Understanding Payroll in Iran could be both simple and complex. Read this article to understand more about tax and payroll requirements in Iran.
Foreign Investments in Iran
Iran has been shut off from global commerce due to economic sanctions over the past decades. It’s obvious that trade with Iran could create tens of billions of dollars worth of business for foreign companies. Also, Iran’s young and educated workforce, along with its vibrant economy, make the country a unique and attractive market. Iran offers great opportunities in many business sectors as well as tax incentives aimed at attracting foreign investment. For instance, investors can use a 100% tax exemption in the first 5 years in some areas.
If the investment is located in free-trade zones, less developed areas or an industrial park in Iran, the tax exemption duration could be extended up to 20 years.
The Importance of Payroll
As an incorporation you have to ensure that your local entity is legally capable of running a payroll. Indeed, payroll is a main part of operating any business. It plays a vital role in protecting the company’s reputation and affects morale of employees.
An efficient payroll could motivate employees and lead to higher performance. Employees need to be sure about consistent and on time payment. Inaccurate and late payroll demotivates employees and would result in ignorant behavior and underperformance. A good payroll allows employees to feel net worth within the organization. However, payroll is not limited to salary. Bonuses, incentives and benefits are some items that incorporate as a compensation package.
However, payroll is not about calculations, but also keeping records. Payroll is extremely time consuming and requires a vast knowledge about related regulations and also accuracy. Moreover, as payroll has to be performed every month, its calculations require additional resources. Indeed, payroll reflects the company’s commitment to its employees.
Payroll in Iran
Payroll in Iran is extremely complex, especially for MNCs which operate in Iran. Indeed, establishing a local payroll would be extremely difficult. Regarding payroll in Iran, a company needs to consider:
- Income tax
- Social Security Insurance
Any person who’s working in Iran (Iranian or a non-Iranian) is subject to income tax, based on their salaries [Guide on Iranian Taxation System for Foreign Investors]. Foreign nationals are liable to pay tax only on their Iranian-sourced income and they can’t obtain an exit visa from Iran unless they provide proof that they have paid their due taxes [Ibid].
The good news is that there is no payroll tax in Iran while only income tax should be calculated. Also, employment in free-trade zones, less developed areas and profits derived through operating cooperative societies like rural area are exempted of income derived.
The income tax applies on salary and benefits, and the employer is required to make tax deductions and submit them to the tax authorities. The tax base for payroll in Iran is gross salaries and has several classes.
According to Iranian National Tax Administration (INTA), the tax exemption amount in 2017 is set around 6085 EUR (Based on Iran Central Bank Exchange Rate on August 2017) and up to five times more than this amount would be taxable by only 10%. The surplus income tax would be applied at 20%.
Expats are also exempted from Social Security. Social Security Organization (SSO) is a social insurer organization in Iran which provides coverage of wage-earners and salaried workers as well as voluntary coverage of self-employed persons [Wikipedia]. However, as for SSO and unemployment insurance for Iranians, the employer pays 23% of salary and the employee pays only 7%.
Indeed, payroll in Iran is both simple and complex, but knowing the basis of it would help you avoid inaccuracy. Outsourcing Iranian payroll to a trusted local payroll consultant can help foreign companies apply their focus elsewhere in the business while saving time and money.