Iran, with its substantial domestic market, extensive natural resources, skilled workforce, and diverse opportunities across the industrial, mining, agricultural, services, and infrastructure sectors, offers a range of potential avenues for foreign investment. However, entering the Iranian market involves more than a purely commercial decision. Before taking any practical steps, a foreign investor should carefully identify and assess the legal framework and regulatory requirements governing foreign investment in Iran.

The principal legislation governing foreign investment is the Foreign Investment Promotion and Protection Act of 2002 (the “FIPPA”). FIPPA establishes the principal framework for the admission of foreign investment, the entry and registration of foreign capital, legal protections available to investors, the repatriation of capital and profits, and certain aspects of dispute resolution between the government and foreign investors.

FIPPA, however, should not be viewed as the sole legislation applicable to foreign investment in Iran. Depending on the nature and location of the proposed activity, a foreign investor may also be subject to a range of rules concerning corporate matters, taxation, customs, foreign exchange, employment, environmental protection, intellectual property, sector-specific regulations, and free trade and special economic zones. Accordingly, the investment structure should be assessed before capital is introduced into Iran and in light of the specific characteristics of each project.

Defining “Foreign Investor” and “Foreign Capital”

Under FIPPA, a “foreign investor” may be a non-Iranian natural or legal person, as well as an Iranian natural or legal person using capital of foreign origin, provided that the investment authorization required under the Act has been obtained. In other words, the mere fact that the investor or capital is foreign does not, in itself, entitle the investment to the protections available under FIPPA. The investment must be admitted under the statutory framework and the relevant authorization must be issued.

The concept of “foreign capital” under FIPPA is also not limited to cash. Foreign capital may include convertible cash funds, machinery and equipment, tools and spare parts, raw materials, patents, know-how, trade names and trademarks, specialized services, and certain other forms of capital.

Accordingly, foreign investment in Iran may take place not only through the transfer of funds, but also through the transfer of physical assets and certain intangible assets and rights.

What Types of Foreign Investment Are Permitted in Iran?

FIPPA provides for two principal routes for the admission of foreign investment.

Foreign Direct Investment

Foreign direct investment is permitted in areas where private-sector activity is legally permissible. Under this structure, the foreign investor contributes capital to a new or existing Iranian business enterprise.

Depending on the structure selected, such investment may be made through the incorporation of a new company, participation with an Iranian partner, investment in an existing enterprise, or an increase in the capital of an existing company.

Where the investment is made in an existing enterprise, admission under FIPPA is subject to the creation of new added value, including through increased investment, improved management, expansion of exports, or technological development.

Foreign Investment through Contractual Arrangements

FIPPA also recognizes foreign investment through contractual arrangements, including Civil Partnership, Buy-Back, and Build-Operate-Transfer (BOT) structures.

Under these arrangements, the return of capital and the investor’s economic benefits must derive from the economic performance of the project and should, in principle, not depend on guarantees provided by the government, banks, or state-owned companies, unless such guarantees are permitted under the applicable law or contractual framework.

Accordingly, the choice between a direct investment structure and a contractual arrangement should be made based on factors such as the nature of the project, the degree of control required by the investor, the financing structure, the duration of the project, the ability to transfer economic benefits, and sector-specific regulatory requirements.

Is Foreign Investment Permitted in All Economic Sectors?

FIPPA provides a relatively broad framework for foreign investment and permits investment in productive, industrial, mining, agricultural, and service activities, subject to the applicable legal requirements.

Foreign investment is not, however, unrestricted. Under Article 2 of FIPPA, an investment must contribute to economic growth, technological development, improvement of product quality, employment creation, and increased exports. It must also not threaten national security or public interests, cause environmental damage, disrupt the country’s economy, or undermine domestic production based on domestic investment.

The Act also prohibits the granting of privileges that would place a foreign investor in a monopolistic position.

Another limitation under Article 2 concerns the proportion of goods and services produced by foreign investment and supplied to the domestic market. At the time of issuance of the investment license, this proportion must not exceed 25% in any economic sector and 35% in any sub-sector (field of activity) of the value of goods and services supplied to the domestic market.

Investments intended to produce goods and services for export, with the exception of crude oil, are exempt from these ratios.

Importantly, these thresholds do not refer to the foreign investor’s shareholding percentage in a company. Rather, they concern the proportion of goods and services resulting from foreign investment in the overall domestic market of the relevant sector or sub-sector. Accordingly, these provisions do not, by themselves, establish a maximum percentage of foreign ownership in an Iranian company.

In addition to the above, restrictions concerning land ownership by foreign nationals, which are governed by separate legislation, must also be taken into account.

Does a Foreign Investor Need an Investment License?

Yes. One of the most important matters a foreign investor should address before introducing capital into Iran is obtaining the relevant foreign investment license.

The Organization for Investment Economic and Technical Assistance of Iran (OIETAI) is the governmental authority responsible for foreign investment matters. Applications concerning the admission of foreign investment and the entry, utilization, and repatriation of foreign capital are processed through OIETAI within the framework of the applicable legislation.

Following a preliminary review by OIETAI, the investor’s application is submitted to the Foreign Investment Board for consideration. The Board includes representatives of the relevant economic authorities, the Ministry of Foreign Affairs, the Central Bank, and, where appropriate, other governmental bodies concerned with the proposed investment.

Following approval by the Board, the investment license is issued with the approval and signature of the Minister of Economic Affairs and Finance.

The investment license should not be regarded merely as an administrative permit to commence economic activity. In practice, it establishes the framework of the investment approved by the Iranian government and sets out information such as the identity of the investor, the type and amount of foreign capital, the method of capital contribution, and other conditions applicable to the investment project.

How Is Foreign Capital Introduced and Registered?

Once the investment license has been obtained, the foreign capital must be introduced into Iran and registered in accordance with the conditions and structure specified in the license.

Capital may be introduced in either cash or non-cash form. Cash capital may be converted into Iranian rials or, subject to the applicable requirements, may be used without conversion into rials for purchases and orders relating to the investment.

Non-cash capital may also qualify for protection under FIPPA following the applicable valuation and registration procedures.

In the case of non-cash capital, accurate documentation is particularly important. Machinery, equipment, spare parts, raw materials, and other items must be imported in accordance with the investment license and applicable customs and import regulations, and their value must be determined and registered by the competent authorities.

Foreign capital may also be introduced in the form of certain intangible assets and rights, including know-how, technology, patents, trademarks, and specialized services. In such cases, determining the value of the contribution and properly documenting its transfer are essential, as the registered value of the foreign capital may subsequently become relevant to matters such as the repatriation of capital and investment proceeds.

Accordingly, before introducing any capital into Iran, the investor should ensure that the precise list of cash and non-cash contributions, the origin of the capital, the method of transfer, and the valuation of the contributed assets are consistent with the terms of the investment license.

Legal Protections Available to Foreign Investors

One of the principal reasons foreign investors make use of the FIPPA framework is the range of protections available to admitted foreign investments.

Under Article 8 of FIPPA, foreign investments covered by the Act are to benefit from the same rights, protections, and facilities available to domestic investments. Equal treatment of foreign and domestic investments is therefore one of the fundamental protections provided by the Act.

FIPPA also provides protection against expropriation and nationalization. Under Article 9, a foreign investment may not be subject to expropriation or nationalization unless the measure is undertaken for public purposes, pursuant to due legal process, and on a non-discriminatory basis, with appropriate compensation paid on the basis of the real value of the investment immediately prior to the expropriation.

This protection is particularly significant for foreign investors because the risk of governmental interference with ownership or the operation of an investment is among the key legal risks associated with international investment.

Repatriation of Capital, Profits, and Investment Proceeds

For a foreign investor, the ability to exit an investment and transfer profits abroad is as important as the ability to introduce capital into the country.

FIPPA establishes a framework for the repatriation of foreign capital and investment proceeds. Under the Act, the principal amount of foreign capital and the proceeds derived from it—or whatever remains of the original capital in Iran—may, subject to compliance with applicable legal requirements, fulfillment of outstanding obligations, payment of statutory deductions, and completion of the prescribed procedures, be transferred abroad.

Profits generated by a foreign investment may likewise be transferred abroad after payment of applicable taxes, duties, and statutory reserves and in accordance with the procedures prescribed by law.

In addition to the principal investment and profits, the legislation provides, within the applicable framework, for the transfer of certain other payments associated with the investment, including principal installments of financial facilities, related costs, and payments arising from agreements concerning patents, know-how, technical and engineering services, the use of trademarks, and management services.

Accordingly, the foreign investor should address the repatriation of capital and profits from the earliest stage of structuring the investment. The investor should also properly anticipate the foreign-exchange arrangements and mechanisms for transferring funds in the investment license and the relevant contractual documentation.

Transfer of the Investment to Another Investor

FIPPA also permits the transfer of all or part of a foreign investment.

A foreign investor may transfer its investment to an Iranian investor or, subject to the applicable requirements, to another foreign investor.

Where the investment is transferred to another foreign investor, the transferee must satisfy the minimum requirements applicable to the original investor and, for the purposes of FIPPA, will replace or become a partner of the former investor, as applicable.

This mechanism may be particularly important for investors who may subsequently wish to exit a project, sell their shares, or change their investment partner.

Dispute Resolution in Foreign Investment Matters

The dispute resolution mechanism is another issue that should be examined before entering into an investment project.

FIPPA distinguishes between disputes between the government and a foreign investor and commercial disputes between private parties.

Under Article 19, disputes between the Iranian government and a foreign investor concerning an investment covered by FIPPA are, where they cannot be resolved through negotiation, generally subject to the jurisdiction of Iranian courts, unless the law or a bilateral investment treaty between Iran and the investor’s home state provides for another dispute resolution mechanism.

Therefore, the mere existence of FIPPA does not mean that every foreign investor automatically has the right to submit a dispute with the Iranian government to an international arbitral tribunal.

The applicable dispute resolution mechanism should instead be determined by examining, at a minimum, FIPPA, the investment license, the relevant contracts, and any applicable bilateral or multilateral investment treaties or agreements.

This issue is particularly important for foreign investors because FIPPA and bilateral investment treaties constitute distinct sources of legal protection, and the scope of their substantive protections and dispute resolution mechanisms may differ.

By contrast, disputes between private investors, whether Iranian or foreign, will generally be governed by the contracts between the parties, the applicable governing law, and the agreed dispute resolution clause.

Accordingly, the choice of governing law and dispute resolution forum should be carefully considered from the outset of drafting the investment documentation.

Employment of Foreign Managers and Experts

A foreign investor may require foreign managers, experts, or specialists to implement its project.

FIPPA provides mechanisms for coordinating and facilitating matters relating to visas, residence permits, and work permits for foreign investors, managers, and experts associated with investments covered by the Act.

These facilities, however, do not amount to a general exemption from the rules governing the employment of foreign nationals.

The employment of foreign nationals in Iran remains subject to applicable requirements concerning entry, residence, work permits, and Iranian labor legislation.

Accordingly, an investor intending to employ foreign personnel should assess the applicable requirements before commencing the operational phase of the project and obtain the necessary permits.

What Should Be Done Before Making a Foreign Investment in Iran?

A foreign investor should not begin the investment process by simply transferring funds to Iran. Pre-investment legal due diligence and investment structuring should take place before capital is introduced into the country.

First, the investor should assess the relevant economic sector, the proposed business activity, potential restrictions, and applicable sector-specific regulations.

The appropriate investment structure should then be determined, including whether to establish a new company, enter into a joint venture or other arrangement with an Iranian partner, invest in an existing company, or adopt a contractual investment structure.

The next stage should address the amount and source of the capital, the method of capital contribution, the cash and non-cash components of the investment, the registration of the capital, and the mechanisms available for exiting the investment.

Taxation, customs, foreign exchange, employment, environmental requirements, intellectual property, and sector-specific licenses should also be assessed in light of the particular project.

For projects involving contractual arrangements or governmental entities, particular attention should be given to the governing law, dispute resolution mechanism, termination provisions, force majeure, payment mechanisms, and contractual guarantees and security arrangements.

Conclusion

The foreign investment framework in Iran is principally based on the Foreign Investment Promotion and Protection Act (FIPPA). Foreign investment, however, cannot be assessed solely by reference to this legislation.

FIPPA establishes the principal framework for the admission and protection of foreign capital, while the practical implementation of an investment project may depend on a much broader range of laws and regulations.

Before entering the Iranian market, a foreign investor should therefore assess not only the economic feasibility of the proposed project, but also the legal structure for entering the market, the registration of foreign capital, regulatory requirements, the ability to repatriate profits and capital, ownership considerations, taxation, employment of foreign personnel, and available dispute resolution mechanisms.

Selecting an appropriate investment structure at the outset can play a decisive role in reducing legal risks and facilitating the eventual repatriation or exit from the investment.

Our legal team at Rezvanian International is ready to assist foreign investors throughout this process—from designing the appropriate investment structure to obtaining the necessary approvals and registering foreign capital—and to provide a legal assessment tailored to the specific circumstances of each project.