Business Guide to The Islamic Republic of Iran

Transcription

1 Business Guide to The Islamic Republic of Iran Copyright 2015 by Cyrus Omron International PJSC All rights reserved. No part of this paper may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage or retrieval system, without permission in writing from the publisher. Cyrus Omron International PJSC Investment, Trade, Financial & Legal Advisers Jordan Ave, 13 East Armaghan St. Armaghan Tower, 14 th Floor Tehran Iran Tel: (+ 9821) Fax: (+ 9821)

2 Business Guide to The Islamic Republic of Iran Table of Contents 1- Legal Environment 4 2- Methods of Doing Business with Iran 4 3- Tendering for Government Contracts 6 4- Public Procurement and Tendering Reform 7 5- Local Content Law Import/Export Regulations and Prioritization of Importation of Goods Finance & Banking Support for Foreign Trade Foreign Exchange Market & Regulations and Payment Methods for Imports Reintroduction of the ATA Carnet System in Iran Bank Guarantees Taxes & Levies Double Taxation Prevention Treaties of I.R. Iran Social Security Organization Insurance Premium and Levy 28 on Payroll & Contracts 14- Registration of Patents, Industrial Designs & Trademarks Free Trade-Industrial Zones of the Islamic Republic of Iran Special Economic Zones of the Islamic Republic of Iran 32 Page 2

3 17- Foreign Investment Bilateral Investment Treaties of I.R. Iran Foreign Ownership of Real Estate in Iran Iranian Labour Law Entry Visas & Work Permits Regulations Applicable to Banking Services for Foreign Nationals Legal System and Contracting Conditions in Iran 40 3

4 Business Guide to The Islamic Republic of Iran 1) Legal Environment In order to aid economic development and create a more favourable environment for business, trade and investment activities, various new legislations and regulations were passed and implemented since the 1990s including widescale changes to the Direct Taxation Act, Duties Consolidation Act, Foreign Investment Promotion & Protection Act (FIPPA), Laws on the Establishment & Administration of Free Trade-Industrial and Special Economic Zones, Securities Market Act, Tenders Act, Law for Combating with Money Laundering, Law for Registration of Patents, Industrial Designs and Trademarks in line with international norms, Law for Implementation of General Policies of Article 44 of the Constitution [economic reforms including privatization, private sector development, competition facilitation & anti monopolies measures], Value Added Tax, Aimful Subsidisation Act (also known as Economic Reform Plan) and approval of many bilateral treaties with various countries relating to trade, investment promotion and protection, and avoidance of double taxation. A number of new laws have also been passed in recent years including Ministry of Petroleum Law, Mining Law, Amendment to the Law of Free Trade-Industrial Zones, Productivity Improvement Act, Social Security Insurance Benefit for Businesses and the Unemployed, and Law for Improvement of Business Environment. Various new legislations are also presently under consideration including the new Commercial Code, Amendment to Labour Law, Amendment to the Direct Taxation Act, etc. 2) Methods of Doing Business with Iran Appointment of Agents Three kinds of commercial representatives are permitted in Iran - brokers who act as intermediaries between the parties to a transaction, commission agents (who undertake business in their own name but on behalf of the principal) and commercial agents. According to the Commercial Code of IRI, a commercial agent is a person or company who is entrusted by the principal (e.g. a foreign company) with negotiation or negotiating and conclusion of transactions on behalf of the principal. The agent uses his own efforts to negotiate such transactions under the instructions of the principal and render his intermediary services to facilitate the conclusion of such transactions between the principal and the customers in the territory. Alternatively, the agent may be entrusted to negotiate and conclude such transactions on behalf of the principal under the instructions of the principal. In such a situation, the agent s signature binds the principal and makes the principal liable for all acts done by the agent within the scope of the power and authority allowed and granted to the agent by the principal. Under Iranian law there is no requirement for agents to be of Iranian nationality. However in practice, since only Iranian nationals or companies can obtain a trade 4

5 license (i.e. a commercial card), which is required for importation and exports, commercial agency has to be through Iranian natural or legal persons. If a foreign entity appoints another foreign company as its representative which in turn appoints an agent in Iran, the state companies and large private sector companies may typically refuse to deal with such an arrangement fearing higher prices/costs due to multi-representative involvement, unless there are certain justifiable reasons such as imposition of sanction in the home country of the first principal to do direct business with Iran. Also when the agent is a natural person, many large public and private companies may refuse to deal with such persons. Although the law permits either natural or incorporated persons to engage in business activities as the agent, it is more credible and customary if the agent appointed is a company incorporated in Iran. Under a by-law issued by the Cabinet in 1992, governmental bodies and state companies are banned to purchase any goods, facilities, equipment and services from a foreign supplier having no officially registered agent or representation office in Iran. After a principal appoints an agent in Iran, the responsibilities of the two parties are generally recorded in an agency agreement. Such responsibilities may vary widely, and legal advice is required to determine the appropriate detailed rights and obligations of the parties under the governing law of Iran. Generally speaking, under the Iran's Conflict of Laws, the governing law of a contract is the law of the jurisdiction where the contract is concluded, unless the parties are foreign nationals and shall, expressly or impliedly, subject the contract to another law. However, if the contract has provisions for resolution of disputes through arbitration, then the choice of governing law by the parties shall be valid irrespective of the place of conclusion of the contract and the nationalities of the parties. Establishment of Branch Office According to the law and regulations applicable to the establishment of Branch Offices of foreign companies, the Branch operates under the exact trading name of the Principal. The foreign company Principal is fully responsible for the activities of the branch. The law permits the branch office to be active in the areas of gathering marketing information, providing after sales service and warranty in respect of goods and services, and performing the execution operations of contracts made between Iranian parties and the Principal. There are also other areas of business activities which foreign companies could be permitted and justified establishing branch offices for (e.g. appraisal and facilitation of investment by the foreign company in Iran, increasing the exports of Iranian non-oil goods, providing engineering & technical services, transfer of know-how and technology, performing activities the license for which is issued by government organizations which are legally authorised to issue the licences for such activities such as for providing services in the areas of transportation, insurance & goods inspection, banking, marketing, etc). In order for Branch Offices to enjoy tax exemption under the Direct Taxation Act, they cannot be directly involved in sales and commercial activities and transactions (e.g. issuance of proforma invoices, acceptance and execution of orders, direct sales of goods and services, signing contracts in Iran on behalf of their head offices, etc), but they may facilitate the 5

6 deals/transactions to be made directly between the Principal and the customers in the territory. The government also encourages the setting up of technical service offices in order to provide after sales support for goods that have been sold in Iran. There is no requirement for a foreign branch office operating in Iran to have an Iranian agent. Forming Joint Ventures Foreign contractors and manufacturers increasingly form joint ventures with local companies in order to be able to fulfill the requirements of the Local Content Law and bid competitively in public sector tenders for implementation of projects and supply of equipment and material. Establishment of an Iranian Company Establishment of an Iranian company by foreign entities (private joint stock or limited liability) is an appropriate vehicle for long-term foreign investors and traders in Iran. Under two mechanisms a foreign investor may establish and register a company in Iran. The preferred option is to apply for a foreign Investment Licence under the Foreign Investment Promotion & Protection Act (FIPPA) in order to enjoy the protections and facilities granted under FIPPA, according to which the foreign investor is allowed to register a company in Iran with or without Iranian partners, with up to 100% foreign shareholding, for the purpose of development and productive activities including industrial, mining, agriculture and services. The second option is to establish a company without obtaining a foreign Investment Licence for the conduct of trading, services and other activities, and according to recent changes made to regulations effective from 21 st December 2008, it is now possible to have up to 100% foreign shareholding in an Iranian company. Private Joint Stock Company and Limited Liability Company are two appropriate incorporations because they are regulated entities, have limited liability and offer investment security. The two types of incorporations have certain advantages, disadvantages and flexibilities, and the choice very much depends on the particular case and level of foreign shareholding and safeguards required. Foreign investment licenses are not issued for purely trading activities in the mainland, and for such desired activities the second option described above could be pursued. 3) Tendering for Government Contracts General Iran awards virtually all large government contracts through tenders. Some tenders are advertised in the press (Iranian and foreign), whereas others may be in the form of invitations to bid sent to selected companies. There are, however, certain procedures for awarding contracts without tendering. The law requires that any government 6

7 transactions exceeding a certain price threshold must be awarded exclusively by tender, unless otherwise provisioned for by the Law. Foreign Bidders Foreign companies that wish to be included in bid lists should contact the relevant ministry or government organization, and complete a process of pre-qualification. This process involves the submission of documentation establishing the company s credentials for supplying certain types of goods and services. 4) Public Procurement and Tendering Reform Public procurement constitutes a very significant part of Iran's economic activities. Public procurement is broadly defined as the purchasing, leasing/hiring or obtaining by any other contractual means of goods, works and services by the public sector. A new legislation, Tenders Act, was approved by the Legislator (Parliament and Expediency Council) in January 2005 to replace a number of legislations and regulations governing public procurement and the tendering procedure. Objective: Tenders Act aims to generate competition, promote transparency, combat corruption and establish a uniform set of regulations to apply to all types of public procurement carried out by any public entities or state enterprises. Scope of Application: Tenders Act applies to the Executive, Judiciary and Legislature branches of the Islamic Republic of Iran including all ministries and government organizations, institutions and companies, state affiliated profit-making institutions, state banks and credit institutions, state insurance companies, non-governmental institutions and organizations benefiting from the state budget, public institutions, revolutionary foundations and institutions, Council of Guardians, and state organizations and companies such as the National Iranian Oil Company (NIOC), National Iranian Gas Company (NIGC), National Iranian Petrochemical Industries Company(NPC), Iranian Industrial Development and Renovation Organization (IDRO), Islamic Republic of Iran Ports and Shipping Organization (PSO), Iranian Mines and Mining Industries Development and Renovation Organization, Islamic Republic of Iran Broadcasting Organization (IRIB), and their related affiliates. The Act shall not, however, apply to armed forces. Classification of Transactions Based on Price Thresholds: The Act recognizes three types of transactions: small transactions with a maximum value of about 2,000 Euros; medium transactions with a maximum value of about 20,000 Euros; and large transactions which exceed 20,000 Euros. These threshold values will be adjusted each year by the Cabinet on the basis of price indices for goods and services as declared by the Central Bank. In respect of small transactions, there is no need to have a call for tender and therefore the relevant state entity purchaser should investigate and conclude contracts with good quality suppliers and at lowest prices. 7

8 In respect of medium transactions, there is also no need to have a call for tender, but the relevant state entity purchaser should investigate and conclude contracts with good quality suppliers and at lowest prices after obtaining at least three written quotations. In respect of large transactions, contracts shall be awarded through a call for tender (public or limited). Exceptional cases should be approved by the Tender Formalities Exemption Board as explained below. Classification of Types of Tenders: In respect of the stages of review, tenders are classified as the following types: one-stage tender which does not require separate technical/commercial evaluation of the proposals in order to be able to make comparison between them; and two-stage tender which on the basis of the assessment of the state entity purchaser requires separate technical/commercial evaluation of the proposals and a committee is accordingly established for this purpose. Tenders are categorized into two groups depending on the method of inviting bidders: public tender whereby a call for tender is issued to all interested parties through a public announcement; and limited tender whereby a call for tender is sent to qualified bidders. In order to launch a tender for a particular case of procurement, the head of the relevant state entity purchaser shall, at his/her responsibility, establish and approve the reasons and justifications why a call for a public tender in such a case is not appropriate. Tender Commission: All relevant tender issues, such as the review and evaluation of bids, awarding the contract, cancellation of tender or re-tendering, are handled by a Tender Commission comprising of the following members: 1) the head of the relevant state entity purchaser; 2) the comptroller or financial manager; and, 3) the technical manager. Tendering Process: The tendering process includes the following stages: ascertaining the availability of financial resources for procurement; determining the type of tender in large transactions (one-stage or two-stage bidding, public or limited); preparing tender documents; evaluating quality of bidders as necessary; announcing a call for tender; evaluating proposals received; and determination of the winner of the tender and conclusion of the contract. Quality Evaluation of Bidders: In certain cases, it is necessary to evaluate the quality of prospective bidders in terms of the predetermined financial, economic and technical capability requirements of the relevant state entity purchaser. In evaluation of the quality of bidders, attention should be paid to the following points: quality assurance of goods and services; relevant experience and know-how; good reputation; having professional licenses and competency certificates as necessary; financial ability of bidder for performing the works. Tender Documents: Tender documents should contain the following particulars: the name and address of the state entity purchaser; the type and amount of bid bond; the place, time and deadline for receiving tender documents, submission of proposals and their opening; the amount of advance payment and performance bond; validity period of proposals; scope of work, technical/commercial specifications, standards, type, quantity 8

9 and quality of goods and services; time schedule for performing the work or delivery of goods; criteria and method for quality evaluation of bidders; the method of preparation and the deadline set for submission of proposals and the number of copies required; the draft contract including the agreement, general and special conditions and the enclosures; Minutes of Meetings and explanations subject of Article 17; other documents as deemed necessary by the state entity purchaser. All tender documents should be similar for submission to all interested parties. Terms of Submission and Delivery of Proposals: Each participant in the tender may not submit more than one proposal, except in cases which have been foreseen in the tender documents. Bidders should submit the tender documents and their proposal in three separate envelops duly lacquered and sealed: envelope (A) should contain the bid bond; envelope (B) should contain the technical/commercial proposal; envelope (C) should contain the price proposal. These three envelopes should in turn be put in an envelope which should also be lacquered and sealed. Technical/Commercial Evaluation of Proposals: In two-stage tendering, the client should, in accordance with the criteria and methods specified in the tender documents, evaluate the quality of bidders and the technical/commercial proposals and announce the results accordingly. If technical/commercial evaluation of proposals is required, then the matter will be referred to the Technical-Commercial Committee for evaluation, which shall report the outcome of the evaluation carried out in accordance with the deadline set by the Tender Commission, and accordingly the price proposals (envelope c) of the bidders which have achieved the required technical/commercial mark shall be opened. Any technical/commercial evaluation is only permitted prior to the opening of the price proposals. The price proposal envelope of those bidders which did not qualify in the technical/commercial evaluation, shall be returned to them unopened. Financial Evaluation and Determination of Winner of the Tender: The bidder with the best price offering shall be announced as the first winner of the tender, and the second winner shall be announced provided that the difference between its proposed price and the first winner s price is less than the amount of the bid bond. The method of financial evaluation and the impact of technical/commercial evaluation on the price shall be specified in detail in the tender documents. Upon the opening of the price proposals and the announcement of the first winner, and the second winner (if any), the bid bonds of these bidders will be kept and those of the other bidders will be released. Preferential Treatment of Domestic Bidders: In international tenders, the local bidders will be given preference over foreign bidders. The method of preference of local suppliers will be specified in the tender documents. Those tenders for which the compliance of such rule is not deemed expedient, must be approved by The Economic Council. Awarding Contract: The contract will be awarded to the first winner of the tender and shall be concluded prior to expiry of the validity period of the proposals. This period can be extended at most once and in accordance with the period foreseen in the tender documents. After the conclusion of the contract with the first winner of the tender, the bid bond of the second winner will be released. Should the first winner refrain from providing the performance bond and concluding the contract, its bid bond will be confiscated and the 9

10 contract will be awarded to the second winner. Should the second winner also refrain from providing the performance bond and concluding the contract, its bid bond will also be confiscated and the tender will be renewed. Renewal and Cancellation of Tender: The tender may be renewed in the following circumstances: the number of participants being less than the limit set in the tender documents; the refraining of the first and second winners of the tender from concluding the contract; expiry of the validity period of proposals; the prices being high such that the economic justification of the project becomes unviable; and, the verdict of the Complaints Investigation Board. The tender may be cancelled in the following circumstances: the need for the goods or services subject of the tender no longer prevailing; substantial changes being required in the tender documents thus changing the nature of the tender; force majeure conditions; the findings of the Tender Commission regarding conspiracy between the bidders; and, the verdict of the Complaints Investigation Board. Client must inform all bidders of the renewal or cancellation of the tender Procedure for Investigation of Complaints: Any bidder having objection to any of the provisions of the Tenders Act not having been respected and followed, may complain to the highest authority of the state entity purchaser. The entity is obligated to investigate the complaint within 15 working days of receiving the complaint and provided that the complaint is found to be valid then it should accordingly take appropriate action in accordance with relating regulations. If the complaint is found not to be valid, then the required reply should be notified to the complainant by the deadline set. If the outcome is not acceptable by the complainant, then the Complaints Investigation Board shall review the matter and announce its final verdict within 15 days. The Complaints Investigation Board is established for the purpose of hearing disputes between the state entity purchaser and bidders. This Board has responsibility for hearing any complaints relating to any breach of the provisions of Tenders Act. The Board may order for the tender to be renewed or cancelled, if the Board finds that the provisions of the law have been breached. The Board can not investigate any complaints relating to the criteria and methods of evaluation of proposals, preferential treatment of domestic bidders, complaints lodged one month after the validity of proposals, and complaints of the winners of tenders after conclusion of contract. The Complaints Investigation Board has not been yet established, as the Articles of the Board are still awaiting the approval of the Parliament. Procurement without Tender Formalities: In cases which the call for a tender is not feasible on the basis of the justification report of the state entity purchaser as considered and approved by the Tender Formalities Exemption Board, the state entity purchaser may perform the transaction through another method. In such cases, the Board shall, with due consideration of the interests of the state entity purchaser, specify and announce the procedure for performing such transactions with due compliance with other regulations relating in each case for the procurement of any type of goods or services. In respect of central units of state organisations, the Board is composed of the Deputy in charge of 10

11 financial & administration affairs or similar position of the ministry or government organization as the case may be, the concerned comptroller or similar position (i.e. the authorised representative from Ministry of Economic Affairs & Finance in charge of controlling and approving any expenditures), and an expert and bound personnel of the concerned organization appointed by the highest executive authority of the organization concerned. In respect of the transactions of state companies, the Board is composed of the managing director or the highest executive authority and as the case may be the comptroller or financial manager of the company and a person elected by the General Assembly of the company or the High Council as the case may be. Should the value of the transaction exceed 50 times the threshold of small transactions, the performing of the transaction is permitted after approval of the three member Tender Formalities Exemption Board and confirmation by the Minister in case of ministries, the head in the case of state organizations, the Board of Directors in the case of state companies. Should the value of the transaction exceed 200 times the threshold of small transactions, the performing of transaction after approval by the three member Boards and until the end of the 3 rd 5-year Socio-Economic Plan shall be dependant upon the approval of the Economic Council and after that dependent upon the approval of a Board consisting of the Head of Management and Planning Organization (the Board Secretary), the Minister of Economic Affairs and Finance, and the highest authority of the relevant state entity purchaser wishing to perform the transaction. Exemption from Tender Formality: The following procurements are exempted from tender formality: (1) goods, services and rights which are regarded as being unique (exclusive), with the responsibility of the minister or the highest authority of the state entity purchaser; (2) purchase or leasing of immovable assets with the responsibility of the minister or the highest authority of the state entity purchaser and based on the opinion sought of a panel of certified judiciary experts or a panel of specialist experts; (3) the purchase of movable and immoveable assets, goods and services which are subject to statutory pricing requirements; (4) Repair of equipment and machinery and procurement of equipment and machinery merely for replacement relating to the continuation of production which do not result in the expansion of production unit, with the responsibility of the minister or the highest authority of the state entity purchaser and with due consideration of the interests of the country; (5) the purchase of consultancy services including consultant engineering and technical/commercial consulting (including study, design, management of project and implementation, and supervision), and any other consultancy and specialist services; (6) cultural and arts, education and sports and the likes services the procurements of which may not be possible through tender, with the responsibility of the minister or the highest authority of the state entity purchaser and with due consideration of the interests of the country; (7) the purchase of spare parts for replacement and the completion of existing tools, equipment and machinery, and also tools and high precision measuring instruments and scientific laboratory equipment and the likes the procurement of which is not deemed possible through tender by the highest executive authority; (8) in respect of secret transactions with the opinion of the Cabinet and with due consideration of the interests of the country; (9) the purchase of shares and undertakings resulting from implementation of judicial judgements. Concluding Remarks: In summary, to ensure fairness, transparency and to allow different suppliers of goods and services the opportunity to bid for contracts of interest, the 11

12 Tenders Act was approved by the Parliament requiring, except in certain circumstances, that the state entities must launch tenders when seeking to procure goods, works and services which exceed the relevant price thresholds (i.e. of small and medium transactions). The Act considerably restricts the exceptional cases where goods and services may be procured without tendering. The Tenders Act, however, recognizes many circumstances under which the contracts can be awarded without tendering. In terms of exceptional cases, the wording of the Act is to some extent vague which allows state entities to avoid tendering. The Complaints Investigation Board which has responsibility for hearing the complaints is still not established, awaiting action by the parliament to approve its Articles. In the absence of such a Board, there is insufficient confidence that the provisions of the Act shall be complied with and correctly implemented by state entities. 5) Local Content Law In order to utilize the full potential of the country s technical, engineering, productive and manufacturing capabilities, all ministries/organizations and public sector companies, banks, non-governmental foundations and institutions subject to the Public Accounts Act are obliged to adhere to the Law and award their contracts to Iranian companies in respect of consultant engineering services, contracting, construction and EPC (including facilities & equipment) projects. If no competent Iranian company is capable to undertake the work concerned, the contracts may be awarded to a joint venture of Iranian and foreign companies with 51% Iranian share, upon approval of the Supreme Economic Council. In addition, the law requires that at least 51% of the value of the contract shall be of Iranian content, unless otherwise approved by the Management and Planning Organization and ratified by the Supreme Economic Council. 6) Import/Export Regulations and Prioritization of Importation of Goods 6.1 General Import and Export Regulations In accordance with Article 1 of the Foreign Trade Monopoly Act (FTMA) of 1311, as amended, the foreign trade of Iran is a Government monopoly. By virtue of Article 3 of FTMA, the Government may not be directly involved in the importation and exportation process and therefore may assign its right to persons or companies under certain terms and conditions. In line with such monopoly, the Export Import Regulations Act of 1993 has classified products into three categories: permissible goods the exportation or importation of which requires no license; conditional goods the exportation or importation of which requires a license; and prohibited goods the exportation or importation of which is forbidden. For instance, the import of food, beverages, cosmetics and health products requires a licence from Ministry of Health. Certain products are subject to obtaining importation license from the Organization for Protection of Consumers and Producers and certain others are subject to mandatory price fixing. Prohibited imports include some luxury items, alcohol, 12

13 pork, narcotics, guns and ammunition, aerial cameras, radio transmitters, gambling and debauchery paraphernalia and indecent materials. In line with FTMA, the Government may, from time to time, prohibit the exportation or importation of certain goods. In addition, engagement in exportation and importation activities for commercial purposes requires a commercial card to be issued by the Iran Chamber of Commerce, Industries and Mines and approved by the Ministry of Commerce. Moreover, importers are required to register their import orders with the Ministry of Commerce. Following the enactment of the Duties Consolidation Act of 10 th December 2002, since 21st March 2003, different duties and levies applicable to imported products have been amalgamated into two kind of levies: Customs Duties which have been fixed at 4% of the value of the goods, which can only be modified by the parliament; and a Commercial Benefit Tax which is determined from time to time by the Iranian Government with due consideration of protection of local industries and consumer rights/needs (reduced CBT and preferential customs terms apply in some ports and common border markets to help and assist with their economic development and reduce deprivation), which together constitute Import Duties (Article 2 of the Act). Payment of the Commercial Benefit Tax is, in principle, demanded by the Government for granting privilege to a private sector importer to import certain products in place of the Government. All kinds of exemptions and preferential tariff rates regarding imports for government agencies and for natural and legal persons have been eliminated. Thus, importation is only carried out within the framework of the national tariff system. Customs Duties and Commercial Benefit Tax will be determined on an ad valorem basis, applied to the CIF value of the goods. Iran follows the Harmonized Commodity Description and Coding System (HS) for classification of goods. The following documents are required for importation: proforma invoice, commercial invoice, packing list, bill of lading, insurance policy and certificate of origin. Other documents may also be required on a case-by-case basis: inspection certificate, freight invoice, any license as may be required from the relevant governmental authority, fair price certification from the local chamber of commerce. At the time of order registration with the Ministry of Commerce, the identification number of the relevant standard or technical specifications of the goods acceptable to the Ministry of Industries & Mines shall be stated in the application form. The conformity of the goods imported with such standards or specifications shall be certified by an approved authority. The Standard Institute has recently become independent by leaving the Ministry of Industry, Mine and Commerce and becoming a Vice Presidency reporting directly to The President. This independence should result in the implementation of more uniform standards including for imports. All persons and companies supplying foreign products in Iran are required by law to: (a) register a branch or an agency at the Ministry of Commerce for the supply of their products; (b) provide after sale services; (c) provide to customers along with the product a brochure (manual) in Farsi, a warranty card, and an after sale service card in respect of long life products; and (d) supply and sell their products in particular packaging which 13

14 shows the registration number of the company, specifications of the product, serial numbering and hologram. The export of most locally produced goods requires no export license. However, the export of certain goods requires the exporter to obtain an export license on a case-by-case basis from the relevant authorities. The export of goods is virtually exempted from any customs duties and also attracts no Commercial Benefic Tax. However, the export of certain products requires the exporter to make a commitment to the Central Bank of Iran to return the export earnings in hard currency. To promote exports, certain incentives, such as tax exemption and export subsidies and prizes, are offered to exporters. 6.2 Recent Developments in Regulations and Prioritization of Importation of Goods Although Iran has ample foreign currency reserves with official quoted figures of about $100 billion, however since substantial amount of the reserves are oil revenues resulting from oil exports to countries such as China, India, Japan, Korea and Turkey, the US sanctions imposed do not allow such funds to be repatriated or moved and transferred to other countries for Iran s foreign trade other than being used for exports from these countries to Iran, consequently the amount of foreign currency availability to the Central Bank of Iran for foreign trade with other countries has become more limited. Leading on from this, Iran introduced a system of prioritisation of goods for the import requirements of the country since October 2012, classifying goods appearing in the official tariff book into 10 priority groups. Goods appearing in groups 1 to 9 being entitled to allocation of official foreign currency at Transaction Rate. Goods in any of the nine priority groups may also be imported with non-banking (i.e. free market) foreign currency. Priority group 10 of goods are currently prohibited from order registration and imports even through the use of nonbanking (i.e. free market) foreign currency. The 10 priority groups of goods are as follows: 1- Essential goods (grains and food items and animal feed); 2- Medicine; 3- Basic materials for industrial and agricultural production; 4- Raw materials for productive units for production of hydrocarbons, paints, print inks, film and zing, etc.; 5- Intermediary materials and parts; 6- Parts and CKD for the automotive sector; 7- Semi made goods for assembly; 8- Capital goods and industrial machinery (various machinery for production lines and workshops); 9- Durable finished goods; 10- Finished goods of a non-essential and unnecessary nature. Order registration must be performed at the Ministry of Industry, Mine and Commerce for imports, followed by application for allocation of foreign currency at the official Transaction Rate, with the approved applicants being referred to the banking system for their foreign currency requirement. Payment method for imports is through L/C but also increasingly through advance cash payment transfer due to sanctions imposed on Iran. 14

15 Effective as from 21 st November 2012, calculation of customs duties of imported goods was changed to be based on the rate of foreign currency as prevailing at the Foreign Exchange Transaction Centre being about twice the value of the official base rate of foreign currency. In order to compensate for the huge resulting increase in duties as a consequence of this change, Minister of Economic Affairs announced on 17 th November 2012 of reductions in rates of tariff by 50% for goods in priority groups 1 & 2 and by 45% for goods in other priority groups by the Customs Administration, effective as from 21 st November 2012 for implementation. Importation to Iran is possible through the following import methods: transfer of government hard currency through the banking system, foreign exchange of foreign origin ( non-banking foreign currency ), imports against exports, imports through exchanges at common border markets, border barters, and peddling. Many goods can be imported using hard currency of foreign origin (i.e. called nonbanking foreign currency type of foreign exchange), and in such cases there is no need to open an L/C. This type of currency is transacted freely and can be transferred abroad without any significant restrictions. Government hard currency at the official base rate and the official Transaction Rate are also available through the local banking system for budgeted and approved imports of goods and services. There are also instances of Supplier s credit being offered to customers in the territory for imports. The approval of the Duties Consolidation Act has immensely helped transparency and reduction of bureaucracy and efforts in clearance of goods through customs. The approval of this Act and the freeing of most imports are parts of efforts made by the government towards preparations for Iran eventually joining WTO sometime in the future. It is important to note that there is a requirement for foreign companies to appoint an official representative in Iran. The requirement has provisions as follows: All legal and natural persons supplying foreign products and services to the country [Iran], should supply such products and services in the market within the announced regulations of the Ministry of Industry, Mine and Commerce by having an official representative and after sales service. If the said regulations are not observed by the legal and natural persons, the products and services shall be in breach of the smuggling law. The government is trying very hard to combat the very substantial illegal importation of goods and the black economy, which results in huge loss of tax revenues. Therefore, the above requirement was approved within the annual budget acts to enable the government to more easily pursue the offenders and identify and distinguish those foreign goods which are imported legally from those goods smuggled into Iran. 15

16 Customs Office offers facilities to productive units and investors in respect of payment of import duties of machinery, raw materials and intermediary goods through : 1) arranging for clearance of goods by obtaining bank guarantee of minimum 6 months term and maximum 11 months term; 2) clearance of parts and raw materials of productive units on credit terms and without payment of import duties; 3) keeping part of the goods equivalent to the value of import duties for clearance of the rest of the goods to help productive units which face shortage of liquidity. In consideration of emphasis made by the Leader of IRI in October 2011 prohibiting all government organisations from purchase and import of those foreign goods which have similar locally made type, the Council of Ministers decided at its meeting of 6 th October 2011 to expand the list substantially of ministries and public institutions and entities subject to such prohibition. In order to protect local production, a total of 352 items of goods were notified in two stages to ministries and public institutions and companies which have been prohibited from purchase and import of such foreign goods. A new Guideline was issued by the Customs Office in mid-march 2012 for valuation of imported goods for customs purposes which amongst its new provisions attempts to prevent cases of lower and higher values being declared particularly in respect of value of some goods of higher risk category. Although the implementation of the two dimensional bar code scheme (SHABNAM scheme) on goods for combating with smuggled goods (SHABNAM scheme) was suspended in late January 2012, however the President of the National Guilds Centre of Ministry of Industry, Mine & Commerce announced its implementation as from 20 th April During the 1 st phase of implementation, the scheme set about covering 5 product groups including cosmetics/health products, home appliances (TV, microwave oven, gas cooled air-conditioning, vacuum cleaner, juice extractor, iron, photo & film cameras, etc.), mobile phones, medical equipment, and computer & peripheral equipment. The implementation of the scheme became fully effective as from 9 th May ) Finance & Banking Support for Foreign Trade Although the loss of revenues from oil, coupled with the cutting-off of Iran from the international banking system, has adversely impacted Iran s economy and its international trade, however, both Iran s public and private sectors have been able to mitigate considerably the negative economic impacts of the sanctions, particularly in the area of trade. As such, while Iranian public and private sectors have found and negotiated ways for Iran s L/Cs to become operative with and accepted by a number of Asian and European banks and facilitate for transfer of funds, the use of barter trade has been on the rise. Currently, a number of banks from those countries being the main buyers of Iranian oil and also some banks in Europe and other regions accept Iran s L/Cs and transfer of funds for all or some non-sanctioned goods and services (list of such banks should be requested from the relevant embassies and authorities). 16

17 Iran uses its deposited oil sales in certain countries (particularly India, China and Korea) that trade with Iran to pay for the imported products from these countries through bilateral agreements facilitating for conversion of part of the oil proceeds to local currencies of these countries. Very substantial amounts of financial transactions are also carried out with various countries through exchange bureaus. In addition to prioritisation of goods into 10 groups according to their importance for the import requirements of the country (with priority diminishing down the scale from group 1 to group 10) as detailed and listed in the previous section, the type of foreign currency required by the importer as appearing on the proforma invoice also plays a very important role in the allocation of FOREX to applicants. The FOREX Transaction Centre at the Ministry of Industry, Mine & Commerce, which introduces the approved applicants to the banking system for allocation of official FOREX, generally encourages importers to bring proformas in Yuan, Rupees and WON which are more readily available to Iran through sales of crude oil to China, India and South Korea. In respect of such currencies the allocation is also relatively much faster. In comparison, even UAE Dirham is not as easily allocated and any allocation made is at a premium. Further, the chances of allocation of USD and EURO are relatively lower. Previously goods and raw materials of factories were imported by making a down payment in the range of 10% to 20% for opening the LC, however the down payment has increased to 100% and at times as high as 135% in order for the banks to cover against risk of currency fluctuation. This places huge burden on industry and importers. Central Bank of Iran and the Iranian public sector Banks which are on the sanction lists of the UN and/or EU include Bank Sepah, Bank Saderat, Bank Melli, Bank Mellat, Bank Tejarat, Bank Refah, Bank of Industry & Mine, Sina Bank, and the Export Development Bank. The US has also additionally imposed sanctions on Iranian private sector banks and the other public sector banks. Public Sector Banks which are not on the EU sanction list include Bank of Agriculture and Bank Maskan (Housing Bank). None of the private sector banks also currently appear on the EU sanction list. The following banks are particularly recommended which are the biggest and the most reputable amongst the private sector banks : Bank Parsian, Bank Eghtesad Novin, Bank Pasargad, and Bank Saman. These banks have strong international departments and have rapidly expanded their networks of correspondent banks and cooperation bases abroad and through them and their Exchange Bureau companies it is likely to get L/Cs and fund transfers established and achieved with destinations and recipients abroad, but with more relative ease with China, Russia, Turkey, South Korea, Malaysia, India and Japan. Under sanction conditions Exchange Bureau companies of banks and licensed Bureaus of Exchange play a very important role in arranging financial transactions and transfer of funds and foreign exchange for imports and other requirements of the country. Due to the sanctions and restrictions imposed on a number of Iranian banks by the UN, US and EU in their dealings with the international financial system, there are many European banks, including and particularly major banks, which no longer work with any Iranian banks due to the pressures from the US and their exposure to the US even those banks which are not on the sanction list of any of the aforementioned. The US 17

18 has penalized and fined some major European and far eastern banks with substantial business activities with Iran including UBS, Credit Suisse, ABN-AMRO, Lloyds-TSB, Barclays, HSBC, Standard Chartered, Deutsche, Tokyo-Mitsubishi, etc. It should be mentioned that some banks in EU countries act more conservatively than others due to their own internal policies in respect of transactions with the Iranian banking system. Some European banks work with those Iranian public and private sector banks which are not on the UN and EU sanction lists and accept L/Cs and funds transfers from such Iranian banks for trade of all or some non-sanctioned goods and services. These banks generally tend to be the smaller and regional banks with no significant exposure to the US (their list should be requested from the relevant embassies and authorities). In order to ensure that the L/C and funds transfer can be successfully executed from Iran for the benefit of a foreign supplier, in addition to ensuring that the banker of the foreign supplier be prepared to work with the Iranian bank used by the buyer, it is very important to ensure that the correspondent/intermediary banks used by the banker of the foreign supplier would also be prepared to work with the Iranian bank being used by the Iranian buyer for the opening of L/C or funds transfer. If not then since most foreign suppliers have a number of bankers, by switching from one bank to another which would also be prepared to work with Iranian banks and which may also be using correspondent/intermediary banks which also work with Iranian banks, the financial transaction can be executed successfully between all the banks involved. It is recommended that foreign suppliers and Iranian buyers check with their bankers regarding the above issues in advance and also check with the embassies and joint chambers of commerce and other authorities as necessary in order to ensure that they are using the right network of foreign and Iranian banks for successful implementation of their transaction. Due to the banking restrictions imposed by the UN, US and EU on Iran and difficulties experienced in certain instances in opening and making payments through L/Cs with some countries, and also some suppliers not accepting Iranian L/Cs, full advance payment transfer method is being used more in comparison to the past in respect of some foreign purchases by Iranian buyers. Due to the EU Council decision prohibiting EU companies from providing specialized financial messaging services to Iranian banks under EU sanctions, SWIFT discontinued in mid-march 2012 its communications services to those Iranian financial institutions that are subject to European sanctions, effectively cutting them off from the global financial system. SWIFT services remain available to all Iranian private sector banks and Bank of Agriculture and Housing Bank of the public sector. 18