Free trade and industrial zones are designated by legislatures in many countries to create favorable economic conditions and to facilitate international trade. By offering regulatory flexibility and economic incentives, these zones aim to promote investment, expand commercial activity, and streamline the export and import of goods.

In Iran, similar objectives have led the government to establish a number of free trade and industrial zones. These zones are intended to accelerate infrastructure development, support economic growth and reconstruction, attract domestic and foreign investment, increase public revenues, generate productive employment, regulate labor and commodity markets, strengthen Iran’s presence in regional and global markets, encourage the production and export of industrial and processed goods, and improve the provision of public services.

Among the most prominent Iran’s free trade zones are Kish, Qeshm, Chabahar, Anzali, Aras, and Maku.

Although these zones operate under a common national framework, each may be governed by its own specific tax rules and regulatory arrangements. Consequently, the tax regime applicable in the Kish or Qeshm free zones may differ from that applied in zones such as Arvand or Anzali.

Tax Exemptions in Iran’s Free Trade Zones

Tax exemption refers to the partial or complete relief from tax liability granted to a natural or legal person for a specified period of time. In free trade zones, such exemptions constitute one of the most significant economic incentives offered to investors, as they reduce operating costs and enhance the attractiveness of investment.

Below is an overview of tax exemptions applicable in Iran’s free trade–industrial zones.

1. Exemption from Income and Asset Taxes

The most significant incentive in free trade zones is the 20-year exemption from income and asset taxes. Under Article 13 of the “Law on the Administration of Free Trade–Industrial Zones of the Islamic Republic of Iran”, approved on 29 August 1993, “natural and legal persons engaged in any form of economic activity within the zone shall be exempt from paying income and asset taxes under the Direct Taxation Act for a period of fifteen years from the date of operation specified in their permit. After the expiration of the fifteen-year period, they shall be subject to tax regulations proposed by the Cabinet and approved by the Islamic Consultative Assembly of Iran.”

This Article was amended under the “Law on Amending Article 13 of the Law on the Administration of the Free Trade–Industrial Zones of the Islamic Republic of Iran,” approved on 27 May 2009, and the 15‑year tax‑exemption period was extended to 20 years.

Accordingly, under the latest legal amendments, the exemption period for income and asset taxes for economic actors in free zones—both natural and legal persons—is 20 years.

It should also be noted that if a person passes away while residing in a free zone, their assets are not exempt from inheritance tax. This is because Article 13 grants tax exemptions only to individuals who themselves invest and conduct economic activities in these zones—not to their heirs.

Furthermore, under Article 32 of the “Law on Removing Barriers to Competitive Production and Enhancing the Financial System” (2015), manufacturing and mining activities of non-governmental legal persons, as well as the service income of hospitals, hotels, and tourist accommodation centers, may benefit from zero-rate taxation for 5 to 10 years, depending on the level of development of the specific zone.

 

·      Is Residence in Free Zones Required to Benefit from Tax Exemptions?

Tax exemption in free zones applies only to the portion of economic activities conducted within the geographical boundaries of the free zone, regardless of the taxpayer’s legal place of residence.

Therefore, income derived from activities conducted outside the free zone is not eligible for exemption, even if the individual or entity’s registered domicile is within the free zone. Put simply, only economic activities physically carried out within the free zone qualify for tax exemption; the taxpayer’s residence is irrelevant.

It should also be noted that the concept of “residence” in this context differs from the concept of residence under Article 590 of the Iran’s Commercial Code. Thus, any natural or legal person who carries out activities in a free zone with the necessary permits from the competent authorities is considered a resident of the free zone.

2. Exemption from Value-Added Tax (VAT)

Value-added tax refers to the difference between the VAT charged on sales and the VAT paid on purchases during a specific period. VAT rules in free trade zones are as follows:

• Transactions of goods and services between persons and businesses residing in free trade–industrial zones and special economic zones, within the boundaries of these zones, are not subject to VAT or related duties.
• The export of goods and services from free zones to foreign countries, as well as imports into free zones from abroad, are also exempt from VAT.
• However, the import of goods and services from free zones into the customs territory of mainland Iran is subject to VAT and related charges.

Under Article 10 of the Value-Added Tax Act (as amended), free zones benefit from VAT exemptions only if all three of the following conditions are met simultaneously:

1. Located outside densely populated urban areas: The free zone must not be situated within major population centers.
2. Positive trade balance: The free zone must have a positive or balanced trade ratio, meaning its exports equal or exceed its imports.
3. Customs-approved enclosure: The boundaries of the free zone must be formally enclosed and certified annually by the Islamic Republic of Iran Customs Administration.

 

3. Exemption from Customs Duties and Import Charges

According to Article 112 of the “Fifth Five-Year Development Plan of the Islamic Republic of Iran”, goods produced or processed in free trade and special economic zones are considered domestically produced when entering other parts of the country and are exempt from import duties.

Furthermore, raw materials and foreign components used in goods manufactured or processed in these zones—provided they were previously sent from the mainland into the zone—are treated as domestic raw materials when the final product re-enters the mainland, and are thus exempt from import duties.

 

Conditions for Benefiting from Tax Exemptions in Iran’s Free Trade Zones

Some businesses mistakenly assume that mere physical presence in a free zone automatically grants tax exemption. However, Iran’s free zone tax regulations impose specific and stringent requirements to prevent tax evasion and abuse:

1. Exemptions apply only to activities conducted within the free zone. Mixed activities inside and outside the zone must be allocated proportionally. The commencement date of activity is the basis for calculating the exemption period.

For example, if you register a company in the Qeshm Free Zone but operate in both Qeshm and Tehran, only the activities performed in Qeshm qualify for exemption, while activities in Tehran remain taxable.

Transactions between companies within the same zone—or between two free zones—are generally subject to a zero tax rate.

 

2. Obtaining an official activity permit from the relevant free zone authority is mandatory. Even if a company is registered in a free zone, it cannot benefit from tax exemptions without securing the required activity license. The date on this permit marks the beginning of the exemption period.

 

3. Under Article 132 of the Direct Taxation Act, submission of the annual tax return within the legally prescribed deadline is a prerequisite for enjoying any tax exemptions. For legal persons, the tax return must include a balance sheet and profit-and-loss statement prepared according to the format issued by the Iranian National Tax Administration.

 

Conclusion

Iran’s free trade and industrial zones provide a comparatively favorable tax framework designed to stimulate economic activity and investment. The combination of a twenty‑year exemption from income and asset taxes, together with preferential treatment regarding value‑added tax and customs duties, significantly reduces the effective tax burden on investors and businesses operating within these zones. These legal incentives are intended to promote capital formation, facilitate export‑oriented production, and strengthen the country’s participation in regional and international markets.

However, benefiting from these advantages requires strict compliance with the legal and regulatory framework governing free zones. Economic actors must ensure that their activities are conducted within the geographical limits of the zones, obtain the necessary operational permits, and submit tax returns within the prescribed deadlines. By adhering to these requirements while effectively utilizing the available incentives, investors and enterprises can both maximize the benefits provided under the law and contribute to national economic objectives, including sustainable development and the strengthening of Iran’s resistance economy.