foreign investment in iran: laws and regulations, advantages, and investment opportunities

Tel: +98(21) 33967075 www.investiniran.irFax: +98(21) 33967864 www.iio.ir

Foreign Investment in Iran:Laws and Regulations,

Advantages, and Investment Opportunities

Presentation by :Sharagim Shams Deputy Director General, Foreign Investment Office

Organization for Investment, Economic and Technical Assistance of Iran

(OIETAI)On the occasion of UBCCE Third Business Forum


Presentation Highlight

1.General Information about Iran -Fundamental Macroeconomic Reforms - Privatization2.Foreign investment in Iran : Policies, Laws

and Regulations and advantages


General Information about Iran


Geography

Location:

-Middle East, bordering Iraq,Turkey, Pakistan, Afghanistan and Turkmenistan t Oman Sea and the Persian Gulf from south and the Caspian Sea from north,

-Strategic location on the Persian Gulf and Strait of Hormuz, which are vital maritime pathways for crude oil transport


Area: 1.67 million km²Population: 71.5 million

Literacy ratio: %8530 Provinces


Climatic Characteristics: Numerous Diversity

Mid Winter

Climate Factor

North of Iran

South of

Iran

Temperature (c)

Min: -28 Max: 31

Humidity (%) 90 20

Rainfall (mm) 1200 125

Mid Summer

Climate Factor

North ofIran

South of Iran

Temperature (c)

Min: 5 Max: 50

Humidity (%) 70 10

Rainfall (mm) 165 0


GDP: US$ 382.3 billion, GDP per capita: US$ 5346GDP (PPP): US$ 842 billion , GDP per capita (PPP): US$ 12,800GDP average annual growth rate(2004-2008): % 7.5Trade Balance US$ 45 billion surplusImport (FOB) US$ 55 billionExport US$ 100 billion

Export - commodities:petroleum 80%, chemical and petrochemical products, fruits

and nuts, carpets

Import-Commodities: Industrial raw materials and intermediate goods, capital goods, foodstuffs and other consumer goods, technical services ,

Economy


Export & Import Trends

70

55

0

10

20

30

40

50

60

70

19

81

19

90

19

94

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

/20

06

20

07

20

08

. .

`̀

Value: US$ BillionImportsExports


13438

5325

4915

3523

3082

2033

1970

1495

1978

1813

UAE

GERMANY

CHINA

SWITZERLAND

SOUTH KOREA

UNITED KINGDOM

FRANCE

INDIA

ITALY

TURKEY

Main Trading Partners (Top 10)

Non-Oil Export Partner

Value: $US MillionValue: $US Million Import Partners

587

539

526

410

394

2384

2328

2003

1172

821

IRAQ

UAE

CHINA

INDIA

SOUTH KOREA

JAPAN

AFGANISTAN

TURKEY

BELGIUM

SAUDI ARABIA

Source: I.R. Iran Customs

IMPORTSSHARE

Capital %16

Intermediate %67

Consumer %13

Other% 4


Iran’s Main Advantages:• Diversified, Hydrocarbon-rich Economy• 4th largest oil producer in the World• 2nd highest gas reserves in the World• Largest industrial base in the MENA region• 10th Country on Tourism Attractions and 5th on Ecotourism• High GDP growth rate• 4th to 9th rank in production of Zinc, Lead, Cobalt, Aluminum,

Manganese and Copper in the world.• 4th rank on diversity of Agriculture products in the world.• 6 Free Trade-Industrial Zones • 19 Special Economic Zones


Recent Developments: Comprehensive Tax Reform :Comprehensive Tax Reform :

Fixing corporate income tax at a flat rate of 25%, while under the previous law, companies were subjected to both a 10% corporate tax plus their dividends being taxed at ascending levels up to 54%.

Introduction of Many New Tax Holidays and exemptions

Creation of a Central Tax Authority.


• Floating Single Exchange Rate System :Floating Single Exchange Rate System : Unification: from March 2002. Less than 5% Fluctuations.• Trade System :Trade System :• Replacement of Non-tariff Barriers by Tariffs.• Rationalization of the Tariffs (35.6% to 16.5%)• Privatization :Privatization :• More than 20 billion USD Privatized.


Fundamental Macroeconomic Reforms (privatization)

• Expediency Council Resolutions:Expediency Council Resolutions: Opening up new areas formerly closed to private local/foreign Opening up new areas formerly closed to private local/foreign

investors. investors.

• The general policies of Article 44 of theThe general policies of Article 44 of theConstitution of the Islamic Republic of IranConstitution of the Islamic Republic of Iran


Foreign investment in Iran: policies , laws and regulations and advantages


Foreign Investment Policy• Contribution to Economic DevelopmentContribution to Economic Development

• Financing Projects, Upgrading Technological & Financing Projects, Upgrading Technological & Management Skills,Management Skills,

• Sharing Benefits and Risks on Equal Term without Sharing Benefits and Risks on Equal Term without DiscriminationDiscrimination

• Advantages in Enhancing Products and Output Advantages in Enhancing Products and Output Quality, Increasing Employment & ExportsQuality, Increasing Employment & Exports


The Body in Charge

Minister of Economic

and Finance

State Tax Organization

Privatization Organization

Stock Exchange Organization for

InvestmentTreasury

First Deputy

Banking System Customs

The Organization for Investment is the sole official authority for the promotion of foreign investments in the country and for the investigation of all issues pertaining to foreign investments. (FIPPA , Article 5)


The Legislation:

• The Foreign Investment Promotion and The Foreign Investment Promotion and Protection Act (FIPPA):Protection Act (FIPPA):– Substitutes Former LAPFISubstitutes Former LAPFI– Ratified in 2002Ratified in 2002

• By Laws:By Laws:– Implementing Regulations of the FIPPAImplementing Regulations of the FIPPA


Features of FIPPA:

Types of Investments:Types of Investments:

Direct InvestmentDirect Investment(Equity Participation) in All Areas Open to Iranian(Equity Participation) in All Areas Open to IranianPrivate SectorPrivate Sector

Investment through Contractual ArrangementsInvestment through Contractual Arrangements (Non-Equity Forms):(Non-Equity Forms):

--Buy Back ArrangementsBuy Back Arrangements-Civil Partnership-Civil Partnership-BOT Schemes-BOT Schemes


Features of FIPPA:

Areas of Investment:Areas of Investment:

All Areas in Industry, Mining, Agriculture, and All Areas in Industry, Mining, Agriculture, and Services:Services:

-In Greenfield Projects-In Greenfield Projects

-In Brownfield projects and existing companies-In Brownfield projects and existing companies


Features of FIPPA:

Risks Covered under FIPPA:Risks Covered under FIPPA:

All non-Commercial RisksAll non-Commercial Risks,, i.e. Currency Transfer, Nationalization, i.e. Currency Transfer, Nationalization,

expropriation, Government Intervention expropriation, Government Intervention and Breach of Contracts by Governmentand Breach of Contracts by Government


Features of FIPPA:

Boundaries of Investment:Boundaries of Investment:

No Limit on Equity Percentage,No Limit on Equity Percentage,No Limit on Volume of Investments,No Limit on Volume of Investments,No Limit on Profit Transfer,No Limit on Profit Transfer,No Limit on Capital RepatriationNo Limit on Capital RepatriationNo Limit on Types of Capital ImportedNo Limit on Types of Capital ImportedNo Import / Export RestrictionNo Import / Export Restriction


Features of FIPPA:

Settlement of Disputes:Settlement of Disputes:Between Investors (Free),Between Investors (Free),Between Investors and Government:Between Investors and Government:

AmicableAmicableDomestic CourtsDomestic CourtsAd-hoc ArbitrationsAd-hoc Arbitrations

ICSID (International Center for Settlement of ICSID (International Center for Settlement of Investment Disputes):Investment Disputes):

UnderwayUnderway


Features of FIPPA:

Organization:Organization: Organization for Investment, Economic and Organization for Investment, Economic and

Technical Assistance of Iran (OIETAI)Technical Assistance of Iran (OIETAI)Foreign Investment BoardForeign Investment Board


Procedure For Foreign Investor( Phases 1 to 4 )

1. Identification and Selection of Investment Project1. Identification and Selection of Investment Project

2. Obtaining Preliminary Permit from Relevent 2. Obtaining Preliminary Permit from Relevent Iranian OrganizationIranian Organization

3. Issuance of Foreign Investment License3. Issuance of Foreign Investment License

4. Implementing of Project4. Implementing of Project


Features of FIPPAFeatures of FIPPA Investment Licensing Procedure :

Simplified, Short and TransparentSimplified, Short and Transparent

SubmissionOf

Application

SubmissionOf

Application

FinalLicenseIssued

FinalLicenseIssued

DraftLicense

Communicated

DraftLicense

Communicated

PreparationAnd

SubmissionOf a Report

PreparationAnd

SubmissionOf a Report

Foreign

Investment

Board

Foreign

Investment

Board

OIETAIOIETAI

Max 15 Days Max 30 Days


Why Invest in Iran? (Advantages):

1.Strategic Location

2. Market Potentials & Proximity

3. Labor Privileges

4. Developed Infrastructure


Advantages (contd.):

5. Low Utility & Production Cost

6. Abundant Natural Resources

7. Climatic Characteristics

8. Fiscal Incentives


Foreign investment

Statisticesunder the

Foreign Investment promotion & protection Act(FIPPA)


68 6131358

2703

4275

10279

12746

2087

0

2000

4000

6000

8000

10000

12000

14000

2001 2002 2003 2004 2005 2006 2007 2008

Foreign Investment under the Foreign Investment Promotion & Protection Act

( FIPPA)

US$ million


Sectoral Distribution of Foreign Investment

(1993 up to March year 2009)

Agriculture; 21

Mining; 2450

Water, Electricity & Gas Supply;

4771

Construction; 906

Trsnsportation &

Communications; 1826

Services; 3693

Other; 6

Industry; 20505

US$ million


�ْGeographical Distribution of Foreign Investments (1993 to March 2009)

Asia, 11,689

Africa, 7,989 America, 1,040

Euroup, 11,056

Oceanic, 682 International, 26

Transnational, 1,699

US$ million


Features of FIPPA:TreatiesTreaties

- Bilateral Investment Treaties (BIT) with 53 Countries,- Bilateral Investment Treaties (BIT) with 53 Countries,

- Regional & Multilateral Treaties with Member States - Regional & Multilateral Treaties with Member States ofof

•Organization of Islamic Conference (OIC),Organization of Islamic Conference (OIC),•Economic Cooperation Organization (ECO).Economic Cooperation Organization (ECO).

- Double Taxation Treaty (DTT) with 44 Countries


Contents of BIT:

• Promotion of investments: (most-favored –nation treatment)

• Treatment of investment

• Expropriation , losses and compensation

• Repatriations and transfers

• Subrogation


Contents of BIT:

• Dispute settlement procedure

• Validity of the agreement:

• Admission and establishment,

• Scope and definition of investment ;

• …


International Memberships:

• Multilateral Investment Guarantee AgencyMultilateral Investment Guarantee Agency (MIGA)(MIGA) since since 20032003

• World Association of Investment Promotion World Association of Investment Promotion

AgenciesAgencies (WAIPA) since 1998 (WAIPA) since 1998


International Co-operations:

• World Bank: Project for Enhancing Institutional Capacity of Foreign Investment Promotion in Iran

• FIAS: Assessment of Investment Environment in Iran

• UNIDO: Project for Capacity Building in Industrial Investment Promotion

• UNCTAD: Preparation and Launch of WIRs and certain other survey studies


Contact InformationOrganization for Investment, Economic and

Technical Assistance of Iran( OIETAI)Address: Davar Ave. Tehran P.O.Box: 11365/4618

President of OIETAITel: +98 21 33967043-33967770

Fax:+98 21 33967759

Foreign Investment Office

Tel: +98 21 33967755 – 33967075Fax: +98 21 33967864

Websites: www.investiniran.ir; www.iio.ir

E-mails: [email protected] ; [email protected]

http://www.investiniran.ir/

mailto:[email protected]

foreign investment in iran: laws and regulations, advantages, and investment opportunities

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