Company Formation and Branch / Representative Office Registration in Iran
Law Permitting Registration of Branches or Representative Offices of Foreign Companies
Article- The foreign companies which are being considered to be legal corporate bodies in their country of registration, in case of reciprocal treatment by the country governing the said companies, may register their branches or representative offices to carry out businesses determined by the Government of Islamic Republic of iran within the framework of the prevailing laws and regulations.
Note: The executive regulations of this law shall be drawn up by the Ministry of Economy and Finance through coordination with other authorities concerned and shall be presented to the Council of Ministers for approval. The above law, comprising a Sole Article and one Note was approved by the ICA in the open session of Wednesday November 12, 1997 and was confirmed by the Guardians Council on November 19, 1997.
The Executive By- Laws of the law Authorizing Registration of Branches or Representative Offices of Foreign Companies in Iran
The Council of Ministers, in the course of a meeting held on March 31, 1999 (11.1.1378) pursuant to a proposal by the Ministry of Economy and Finance and in compliance with the Note appended to the Single Article of the law ratified in 1997 authorizing registration of branches of representative offices of foreign companies (in iran), approved the Executive By-laws of the said law as follows:
Article 1: A foreign company which is known and admitted as a legal company in the country of registration shall be authorized to have its branch or representative office registered in iran for the activities listed below, by observing the principle of reciprocal action and also with due regard to the requirements intended herein, as well as the other pertinent regulations:
- After- sale services for goods and services supplied by the foreign company.
- Executive works of the contracts signed between Iranian and foreign companies.
- Review and preparation of grounds for investment by foreign company in iran.
- Cooperation with technical and engineering companies in iran, for performance of works in a third country.
- Promotion of Iranian non-oil exports.
- Technical and engineering services and transfer of technology and technical know- how to iran.
- Activities legally licensed by Iranian government authorities which are duly authorized to issue such permits, in such areas as transportation, insurance, goods inspection, banking, marketing and the like.
Article 2: A branch office of a foreign company shall be the local office of the principle company, which directly functions and attends to business within the objectives and duties undertaken by the principle company. Therefore, and business activity by such branch office shall be in the name and under the responsibility of the principle office of the company.
Article 3: A foreign company wishing to have registered its branch office in iran shall provide the Registrar of Companies and Industrial Ownership, with the following information and documents, to be submitted along with a written application:
- Company's article of association, notice of incorporation, and the last change(s) registered with competent authorities.
- The last confirmed fiscal report of the company.
- A feasibility report containing information on the company's activities, by mentioning the reason(s) for registering the branch office in iran, nature and scope of its authorities and area of activities, as well as the number of Iranian and foreign manpower needed for such activities and the intended source of Rial and foreign currency supply.
Article 4: The representative of a foreign company shall be a natural person or legal entity who, by signing a contract, undertakes the performance in iran of a certain part of the duties of the head office.
Article 5: Iranian natural persons and juridical entities applying for registration of agent office of a foreign company in iran shall submit, along with a written application, a Persian translation of the original copies of the following documents. to Register of Companies and Industrial Ownership:
- Attested Photostat of the contract to in Article 4 above.
- Identity papers of the applicant; for natural persons, a Photostat of their birth certificate together with their legal address, and for juridical entitles, the company's articles of association and the last change(s) made in the company registered with the competent authorities.
- A profile of the Applicant's previous business activities, relative to the area(s) of activities intended for the contract signed for registering the representative office in iran.
- The articles of association of the foreign company, notice of establishment and the last change(s) made in the company registered with the competent authorities.
- A report on the foreign company's activities, by mentioning the reason(s) for establishing the branch office in iran.
- The last confirmed fiscal report of the foreign company, which intends to open its agent office in iran.
- A letter of introduction from the ministry concerned.
Article 6: Those whose license of activity shall be revoked by the competent authorities shall take the necessary actions through Registrar of Companies & Industrial Ownership, for winding up their branch or representative office, within the period specified for the same purpose.
Note: The companies whose license of activity shall not be extended will be given a period of 6 months to wind up the registered company and proceed with liquidation.
Article 7: The branch office of a foreign company registered and working in iran shall submit every year to the authorities concerned, a report on their principle company, including their annual fiscal report audities by independent auditors in the country of origin.
Article 8: Natural persons and juridical entities falling under the requirements hereof shall be required to submit a report on their branch office activities in iran together with audited account statements, within four (4) months starting the end of each fiscal year. As long as the Executive Regulations of Note (4) to the Single Article of the law approved in 1992, for using the services of specialized and professional accountants known as "Official Accountants" are not ratified, the intended auditing may be handled by accounting organizations and auditing firms whose partners being natural persons are acceptable to the supervisory office of the State Audit Organization.
Article 9: The branch or representative office of a foreign company registered in iran pursuant to the regulations forth herein is operated by one or more natural persons residing in iran.
Article 10: To enable foreign companies to fully enjoy the benefits and advantages foreseen by this present Regulation and to perpetuate their activities in iran, foreign companies already operational in iran prior to the date of entry into force of this Decree, shall be are required to provide the authorities concerned with documents and information required pursuant to Articles 3 and 5 above, and also take the necessary steps for adjusting their statues to the requirements forth by this regulation.
Requirements for registration a branch office in Iran
The applicants of establishment of a branch in iran need to submit the following documents to the Company's Registrar in iran:
- A written application by the company.
- Notarized certified copies of the company's Articles of Association, certificate of incorporation, and latest changes thereto advise to the competent authorities.
- A report containing:
i. Information pertaining to the activities of the company.
ii. Justification and the need for the establishment of a branch in iran.
iii. Nature and scope of the authorities given to the branch and the object of the branch.
iv. An estimate of human resources required, segregated between Iranian and expatriate employees.
v. The manner by which the local requirements of the branch (foreign currency and Rials) are funded.
- Registration declaration for the branch. This will be completed by us and forwarded to you for execution.
- A letter of authority authorizing the branch manager to act on behalf of the foreign company.
- A letter of commitment executed by the local representative undertaking to proceed to liquidate the branch in the event the activities of the branch are terminated by the Iranian competent authorities.
- Notarized certified lost audit report & financial statements.
Kindly note that any of the documents out above which are prepared outside iran must be certified by the competent authorities and confirmed by the foreign ministry and notarized by the Iranian Consulate in that Country. The above documents must be translated into Farsi and the English originals as well as the translated versions must be submitted to the Company's Registrar.
Auditing Regulation in Iran
According to the law on the Use of Iranian Association of Certified Public Accountants (IACPA) ratified on 11.01.1994 and the Amendment made by the Islamic Consultative Assembly in the said law on 16.02.1994 as well as Article 2 of the Executive Regulation of Note 4 of the above law ratified in the form of a decree by the Council of Ministers on 03.09.2000, the following taxpayers are under the obligation to appoint the statutory "Inspectors" of their companies from among the auditing firms being members of the IACPA. Appointment may be made from among natural persons accepted as official accountants by IACPA by taxpayers mentioned in Sub-clause "f" below, only:
- Companies accepted by or applying for acceptance by the Stock and Negotiable Instruments Exchange as well as the companies affiliated to the said companies.
- Public joint stock companies as well as their subsidiary and affiliate companies.
- The companies described in Sub-clauses (a) and (b) of Article (7) of the Audit Organization in due compliance with the procedure forth in Note (1) of Article 132 of the Iranian Certified Public Accounts law.
- Branches and representative offices of foreign companies which are registered in iran pursuant to the permission granted under the law Authorizing Registration of Branches and Representative Offices of Foreign Companies, ratified 1997 (Liaison offices excluded).
- Non- government public entities, foundations, companies, and organizations and the entities affiliated thereto.
- Other natural persons and legal entities whose aggregate turn-over (sale of commodities or services and aggregate income in respect of contractors made and signed by them) shall not exceed eight billion Rials or whose total assets shall not exceed sixteen billion Rials.
Consequences of non-registration
In accordance with Article 5 of the Registration Act, any person engaged in industrial, commercial or financial affairs in iran, as a representative or a branch manager on behalf of foreign companies, and not applied for registration, shall be liable to the punishment of a fine. If this violation of law continues, then the government shall prevent the activities of the representative or branch manager.
"Branch Manager" and "Representative" under Iranian laws
According to the stipulation of Iranian Commercial Code, branch managers and representative are commercial deputies, who have been assigned by the mother company to conduct business on behalf of the company. Their signatures are considered binding on the company. In accordance with Article 23 of the Regulation on Registration of the Companies, the term "representative" as mentioned in the Registration of Companies Act, is applicable to such individuals who have been granted sufficient authority by a foreign company and whose obligations are considered as the obligation of the company.
Legal effects of the registration of a branch or representative office
Upon registration, the branch or representative office of the foreign company shall be subject to Iranian laws in areas such as labor, social security, taxation, etc. The government protects the legal rights of a registered branch or representative office in exactly the same manner as it does Iranian companies and establishments.
Rules of taxation for branch or representative offices of foreign companies
In accordance with Article 105 the law of Direct taxation, foreign legal entities must pay taxes on all taxable income earned through investment in iran or from direct or indirect (agents, branches, etc.) activities.
Since taxable corporate income is assessed by inspecting the statutory account books, representatives and branches of foreign companies are obliged to maintain such books.
Submission of tax declaration and payment of taxes of the entities, whose central office is located outside iran, must be carried out by their agents and representatives in iran.
Tax exemption of branch or representative office
Branches and representatives of foreign companies, which have been registered in iran and by virtue of their articles of association are not authorized to engage profitable activities but can do marketing and collect economic information, are not liable to any taxation on the sums of received from the mother company in the form of revolving funds.
However, if it is proven that the said branches and representatives are engaged in profitable activities in iran and are acquiring an income therefrom, the sums earned shall be subject to taxation.