Foreign Investment In Iran Review 2022 - Inward/ Foreign Investment - Iran (2024)

A conversation with Anahita Asgari Fard, Partner ofAsgari'slaw firm in Iranon key issueson foreign investment. (especially about FDI control in Iran.)

1. What is the applicable legislation?

The law on foreign investment in Iran under the name the"Foreign Investment Promotion and Protection Act "(FIPPA)was ratified by the parliament in 2002. The FIPPA and its executiveby-laws have enhanced the legal framework and operationalenvironment for foreign investors in Iran. According to FIPPA, allforeign investors are permitted to invest, in all areas ofindustry, mining, agriculture, and services in Iran.

Alongside FIPPA, the General Policies About Principle 44 of theConstitution of the Islamic Republic of Iran ( 2005 ), and laterlaw on Implementation of General Policies of Principle 44 ofConstitution Law ( The Privatization Act 2008 ), and the SixEconomic Development Plan, are main regulations governing theforeign investment in Iran.

2. Which government or other body (or bodies) reviews foreigninvestments?

The organization for Investment, Economic, and TechnicalAssistance of Iran (OIETAI) was founded in 1975. The requests madeby foreign investors concerning admissions, inflow, use, andoutflow of capital must be submitted to OIETAI.

The president of the OIETAI is the Deputy Minister forinvestments and international affairs of the Ministry of EconomicAffairs and Finance.

The OIETAI aim is to harmonize, regulate and conduct affairsrelated to foreign investments, admission of foreign investments,grant loans, and credits to governments and internationalinvestors, acquisition of any loan and credit from abroad, andprovide legal protection and full security to foreign investors byway of facilitating the flow of capital into the country, in linewith the FIPPA 2002.

Alongside the issuance and extension of the investment licenses,OIETAI provides coordination required with respect to the mattersrelated to the issuance of visa, residence, and work permits forindividuals related to foreign investment projects. Furthermore,OIETAI organizes and coordinates international economic relationswith other countries and has established Joint Economic Commissionswith several countries

3. What is the scope of the foreign investment regime? Does itonly apply to specific sectors or types of investors (e.g. foreignor non-EU / non-WTO)? Are there specific rules for certain types ofinvestors (e.g. state-owned enterprises)?

All Foreign natural and judicial persons, internationalorganizations, institutions, and companies including foreignstate-owned companies are allowed to invest inside the country. .In addition, following provisions of FIPPA, investments by Iraniannationals can enjoy the privileges of FIPPA, on the condition thattheir capital has been sourced from foreign origin, and further tothat, the investor has submitted documentary evidence proving theircommercial and economic activities outside the country.

Foreign investors are permitted to invest in all areas open toIranian private entities, including industry, mining, agriculture,and services. However, only investments that have obtained requiredlicenses from OIETAI under the FIPPA 2002 regulations, are eligibleto enjoy the privileges and protections provided for foreigninvestors.

Pure commercial activities are not considered foreign investmentunder the FIPPA. However, should they be complementary to theproducing activities in connection with approved projects, they canbe taken into account as foreign investment.

Foreign Direct Investment in oil and gas upstream activities isnot permitted, but Foreign Investment in such areas with theframework of contractual agreements is permissible. By contractualagreements, we mean all forms of project financing methods withinthe frames of civil partnership, buy-back arrangements, anddifferent types of Build, Operate, and Transfer (B.O.T) Schemes. Ingeneral, foreign investment in sectors reserved for the governmentmay only be carried out by contractual agreements.

Offering shares of some of the state-owned companies to foreigninvestors is possible through issuing a license by the SupremeCouncil for the Implementation of General Policies of Principle 44of the Constitution, in line with the regulation of FIPPA and theIslamic Republic of Iran Stock Exchange Market Law 2005.

In addition, foreign investors can invest in Free Trade Zones(FTZs). One of the main objectives of the FTZ is to attract andpromote foreign direct investments in the country to boostmanufacturing exports. The Law on the Administration of FreeTrade-Industrial Zones, offers full protection and guarantees forforeign investors. Some of these protections and guarantees are asfollows:

• There are no currency restrictions
• It is possible to repatriate 100% of capital and profit toother Iranian Free Zones or other countries
• Non-Iranians can lease land (Iranians can buy and sell or leaseland)
• Setting up business and company registration is streamlined andbureaucracy is simplified
• Foreign nationals do not require to obtain entry visa clearance(entry visas can be obtained at the point of entry)
• There are special employment and labor regulations.

Furthermore, the investment by a foreign government in Iran isdependent upon the approval of the Islamic Consultative Assembly,on a case-by-case basis. Investments by foreign state-ownedcompanies are deemed private.

4. What are the triggers or thresholds for the regime to apply?What types of transac-tions are caught? Is there a minimum level ofshareholding or a control test that applies? Are there any otherthresholds that need to be met (e.g. based on turnover or marketshares)?

Admission of foreign investment should be made per theprovisions of FIPPA and an investment license should be issued bythe OIETAI.

The criteria below should be met by an investment plan to obtaina license. The investment plan should:

• Bring about economic growth, upgrade technology, enhance thequality of products, increase employment opportunities andexport,

• Not pose any threat to national security and public interests,and cause damage to the environment; does not disrupt thecountry's economy and jeopardize the production by localinvestments ;

• Not entail grant of concession by the government to the foreigninvestor.

Furthermore, the ratio of the value of the goods and servicesproduced by the foreign investments, contemplated in FIPPA, to thevalue of the goods and services supplied to the local market, atthe time of the issuance of the investment license, should notexceed 25 percent in each economic sector and 35 percent in eachsub-sector field. However, foreign investments for the productionof goods and services for export purposes, other than crude oil,are exempted from the aforementioned ratio.

There is no minimum or maximum for foreign investment in respectof the percentage of shareholdings in FIPPA. Foreign investorsdon't need to have local partners in Iran. However, in mostcases, they prefer to cooperate with local partners as they aremore familiar with the business environment, regulatory andadministrative requirements, and opportunities locallyavailable.

However, the Bylaw on Foreign Investment in the Exchanges andOTC Market 2010 (Foreign Investment Bylaw) stipulates that foreigninvestment is permitted to invest in the exchange or OTC market upto the threshold designed in the FIPPA unless the Securities andExchange High Council imposes some restrictions in some cases.

The restrictions imposed on the possession pf shared by thenon-strategic foreign investors on every exchange or OTC market areset as follows:

• The number of shares owned by the total foreign investorsshould not exceed %20 of the number of the shares of any companylisted on the exchange or OTC market
• The number of shares owned by each foreign investor in anycompany listed on the exchange or the OTC market should not exceed%10 of the number of the shares of such company.

Moreover, the law concerning the protection of knowledge-Basedcompanies and institutions and the Commercialization of Innovationsand Inventions (Technology Startup Law) 2011, offers certainprotections and facilities to knowledge-based companies andinstitutions. These protections apply to foreign investors in twoconditions:

• The research and development units of foreign companies must beestablished in Iran's science and technology parks ;
• More than 50 percent of the workforce of foreign companiesshould be Iranian experts.

In addition, in some public utility and infrastructure projects,foreign contractors are required to comply with local contentrequirements concerning the establishment of a jointforeign-Iranian consortium for undertaking certain projects andcontracts.

Furthermore, the Local Content Law (1997), applies to a broadrange of entities, including:

• ministries, organizations, institutions, state companies, andcompanies affiliated with the government;

• banks, institutions, and non-state public organizations;

• Public institutions and public companies, foundations andIslamic revolutionary institutions;

• All organizations, companies and institutions, bodies, andunits are governed by specific laws, including NIOC, NationalIranian Gas Company, the National Petrochemical Company, the stateaviation company, state broadcasting, National Iranian SteelCompany, National Iranian Copper Industries Company, and theiraffiliates,

the procurement of engineering and construction services fromforeign suppliers by government entities is prohibited. In theevent of a lack of domestic capacity for the implementation of theprojects, a partnership between domestic and foreign companiesshould carry out the project on the condition that the share ofdomestic suppliers makes up at least 51 percent of the total valueof the project.

5. Are there any exceptions that may apply?

According to FIPPA regulations, the ratio of the value of thegoods and services produced by the foreign investments,contemplated in FIPPA, to the value of the goods and servicessupplied to the local market, at the time of the issuance of theinvestment license, should not exceed 25 percent in each economicsector and 35 percent in each sub-sector field. However, foreigninvestment for the production of goods and services for exportpurposes, other than crude oil, is exempted from the aforementionedratio.

Furthermore, according to the Law for the ownership of ImmovableProperty by Foreign Nationals 1921, ownership of the land of anytype and to any extent in the name of foreign investors is notpermitted. However, with the permission of The Ministry of ForeignAffairs ownership of land to the extent typically required forpersonal use by foreign nationals is permissible. In addition, ifthe implementation of foreign investment project results in theestablishment of an Iranian company, ownership of land in the nameof that company with an Iranian identity is permitted.

6. Is there any discretion to review transactions that do notmeet any thresholds for review?

For investigation and deciding on applications referred to theOIETAI, a board under the name of "Foreign Investment Board" ( FIB ) is established under the chairmanship of the ViceMinister of Economic Affairs and Finance who is ex-officio thepresident of the OIETAI, comprising of Vice Minister of ForeignAffairs, Vice President of the State Management and PlanningOrganization, Vice Governor of the Central Bank of the IslamicRepublic of Iran, and vice minister of the relevant ministries, asthe case may be.

The FIB has the discretion to review the applications and decidewhether they qualify as an investment project. For this purpose,the FIB is required to observe the criteria mentioned in ourresponse to question 4 above to reach its decision.

Furthermore, as we mentioned in our response to question 4above, according to the Local Content Law (1997), the procurementof engineering and construction services from foreign suppliers bygovernment entities is prohibited. In the event of a lack ofdomestic capacity for the implementation of the projects, apartnership between domestic and foreign companies should carry outthe project on the condition that the share of domestic suppliersmakes up at least 51 percent of the total value of the project.However, the Council of Economy, upon the recommendation of theManagement and Planning Organization, may authorize derogation fromthe above requirements.

7. What are the grounds for review, eg public or nationalsecurity or other grounds?

The criteria below should be met by an investment plan to obtaina license:

• Bring about economic growth, upgrade technology, enhance thequality of products, increase employment opportunities andexport,

• Does not pose any threat to national security and publicinterests, and cause damage to the environment; does not disruptthe country's economy and jeopardize the production by localinvestments ;

• Does not entail a grant of concession by the government to theforeign investor.

The ratio of the value of the goods and services produced by theforeign investments, contemplated in FIPPA, to the value of thegoods and services supplied to the local market, at the time of theissuance of the investment license, should not exceed 25 percent ineach economic sector and 35 percent in each sub-sector field.However, foreign investment for the production of goods andservices for export purposes, other than crude oil, are exemptedfrom the aforementioned ratio

8. What level of discretion do the relevant authorities have toapprove or reject trans-actions? Is there scope for any other bodyto intervene?

The OIETAI is the sole official organ in charge of approving andrejecting foreign investments transactions. Once an investmentlicense is issued, all transactions related to the investmentproject should be approved and facilitated.

However, in some investment projects, it may be found that theproject is a threat to national security and public interests afterthe license is granted. For instance, causing damage to theenvironment, cultural heritage smuggling, money laundering, andother financial crimes may be found after the project is carriedout. In such cases, the transactions can be rejected by therelevant authorities.

Additionally, the transfer of immovable assets such as lands tonon-Iranian persons is permitted under certain circ*mstances andfor personal use (not industrial and agricultural use) and byapproval of the Ministry of Foreign Affairs.

According to the FIPPA regulations, if as a result of theenactment of legislation or Cabinet Decree, the execution offinancial agreements approved within the framework of FIPPA isprohibited or interrupted, the resulting losses, up to a maximum ofinstallment by maturity, should be provided and paid by thegovernment

9. Where a transaction is caught by the regime, is notificationmandatory, and must closing be suspended pending clearance?

There is no guideline for foreign investors to notify theirtransactions. An investment license is required for the foreigninvestment projects which will be issued by the OIETAI. Once thelicense is issued the OIETAI and other authorities are obliged tofacilitate the investor's transactions.

However, if a project after the execution, is found to becontrary to the criteria of Article 2 of FIPPA, the regime has theauthority to suspend or even terminate the project. One example isthe Turkish company Turkcell's investment in thetelecommunication sector, which was recognized by the parliament,as harmful to national security and public interests and wasterminated by the authorities.

10. Is it possible to close the deal globally prior to localclearance?

It is generally possible to close a transaction before obtaininga license from the OIETAI and other relevant authorities globallyor locally. However, foreign investors will not be grantedprotection and be treated as Iranian investors without obtaining alicense under FIPPA regulations.

Clearly, in major infrastructures, the investment projectscannot be performed inside Iran without being approved by theOIETAI.

11. Is there a deadline for filing a notifiable transaction andwhat is the timetable thereafter for review?

There is no deadline required to file a transaction or aninvestment application. All investment applications includingadmissions, importations, utilization, and repatriation of capitalshould be submitted to the OIETAI. The OIETAI, after thepreliminary review, will apply to the FIB along with itsrecommendations, within the maximum period of 15 days after thereceipt of the application. The FIB then reviews the applicationwithin a maximum period of one month from the date of submissionand notifies its final decision in writing. The FIB is obliged toobserve the principles mentioned in Article 2 of FIPPA to acceptforeign investment.

Upon the notification of the investment license, the foreigninvestor is required to bring an appropriate portion of his capitalinto the country, within a period determined by the FIB based onthe peculiarities of the investment project, otherwise, theinvestment license shall be null and void.

In case, establishing a corporate entity is required to initiatethe investment project, it takes 20 days to one month to registerthe company with the Registration Office.

12. Who is responsible for filing a notifiable transaction(noting also whether there is a specific form/document used and anapplicable filing fee)?

Any non-Iranian natural or judicial persons or Iranians usingcapitals of foreign origin can apply for the investment licensewith the OIETAI.

The foreign investors who would like to make investments in Iranwithin the framework of FIPPA, need to first fill out a specialform ( to be obtained either in person or online ) and submit it tothe OIETAI along with the specified documents

Choosing the form depends on the type of foreign investment andinvestment agreement. The form has to be submitted in Englishexcept for when the investor is an Iranian expatriate or from aPersian-speaking country.

After conducting necessary investigations and taking theviewpoint of the ministry responsible for the related sector, theOIETAI will bring the investment application along with its expertadvice before the FIB within a maximum period of 15 days. Based onthe decisions adopted by the FIB for which the acceptance of theforeign investor has already been obtained, the investment licensewill be drafted and issued, and upon confirmation and signature bythe Ministry of Economic Affairs and Finance.

13. Please confirm/comment on the penalties for failing tonotify or suspend transactions pending clearance and anyrecord/stance in terms of pursuing parties for failing to notifyrelevant transactions (commenting, if relevant, on any statute oflimitations regarding sanctions for infringements of the applicablelaw).

According to FIPPA, foreign investors will be treated likeIranian nationals once they obtain the investment license.Therefore, penalties applied to Iranian individuals or judicialpersons in the event of an infringement of the applicable laws willalso apply to foreign investors.

In some cases, an investment license can be revoked. Forinstance, if a foreign investor fails to bring an appropriateportion of his capital into the country, within a period determinedby the FIB based on the peculiarities of the investment project,the OIETAI will revoke the investment license.

Furthermore, the foreign investor will lose the FIPPA protectionin some cases. According to article 24 of FIPPA Bylaw, the foreigninvestor is required to announce the entry of its capital includingcash or non-cash items to the OIETAI within the framework of thelicense issued for the foreign investor so that they will beregistered in the Organization and subjected to FIPPA. Failure toregister the entered capital is tantamount to not being covered byFIPPA.

14. Is the process confidential? Does the relevant body publish*ts decision or any announcement regarding the transaction?

There is no statutory law that mandates confidentiality.However, in practice, the FIB decisions and announcements regardingthe investment application will not be published to the public.

Once the application is submitted to the FIB, representatives offoreign investors are usually invited to take part in the FIBmeeting.

After making a decision, to ensure that the investor issatisfied with the decision of the FIB, a draft license will becommunicated to the investor before the issuance of the finalinvestment license.

15. How does the foreign investment review regime workalongside any merger control regime?

Foreign investment after obtaining the investment license fromthe OIETAI will be treated like Iranian entities. Therefore, amerger control regime will also apply to the merger procedures ofcompanies established by foreign investors.

Chapter 8 of the Privatization Act talks about the formation andresponsibilities of the Supreme Council for Implementation of theAct and one of the duties of the Supreme Council is a compilationof strategies to avoid the influence and domination of foreignersover the national economy.

However, to attract more foreign investment to the country, insome circ*mstances, the law exempts foreign investors from theprohibitions of the Competition Law. For instance, according toArticle 5 of the Privatization Law, there is a ceiling of ownershipfor each joint-stock enterprise or joint-stock cooperative companyor any non-governmental pubic institutions in banking, financialindustry, credit institutions, and monetary firms. However,according to Note 5 of the said article when a joint bank by Iranand a foreign country is to be established, the share of theforeign partner is exempted from the ceiling specified in thisarticle.

For more information on the merger control regime in Iran, seeIran merger control.

16. Have there been any recent developments regarding the Iranforeign investment review regime and are any updates/developmentsexpected? Are there any other 'hot' issues related to theforeign investment review regime?

The Law on Sixth Five Year Economic, Cultural, and SocialDevelopment Plan 2016-2021 (The Six Development Plan) was approvedby the parliament in March 2017. The plan compromises threepillars: The development of a resilient economy, progress inscience and technology, and the promotion of cultural excellence.The plan includes a sharp rise in foreign investment. Among itspriorities are the reform of state-owned enterprises and thefinancial and banking sectors and the allocations and management ofoil revenues.

The plan lets the government arrange up to an average of $ 30Billion of foreign financing each year, composed of $15 Billion ofannual direct foreign investment and up to $20 Billion of foreigninvestment conducted with local partners.

Furthermore, the government is authorized to issue guaranteesfor foreign investment in projects that are in line with thecurrent regulations and approved by the government's EconomicCouncil. The projects should be deemed eligible by the Planning andBudget Organization of Iran in the case of public projects whileprivate projects should comply with Public Audit Law as well.

In the power sector, the country's goal is to increaserenewable energy projects to meet growing domestic demand andexpand its presence in the regional electricity market.

Overall, the government is prepared to attract foreigninvestment through political and legal reforms, addressing majorconcerns of foreign investors such as transparency and transfer offunds, dispute resolution, enforcing international arbitrationawards, and nationalization.

Produced in partnership with Asgari & Associates

Specialist Legal Advice for Foreign Investment inIran

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