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Income Tax in Iran


Tax on Individual income:

There are five categories of income earned by individuals. Each category is taxed separately and has its own computational rules.
· Salaries (tax rate for public sector employees: 10%; other sectors: 10-35%);
· Income from professions, trades, and miscellaneous sources;
· Incidental or windfall earnings;
· Real estate income
· Income derived from agriculture

According to the Iranian direct tax rolls article no 84. all employees salary tax rate from the beginning of the 1396 fiscal year is as below :

Every year annual salary exemption from tax will be announce by Iranian tax organization up to this level the salary tax rate is zero.

Up to the 5 times more than annual exemption salary tax rate is 10%

In excess of above level salary tax rate is 20% .

For taxable income consisting of salary and benefits, employers are required to make the necessary tax deductions from their employees’ payroll and submit them to the tax authorities. However, when calculating taxable income, exemptions and deductions are allowed. As of 2009, only government employees were paying their fair share of income taxes.

Individuals of Iranian nationality resident in Iran are subject to tax on all their income whether earned in Iran or abroad. Foreign nationals working in Iran are also subject to the same income tax based on their salary. Non-resident individuals are liable to pay tax only on their Iranian-sourced income. Foreign employees cannot obtain an exit visa from Iran unless they provide proof that they have paid their due taxes, and since they need to obtain an exit permit when their presence in Iran is based on a work permit, the government can easily enforce this rule. The government assumes a certain salary for employees depending on their position and country of origin. The assumed minimum monthly salaries in 2004 range from US$2,500 for unskilled European workers to US$7,000 for European managing directors.

Individual Business Income:

Income in IRR
Income Tax Rate
Up to 30,000,000 (US$3,230)
15%
30,000,000 to 100,000,000 (US$10,767)
20%
100,000,000 to 250,000,000 (US$26,917)
25%
250,000,000 to 1,000,000,000 (US$107,666)
30%
In excess of 1,000,000,000 (US$107,666)
35%

Real estate tax:

Rental income is subject to real estate income tax in Iran. A fixed deduction of 25% of the gross income is extended to all taxpayers to account for income-generating expenses. The net income, which is 75% of the gross rent, is then subject to the same rates as in the above table (max. 35%). Rental income is exempted from real estate tax if the property is a residential property leased as such and measures up to 150 sq. m. if it is located in Tehran (up to 200 sq. m. if it is located in other parts of the country).

According to the presented above rate for individual business tax rate : -If the landlord is a company the rental income after deducting 25 % as exemption will be-multiply 25% because the income tax rate for companies is 25% -If the landlord is a person rate of calculating tax on rent is as below from the beginning of the 1395 fiscal year :

up to 500.000.000 IRR is 15%

500.000.000 to 1.000.000.000 IRR is 20%

In excess of 1.000.000.000 IRR is 25%

In Iran the transfer of land, not the land itself, is subject to taxation. Transfer of properties: 5% of the transaction value (15% for new buildings).

Capital gains tax:

As of 2009, Iran has no capital gains tax on the sale of real estate assets. However, a capital gain tax will be introduced with the implementation of the 2010 economic reform plan.



Corporate income tax:

A new flat rate corporation tax of 25 per cent payable on the profits of corporate commercial entities has been introduced. This rate replaces the old corporation tax of 10 per cent and progressive rates of income tax (12-54 per cent) on reserves and distributable income. Apart from the 25 per cent corporation tax and the 0.3 per cent Chamber of Commerce tax no more taxes will be payable by the corporate entity or the shareholders.

The new rate of corporation tax will also apply to joint venture corporate entities registered in Iran. The tax incidence will therefore be on the corporate entity and not on the shareholder. The calculation of the tax has been simplified.

All contracting work performed by foreign contractors, whether or not the company is registered in Iran, is taxed. For contracts signed before March 21, 2003, gross taxable income is calculated as gross contract receipts less the cost of imported material. Income is then taxed at 12% of gross taxable income less contract retention. For contracts signed after March 21, 2003, taxable income is the gross contract receipts less contract expenses. Income is taxed at 25 per cent less 5 per cent taxes withheld at source.

Taxation of foreign companies:

Taxation in Iran generates particular unease among foreign firms because they appear to be arbitrarily enforced – tax bills are initially based on 'assumed earnings' calculated by the Finance and Economy Ministry according to the size of the company and the sector in which it operates. Factors such as the quality and location of a company's offices are also widely believed to affect tax assessment.

All foreign investors doing business in Iran or deriving income from sources in Iran are subject to taxation. Depending on the type of activity the foreign investor is engaged in, various taxes and exemptions are applicable, including profit tax, income tax, property tax, etc.

Generally speaking, Iran has two types of laws concerning foreign companies. The first are laws that address issues concerning foreign companies directly such as the Foreign Investment Promotion and Protection Act (FIPPA) and the second are general laws of which certain articles or by-laws address foreign companies, for instance the Taxation Law and the Labor Law. The Tax Act had divided the source of income earned by foreign companies either direct or through their branches in Iran into three main categories:

· Income earned in Iran by way of contracting operations
· Income earned from Iran by way of royalties and licensing fees
· Other activities - trading operations, etc.

The Amendment has introduced certain changes in the tax treatment of the above activities:

Foreign legal entities must pay taxes on all taxable income earned through investments in mainland Iran or from direct or indirect (through agents, branch offices, etc.) activities in mainland Iran, at the flat rate of 25% as mentioned in Article 47 of the Amendment law.

Income from royalty and licensing fees received from industrial and mining companies, government ministries and municipalities, and income from film-screening rights are subject to a deemed taxable coefficient on income of 20 per cent. All other income from royalties and licences from foreign companies is subject to a deemed taxable coefficient on income of 30 per cent. The coefficients are based on the standard corporate tax rate of 25 per cent, so that the effective tax rate is either 5 per cent or 7.5 per cent.

Note:

The Amendment has removed the confusion surrounding 'technical assistance contracting' by including 'technical assistance' and 'transfer of technology' in contracting operations subject to tax on the basis of 12 per cent of annual fees.


Administration and compliance:

Tax year – The tax year is the calendar year. The accounts of a company may be closed on a date different from 21 March, in which case, taxable profits are apportioned on a time basis to the relevant tax years.

Consolidated returns:

Taxation on a consolidated basis is not permitted and each company is required to submit a separate return.

Filing requirements:

Tax returns must be filed by 31 Tir (July 22) following the accounting year end. Companies are required to pay provisional tax accompany tax file received.

Penalties: A fixed penalty of 2.5% per month is imposed for late filing.





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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.




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This blog is Created by CA Anil Kumar Jain.