Business etiquette

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.

Business practices:

• Bribery of foreign public officials is a crime. Australian individuals and companies can be prosecuted in Australia for bribing foreign officials when overseas. For more information, go to the Attorney General's Department on foreign bribery.
• 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/regulations

Documentation

Labour laws

Investment

Setting up an office

General laws and regulations regarding foreign business in Iran could be regrouped under the following categories:

• Contract work - A foreign company is allowed to be involved in contractual work in Iran, for example in providing technical assistance to newly established or existing manufacturing companies, for the drawing and supervision of design, engineering, or construction contracts, or for the provision of turnkey contracts for dams, refineries, power stations, and oil fields. Such work may be performed either directly by the foreign company or through a registered branch in Iran.
• Direct sales - Most foreign companies are involved in direct sales to Iranian customers through letters of credit and, occasionally on the basis of Usance.
• Investments - In accordance with the terms of the Foreign Investment Promotion and Protection Act, foreign companies may invest in newly established factories and industries. Foreign companies are allowed to own 100 per cent of the businesses in the free economic zones. Such free-trade (FTZ) and special economic zones (SEZ) have been established to provide additional investment incentives such as unlimited shareholding in joint ventures, flexible employment regulations, 15-year tax exemptions, etc.

The free-trade zones at the ports of Qeshm, Kish and Chah Bahar were opened in 1989. The Iranian Cabinet has recently approved a fourth FTZ between the cities of Abadan and Khorramshahr in the Khuzestan Province.  One of the latest SEZ is the Mines and Metals Special Economic Zone, 20 kilometres west of Bandar Abbas. 

It was recently reported in Iran Focus that foreign investment in the FTZs reached US$300 million in the past year, of which US$160 million went to the Qeshm FTZ. During the same period, the value of investment in the Kish and Cha Bahar FTZs amounted to US$130 million and US$10 million, respectively.

Once in possession of a special permission from the Land Registration Office, foreign nationals can own or lease property for commercial or industrial use and for personal residence, but they cannot own agricultural land.

In order to prevent adjudication by the Land Registration Office, upon terminating their residence in Iran foreigners must transfer their property within six months of departure to an Iranian citizen or to a foreigner holding an ownership license.

Infrastructure

Railway

The railway system has been extended in the years since the end of the war with Iraq, but remains inadequate. The standard-gauge rail network connects 13 of Iran's 24 provinces and comprises a set of five, mostly single-track lines radiating from Tehran. Three run southwards: to Bandar Imam Khomeini on the Gulf (with a spur to Khorramshahr); to the Gulf port of Bandar Abbas near Qeshm; and a third line heads towards the Pakistani border, stopping short at Kerman (with a spur running to Isfahan and Shiraz).

Of the northern lines, the one running to Mashhad has been extended to connect to the Turkmen system (which operates on a different gauge) at Sarakhs and has a spur running up to Gorgan. A fifth line connects Tehran to Tabriz and then splits to link with the national rail networks of Turkey and Azerbaijan.

Road

A comprehensive highway construction programme was initiated by Mohammed Reza Pahlavi and now extends to 167,157km. Conflicting pressures over the allocation of the scarce resources available to the sector have resulted in poor coordination of plans.

In addition to the paved road network, there are some 73,000 kilometres of unpaved roads serving remote areas. The 2500-kilometres A1 highway runs from Bargazan on the Turkish border, across Iran, to the Afghan border in the east. The A2 links the Iraqi border in the west to Mirjaveh on the Pakistani frontier.

Vehicles

A huge rise in the number of vehicles occurred in the early-1990s. In 1990 there were only 27,371 registered vehicles, of which some 8000 were vans and heavy goods vehicles. By 1996, the total figure had leapt to 2,900,000, of which approximately 700,000 were vans or heavy goods vehicles. Most of the increase in registration was in private cars (80 per cent of passenger cars are privately owned) and inevitably, this has led to increased demand for fuel, severe overcrowding on Iran's roads and mounting pollution problems. Government estimates put the average annual increase in domestic fuel consumption at six per cent per year, well above the real economic growth rate. The government has sought to limit motor use by raising domestic fuel prices, but petroleum products in Iran remain heavily subsidised and among the cheapest in the world.

Ports

Since the war with Iraq, Bandar Abbas has overtaken Khorramshahr as the country's major port, handling three-quarters of the 20 million tonnes of cargo that pass through Iran's Gulf ports each year. Smaller ports at Bushehr, Bandar Lengeh and Chah Bahar have also assumed greater importance. Kharg Island is the main oil terminal. In addition, the Caspian ports have benefited from Iran's attempts to develop its relations with the Central Asian republics, while modernisation programmes have been implemented at Bandar-e Anzeli and Chah Bahar. Determined to reduce export costs, the government has created a national shipping line serving routes in the Gulf. The Bonyad-e Mostazafan also runs freight services to Europe via the Suez Canal.

Airports 

Three major international airports at Tehran, Bandar Abbas and Abadan are supplemented by 10 Grade One and 11 Grade Two airports located across Iran. International airports have also been opened at the free-trade islands of Qeshm and Kish. The state-owned national carrier, Iran Air, serves 15 Iranian cities and runs scheduled routes in the Gulf, Asia and Europe. The country's second largest carrier, Asseman Airlines, serves the main cities in Iran and also runs services to Asia and the Gulf.

Telecommunications

Iran's telecommunications sector has received a significant portion of government spending. Ambitious plans drawn up by Iran's state-owned provider, the Telecommunications Company of Iran (TCI), will see penetration level increase to around 130 lines per thousand people. TCI's major drive has been for the provision of a countrywide mobile telephone network, to avoid the need for an expensive upgrade of the country’s analogue land system. The system has already reached, if not exceeded its full capacity, making it difficult to make mobile phone calls at peak times.

Internet access has also improved in recent years with an estimated more than 1500 Internet cafes now operating in the capital only. Until recently the cost, rather than official censorship, has been the greatest hindrance to a wider use. It should be noted, however, that current TCI regulations require Internet Service Providers to filter all material presumed immoral or impacting on state security. According to these rules, providers that do not strictly comply risk losing their license and face court action. Implementation of these rules has so far been ad hoc, but would be tightened at times of political tension.

The state retains control over land radio and television broadcasts. Although formally illegal, the use of satellite television receivers in urban areas is widespread. Iran's press flourished under the early years of President Khatami's first administration, but the closure of some 40 of the most outspoken publications by the the courts in 2000 and early 2001 has dampened publishers' enthusiasm for vibrant and open political commentary.

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:

1.  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.

2.  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.

3.  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.

• 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

4.  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.

5.  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.

6.  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.

7.  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. 

8.  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.

9.  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.

Finance

Marketing

There are no import duties applicable to product samples accompanying visitors provided that these are not deemed by customs authorities to have been imported for commercial purposes.

To facilitate later 're-export', samples of computer and hi-tech equipment should be declared at the airport and all related customs declarations duly completed.

We recommend to potential exporters intending to carry with them samples of their products to contact the Austrade office in Tehran so as to ensure that their samples do not fall under forbidden entry product categories. There is no duty charged on samples of products dispatched to Iran by air/sea or mail, provided the package weighs less than three kilograms and does not include forbidden goods. A small customs handling fee will however be charged by the Iranian customs authorities.

Give-aways and gifts accompanying visitors to Iran and destined to Iranian contacts are duty free.

Small quantities of advertising material could be brought in tax and duty free.

Iran is a signatory to the ATA Carnet Convention (see 'Guidelines', section 3.4).

Business partners

Iranian authorities insist on a presence in the Iranian market. The stronger the local presence, the better the chances of finding the right contacts in the Iranian hierarchy and determining the ways that could facilitate the awarding of projects or purchases, although this can be difficult and things don't usually work according to the rules or defined systems. Connections or commissions play an important role in the Iranian market.

Another subtle factor lies in the appreciation that the committed players in the Iranian industry will be instrumental in settling the rules for investment. Quite apart from 'lobbying', it is through daily interaction with government bodies that rules will emerge. In addition, there is also the realisation that the Iranian Government will hold the committed players in higher esteem, than the companies perceived to be dragging their heels.

Business travel

Domestic travel is best taken by air. There are several airlines, eg. Iran Air, Asseman Airlines, Mahan Air, Kish Air. The majority of official Austrade travel within Iran is with Iran Air, but bookings can be made with other airlines provided that travel on ageing Russian built aircraft is avoided. In general terms, aircraft and airport security is to an acceptable level. Domestic bookings cannot effectively be made abroad, however, tickets and hotels can be booked locally by Austrade Tehran. No special approvals are required for internal travel. 

At both of Tehran's international airports and most regional airports there are airport taxi services that operate at a very reasonable rate. Avoid the informal taxi drivers hanging around the exit of the airport building and preferably make use of the taxi booking counters in the airport which are usually well sign posted. Taxis do not have meters so you need to agree on a tariff before you start your journey.

Also, Austrade Tehran provides a visa/transportation/accommodation booking package which includes official transportation for airport pickup and transfer to hotel for company representatives using Austrade in-market services. The charge is A$190.

Security

Useful websites

Government:
Islamic Republic of Iran Government - www.iran-embassy.org.uk/info/goverment.htm

Comprehensive business/media/culture web directory of Iran with archives:
Iran Mania - www.iranmania.com
Iran World - www.iranworld.com
Net Iran (clippings) - www.netiran.com/clippings.html
Pars Times - www.parstimes.com/news 

Business and finance:
AME Info - www.ameinfo.com
Foreign Investment Promotion and Protection Act (FIPPA) - www.salamiran.org/Economy/investment_law.html
Iran’s Third Socio-Economic and Cultural Development Plan of 2000-2004 - www.salamiran.org/Economy/third_plan.html
Iran Chamber of Commerce, Industries & Mines - www.iccim.org
Statistical Centre of Iran - www.sci.or.ir 
The High Council of Iran Free Trade-Industrial Zones - www.iftiz.org.ir/laws/law.html
World Bank Iran

General:
Atieh Bahar Consultin - www.atiehbahar.com 
Iran Fair - www.iranfair.com/english/default.htm
Islamic Republic of Iran (Customs) - www.irica.org/LHomeIE.htm

Austrade offices

The Austrade Office operates from the Australian Embassy located in Tehran. There is also an Austrade-managed Australian Consulate-General based in Dubai in the United Arab Emirates approximately one-and-a-half hours by air from Tehran. Dubai is the major regional transit hub for the Gulf Region and for connection to intercontinental flights onward to Asia and Australia.

Australian Embassy Tehran
No. 13, 23^rd Street
Khaled Islambuli Ave
PO Box 15875-4334
Tehran, Iran
Tel: (98 21) 8872 0472
Fax: (98 21) 8872 0490

Email: tehran@austrade.gov.au

Opening hours:
8.30am–4.30pm, Sunday to Wednesday
8.30am–2.45pm Thursday

The only way to get to the Austrade office/Australian Embassy in Tehran is by taxi. The taxi fare for the 30km journey from the Imam Khomeini International Airport to the office would be approximately 125,000 Rials (less than A$20.00). The cost of getting to the office from any major hotels in the city would be more than 30,000 rials (A$5.00). 

If phoning the office, it is important to use the PABX extension numbers to avoid the lengthy electronic answering programs and greetings in English and Farsi.

Australian Embassies

The only Australian diplomatic mission in Iran is the Embassy based in Tehran. Representatives of the Australian Trade Commission (Austrade) and the Department of Immigration & Multicultural Affairs (DIMA) are also located in the Embassy.

Australian Embassy Tehran
No. 13, 23^rd Street
Khaled Islambuli Ave
PO Box 15875-4334
Tehran, Iran
Tel: (98 21) 8872 4456 - 8872 0472
Fax: (98 21) 8872 0490

Opening hours:
7.30am–3.30pm, Sunday to Wednesday
7.30am–2.45pm Thursday