Foreign investors try to tap into Iran

A few investors are racing to establish funds for       Iran following nuclear deal with world powers, and many others are       tapping into multinationals already present in the $400 billion economy.

We conduct interview with Foreign investment       specialist to answer questions that our readers have in their mind.  

Is Foreign Investment permitted in Iran?

Foreign       investment is permitted in accordance with the prevailing laws and       regulations of the Country. All foreign investors are permitted to       invest, for the purpose of development and producing activities, in all areas       of industry, mining, agriculture and services. However, from the       standpoint of the Iranian government, only those investments shall be       eligible to enjoy the privileges and protections under the Foreign       Investment Promotion and Protection Act (FIPPA) that have obtained the       required license under the FIPPA.

What objectives are to be achieved by foreign investment?

The       main objectives are:
      • Enhancing economic growth;
      • Increasing employment opportunities;
      • Access to and development of new technologies and managerial skills;
      • Upgrading quality of products and boosting export capabilities.

Under what legal or contractual framework, foreign       investment may be admitted in Iran?      

Foreign       investment in Iran is admitted under all forms of legal participation (Foreign       Direct Investment) and/or contractual arrangements. By contractual       arrangements we mean all forms of project financing methods within the       framework of civil participation, buy back arrangements, and different       types of Build, Operate and Transfer (BOT) schemes.

How do you define foreign investment?

Foreign       investment is defined as employment of capital in an activity in which a       level of risk involved.FIPPA classified foreign investment under two       broad categories :
      a) Legal participation (direct investment): is defined as a direct       involvement of a foreign investor in the equity capital of a new or       existing Iranian company. There is no restriction on the level of       shareholding as well as percentage of shares belonging to foreign investors       in Iranian companies. The right of foreign investor to run and control a       company emanates from and is dependent upon his direct contribution in       the equity capital of the concerned company.
      b) Contractual arrangements: is defined as a set of mechanisms under       which the utilization of foreign capital is solely based on agreements       reached by the parties to a contract. In other words, the rights of the       foreign investor is not yielded with his direct participation in the       capital of the recipient Iranian firm, but through the arrangements       agreed upon under a contract. This type of investment may be carried out       in all sectors of economy. Under contractual arrangements, the return of       capital and accrued profits have to be sourced only out of the economic       performance of the project in which the investment is made without being       dependent upon a repayment guarantee by the government, by the banking       system as well as state owned companies.

In what sectors foreign direct investment is permissible?

Foreign       direct investment is permissible in all areas open to Iranian private       sector.

What legal structure do you recommend for foreign       investment?

There       are seven types of juridical entity or company which can be established       under the Iranian Commercial Code. From among all these different types,       Joint Stock Company, in which the capital is divided by shares, is the       most common and acceptable type of company which can be recommended to       foreign investors (For further information please refer to       "Establishing a Joint Stock Company in Iran" published by       OEITAI

Is it obligatory to have local partner(s)?

Of       course not. It is by no means obligatory to have local partner, but in most       cases foreign investors themselves are willing to take advantage from       their local partners for the reason that they are more familiar with the       business environment, regulatory and administrative requirements and       opportunities locally available.

.Is there a ceiling for foreign investment in Iran?

There       is no minimum and maximum for foreign investment in respect of percentage       of shareholding, nor is any restriction on the amount of investment for       foreign investment in Iran.

If there is no restriction imposed in Iran, then what       message a prospective foreign investor should get from the ratios of 25%       and 35% referred to in Para (d) of Article (2) of FIPPA?

The       ratios referred to in the said Para have nothing to do with the       shareholding percentage of foreign investors in a single investment case.       As formerly explained, no restriction with respect to the ceiling of       foreign participation is imposed in Iranian companies. In fact, these       ratios illustrate the proportion given to the value of goods and services       produced by foreign investment in the global economy in each sector and       subsector respectively, verified at the time of issuance of the foreign       investment license (i.e., value of foreign products in GDP).

Is foreign investment permissible in oil and gas upstream       activities?

Foreign       investment in oil and gas upstream activities within the framework of       contractual arrangements is permissible, but Foreign Direct Investment (FDI)       in such areas is not permitted

Is it permissible to use foreign trade marks and names in       foreign investments?

Application       of trade marks and names is permissible in all areas of economic       activity.

Is foreign investment allowed in companies quoted in the       Stock Exchange Market?

There       is no restriction for investment in companies quoted in the Stock Market.       Foreign investment in these companies are eligible to enjoy the       protections available under FIPPA, in the same manner as is available to       foreign investment outside the Stock Market .

How do you define Special Economic Zones in Iran and in       which areas of the Country these so-called zones have so far been       established?

Special       Economic Zones are restricted customs areas in which import of goods,       machinery and equipments is not subject to the general import/export       regulations. The zones may have been established for different reasons       and objectives. Some of them are established for the purpose of       warehousing whereas some, in addition to warehousing of goods, are       designed for setting up processing and production line. At present the       number of Special Economic Zones reaches to 17 (For more information       please refer to website www.freezones.ir) .

Is there any difference between investments made in Free       Trade Industrial Zones, Special Economic Zone and the mainland?

Investment       in Free Zones is subject to especial regulations governing such investments.       Iranian Free Zones at present comprise six areas by the name of Gheshm,       Kish, Chahbahar, Arwand, Aras and Bandar Anzali. Areas known as Special       Economic Zones are part of the mainland in which all investments are       considered to be investments in the mainland. Taking into consideration       the applicability of Foreign Investment Law to the territory of the       Islamic Republic of Iran, all foreign investments realized in Free Trade       and Industrial Zones may also enjoy the privileges of FIPPA, provided that       the relevant formalities for obtaining the investment license have been       followed .

What is meant by the terms Iranian Company and Foreign       Company, from the standpoint of Iranian laws and regulations?

The       term Iranian Company refers to a company incorporated and registered in       Iran according to Iranian Commercial Code, even if a hundred percent of its       shares or stocks belong to foreign natural or juridical persons. The term       Foreign Company refers to a company incorporated and registered outside       Iran.

Is it possible for foreign companies to establish legal       bases in the form of branches or representative offices in Iran?

Of       course yes. Any foreign company, for the purpose of expanding its commercial       activities, performing its contractual obligations, carrying out       marketing activities, etc. may establish a legal permanent base in the       form of branch or representative office in Iran. For establishing a       branch or representative office certain procedure should be followed       under the Law for Establishing Branches and Representative Offices. For       this purpose the applicants are advised to refer to the General       Directorate for Registration of Companies and Industrial Property.

Is the establishment of branch or representative offices       considered as foreign investment?      

Establishing       a branch or representative office is not considered as foreign       investment. In fact, foreign investment can be realized by way of       establishing a new Iranian company, participation in an existing Iranian       company and/or entering into contractual arrangements with Iranian       recipient entities

What are the features of Industrial Estates and what       facilities are available in those areas?

Industrial       Estates are prefabricated Estates designed and constructed by the Industrial       Estates Company of Iran, affiliated to the Ministry of Industry and       Mines, readily available for investors in all industrial poles throughout       the Country. Even in certain Estates, factories and industrial workshops       are offered for purchase. The important feature of these estates is       availability of infrastructural utilities such as water, power, gas,       telephone and quick access to the main transportation network of the       Country.

In what sectors foreign investment under contractual       arrangement is permissible?      

Foreign       investment under contractual arrangement is permissible in all sectors of       economy. However, foreign investment in sectors reserved for the       Government may only be carried out under contractual arrangements.