As Iran’s economic interactions with foreign business partners continue to expand, the question of “What taxes are foreign companies required to pay in Iran?” is one of the most frequently raised questions we encounter. This question arises from Iranian nationals residing abroad who intend to establish or participate in a business activity involving a foreign company, foreign companies seeking to enter the Iranian market, companies already operating in Iran, and companies whose presence in Iran is limited to a branch or representative office.

The key point to bear in mind from the outset is that, contrary to a common misconception, Iran’s tax system does not impose a single tax rate or uniform tax regime on foreign companies. The tax obligations of each foreign company depend, above all, on the legal form and structure of its presence and activities in Iran. The following sections examine the principal taxes and tax obligations applicable to foreign companies operating in Iran.

Applicable Legal Framework

The principal legal sources governing the taxation of foreign companies in Iran include the Direct Taxation Act, the Value Added Tax Act, the Foreign Investment Promotion and Protection Act (FIPPA), the Act on the Administration of Free Trade-Industrial Zones of the Islamic Republic of Iran, and, where applicable, bilateral agreements for the avoidance of double taxation concluded between Iran and certain countries.

In addition to statutory provisions, executive regulations, circulars and directives issued by the Iranian National Tax Administration, as well as tax provisions contained in annual budget laws, may affect the implementation of tax obligations and annual tax rates and exemptions. Accordingly, the tax position of a foreign company should always be assessed with reference to the relevant tax year and the latest applicable regulations.

First Step: How Does the Foreign Company Operate in Iran?

Before answering the question of “What taxes must be paid?”, it is necessary to determine “How does the foreign company operate in Iran?” The Direct Taxation Act provides different tax rules depending on the form through which a foreign company conducts its activities in Iran.

  • Establishment of an Iranian Company with Foreign Capital

One of the ways in which foreign investors enter the Iranian market is by establishing an Iranian company with foreign capital. From a legal perspective, such a company is a separate legal entity from the foreign company or investor and, with respect to corporate income tax, is generally subject to the rules applicable to Iranian legal entities.

Under Article 105 of the Direct Taxation Act, the taxable income of legal entities, after the applicable deductions and exemptions, is generally subject to tax at a rate of 25 percent. Accordingly, the foreign nationality of the shareholders or the extent of foreign participation in the company’s capital does not, in itself, result in a different corporate income tax rate.

  • Registration of a Branch or Representative Office of a Foreign Company

Where a foreign company operates in Iran through a registered representative office or branch, an important distinction must be made. If the branch or representative office operates solely for purposes such as marketing and collecting economic information for the parent company, does not have the authority to enter into transactions, and receives funds from the parent company solely to cover its expenses, it may, pursuant to Note 3 to Article 107 of the Direct Taxation Act, be exempt from income tax in respect of those funds.

However, if the branch or representative office actually engages in transactions or earns profits through the employment of capital in Iran, it may, pursuant to Note 4 to Article 107, become subject to Article 106. In such circumstances, its income is determined on the basis of its actual books, records and supporting documents and is generally subject to the applicable 25 percent corporate income tax rate.

  • Activities of a Foreign Company Without Establishing a Company or Registering a Branch

Foreign companies or legal entities resident outside Iran may earn income from Iran without establishing an Iranian company or registering a branch or representative office. For example, they may enter into contracts involving construction and engineering services, technical and engineering services, transfer of technical know-how, licensing or the exploitation of rights, films and similar activities.

Depending on the nature of the income and the circumstances of the activity, such income may be subject to the special provisions of Article 107 of the Direct Taxation Act, discussed below.

Corporate Income Tax: The 25 Percent Rate

For an Iranian legal entity operating in Iran, including an Iranian company established with foreign capital, Article 105 of the Direct Taxation Act generally subjects its taxable income—after deduction of allowable losses and applicable exemptions—to a uniform rate of 25 percent.

An important point for foreign investors is that this rate applies to the company’s taxable income, rather than to its total turnover or gross revenue. Accordingly, the final tax liability must be determined after taking into account taxable income, allowable expenses, deductible losses, exemptions and other applicable statutory provisions.

Furthermore, under Note 4 to Article 105, dividends or partnership interests received from companies are, under the conditions prescribed by law, not subject to additional taxation at the level of the recipient. Therefore, when considering the distribution and remittance of profits from an Iranian company to a foreign shareholder or parent company, the taxation of the Iranian company and the tax treatment of the recipient should be considered separately and in light of the applicable rules.

Special Rule under Article 107: Taxation of Foreign Companies Resident Outside Iran

One of the most important provisions concerning foreign companies is Article 107 of the Direct Taxation Act, as amended in 2015. This provision applies to foreign individuals and legal entities resident outside Iran that derive income from Iran or in Iran, in specified circumstances, including the preparation of building and installation plans, surveying and mapping, supervision and technical calculations, training and technical assistance, transfer of technical know-how, other services, and the licensing or transfer of rights and privileges, including cinematographic films.

In such cases, the law determines taxable income on the basis of 10 to 40 percent of the total amounts received during the relevant tax year, depending on the type of activity and its profitability. Accordingly, the taxable income is not necessarily determined on the basis of the foreign company’s actual profit; rather, a specified percentage of the gross amount received is treated as taxable income in cases falling within Article 107.

The precise coefficient applicable to each activity is determined under the executive regulations of Article 107. Therefore, before entering into a contract, the parties should determine the applicable classification and coefficient for the relevant activity.

Once the taxable income has been determined under Article 107, the applicable corporate income tax rate is then applied. Consequently, the tax burden should not simply be calculated as 25 percent of the total gross contract value.

Who Is Responsible for Withholding Tax under Article 107?

In transactions and contracts falling within Article 107, the Iranian payer plays an important role in complying with the relevant tax obligations. Under the executive regulations of Article 107, payers are required to calculate and withhold the applicable tax from payments made to the foreign recipient and remit the withheld amount to the tax authorities within the prescribed period.

Failure to comply with this withholding obligation may, under the applicable rules, result in joint and several liability of the payer and the foreign recipient for the underlying tax and related penalties.

Accordingly, a foreign company entering into a contract with an Iranian employer or contractual counterparty should determine, before signing the agreement, whether its income falls within Article 107 and what amount of tax will be withheld from its payments. This issue may directly affect the contract price, net amount receivable and drafting of the financial provisions of the agreement.

Value Added Tax (VAT)

The supply of goods and provision of services falling within the scope of Iran’s Value Added Tax Act may give rise to tax obligations for foreign companies, Iranian companies with foreign capital, and their branches or operating units in Iran.

The general rate of value added tax and related charges in 2026 is 10 percent. However, certain goods and services are exempt from VAT or are subject to specific rules under the applicable legislation.

Accordingly, a foreign company that supplies goods or provides taxable services in Iran may, depending on the nature of its activities, be required to comply with obligations relating to registration within the tax system, issuance of electronic invoices, recording transactions, and payment of the relevant tax and charges. A company’s foreign status does not, by itself, exclude it from the Iranian VAT regime.

VAT and related charges may also arise in connection with imports in accordance with the applicable rules. Therefore, when determining the actual tax cost of a commercial activity, the parties should consider not only corporate income tax but also VAT and other applicable taxes, charges and costs.

Employment Income Tax

A foreign company employing personnel in Iran through an Iranian subsidiary, branch, representative office or another legally permitted structure must comply with the applicable rules concerning employment income tax. In this context, the employee’s nationality is not, by itself, determinative; the employee’s employment status, the source of the employment income and the applicable tax rules must be considered.

Under the tax provisions applicable in 2026, employment income up to IRR 4.8 billion per year, equivalent to approximately IRR 400 million per month, is exempt from employment income tax, while income exceeding that threshold is subject to progressive taxation.

The general monthly structure of the applicable rates is as follows:

Monthly Income Tax Rate
Up to IRR 400 million Exempt
More than IRR 400 million up to IRR 800 million 10%
More than IRR 800 million up to IRR 1 billion. 15%
More than IRR 1 billion up to IRR 1.2 billion 20%
More than IRR 1.2 billion up to IRR 1.4 billion 25%
Above IRR 1.4 billion 30%

The employer is responsible for calculating, withholding and remitting the applicable employment income tax in accordance with the statutory requirements.

Tax on the Transfer of Shares

The tax treatment of transfers of shares and pre-emptive rights depends, among other things, on where the transaction takes place.

Under Article 143 bis of the Direct Taxation Act, the transfer of shares and pre-emptive rights of companies, whether Iranian or foreign, on stock exchanges or licensed over-the-counter markets, is subject to a final tax of 0.5 percent of the sale value of the shares or pre-emptive rights.

This tax is collected at the time of transfer, and no additional tax is imposed in respect of the same transaction as income tax on the transfer of shares or pre-emptive rights or as VAT on the purchase and sale of such securities.

Accordingly, the 0.5 percent rate under Article 143 bis should not automatically be extended to all share transfers, including transactions conducted outside stock exchanges or licensed over-the-counter markets. Transactions falling outside the scope of this provision should be assessed separately under the rules applicable to the relevant type of transfer.

Tax Exemptions in Free Trade-Industrial Zones

Free trade-industrial zones are among the structures that provide specific tax incentives for qualifying economic activities. Under Article 13 of the Act on the Administration of Free Trade-Industrial Zones, the statutory tax exemption applicable to qualifying economic activities in these zones extends for a period of 20 years.

However, this exemption should not be interpreted as applying automatically to all income earned by an individual or company merely because the entity is registered in a free zone. The exemption relates to qualifying economic activities carried out within the relevant zone and is subject to the applicable legal requirements. Where activities are conducted both inside and outside the zone, the application of the exemption must be assessed separately.

It is also important to distinguish between free trade-industrial zones and special economic zones. Registration or operation in a special economic zone does not, by itself, create the same tax exemption available under the applicable rules governing free trade-industrial zones.

Tax Return and Compliance Obligations

In addition to paying taxes, compliance with tax filing, accounting and record-keeping obligations is of significant importance to legal entities operating in Iran.

Under Article 110 of the Direct Taxation Act, legal entities are required, within a maximum period of four months after the end of the tax year, to submit their tax return, balance sheet and profit and loss account, supported by their books, records and documents, to the tax office having jurisdiction over the principal place of business of the legal entity and to pay the tax due.

Article 110 further provides that, for foreign legal entities and entities resident outside Iran that do not have a domicile or representative office in Iran, the place for filing tax returns and paying tax is Tehran.

Failure to comply with statutory deadlines and other tax obligations may result in the penalties prescribed under the Direct Taxation Act. For example, in cases falling within Article 192, failure to file a required tax return within the prescribed period may result in the statutory penalty, while late payment of tax may, under the conditions set out in Article 190, result in additional penalties.

Foreign companies operating in Iran should therefore ensure compliance not only with their substantive tax obligations but also with the applicable deadlines for filing tax returns, submitting supporting documents and paying taxes.

What Are the Consequences of Failing to Pay Taxes?

Failure to pay taxes or comply with tax obligations within the prescribed time limits may expose a taxpayer, including a foreign company operating in Iran, to various financial and legal consequences.

Under Article 190 of the Direct Taxation Act, late payment of tax may, under the circumstances prescribed by law, result in penalties. Furthermore, where tax liabilities are paid outside the periods specified by the law, the penalty provided under Note 1 to Article 190 may amount to 20 percent of the relevant tax liability. The law also provides for the possibility of remission of part of the penalties in certain circumstances.

Failure to file a required tax return may, under Article 192, result in the applicable statutory penalty. Similarly, failure to submit a balance sheet, profit and loss account or statutory books in cases falling within Article 193 may result in the penalties prescribed by that provision.

With respect to legal entities, Article 198 provides, under the conditions set out therein, for the joint and several liability of the managers for corporate income tax and for taxes that the legal entity was required to withhold and remit and that relate to the period of their management.

Where conduct falls within Article 201 and involves knowingly and intentionally using false books, records, financial statements or other prescribed means with the purpose of evading tax, the conduct may, in addition to its tax consequences, give rise to criminal liability.

Article 202 also provides, under specified circumstances, for the possibility of preventing tax debtors from leaving Iran. Accordingly, non-compliance with tax obligations may have consequences extending beyond the accumulation of tax debt and penalties and may create broader legal and practical risks for the taxpayer and, where applicable, its managers.

Conclusion

The taxation of foreign companies in Iran is not governed by a single tax rate or uniform regime. To determine the tax position of a foreign company, it is first necessary to establish whether it operates through an Iranian company with foreign capital, a branch, a representative office, or contractual activities without establishing a company or registering a branch in Iran.

The nature of the income and business activity, the place where the income is generated, the method of receiving and remitting funds, the availability of tax exemptions and incentives, and, where applicable, the existence of an applicable double taxation treaty must then be considered. Generally, an Iranian company with foreign capital is subject to the ordinary corporate income tax regime and the 25 percent rate under Article 105, while certain income earned by foreign companies resident outside Iran may fall within the special regime of Article 107. Depending on the nature of the activity, VAT, employment income tax, share transfer tax and other statutory taxes and obligations may also apply.

At the same time, obtaining an investment licence under FIPPA does not, by itself, constitute a tax exemption, while the availability of incentives in free trade-industrial zones depends on the conditions and limitations prescribed by law. Given that certain tax rates, exemptions and procedural requirements may change annually through budget legislation and administrative regulations, and given that the precise tax treatment of a foreign company depends heavily on the structure of its activities and contractual arrangements, a case-specific assessment should be conducted before entering the Iranian market, establishing a business, registering a branch or representative office, entering into a significant contract, or remitting profits abroad.

The legal professionals and attorneys at Rezvanian International  assist foreign companies and investors in assessing their tax obligations, structuring their activities in Iran, and identifying available legal incentives and compliance requirements.