The taxation system in Iran is a complex and constantly evolving one, making it challenging for individuals and businesses to navigate effectively. The system is based on a combination of Islamic law and traditional tax principles, and it encompasses a wide range of taxes, including income tax, corporate tax, value-added tax (VAT), and property tax.

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Key Taxes in Iran

  • Income Tax: Individuals and corporations are subject to income tax on their worldwide income. The tax rate for individuals ranges from 0% to 25%, depending on their income bracket. Corporations are subject to a flat tax rate of 25%.
  • Corporate Tax: Businesses are required to file corporate tax returns annually and pay taxes based on their net income. The corporate tax rate in Iran is 25%.
  • Value Added Tax (VAT): VAT is a consumption tax levied on the sale of goods and services. The current VAT rate in Iran is 9%.
  • Property Tax: Property tax is levied on the value of real estate. The tax rate varies depending on the location and type of property.

Property Sale Tax

When selling property, individuals may face the issue of property transfer tax. This tax is levied at two rates: 5% of the transaction value for office, residential, and commercial properties without goodwill, and 2% for commercial properties with goodwill.

For definitive transactions, the transfer tax amount is calculated based on the property’s transaction value at the time of registration with the notary. When transferring residential or commercial properties at the tax office, a 5% levy is collected from the seller.

The property’s transaction value is determined by the Real Estate Evaluation Commission, which adheres to the legal provisions governing property transfers.

Inheritance Tax

Inheritance tax is levied at progressive rates, ranging from 2% to 40%, depending on the relationship between the deceased and the heir. For instance, direct descendants, such as children and grandchildren, are subject to a lower rate (2%-10%) compared to more distant relatives or non-relatives.

Understanding the Tax Filing Process

The tax filing process in Iran can be complex, and it is important to carefully follow the instructions provided by the Iranian National Tax Administration (INTA). In general, the process involves the following steps:

  • Obtaining a tax identification number (TIN): Individuals and businesses are required to obtain a TIN from INTA before they can file taxes.
  • Gathering tax documentation: This includes income statements, receipts, and other supporting documents.
  • Preparing tax returns: Tax returns are typically prepared using specialized software or by certified tax professionals.
  • Submitting tax returns: Tax returns must be submitted to INTA by the due date, which varies depending on the type of tax.

Foreign Investors and the Taxation System in Iran

Foreign investors in Iran are subject to the same taxation laws as domestic entities. This means that they are liable for income tax, corporate tax, VAT, and property tax on their Iranian-source income. However, there are also several tax incentives available to foreign investors, including:

  • Tax breaks for export-oriented businesses: Foreign companies that export at least 30% of their production can receive tax breaks of up to 50% on their corporate income tax.
  • Exemptions for certain industries: Certain industries, such as manufacturing, agriculture, and tourism, are eligible for tax exemptions or reductions.
  • Investment incentives in free zones: Free zones offer a range of tax benefits and incentives, including zero corporate tax and VAT exemption.

Double Taxation Avoidance Agreements (DTAAs)

Iran has signed double taxation avoidance agreements (DTAAs) with many countries. These treaties aim to prevent double taxation on income earned in one country and taxed in another. By entering into a DTTA, foreign investors can reduce their overall tax burden.

Taxation in Free Zones

Iran has established several free zones to attract foreign investment and promote trade. These zones offer a unique tax environment that is more favorable to businesses than the mainland. In free zones, foreign investors are typically exempt from corporate tax, VAT, and customs duties. Additionally, they are not subject to certain regulatory requirements imposed on businesses on the mainland.

Conclusion

Understanding the taxation system in Iran is essential for individuals and businesses operating in the country. By familiarizing yourself with the key taxes, and filing process, and seeking professional guidance when needed, you can ensure you are compliant with the law and take advantage of tax benefits.

If you have any questions about Iran’s taxation system or need assistance with tax planning and compliance, please contact the experienced tax professionals at MJK Law Firm.