Foreign Contractors in Iran

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Foreign Contractors in Iran: How to Register, Operate, and Avoid Legal Risk


Iran’s infrastructure and energy sectors are increasingly open to international participation, especially in the form of EPC (Engineering, Procurement, Construction) contracts. Whether through public tenders or private joint ventures, foreign contractors in Iran must navigate a complex legal and regulatory landscape—ranging from licensing and tax obligations to liability risks and dispute resolution. This article provides a detailed overview of how foreign construction companies can legally register, operate, and minimize exposure in Iran. If your firm is planning to enter or expand in this market, understanding construction law for foreign companies in Iran is crucial.

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Understanding Foreign Contractor Status in Iran

What Is a “Foreign Contractor” Under Iranian Law?

A foreign contractor is any company legally incorporated outside Iran that enters into contractual relations to execute works—typically infrastructure, industrial, or energy projects—within Iranian territory. Iranian law distinguishes between:

Joint ventures with Iranian companies, which often benefit from local knowledge and smoother compliance.

Registration and Licensing Requirements

1. Foreign Contractor License in Iran

All foreign contractors wishing to engage in projects must obtain a “Foreign Contractor License” issued by the Plan and Budget Organization (PBO) or relevant sectoral authority. The following documents are typically required:

  • Valid incorporation documents from the home jurisdiction
  • Evidence of technical and financial capacity (e.g., project portfolio)
  • Tax registration with the Iranian National Tax Administration (INTA)
  • Identification of a legal representative in Iran

Licensing is generally project-based, though in large-scale projects, contractors may apply for longer-term operational status.

2. Registration with the Iranian Chamber of Commerce

To legally enter into commercial transactions and open a local bank account, a foreign contractor must register with the Iranian Chamber of Commerce, Industries, Mines and Agriculture (ICCIMA). This step is also required for participating in tenders.

3. Obtaining a Tax ID

A Tax ID from the INTA is mandatory, even if the contractor operates through a local partner. This enables compliance with Iran’s Value Added Tax (VAT) and corporate income tax regimes.


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Operating in Iran: Legal and Contractual Considerations

  • . Public Procurement Rules
  • Iranian public tenders are governed by the “Tender Law”  and related Executive Regulations. Key considerations for foreign bidders include:
  • Language of submission (Persian is mandatory)

  • Bid bonds and performance guarantees

  • Priority often given to Iranian contractors unless the foreign firm brings essential expertise

  • 2. Standard Contract Forms
  • Government projects often use FIDIC-based contract models, adapted to local laws. Contracts must be translated into Persian and may be notarized or registered, depending on the sector.
  • 3. Importation and Customs Clearance
  • Foreign contractors frequently import heavy machinery, technical tools, or prefabricated components. Registration with Iran’s Customs Administration and adherence to import licensing requirements—especially in dual-use or strategic goods—is mandatory

Managing Liability and Taxes

  • . Caps on Liability and Indemnities
    Iranian law respects contractual freedom, but uncapped indemnities and liquidated damages clauses may be subject to judicial review if deemed punitive. It’s advisable to:
    Limit liability to a percentage of contract value


    Clearly define force majeure events (Iran recognizes war, sanctions, and natural disasters)


    Use arbitration clauses with international institutions


    2. Taxation of Foreign Contractors
    Foreign contractors are generally taxed on Iran-sourced income under the Direct Taxation Act. Key points include:
    Income Tax: 25% on net taxable profit


    Withholding Tax: May be applicable on payments made by Iranian clients


    VAT: 10% standard rate; exemptions available for certain infrastructure or export-linked services


    Double Taxation Agreements (DTAs) may reduce the tax burden, depending on your home country






    Common Legal Risks and How to Avoid Them

    . Non-Recognition of Arbitration Clauses

    Although Iran is a signatory to the New York Convention, local courts have occasionally resisted enforcement of foreign arbitral awards, especially in public-sector contracts. To mitigate risk:

    • Use Iran-based arbitration institutions when dealing with Iranian public bodies

    • Include “governing law” and “dispute resolution” clauses that align with Iranian legal expectations

    2. Delays in Payments and Performance Bonds

    Iranian government entities may delay payments, particularly in periods of budget constraint. Foreign contractors should:

    • Request advance payments

    • Secure irrevocable letters of credit

    • Use performance guarantees with reputable Iranian banks

    3. Sanctions-Related Delays or Contract Frustration

    Although European and Asian companies continue working in Iran, U.S. secondary sanctions may impact logistics, financing, and insurance. Contractors should:

    • Conduct due diligence on project partners and banks

    • Use “sanctions force majeure” clauses

    • Consult a sanctions compliance expert or Iranian construction lawyer


    At MJK Law Firm, we provide end-to-end legal services to foreign contractors operating or entering the Iranian market. Our bilingual construction lawyers assist with:

    • Company and branch registration

    • Drafting and reviewing construction and EPC contracts

    • Advising on tax planning and customs

    • Negotiating with Iranian government agencies

    • Representing clients in litigation and arbitration (domestic and international)

    We understand the unique challenges international contractors face and provide local expertise with international standards of professionalism.

    FAQ

    Can foreign companies participate in Iranian public tenders?

    Yes, foreign companies can participate, provided they obtain the necessary licenses and meet project-specific requirements. A local partner is often recommended for smoother compliance.

    ✅ Is a joint venture with an Iranian company necessary?

    Not always. However, joint ventures can ease legal, tax, and operational burdens—especially when dealing with public entities or logistics-heavy projects.

    ✅ How are foreign contractor profits taxed in Iran?

    Foreign contractors are taxed at 25% on net profits unless otherwise modified by a Double Taxation Agreement (DTA). VAT and withholding tax may also apply.

    ✅ Can we repatriate profits from Iran?

    Yes, subject to tax clearance and approval from the Central Bank of Iran. Profit repatriation may be delayed due to currency controls or banking restrictions.

    ✅ What if a dispute arises with the Iranian client?

    Most commercial disputes can be resolved through arbitration (TRAC or ICC). However, enforceability depends on the specific clauses of the contract and the type of entity (private vs. public).

    Conclusion

    Entering Iran’s construction market presents opportunities and complexities in equal measure. While the demand for foreign expertise in infrastructure and energy is high, navigating the legal terrain requires skill, local knowledge, and foresight.

    Don’t let legal uncertainty slow down your project.
    Speak to a construction lawyer in Iran today and ensure your contracts, taxes, and compliance needs are covered from day one.

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