows the Harmonized Commodity Description and Coding System for classification of goods subject to import duties. Customs duties and beneficiary taxes are levied on most imported goods. Duties are mainly ad valorem and assessed on a CIF (Cost, Insurance, Freight) value basis (Incoterms 1990).

Capital goods and raw materials imported for foreign investments may be exempted from normal duties; similarly medicines, wheat and other strategic goods are exempt from duties. However, most imports are subject not only to licensing fees and tariffs, but also to local taxes.

Exchange control authority is vested in the Central Bank (Bank Markazi). All foreign exchange transactions must take place through the Central Bank or authorised banks.

Specific duties are levied on a net weight basis.

Following is an indicative listing of tariff rates:

• chemical products – 10 percent
• ordinary metals –10 percent
• measurement instruments –10 percent
• medical equipment – 10 percent
• food industry – 15 percent
• mining raw production – 15 percent
• leather industry – 15 percent
• paper and wood fabrics – 15 percent
• mechanical machinery – 15 percent
• agricultural raw production – 25 percent
• electric machinery – 25 percent
• automotive vehicles – 100 percent

Wheat and other strategic goods are exempt from duties. Earnings resulting from the transit of commodities through Iran are fully exempt from taxation provided that the commodities in question do not undergo any modification.

A General Guide on Iranian Customs/Tariff Information, including details of general import licenses requiring the approval of relevant Ministries (eg. Ministry of Health for pharmaceuticals) is also available on online for reference purposes. The Iranian importer is responsible for arranging the appropriate license approval.

Export regulations are governed by the Export - Import Law. The Pricing Committee is the body responsible for assessing export tariffs. Customs clearance forms are required for the export of goods.

Customs authority contact details:

President of the Customs Administration of the Islamic Republic of Iran
Vali-e-Asr Avenue
PO Box 6369
Tehran 14155
Tel: +98 21 8890 4201/2
Fax: +98 21 8889 0893

Non-tariff barriers

All shipments and correspondence must be addressed to Iran, Persian Gulf. The term 'Arabian Gulf' must not appear on the consignment itself or on any accompanying shipping documents.

Import restrictions

Permitted items no longer require specific approval from the Ministry of Commerce.

Only registration by the Ministry is required. Authorisation from one or several Ministries is required for the import of various specified items.

The import of luxury or non-essential products and services are restricted. Regulations favouring local production have been enacted where possible:

• All foreign suppliers of equipment and machinery must have official representation in Iran.
• Imports of cigarettes, tobacco, cigars, cigarette paper, cigarette tips and silkworm eggs are subject to government monopoly.
• Imports to Iran valued at more than IR500,000 must undergo pre-shipment quantity and quality inspection in their country of origin by an internationally recognised inspection organisation. Goods exported to Iran must be subject to invoices authenticated by the Iranian Embassy and by a nominated Chamber of Commerce operating in the supplier's country.
• Survey and certification must take place prior to consignment in the country of origin.

Product certification, labelling and packaging

Labelling

In addition to carrying the usual information, the labels should indicate the gross weight of the shipment, its country of origin and the trade name and mark of the manufacturer.

Special labelling regulations apply to foodstuffs, cosmetics and pharmaceutical products intended for medical and veterinary purposes. It is recommended (and some cases required by law) that labelling and instructions for use be written in the Farsi (Persian) language.

Special certificates

Importation of plants, seeds, and live animals require authorisation from the Ministry of Agriculture Jihad. Animals, plants and their products also require health certification issued by an approved authority in the country of origin.

The importation of foodstuffs, medical equipment, pharmaceutical and cosmetic products require test certificates and authorisation from the Ministry of Health. A certificate of free sale issued by competent authority proving that the product is allowed to circulate in its country of origin may also be required. In Australia the issuing body is generally either the Therapeutic Goods Administration or the National Registration Authority for Agricultural and Veterinary Chemicals.

Imports of computer software and hardware are subject to authorisation by the High Council of Informatics. The import of broadcasting equipment requires a special permit issued by the Ministry of Information and Communication Technology-ICT (new name for the Ministry of Post, Telegraphs and Telephone).

Imports of tyres must be accompanied by an authenticated certificate issued by the manufacturer certifying that the product specifications meet the industry standards.

Importers' instructions must be followed if other certificates are required.

Supplier's certificate - the importers' instructions should be followed if a supplier's certificate is required.

Packaging

Goods should be securely packed, in consideration of their nature, the chosen means of their transportation and the climatic conditions likely to prevail during transit and delivery.

Packing material used to secure the shipment, including tape and labels will be prohibited entry if they bear a foreign trademark.

Methods of quoting and payment

Quotes should be CIF and FOB (Incoterms 2000) and formulated in Euro unless otherwise stipulated. Payments are usually by ILC, but more often on Usance (differed payment) of 180-360 days.

The Iranian Central Bank is the ultimate arbiter in all foreign exchange transactions.

Iranian banks are not allowed to confirm letters of credit. Suppliers requiring confirmation should be able to arrange this independently through their banks.

Documentary requirements

All documents must be attested by a member of the State Chamber of Commerce and the signature subsequently authenticated by the Embassy of the Islamic Republic of Iran in Canberra. There are some exceptions to this requirement; further information could be obtained from the Embassy.

Pro-forma invoice

A minimum of four copies of the pro-forma invoice will be needed by the importer for him to apply for the necessary import authorisations and for the establishment of the required documentary letter of credit. Confirmed irrevocable letters of credit are preferred.

Counter trade arrangements, especially involving oil, are becoming increasingly popular.

Pro-forma invoices signed by the importer and accompanied by a translation in Farsi, must be submitted to an approved bank. A copy of the invoices must also be sent to the Central Bank, who will examine the order for essentiality and price.

The pro-forma invoice must include the following information:

• invoice date and number
• itemised description of goods, quantity, unit price and total amount for each item specified
• total FOB (Incoterms 2000) amount
• freight charges and the total C&F amount (Incoterms 2000)
• tariff number(s)
• gross and net weight
• packing specification
• country of origin
• validity terms and conditions
• payment and expected time of delivery

The pro-forma invoice should also contain an affidavit bearing the following statement: “This is to certify that this pro-forma invoice is correct and the prices quoted are in accordance with market prices. We confirm that there is no other transaction between us and the purchaser with regard to this pro-forma invoice.”

Commercial invoice

Four copies are required. The invoice should indicate:

• invoice date
• invoice number
• name and address of buyer and seller
• pro-forma invoice
• order or contract number
• quantity and description of the goods
• weight of the goods
• number of packages
• shipping marks and numbers
• terms of delivery
• payment and shipment details
• L/C number
• Iranian customs tariff number
• itemised costing details (per unit and total)
• insurance and freight charges

Commercial invoices must bear the following signed declarations:

“We certify this invoice to be true and correct and in accordance with our books, also that the goods are of ................. origin. We hereby certify that the prices stated in this invoice are the current export market prices for the merchandise described therein and we accept full responsibility for any inaccuracies or errors therein.”

In cases where the preceding declaration would not be suitable, the following declaration should be used:

“We certify that the prices quoted in the present invoice are correct and represent the amount to be paid in respect of commodities referred to therein, and no extra payment in cash or kind and no special discounts except those referred to in the invoice have been made. We hereby assume and accept full responsibility for this statement.”

Certification by a recognised Chamber of Commerce (see 'Guidelines', section 2.3) and authentication by the Embassy of the Islamic Republic of Iran may be required under the terms of the letter of credit.

Certificate of origin

Three copies are required and usually certified by a Chamber of Commerce. When specified, authentication by the Embassy of the Islamic Republic of Iran is required.

Bill of lading

Four copies are required, which must indicate: the port of departure and destination, and two copies of the bill of lading should be sent to the importer's bank.

Packing list

Six copies are required, evidencing shipment of goods.

Public health requirements

Imports of live animals, seeds, plants or parts thereof must be covered by a health certificate issued by an approved authority in their country of origin. In Australia, this is usually the Australian Quarantine and Inspection Service (AQIS), the Commonwealth Department of Agriculture, Fisheries and Forestry-Australia or the relevant state department of agriculture.

Imports of animals, seeds and plants also require prior approval from the Iranian Ministry of Agriculture Jihad.

Imports of foodstuffs, medical equipment, pharmaceuticals and cosmetic products require test certificates and authorisation from the Ministry of Health.

A certificate of free sale may also be requested (see 'Special certificates').

Imports of saccharine and foods containing saccharine is generally prohibited.

Insurance

Insurance cover must be arranged through one of the Iranian state-owned insurance companies. Obtaining insurance cover is normally the responsibility of the importer.

Weights and measures

The metric system is used throughout Iran.

Taxation

In general, all individuals are liable to pay taxes on income earned in Iran.

Taxes apply to:

• The income of Iranian citizens and residents’ earned overseas.
• The income earned in Iran by Iranian citizens residing overseas.
• Income earned by foreign entities operating in Iran or overseas and derived from the granting of concessions and/or rights in Iran; and/or from the provision of training and/or technical assistance in Iran.

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.

It is essential that expert advice be sought when drawing up contract documentation and that taxation matters be clarified as much as possible. It should be noted that exit visas and capital transfer authorisations are only granted upon presentation of evidence of income tax clearance.

The government is currently reviewing its taxation system with a view to reducing corporate taxation levels and simplifying the taxation administration but the process is slow, and foreign firms continue to face considerable uncertainty.

Personal income taxes are set with little reference to actual earnings, but are instead determined in large part by the nationality of employees and the firms for which they work. From these and other factors, tax inspectors determine how much they believe employees are likely to earn, and tax them accordingly. There is a process of appeal and negotiation, but it is slow and cumbersome.

The 2002 amendment to the Taxation Act (the Amendment) approved in February 2002 was significant. Some of the changes affecting the activities of Iranian and foreign corporate entities as well as the expatriate employees are summarised below:

Corporate tax

A new flat rate corporation tax of 25 per cent payable on the profits of corporate commercial entities has been introduced. This rate replaces the old corporation tax of 10 per cent and progressive rates of income tax (12-54 per cent) on reserves and distributable income. Apart from the 25 per cent corporation tax and the 0.3 per cent Chamber of Commerce tax no more taxes will be payable by the corporate entity or the shareholders.

The new rate of corporation tax will also apply to joint venture corporate entities registered in Iran. The tax incidence will therefore be on the corporate entity and not on the shareholder. The calculation of the tax has been simplified.

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 per cent less 5 per cent taxes withheld at source.

Taxation of foreign companies

The Tax Act had divided the source of income earned by foreign companies either direct or through their branches in Iran into three main categories:

• Income earned in Iran by way of contracting operations
• Income earned from Iran by way of royalties and licensing fees
• Other activities - trading operations, etc

The Amendment has introduced certain changes in the tax treatment of the above activities.

Income from royalty and licensing fees received from industrial and mining companies, government ministries and municipalities, and income from film-screening rights are subject to a deemed taxable coefficient on income of 20 per cent. All other income from royalties and licences from foreign companies is subject to a deemed taxable coefficient on income of 30 per cent. The coefficients are based on the standard corporate tax rate of 25 per cent, so that the effective tax rate is either 5 per cent or 7.5 per cent.

Note: The amendment has removed the confusion surrounding 'technical assistance contracting' by including 'technical assistance' and 'transfer of technology' in contracting operations subject to tax on the basis of 12 per cent of annual fees.

Other income earning activities of foreign branches will be subject to taxation on an actual basis, ie. based on their income tax return as filed and supported by their statutory accounting books.

Expenses incurred in Iran by Iranian registered branches and representative offices of foreign companies that are not authorised by their head offices to engage in any trading activity but are only authorised to conduct marketing and market research in Iran are tax deductible upon presentation of receipts from their head office.

Taxation of salaries and wages

The Amendment has substantially reduced the rates of taxation on individual salary earners (including expatriate employees). It must be noted that all allowances and the '30 per cent absorption allowance' have been repeated. The tax is calculated on an annual basis, deducted from the gross monthly salary and paid to the tax authorities within 30 days by the employer. Late payments incur penalties.

The tax free allowance and the taxation rates since February 2002 are as follows:

• Annual salary up to Rials 23,40,000; exempt from tax.
• Annual salary over Rials 23,400,000 to Rials 30,000,000; tax shall be computed at the rate of 15% of the amount exceeding Rials 23,400,000.
• Annual salary over Rials 30,000,000 to Rials 100,000,000; tax shall be computed at the rate of 20% of the amount exceeding Rials 30,000,000.
• Annual salary over Rials 100,000,000 to Rials 250,000,000; tax shall be computed at the rate of 25% of the amount exceeding Rials 100,000,000.
• Annual salary over 250,000,000 to Rials 1,000,000,000; tax shall be computed at the rate of 30% of the amount exceeding Rials 250,000,000.
• Annual salary over Rials 1,000,000,000; tax shall be computed at the rate of 35% of the amount exceeding Rials 1000,000,000.

Share transfer tax

The Amendment has changed the regulations regarding calculation of tax on transfer of shares and their rights in Iranian corporate entities.

In the case of shares listed on the Tehran Stock Exchange (TSE) the tax on transfer of such shares and other rights is 0.5 per cent of the sales price. No other taxes are payable.

In the case of transfer of the shares and their rights to other corporate entities (ie. those not listed on the TSE) a flat rate of four per cent of value of the shares and rights transferred applies. No other taxes will be charged. The Amendment has removed the requirement to value the shares in this category.

Tax Exemption - Major changes

The exemptions on exports of manufactured and agricultural goods remain in force, but an ambiguity has occurred in the Amendment regarding exemptions extended to the public sector (Iranian Government owned entities).

Government owned enterprises and their shares in the private sector entities were excluded from all exemptions granted under the Tax Act. This exclusion has been removed from the relevant texts in the Amendment.

Until clarification is provided, it is not certain whether or not the government minority shares in the private sector manufacturing, mining and exports activities would enjoy the exemptions granted.

The 50 per cent tax exemption previously granted to tourism enterprises has been extended to include five-star hotels.

Losses

Losses sustained by all taxpayers engaged in trading and other activities, who are required to keep proper books of account, provided they are accepted by the tax authorities; will be carried forward and written off against future profits without any limitation.

Appeals procedure

It is noteworthy to point out that the Amendment has removed the second stage of appeal process. Appeals to the High Council of Taxation could only be made on questions of non-compliance with the provisions of the Tax Act rather than questions of fact.

Official accountants

The Amendment has for the first time after 1979 reintroduced the concept of the tax audit to be undertaken by 'official accountants' and their designated firms. The taxpayer or the tax administration can choose to appoint an official accountant or a designated firm of official accountants to examine his records and report to the tax authorities.

Municipal tax

This tax only applies to companies, which are subject to a municipal tax at the rate of three per cent of their taxable income.

Tax exemption for approved projects

Austrade works in conjunction with the Australian Taxation Office ('ATO') to administer the income tax exemption available under section 23AF of the Income Tax Assessment Act 1936 ('Tax Act').

Section 23AF should assist the international competitiveness of Australian companies and governmental organisations competing to win international tenders. Further information is available.