Is it possible to register a company with full ownership by a foreigner in Iran? Or do you need an Iranian partner to do so? Read this article to find your answers.
Due to some unfair restrictions in the recent years, Iran has been put aside from many transnational business opportunities. The JCPOA agreement and the elimination of some of the restrictions have revealed the significant potential of Iran to become a leading part of regional and international developments in areas such as information and communications technology, the energy market (both fossil fuels and clean energy), mining and transportation. Iran’s highly educated human resource is its another potential.
In this new role, some of the most frequently asked questions are how can non-Iranians operate in Iran’s business arena? Is it possible to establish a company in Iran solely by a foreigner? Do we need to have an Iranian partner in our company?
Related: Types of Business Structures in Iran
In this article, I will answer these questions but first, it’s worth to mention that due to unfair business restrictions that are applied to Iran over last four decades, it is not surprising that lawmaking bodies improvise a defense mechanism. This mechanism started from Constitutional Law to protect people from another undesirable experience. It explains the intensive position of laws toward foreign companies at early stages but over time through regaining the trust, it got easier to perform a fair trade activity in Iran and it is going to be easier and safer. This also explains the ambiguity of laws and regulations which make it hard to explain even for an experienced business lawyer.
Despite the ambiguities in this topic I tried to answer these questions in the simplest possible way. This article has been exclusively written for TechRasa.
First: Company Establishment for Foreigners
Legal Background and current situation
1- Constitutional law: According to principle number 81 of Iran Constitutional law: “It is absolutely forbidden to give foreigners the right to establish companies or institutions in commercial, industrial, and agricultural fields, as well as in mines and in the service sector”. See Iran Constitutional law in WIPO website: www.wipo.int/edocs/lexdocs/laws/en/ir/ir001en.pdf
A correction needs to be made in this translation of Iran Constitutional law. The above-mentioned principle does not forbid the right but privilege. In another word, foreigners have the right to establish a company in Iran as long as it does not form a privilege. Of course, it took a decade for lawmaking bodies to clarify this difference but it finally happened.
Furthermore, in Commercial Code and Company Registration Act, there was no requirement for company founders or shareholders to be of an Iranian national but it was still forbidden for foreigners to establish a company in which 100 percent of shares belong to non-Iranians. Until 2002, if a foreigner wanted to establish a company in Iran, he or she had to participate with Iranian nationals and his or her share could not exceed more than 49 percent of company’s shares or capital.
2- Foreign Investment Promotion and Protection Act: This Act was adopted on March 10, 2002. This Act has some complicated rules about foreign investment but its provisions about company registration can be summarized in this statement: Establishment of a company in which 100 percent belongs to non-nationals is possible only for foreigners who have an investment contract with the Organization for Investment Economic and Technical Assistance of Iran. See the website of this organization: http://www.investiniran.ir/
At this point, there are two ways for a foreigner to establish a company in Iran: One is by participating with an Iranian national, which the foreigner could not own more than 49 percent of company’s shares. And two, by signing an investment contract with Iran’s government through the Organization for Investment Economic and Technical Assistance of Iran. In this type, this foreigner can establish a company in which 100 percent of the company belongs to itself.
From the adaptation of this Act up until almost a decade later, the Company Registration Office would have asked the following from the foreigner in order to establish the company: 1- investment contract with a governmental organization 2- one or more Iranian nationals as partners in the company. This process was applied for a decade until another regulation was adopted.
3- Regulation No 89/01/34624: According to this Regulation: A) Based on the current legal situation, foreign nationals are allowed to establish a company with 100 percent ownership. B) Ministry of Labor will handle the issuance and extension of job residency for foreigners who have established a company in Iran regardless of the percentage of ownership.
This Regulation was adopted in 2010. From this date, foreigners can establish a company in Iran with 100 percent of ownership without the participation of an Iranian national or an investment contact.
A regulation is not as powerful as an act but after this regulation, there is no legal document that clearly states that establishment of a company for foreigners with 100 percent of ownership is allowed. Despite this fact, every Act that adopted after this Regulation is based on this assumption that it is allowed for foreigners to establish a company with 100 percent of ownership.
Summary and practical tips
- Foreigners can establish a company in Iran. This company would be considered as Iranian. The nationality of the shareholders does not have any effects on the nationality of the company.
- Foreigners can also establish a company with the participation of Iranian nationals.
- Company establishment for foreigners was derived from Constitutional law and Foreign Investment Promotion and Protection Act. This statement means that authorities will pay attention to the following limitations:
- Limitation regarding Constitutional Law: As mentioned in the second paragraph, it should not constitute a privilege. This predicate has a lot of legal explanations which are not necessary to mention because it is very unlikely to happen. Examples are cartels and other anti-competition structures.
- Limitations regarding Foreign Investment Promotion and Protection Act: This Act is about promoting foreign investment. Foreign investment in this Act is: Any type of investment such as cash or equipment, or intellectual property that has a foreign origin.
What does it mean? It means a foreigner who wants to establish a company in Iran cannot use his or her Iran-Originated property as the capital of the company.
Another limitation of this Act is about the overall number of foreign companies in specific fields of activity or specific industries. This overall number is also very unlikely to happen and it is based on the annual data of these companies provided by the Company Registration Office and the Organization for Investment Economic and Technical Assistance of Iran. If TechRasa’s readers need this information, I will explain them in details in another article.
- The process of registration is different in each case.
Second: Branch and Representative of Foreign Companies
Legal Background and Current Situation
1- Registration of Branch and Representative of Foreign Company Act: This Act was adopted on November 12, 1997, and it is just one Article: “Foreign Companies that are legally established in their country of registration, providing reciprocal action, can operate in Iran according to Iran Laws and Regulations”.
2- Regulation: The above mentioned Act has a regulation which declares the conditions and process.
According to Article number one of this Regulation: ” Foreign companies can establish a branch in Iran for one or more of the following activities:
- After sale services for the parent company.
- Applying the executive phase of contracts concluded between Iranian nationals and the parent company.
- Contextualizing of investment in Iran on behalf of the parent company.
- Enhancing non-oil exports in Iran.
- Cooperating with Iranian companies in order to work in other countries.
- Technical and engineering services and the transfer of technology.
- VII. Perform any other business activities which require government’s permission such as transportation, insurance and marketing “.
3- Representative: Foreign companies can establish a representative office in Iran. A representative is an Iranian individual or a legal entity which has a “Representation contract”. The representative is responsible for the activities according to the contract.
Summary and Practical tips
- Foreign companies can establish a branch and representative office in Iran.
- A branch does not have an independent legal personality. A branch works under the title and responsibility of the parent company.
- A representative can only be an Iranian individual or an Iranian legal entity which has a “Representation contract”. The representative has joint and separate responsibility with the parent company.
- The following document has to be submitted to the Company Registration Office In order to establish a Branch:
- Company Statute and Establishment Notice.
- Latest financial report.
- A report containing the company’s activity, reasons for establishing a branch, types and scope of the branch authority, place, assessment of Iranian and non-Iranian manpower, and financial resources for managing the branch.
- Iranian individuals or entities who want to register a representative office for a foreign company should submit the following documents to Company Registration Office:
- Representation contract.
- Identification documents such as a birth certificate for individuals and statute for entities.
- Work experience in related areas of the representation contract.
- The statute of the parent company.
- A report of the company’s activity and reasons for establishing a representation office.
- Latest financial report of the parent company.
- A written request addressed to the respective Ministry.