Iran - Market Entry & Business Opportunities

Iran, with its capital in Tehran, is a country located in Western Asia and the Middle East. It has a diverse population, with Persian being the official language and various ethnic groups contributing to its cultural richness. The country covers a significant land area of approximately 1,648,195 sq. km. The currency used in Iran is the Iranian Rial (IRR).

Economic Overview

Iran's economy is characterized by its reliance on hydrocarbon, agricultural, and service sectors, with a significant state presence in manufacturing and financial services. Despite challenges posed by sanctions and commodity price volatility, the economy has shown signs of recovery in recent years. The government is focused on developing a resilient economy, promoting science and technology, and fostering cultural excellence. However, Iran faces challenges such as high inflation, reduced purchasing power, and strained government finances. Climate change, energy shortages, social tensions, and geopolitical issues also pose risks to the country's economic outlook. The lifting of sanctions and a rise in oil prices could significantly improve Iran's economic prospects.

Market Overview

Iran has a mixed economy, with a large state-owned sector and over 40 industries on the Tehran Stock Exchange. It is considered an "energy superpower" due to its substantial oil and gas reserves. The economy is influenced by price controls, subsidies, and the presence of religious foundations known as bonyads. The government aims to implement market-based reforms and prioritize science and technology development. However, challenges include contraband, administrative controls, corruption, and restrictions on private sector growth. Iran's economy heavily relies on oil and gas exports, but the removal of a major subsidy and other factors have posed difficulties. The country has faced a brain drain, economic contraction, and challenges from COVID-19 and US sanctions. The Iranian rial has depreciated, and economic freedom and ease of doing business rankings are relatively low. US withdrawal from the nuclear deal in 2018 impacted economic growth and increased inflation.

Bilateral Relations between India-Iran

India and Iran have a long history of meaningful interactions, sharing linguistic, cultural, and traditional ties. They have strong commercial, energy, cultural, and people-to-people links due to their geographical proximity in South Asia and the Persian Gulf. Diplomatic relations between independent India and Iran were established on March 15, 1950. Several high-level visits took place, including the Shah's visit to India in 1956 and Prime Minister Nehru's visit to Iran in 1959. Prime Minister Gandhi visited Iran in 1974, and Prime Minister Desai visited in 1977. The Shah also visited India in 1978. Following the Iranian Revolution in 1979, a new phase of engagement began, marked by visits from Indian Prime Minister Rao in 1993, Iranian President Rafsanjani in 1995, and Indian Vice President Narayanan in 1996. This trend continued with visits by Prime Minister Vajpayee in 2001 and President Khatami in 2003, who was also the Chief Guest at India's Republic Day function. President Ahmadinejad visited India in 2008.

Taxation and Subsidies Offered by Iran

Foreign entities in Iran are subject to a 25% tax rate, while listed companies enjoy a 22.5% rate. Significant subsidies are provided for the energy sector. Investments over US$ 250,000 receive incentives, including tax benefits. Special economic zones, like the Kish Free Zone, offer additional advantages, such as tax exemptions for 15-20 years. These measures aim to attract foreign investment and foster a favourable business environment. Seeking updated information and professional advice is recommended.

Financing Business in Iran

Financing a business in Iran can be achieved through various sources, including both domestic and international options. Here are some common financing methods available for businesses in Iran:

• Equity Financing: Businesses can raise capital by selling shares and attracting investors through private placements or IPOs on the Tehran Stock Exchange.
• Debt Financing: Companies can obtain loans and credit facilities from banks and financial institutions in Iran for working capital, investment, or trade financing.
• Government Support Programs: The government offers support programs, including subsidized loans, grants, and guarantees, to promote business growth and foreign investment.
• Foreign Investment: Foreign companies can invest in Iran and benefit from the legal protection provided by the Foreign Investment Promotion and Protection Act (FIPPA).
• Trade Financing: Trade finance solutions such as letters of credit, bank guarantees, and export financing are available to facilitate international trade.
• Islamic Financing: Islamic banking principles are widely used, offering Shariah-compliant financial products such as murabaha, mudaraba, and ijara.
• Crowdfunding and Peer-to-Peer Lending: Emerging platforms enable businesses to access funding from individual investors through crowdfunding or peer-to-peer lending.

Business Clusters in Iran

Iran has several business clusters that specialize in different industries and sectors. Some of the prominent business clusters in Iran include:

• Tehran Cluster: Hub for finance, technology, telecommunications, and services.
• Isfahan Cluster: Strong in steel, automotive, petrochemicals, and textiles
• Bandar Abbas Cluster: Port city, important for maritime industries and international trade
• Mashhad Cluster: Centre for healthcare, pharmaceuticals, and medical tourism
• Tabriz Cluster: Major industrial centre, specialising in machinery, automotive parts, and petrochemicals
• Qom Cluster: Centre for religious tourism and market for Islamic goods
• Shiraz Cluster: Renowned for tourism, offering hospitality, entertainment, and cultural experiences
• Kish Island Cluster: Free trade zone specializing in tourism, hospitality, and retail
• Ahvaz Cluster: Oil and gas industry, with refineries and petrochemical complexes
• Kerman Cluster: Agriculture and mining centre, with pistachio production and mineral mining
• Yazd Cluster: Expertise in textiles, ceramics, and handicrafts, known for silk weaving and carpet production
• Hamedan Cluster: Tourism and cultural heritage hub with historical sites and museums
• Rasht Cluster: Rice cultivation and processing, with a focus on agricultural products
• Kermanshah Cluster: Centre for construction materials and building products, including cement and stone processing

How to Set Up a Business in Iran?

Foreign companies now have the opportunity to establish their organization in Iran with full ownership and control. They can choose between a Limited Liability Company or Joint Stock Company. This new policy provides increased security and stability for foreign investors, enhancing their confidence in the Iranian market. To register their company, foreign investors need to provide certified copies of relevant documents, including articles of association and financial reports. A comprehensive feasibility study outlining planned activities and investment details is required. Other necessary documents include an introduction letter, Statement of Registration, Certificate of Registration, Letter of Authorization, and Letter of Undertaking. All documents must be certified, translated into Persian, and submitted to the Companies Registry. This allows foreign companies to establish a solid presence and benefit from the opportunities in Iran.

Best Locations to Set Up Business in Iran

Iran offers several favourable locations for setting up a business. Here are some of the best locations in Iran for business.

• Tehran: Iran's capital and largest city, with a vibrant business environment and excellent infrastructure.
• Isfahan: Rich in history and culture, Isfahan offers a well-developed industrial sector and investment incentives.
• Mashhad: Iran's second-largest city, known for its diverse industries and proximity to neighbouring countries.
• Tabriz: Historic city with a growing industrial sector, including automotive and machinery industries.
• Bandar Abbas: Major port city and hub for international trade, offering tax incentives and a free trade zone.
• Kish Island: Popular tourist destination and free trade zone, ideal for tourism, hospitality, and offshore activities.
• Shiraz: Cultural city with a growing economy focused on textiles, pharmaceuticals, and food processing.
• Ahvaz: Important industrial city with a strong presence in oil and gas-related industries.
• Rasht: Commercial and industrial centre known for agricultural products, with investment incentives.
• Qom: Religious and educational hub with a growing automotive and textile industry.
• Kerman: Centre for trade and commerce, with a diverse economy including mining and carpet weaving.
• Yazd: Historic city known for its textile industry and craftsmanship, offering a favourable business climate.

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Visa And Immigration

• Iran Investment Visa- An investment visa in Iran provides foreign investors with legal residency and the ability to conduct business activities. It requires applying through OIETAI, submitting relevant documents, and meeting specific government requirements. Investors are expected to make substantial contributions to the economy. The visa's duration is aligned with the investment project and can be renewed. Holders enjoy rights such as business operations, property ownership, and profit repatriation. Compliance with legal obligations is necessary.
• Iran Business Visa - Iran's business visa allows foreign individuals to visit for business purposes. Applications are made through Iranian embassies or consulates, requiring necessary documents and invitation letters. The visa can be single-entry or multiple-entry, based on the Iranian authorities' approval. It is essential to note that a business visa does not permit work or employment. Individuals planning long-term business activities may need specific visas or work permits. Compliance with local laws and regulations is vital.
• Work Permit Visa - The work permit visa in Iran allows foreign individuals to legally work and reside in the country. It requires a job offer or employment contract from an Iranian employer who serves as the sponsor. The employer initiates the application process through the MCLSW. The visa's duration is based on the approved employment contract and can be extended. Work permit holders must obtain a work permit card and adhere to Iranian labour laws and employment conditions during their stay.

Iran offers various opportunities across sectors but entering the market would require extensive planning, understanding the rules and regulations and familiarizing with the local cultural norms. Doing a thorough market study, adhering to requirements related to various registrations and approval are quite essential. Additionally, partnering with a local expert who is well-versed in risks related to economic sanctions and political uncertainties could be very beneficial. Although it may seem daunting but with right strategy, foreign entrepreneurs can successfully establish their presence in Iranian market.

Over the past two decades, India Law Offices has built a strong international presence and forged strategic alliance with some of the largest law firms and legal networks that enable us to cater to our clients from across the globe. In Iran we cooperate with premier law firms and professionals that specialize in diverse areas of business and law.

If you are an Iran national or a company seeking legal assistance in India or an Indian planning to expand to the Iranian market, our firm can provide the necessary guidance and support you require.


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