World  Business and Economic Analysis 



The employment income of employees in both the public and private sectors is taxed at progressive rates ranging from 0 to 20% after deducting a basic annual exemption (i.e. IRR 138 million – for the calendar year starting on 21 March 2015 and ending on 20 March 2016) as presented below:


 Salary Tax Rates


annual taxable income


Up to




Up to



10% of the excess over




20% of the excess over


The following income is specifically exempted from income tax on salaries:


1) Salaries of foreign diplomats, embassy staff, etc. (subject to reciprocal treatment) and non-Iranian members of UN delegations and specialized agencies;

2) Salaries of foreign experts sent to Iran on aid programs;

3) Salaries of local employees of Iranian embassies, consulates, etc. subject to reciprocal treatment;

4) Pensions, retirement allowances and termination of employment payments;

5) Service-related travel expenditure and allowances;

6) 50% of the salary tax of employees working in villages and deprived regions;

7) Housing, on-site accommodation, food and transport allowances and other non-cash benefits provided for manual workers;

8) Compensation from medical insurance, accident insurance, etc;

9) New Year bonuses and year-end allowances up to a maximum of one twelfth of the base annual allowance;

10) Housing provided for civil servants;

11) Employees’ medical expenses met by employers;

12) Salaries paid to members of the armed forces, Intelligence Ministry employees, war veterans and former prisoners-of-war; and

13) Non-cash allowances provided to employees up to a maximum of two twelfth of the base annual allowance.


Note that the term “base minimum salary” refers to a minimum salary under the Labor Code. The amount is reviewed annually by the Ministry of Economic Affairs and Finance.


In practice, the employment income of foreign workers has often been subject to tax on the basis of a notional scale of remuneration rather than by reference to the actual employment contract. On 11 May 1998, a directive was issued requiring expatriate workers to pay income tax on the total salary, allowances, and benefits earned during the employment period in Iran with effect from 22 June 1998.


Expatriate employers are now required to submit full details of the remuneration of their expatriates, plus details of any tax withheld and copies of the relevant employment contracts to the local tax district within 2 weeks of a request by said tax district. The report requires completion of a special specified form, which must be signed by both employer and employee. In the case of non-resident foreign employers, the expatriate is required to supply the information within 2 months of the start of employment.


The employment contract must reflect all the benefits included in the employment package. The contract must also be:


1) authenticated by the employer’s head office; and

2) verified by competent government authorities and by the Iranian embassy in the country where the employer’s head office is located.


Failure to comply may lead to a tax assessment initially on a presumptive basis using specified notional pay scales. If the tax assessed on the presumptive basis later proves to be less than the tax due on the actual remuneration, the additional tax will be assessed and penalties shall be imposed. Tax will be refunded, if the actual remuneration proves to be less than the notional figure.


The Council of Ministers also passed a resolution on 17 December 2000, unifying the basis of expatriate salary charges, exchange rates of the contract, withholding taxes and compensation for increases in statutory charges. As a result, the following were implemented:


1) The salary tax and work permit charges of expatriates are now computed based on the salaries and fringe benefits reported in the employment contract. The employer is required to report such amounts to the tax authorities, and to the Ministry of Cooperatives, Labor and Social Welfare;

2) If the expatriates salary and fringe benefits are not specifically mentioned in the employment contract, the basis for computing the salary tax and work permit charges will be via a "unified list" which is to be prepared by the Ministry of Cooperatives, Labor and Social Welfare together with the relevant ministry or employer. This list must also be approved by the Council of Ministers; and

3) The exchange rate to be used when computing the tax and work permit charges is the rate stipulated in the employment contract unless the employer purchases the hard currency at a different rate, in which case the actual rate will be used.


No expenses are specifically listed as deductible in arriving at income subject to the tax on salaries. Direct Taxes Act does, however, provide for the general deductibility of two categories of expenditure in arriving at the taxable income of individual taxpayers. The two categories are expenses incurred during the tax year on medical treatment of the taxpayer himself, his wife, children, parents, brothers, or sisters and life insurance premiums paid to Iranian insurance companies.


Also, as of 21 March 2001, employees may deduct from taxable income any payments made for housing loans, provided:


1) the relevant home must be less than 120 sq m in area and must be purchased or built between March 2000 and March 2004; and

2) the employer must be provided with a statement from the relevant bank confirming the amount of the monthly installment payment and the period of the loan.


The tax on salaries is collected by deduction at source. Employers are obliged to calculate and withhold the relevant tax on the basis of the employee’s annual salary (where the payer of an amount subject to the tax on salaries is not the payer of the recipients’ basic salary, wage, etc., he must deduct the tax at the rate of 10%.) The tax so deducted must be sent to the local tax affairs office within 30 days together with a list of the names and addresses of the payees and their respective salaries in the first month. For subsequent months, only changes to the original list need to be reported. Persons receiving a salary paid from abroad are required to pay the due tax within 30 days of receiving it and to submit a tax return by 22 July of the year following the fiscal year in which the salary has been received.


Exit visas and extensions of residence permits and work permits will only be issued to foreigners on production of a tax clearance certificate. However, pursuant to a resolution issued by the Council of Ministers on 17 December 2000, the employer is permitted to make a contractual commitment to withhold and remit the expatriate’s tax liability to the tax authorities, and the expatriate will not be barred from leaving the country, when such a contractual commitment has been entered into force+, even if the taxes have not been settled.


In cases where the salary tax is not accounted for in accordance with the requirements outlined above, the Act provides for the making of assessments to include both the tax due and the applicable penalties. Such assessments are final and conclusive and the tax and penalties must be paid within 30 days unless an appeal is submitted in writing within the same time limit. The penalty for failure to comply with salary tax withholding requirements is a fine equal to 20% of the unpaid tax. In addition, the employer or the director(s) of the employing enterprise may be imprisoned for terms ranging from 3 months to 2 years. Claims for the refund of an overpaid salary tax must be made by the recipient of the salary to the tax affairs office local to his place of residence.


Benefits in kind


The assessable value of benefits in kind is normally the cost to the employer but in the following cases the assessable value is calculated as a percentage of salary and other regular remuneration paid in cash (net of deductions):


1) Furnished housing: 25%;

2) Unfurnished housing: 20%;

3) Chauffeur-driven car: 10%; and

4) Car without chauffeur: 5%.


Pension income


Pensions, retirement allowances, and termination of employment payments are exempt from taxation.


Directors remuneration


Directors remuneration is added to their annual salary obtained from employment payments and is subject to tax.

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کتاب عملیات بانکی در عرصه بین الملل -سرفصل ها،ضمائم ،توصیه صاحب‏نظران ارزی و مدیران ارشد بانکی

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