Mr. Raisi has sworn in as the new president of Iran after winning the elections of June 2021. Business people are looking forward to finding out what this change of guard means for business. Perhaps the most crucial aspect to look at would be his stance towards the Comprehensive Plan of Action (JCPOA). Major foreign policy stances of Iran are not exclusively decided by the sitting presidents; however, election of a particular president could play the role of a weather vane and might indicate the direction Iran is going towards.
Contrary to what his political background might suggest, Mr. Raisi has not taken an anti-JCPOA stance and most political commentators believe that he and his camp are more eager than they appear to have a deal in bag as they understand that there is simply no other option. Mr. Abdollah Ganji, the editor-in-chief of the conservative Javan Newspaper, which belongs to Mr. Raisi’s political camp, has gone as far as to suggest that removal of international sanctions should be a top priority for Raisi’s government. However, some might suggest that we might not see the same level of prowess and eagerness in striking a deal as we could expect from Rouhani’s foreign policy team. Additionally, Biden’s administration has also taken a wait and see his stance as they purport that it will be Raisi’s decision to take. As such, we are still not too close to restoring the JCPOA, and we should monitor the developments in the coming months.
Regarding, Mr. Raisi’s domestic economic policy, some businesses might worry about his spending promises; however, he has also promised to cut the corporate tax significantly and has taken some other pro-business stances as well. His economic team appears to be an amalgam of different economic camps.
Free trade zones and Special Economic Zones in Iran were established with a view to facilitating business for Iranian and foreign nationals and obviating many bureaucratic barriers.
However, in recent years, as a result of budget deficiencies, the government has made certain changes to the regulatory framework governing such zones in Iran. For example, while according to Article 13 of the Law on the Administration of Free Trade – Industrial Zones of Islamic Republic of Iran, the payment of value added tax is not obligatory for the first 20 years of activity in these zones, the Budget Bill of 1400 has revoked this exemption and thus all activities in these areas will be subject to VAT taxation.
Additionally, special economic and free trade zones have been exempted from certain importation regulations. However, on 11 April 2018, the official government of Iran required that the import and export of goods to / from these areas is possible only through placing orders. This decision was allegedly against the nature and philosophy of special economic zones and was thus confronted with objections from traders. As a result of such objections, the Court of Administrative Justice on June 2021 revoked the requirement of placing order for import and export of goods. This should be good news for businesses looking to invest in FTZs.
Many foreign investors adopt a conservative approach when intending to deal with Iran even if their activities are not subject to US secondary sanctions. In particular, many foreign companies avoid registering corporate entities in Iran fearing that their information will be placed in publicly available databases. However, there are options that can offer foreign nationals a safety margin to act in Iran without exposing themselves to sanctions compliance risks.
Generally, the investors have four options to establish their business in Iran:
To incorporate a Limited Liability Company (“LLC”); or
To incorporate a Private Joint Stock Company (“PJSC”); or
To appoint a contractual representative; or
To establish a branch office in Iran.
Under Iranian Commercial Code, PJSCs may be established by at least three shareholders and LLC may be established by two or more shareholders, which may be legal entities or natural persons. Non-Iranian natural persons and legal entities can also be shareholders in both PJSC and LLC and can hold even up to 100 per cent of its capital. Such companies will have Iranian nationality and legal personality regardless of their ownership.
While the information regarding LLCs including shareholders’ name will be available at Iranian database such as the Official Gazette, the name of PJSC shareholders will not be published in any databases and remain confidential as long as shareholders are not also acting as directors.
In light of this, foreign companies and individuals are advised to engage in Iran under the present circumstances either contractually, through assigning a representative and subject to confidentiality, or by establishing a PJSC in which directorship is managed by Iranian trustees.