Hiring a Commercial Representative in Iran? Get the Legal Terms Right from Day One
Hiring a Commercial Representative in Iran? Get the Legal Terms Right from Day One entering the Iranian market can be a lucrative opportunity, but doing so through the right commercial representative is critical. Whether you’re a foreign manufacturer appointing a sales agent, a service provider seeking a local business partner, or a company exploring exclusive distribution rights, the legal framework in Iran demands careful attention from the outset. Missteps in representation agreements can expose you to liability, intellectual property loss, contract enforceability issues, or even tax obligations.
This article provides a detailed legal overview of representative hiring in Iran, including contract terms, applicable regulations, and how to protect your business from avoidable risks. Whether you’re considering a non-binding agreement or a formal agency, understanding the legal landscape of the Iranian commercial law representative system is key to success.
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Legal Definitions: Who Is a Commercial Representative in Iran?
Under the Iranian Commercial Code and the Civil Code, a commercial representative refers to an individual or entity that acts on behalf of a foreign or local principal to negotiate or conclude commercial transactions. This includes:
- Sales agents (without the authority to bind)
- General representatives (with more expansive authority)
- Exclusive distributors
- Commission-based intermediaries
- Commercial proxies
It is essential to distinguish between:
agent Representative vs. Distributor – A distributor usually buys goods and resells them independently, while a representative facilitates sales on behalf of the principal without taking title to goods.
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Key Legal Requirements and Contractual Terms
- .1. Written Agreement Is Essential
Although Iranian law recognizes oral contracts, foreign businesses are advised to formalize the relationship via a written, signed, and properly translated representative agreement in Iran, covering:
Scope of authority (negotiation, conclusion of contracts, collection of payments)
Exclusivity (geographic or product-based)
Duration and termination
Governing law and dispute resolution (arbitration is enforceable in Iran)
Confidentiality and IP clauses
Tax and customs liability clauses
2. Registering a Representative Office in Iran
Under the Iranian Ministry of Industry, Mine and Trade (IMT) guidelines, foreign companies may register a representative office to support market research, promotion, and liaison activities. However, such an office cannot engage in direct sales unless it converts to a branch or commercial entity.
This involves:
Submission of legalized company documents
Approval from the IMT and the Ministry of Foreign Affairs
Annual reporting obligations
👉 See our related article on [Foreign Company Registration in Iran].
3. Tax Exposure of the Foreign Principal
If the commercial representative has the authority to conclude contracts or operate a warehouse in Iran, the foreign principal may be considered to have a permanent establishment (PE) under Iranian tax law, triggering corporate tax liabilities.
Minimize this risk by:
Structuring the representative agreement carefully
Avoiding contract-signing authority
Using commission-based models where appropriate
Intellectual Property and Trade Secret Protections
Foreign companies often share valuable know-how, marketing materials, or client lists with their Iranian representatives. However, Iran does not yet offer WTO-level IP protection.
To mitigate risk:
- Include robust confidentiality, non-disclosure, and non-compete clauses
- Consider contractual IP ownership clauses
- Register trademarks and trade names with the Iranian Intellectual Property Center
Common Pitfalls When Appointing a Representative in Iran
❌ Not defining the representative’s powers precisely
Unclear or overly broad powers can create unintended legal consequences, including unauthorized contract execution.
❌ Using non-binding representation agreements without clarity
If a document is labeled as non-binding but actions suggest otherwise, courts may treat it as enforceable.
❌ Ignoring dispute resolution clauses
Failure to insert arbitration or choice of law clauses may subject your company to unfamiliar legal systems.
❌ Overlooking local compliance
Failure to comply with Iranian regulations on registration or licensing can result in penalties or nullified contracts.
How MJK Law Firm Helps You Get It Right
At MJK Law Firm, we assist foreign companies in:
- Drafting and negotiating representative agreements in Iran tailored to your business model
- Advising on Iranian representative office rules and compliance with IMT guidelines
- Mitigating liability and tax exposure through strategic contract design
- Protecting your intellectual property through enforceable clauses
- Structuring your agency or distribution relationships with enforceable terms under Iranian law
We also offer contract enforcement and dispute resolution services, including international arbitration and litigation support in Iranian courts when needed.
📌 Practical Steps: Appointing a Sales Representative in Iran
Conduct due diligence on the proposed representative
Define roles clearly – agent, proxy, exclusive distributor, or hybrid
Draft a representative agreement with legal counsel
Decide on exclusivity, term, and renewal conditions
Include tax, compliance, and liability disclaimers
Legalize and translate documents as required by Iranian authorities
Register a representative office if applicable
Frequently Asked Questions (FAQs)
1. Can a commercial representative bind my company legally in Iran?
Yes, if the agreement or power of attorney grants such authority, the representative’s actions can legally bind your business.
2. Is an exclusive distribution agreement enforceable under Iranian law?
Yes, but exclusivity should be explicitly stated in writing, with clear terms to avoid future disputes.
3. What’s the difference between a commercial representative and a distributor in Iran?
A representative acts on your behalf, often without owning the goods, while a distributor buys and resells the products in their own name.
4. Can I avoid tax exposure by limiting my representative’s authority?
Limiting authority and avoiding physical presence (like a warehouse) in Iran may reduce the risk of being deemed a taxable permanent establishment.
5. Is foreign arbitration enforceable in Iranian representative contracts?
Yes, Iran is a signatory to the New York Convention. Foreign arbitration awards are generally enforceable, provided due process was followed.
Speak to a Trade Lawyer Before You Sign Anything
Hiring a commercial representative in Iran may seem like a simple step, but the wrong legal structure can expose your business to serious risk. With the right legal partner, you can enter the Iranian market confidently and compliantly.
Need help drafting or reviewing a representative agreement?
👉 [Contact a trade lawyer at MJK Law Firm today.]