Corporate Tax Regulations in Iran

Corporate Tax Regulations in Iran

Under Iranian law, companies are required to pay taxes. After incorporation and registration, every company must take the necessary steps to determine its competent tax office. Following that, the company’s commercial books must be officially sealed to enable tax authorities to conduct a more accurate audit. Corporate taxation is a critical area governed by specific legal rules and compliance requirements.

Corporate Tax Obligations After Registration

Tax Compliance Requirements

Companies are required to pay taxes in accordance with the rules applicable to legal entities registered with the Companies Registration Office. Failure to comply with tax obligations may result in serious consequences, including loss of access to statutory facilities and benefits, as well as the imposition of tax penalties.

In practice, tax and penalty assessments may be conducted by the Tax Administration, including through methods used by the relevant authority.

Under Iranian tax rules, the financial year is a key factor in calculating a company’s tax liability. In practical terms, determining tax requires identifying the company’s financial year, as tax is calculated based on the profit and loss of that year. The company must then prepare its annual tax return and financial statements in accordance with applicable regulations.

Direct Taxes

Direct tax is imposed on the income of individuals and legal entities. Under the Direct Taxes Law, companies are required to pay tax on their total income from profit-making activities. In addition, companies may be liable for tax on assets and real property they own in Iran, as provided under the Direct Taxes Law.

Which Legal Entities Are Exempt From Tax?

Under the applicable tax framework, legal entities are generally subject to tax, with specific rules that apply to public and semi-public entities, including:

• Government institutions, ministries, and bodies whose budgets are fully funded by the government or municipalities: Such entities must generally pay their tax within four months after the end of their financial year at their competent tax office. The tax rate applied to these entities is 10% of their total taxable income.
• Companies that receive part of their budget from the government or municipalities: These companies are generally treated in two categories:
  • If the government share exceeds fifty percent, the applicable tax is calculated as ten percent of the income attributable to the government’s share.
  • If the government share is 50% or less, only the private share may benefit from the relevant tax relief or exemption regime, depending on the applicable rules.
• Private companies: Private companies are subject to the corporate tax rules applicable to private-sector legal entities.

Joint-Stock Companies

Private and public joint-stock companies are among the most common corporate forms in Iran. Certain tax-related points are frequently relevant in practice:

• Reduced tax on sale of shares: Under more recent tax rules, the tax rate applicable to the sale of shares and preemptive rights has been reduced from 0.5 percent of the sale value to 0.1 percent.
• Exemption related to capital increase from undistributed profit: Under tax rules introduced in 1397, if a capital increase is made from undistributed profits, the increased capital may benefit from a tax exemption. In addition, an amount equal to ten percent of the tax payable by certain stock companies admitted to the stock exchange may be forgiven from the year of admission until removal from the relevant list, subject to applicable conditions.

Taxation of Limited Liability, Proportional, Mixed, and General Partnership Companies

In these corporate forms, after deduction of a 10% tax on total company income, the remaining taxable income is typically allocated among partners based on the company’s articles of association, capital, or partnership shares. Each partner’s share is then taxed at the applicable rate.

Taxation of Non-Commercial Institutions

Iranian non-commercial legal entities that are not established for the distribution of profits may still be subject to tax if they engage in profit-making activities. If such activities generate profit, the resulting income is taxed in accordance with Article 131 of the Direct Taxes Law.

Taxation of Cooperative Companies

Cooperative companies, like other companies, are required to pay income tax. It should be noted that the managers of cooperative companies may be jointly and severally liable for the payment of the company’s taxes. Prior to the dissolution of a cooperative, the company’s manager must complete and submit an assets declaration to the Tax Administration.

Frequently Asked Questions About Corporate Tax Regulations