Eurasia GT Development - Iran - Fars

FOREIGN INVESTMENT PROMOTION and PROTECTION (FIPPA)

After nearly 48 years, the new law on foreign investment in Iran under the name of « Foreign Investment Promotion and Protection Act » (FIPPA)was ratified by the Parliament in 2002.

FIPPA replaced the Law for the 'Attraction and Protection of Foreign Investment » which was in effect since 1955.

FIPPA's replacement of LAPFI has further enhanced the legal framework and operational environment for foreign investors in Iran.

Some specific enhancements introduced by FIPPA for foreign investments in Iran can be outlined as follows :

Broader fiels for involvement by foreign investors including in major infrastructure;
Broader definition given to foreign investment, covering all types of investments from « Foreign Direct Investment » (FDI) to differnet types of project financing methods including « Cvil Participation », « Buy-Back » arrangements, « Counter trade », and various « Build-Operate-Transfer » (BOT) schemes;
Streamlined and fast-track investment licensing application and approval process;
Creation of a one-stop shop called the « Center for Foreign Investment Services » at the Organization for Investment, Economic and Technical Assistance of Iran (OIETAI) for focused and efficient support for foreign nvestment undertakings in Iran;
More flexibility and facilitated regulatory practices for the access for foreign investors to foreign exchange for capital transfert purposes;
Introduction of new legal options governing the government investor's relations.

It should be stressed that FIPPA is a signifiant complement to a whole host of reforms taking place in Iran's general macroeconomic framework ans structural mechanisms. Thes economy-wide reforms are intented to stimulate and benefit both foreign and local investments.

Some key elements of economic reforms include :

The introduction of a new income tax regime with a single and competitive flat taxe rate of 25%, and a range of exempltions for manufacturing entreprises and total exemption for export-generated revenues;
Elimination of a wide range and of non-tariff barriers and further liberalization of the foreign trade regime;
Creation of several private banks and other private non-banking credit institutions;
Unification of foreign exchange rate ans significant liberalization of foreign exchange regime;
Legal reforms for the establishment of private insurance companies;
Continued emphasis and progress on the privatization of state-owned enterprises including public sector banks.

The full range of reforms and improvements in Iran's economy, particularly those focused on the attraction and support of foreign investments, has increased the challenges and opportunities facing the management and staff of OIETAI. As the official authority in charge of foreign investment in Iran, OIETAI renders its utmost to ensure that the economic and legal reforms are translated into a growing record of foreign investments in Iran. Furthermore, in acknowledging a dynamic and fast changing global economic and business environment, we shall also ensure that foreign investors continue to enjoy competitive and efficient incentives in order to select Iran as a long-term investment platform in the dynamic global economy.

FARS INVESTMENT SERVICES CENTER

Fars Investment Services Center and as the sole representative of Oraganization for Investment, Economic and Technical Assistance of Iran (Oraganization for Investment) in Fars province tries to make effective strides for facilitating the affais related to the investment and achieving anticipated purposes.

FOREIGN INVEST PROMOTION an PROTECTION ACT

Chapter One : Definitions

Article .1

The terms and expressions used in FIPPA shall have the following meanings :

FIPPA : The Foreign Investment Promotion and Protection Act.

Foreign Investor :

Non-Iranian natural and/or juridical persons or Iranians using capital with foreign origin, who have obtained the Investment licence referred to in Article (6)

Foreign Capital :

Various types of capital, whether in cash and/or non-cash (in kind), imported into the following :

a) Cah funds in the form of convertible currency, imported into the Country through the banking system or other methods of transfer acceptable to the Central Bank of the Islamic Republic of Iran;
b) Machinery and equipments;
c) Tools and spares, CKD parts and raw, addable and auxiliary materials;
d) Patent rights, technical know-how, trade marks and names, and specialized services;
e) Transferable dividens of foreign investors;
f) Other permissible items approved by the Council of Ministers.

Foreign Investment :

Utilization of Foreign Capital in a new or existing economic entreprise after obtaining the Investment licence.

Investment licence:

The Licence issued for each Foreign Investment in accordance with article (6) of FIPPA.

Organization :

The Organization for Investment, Economic and Technical Assistance of Iran, referred to in Article (5) of the law establishing the Ministry of Economic Affairs and Finance, enacted on July 15, 1974.

Board :

The Foreign Investment Board, referred to in Article (6) of FIPPA.

Chapter Two : General Conditions for Admission of Foreign Capital

Article .2

Admission of Foreign Investment shall be made in accordance with the provisions of FIPPA and with due observance of other prevailing laws and regulations of the Country, for the purpose of development and promotion of producing activities in industry, mining, agriculture and services, and based on the following criteria :

a) Bring about economic growth, upgrade technology, enhance the quality ofproducts, increase employment opportunities and exports;
b) Does not pose any threat to the national security and public interests, and cause damageto the environment; does not disrupt the Country's economy and jeopardize the production by local investments;
c) Does not entail grant of concessions by the Government to Foreign Investors. Concession means special rights which place Foreign Investors in a monopolistic position.
d) The ratio of the value of the goods and services produced by the Foreign Investments, cotemplated in FIPPA, to the value of the goods and services supplied to the local market, at ehe time of issuance of the Investment licence, shall not exceed 25 percent in each economic sector and 35 percent in each sub-sector (field). The sub-sectors and scope of investment in each sub-sector shall be determined in the by-law to be approved by the Council of Ministers. Foreign Investment for the production of goods and services for export purposes, other than crude oil, shall be exemped from the aforementioned ratios.

Article .3

Foreign Investments admitted in accordance with the provisions of FIPPA shall enjoy the facilities andprotections available under the FIPPA. Such investments may be admitted under the following two categories :

a) Foregn direct investment (FDI) in areas where the activity of the private sector is permitted;
b) Foreign Investment in all sectors within the framework of « Civil Participation », « Buy-Back » and « Build-Operate-Transfer » (BOT) schemes where the return of capital and profits accrued is solely emanated from the economic performance of the project in which the investment is made, and such return of capital and profit shall not be dependent upon a guarantee by the Government or government companies and/or banks.

Note : So long as the investment in BOT schemesreferred to in Para (b) of this Article and its accrued profits are not amortized, the exercice of ownership right by the Foreign Investor over the remaining capital in the recipient economic entreprise is permitted.

Article .4

The investment by a foreign government or foreign governments in the Islamic Republic of Iran shall be dependent upon the approval of the Islamic Consultative Assembly, on a case by case basis. Investments by foreign government companies are deemed private.

Chapter Three : Competent Authorities

Article .5

The Organization is the sole official authority for the promotion of Foreign Investments in the Country, and for investigation off all issues pertaining to Foreign Investments. Applications of Foreign Investors in respect of issues such as admission, importation, utilization and repatriation of capital shall be submitted to the Oraganization.

Article .6

For the purpose of investigation and making decision on applications referred to in Article (5), a board under the name of the « Foreign Investment Board » shall be established under the chairmanship of the Vice Minister of Economic Affairs and Finance who is ex-officio the President of the Organization, comprising of Vice Minister of Foreign Affairs, Vice President of the State Management and planning Organization, Vice Governor of the Central Bank of the Islamic Republic of Iran and vice ministers of relevant ministries, as the case requires.

In relation to applications for admission, the Investment licence shall, after the approval of the Board, be issued upon confirmation and signature by the Minister of Economic Affairs and Finance.

All the time of admission of Foreign Investments, the Board is required to observe the criteria referred to the Article (2) of FIPPA.

Note : The Organization, after preliminary reviewit the investment applications along with its own recommendation, to the Board within a maximum period of 15 days as from the date of the receipt of the applications. The Board must review the applicationswithin a maximum period of one month from the date of submission, and notify its final decision in writing.

Article .7

In order to facilitate and expedite issues related to the admission and activity of Foreign Investments in the Country, all relevant agencies including the Ministry of Economic Affairs and Finance, the Ministry of Foreign Affairs, the Ministry of Commerce, the Ministry of Labor and Social Affairs, the Central Bank of the Islamic Republic of Iran, the General Directorate for Registration of Companies and Industrial Proprety, and the Organization for Protection of the Environment are required to designate a fully authorized representative to the Organization by the hightest authority of the agency.

These representatives shall act as the liaison and coordinator for all issues related to their respectice agency vis-à-vis the Organization.

Chapter Four : Garantee and Transfer of Foreign Capital

Article .8

Foreign Investments under FIPPA ahall equally enjoy all rights, protections,, and facilities availble to local investments.

Article .9

Foreign Investments shall not be subjected to expropriation or nationalization, unless for public interests, by means of legal process, in a non-discriminatory manner, and against payment of appopriate compensation on the basis of the real value of the investment immediately before the expropriation.

Note 1 : Application for compensation shall be submitted to the Board within one year from the date of expropriation or nationalization.
Note 2 : Disputes arising from expropriation or nationalization shall be settled in accoradance with the provisions of Article (19) of FIPPA.

Article .10

Assignment of the whole or a part of the Foreign Capital to a local investor and/or, upon approval of the Board and confirmation by the Minister of Economic Affairs and Finance, to another Foreign Investor is permitted.

In case of assignment to another Foreign Investor, the assignee that shall have, at least, the same qualifications as the initial investor shall replace and/or become a partner to the former investor from the standpoint of FIPPA.

Chapter Five : Provisions for Administration, Importation and Repatriation of Foreign Capital

Article .11

Foreign Capital may be imported into the Country by way of one or a combination of the following manners, to be covered under this Act :

a) Cash funds to be converted into Rials;
b) Cash funds not to be converted into Rials but to be used directly for the purchases and orders related to Foreign Investment;
c) Non-cash items, after valuation by the competent authorities.

Note : The procedure related to the manner of valuation, and registration of Foreign Capital shall be determined in the Implementation Regulations of FIPPA.

Article .12

The rate of conversion of foreign exchange applicable at the time of importation or repatriation of Foreign Capital as well as the exchange rate for all foreign exchange transfers, in case of applicability of a unifiad exchange rate, shall be the same rate prevailling in the Country's official network; otherwise, the applicable exchange rate shall be the free market rate as aknowledged by the Central Bank of the Islamic Republic of Iran.

Article .13

The principal of the Foreign Capital and profits therefrom, or the balance of capital remaining in the Country, after fulfillement of all obligations and payment of legal dues, and upon approval of the Board and confirmation by the Minister of Economic Affairs and Finance, shall be transferable abroad subject to a three-month prior notice submitted to the Board.

Article .14

The profit derived from Foreign Investment after deduction of taxes, dues and statutory reserves, upon the approval of the Board and confirmation by the Minister of Economic Affairs and Finance, shall be transferable abroad.

Article .15

Payments related to the installments of the principal of the financial facilities of Foreign Investors and their associated expenses, agreements for patent rights, technical know-how, technical and engineering assistance, trade marks and names, management as well as similar agreements within the framework of the relevant Foreign Investment, upon approval of the Board and confirmation by the Minister of Economic Affairs and Finance, are transferable aborad.

Article .16

Tranfers referred to the Articles (13), (14) and (15), shall be made in compliance with the provisions of Para (b) of Article (3) of FIPPA.

Article .17

The Foreign exchange required for transfers reffered to in Article (14), (15) and (16) of FIPPA may be procured inthe following manners:

a) Purchase of foreign currency from the banking system;
b) Out of the foreign exchange earned from the export of the products and/or the foreign exchange earned from the service activities of the economic enerprise in which the Foreign Capital is employed;
c) Export of permissible goods specified in the list approved by the Coucil of Ministers for implementation of this paragraph in compliance with the relevant laws and regulations.

Note 1 : Application of one or a combination of the above manners shall be specified in the Investment licence.

Note 2 : With respect to investments referred to in Para (b) of this Article, if, as a result of enactment of legislation or Cabinet decrees, the execution of the financial agreements approved within the framework of FIPPA is prohibited or interrupted, the resulting losses, up to a maximum of installments at maturity, shall be provided and paid by the Government. The scope of acceptable commitments within the framework of FIPPA, hall be approved by the Council of Ministers.

Note 3 : The Central Bank of the Islamic Republic of Iran must secure and make avaiable to the Foreign Investor the equivalent foreign currency for the transferable amounts referred to the Para (a), upon the agreement of the Organization and confirmation by the Minister of Economic Affairs and Finance.

Note 4 : In case the Investment licence expressly refers to Para (b) and/or (c) of this Article, this licence shahh be deemed as the export licence.

Article .18

Tranfer abroad of the portion of the Foreign Capital imported into the Country within the framework of the Investment licence but remained unused, is exempted from all foreign exchange, and export and import laws and regulations.

Chapter Six : Settlement of Disputes

Article .19

Disputes arising between the Government and the Foreign Investors with regard to their respective mutual obligations within the context of investments under FIPPA, if not settled through negociations, shall be referred to domestic courts, unless the Law ratifying the Bilateral Investment Agreement with the respective government of the Foreign Investor provides for another method for settlement of disputes.

Chapter Seven : Final Provisions

Article .20

The relevant executive agencies are required to take measures, upon the request of the Organization, for the issuance of entry visa, resisdence permit, work, and employment permit, as the case may be, for Foreign Investors, managers and experts of the private sector linked to Foreign Investments under FIPPA, as well as their immediate relatives.

Note : Differences of opinion between the Organization and executive agencies shall be settled upon the opinion of the Minister of Economic Affairs and Finance.

Article .21

The Oraganization is required to ensure the access of the general public to the all information related to investment, foreign investors, investment opportunities, Iranian partners, fields of activity and other information avaibable bto the Organization.

Article .22

All ministries, government companies and organizations as well as public institutions to whom the applicability of law is required to be stipulated by name, are under obligation to provide the Organization with reports on foreign investments implemented as well as information required for Foreign Investors so that the Organization can proceed in accordance with the preceding Article.

Article .23

The Minister of Economic Affairs and Finance is required to provide, every six months, the relevant commissions of the Islamic Consultative Assembly with a report reflecting the performance of the Organization with respect to Foreign Investments under FIPPA.

Article .24

As from the date of enactment of FIPPA and its Implementing Regulations, the Law for the Attraction and Protection of Foreign Investments – enacted on November 28, 1955 – as well as its Implementing Regulations, are repealed. Foreign Capital previously admitted under the said Law shall be covered by FIPPA.

The previsions of FIPPA shall be repealed or altered by subsequent laws and regulations provided that the repeal or alteration of FIPPA is expressly stipulated in such laws and regulations.

Article .25

The Implementing Regulations of FIPPA shall be prepared by the Ministry of Economic Affairs and Finance and subsequently approved by the Council of Ministers within two months.

IMPLEMENTING REGULATIONS of FOREIGN INVESTMENT PROMOTION and PROTECTION ACT

More information

SECTORS an SUB-SECTORS referred to in Para (d) of Article (2) of FIPPA

AGRICULTURE :

Farming and horticulture
Livestock, sericulture, apiculture and hunting
Forestry and pastures
Fishery an aquaculture

MINING :

Crue oil and natural gas (exploratin, extraction and transfer)
Other mines (exploration and extraction and processing)

INDUSTRY :

Food, beverages and tobacco
Textile, clothing and leather
Cellulosic (wood, paper, etc.) print and publication
Chemicals, oil derivatives, rubber and plastic
Non-metallic minerals other than oil and coal
Basic metals
Machinery and equipment, tools, an metal products
Transport equipment and automotives
Electrical and electronic machinery & equipments (Radio and Television and other communication devices an apparatus)
Electrical and electronic machinery & equipments (Not classified elsewhere including home appliances)
Medical, optical, and precision instruments
Recycling

WATER, ELECTRICITY and GAS Supply :

Collection, purification, supply, transfer and distribution of water and sewerage
Generation, transfer, and distribution of electricity
Refinement and distribution of natural gas