20.What law protects foreign investment in the Islamic Republic of Iran?
The law protecting foreign investment in Iran is the Foreign Investment Promotion and Protection Act (FIPPA) ratified in 2002 which is hereinafter referred to as FIPPA. The scope of applicability of the FIPPA extends to the territory of the Islamic Republic of Iran under which all foreign investors may invest in the Country and enjoy the privileges available there under.
21.What is the role of the regulations governing investment in Free Zones?
Although foreign investment in Free Zones is governed by especial regulations, foreign investors may also invest in such zones under Foreign Investment Law and take advantage of its protections.
22.What is meant by the term protection under FIPPA?
The term protection refers to a series of certain rights and privileges which are extended to investors under FIPPA. In other words, investments carried out under any law other than FIPPA shall not be eligible to enjoy such rights.
23.What are those rights and privileges?
Fundamental rights recognized under FIPPA in favour of foreign investors are as follows:
– The right to transfer profits (dividends) as well as capital and gains on capital in foreign exchange;
– The right to receive compensation resulting from expropriation (deprivation of ownership) and nationalization of foreign capital;
– The right to receive compensation resulting from the passing of laws or Cabinet Decrees causing prohibition or interruption in the implementation of financial contracts of foreign investors;
– The right to enjoy equitable treatment accorded to domestic investors.
24.Are there any other facilities and privileges available to foreign investors?
Other facilities and privileges contemplated under FIPPA and its Implementing Regulations are as follows:
– Convertibility and transferability of the funds resulting from various investment and transfer of technology agreements;
– Possibility of submission of investment disputes to international tribunals;
– Recruitment of foreign technicians in affairs related to investment projects;
– Export of goods and services without any commitment to reintroduce export proceeds to the Country (i.e., no surrender commitment requirement) ;
– Direct access to and possibility of withdrawal of export proceeds out of Escrow accounts established in banks outside the Country;
– Inapplicability of price control, distribution as well as local content and manufacturing requirements.
25.What issues are specified in the investment license?
Many issues such as area of investment, Iranian and foreign shareholders, type and method of investment, volume and percentage of foreign investment, the manner for transfer of dividend and profit gained as well as other terms and conditions pertinent to a foreign investment project are to be specified in the investment license.
26.Who is qualified to invest in Iran?
All foreign natural and juridical persons, international organizations, institutions and companies as well as Iranian natural and juridical persons are qualified to invest in the Country in accordance with the provisions of FIPPA .
27.How investments by Iranian nationals can be covered under FIPPA?
Investments by Iranian nationals can enjoy privileges of FIPPA on the condition that their capital has been sourced from foreign origin and, further to that, the investor has submitted documentary evidence proving their economic and commercial activities outside the Country.
28. Is the validity of the investment license limited time wise?
Yes. Upon the notification of investment license, the foreign investor is required to bring an appropriate portion of his capital into the Country, within a period determined by the investment board on the basis of the peculiarities of the investment project; otherwise the investment license shall be null and void.
29.Is it possible to extend the validity, and how?
Yes, foreign investor may apply for the extension of the validity of the investment license, prior to expiration, by way of submission of justifiable reasons. The investment board will review the application and determine a new period for importation of capital, upon the approval of the application for extension.
30.Are foreign state-owned companies authorized to invest in Iran in accordance with FIPPA?
Foreign state-owned companies may invest in Iran in accordance with FIPPA, and enjoy privileges available under the law.
31.What are the sectors open to foreign investment in Iran under FIPPA?
Sectors open to foreign investment in Iran are vastly diversified and include all producing activities for the purpose of development in all areas of industry, mining, agriculture and services including tourism sector.
32.Does FIPPA consider pure commercial activities as foreign investment?
Indeed, pure commercial activities are not considered as foreign investment. However, should they be complementary to the producing activities in connection with an approved project, they can be taken into account as foreign investment.
33.What type of service activities are eligible to be covered under FIPPA?
Foreign investment in service sector including tourism is eligible to be covered under FIPPA.
34.Is the legal protection under FIPPA extended to foreign investments automatically?
Extension of legal protection to foreign investments is not an automatic phenomenon, but subject to obtaining the required investment license.
35.How and under what condition an investment already carried out but not covered under FIPPA can enjoy FIPPA’s coverage?
Investments already carried out but not covered under FIIPA may, upon application for obtaining an investment license and subject to creating added value, enjoy the protections available under FIPPA.
36. Is foreign investment permissible in existing firms? If yes how?
From the standpoint of FIPPA, there is no difference between investment in a greenfield project – a new company – and investment in an existing economic entity. All prospective foreign investors may at any time proceed for investment in a new (greenfield) project and/or an existing economic entity. However, admission of foreign investment in existing firms is subject to creation of new added value which may result from increase in investment, upgrading managerial skills, development of exports, and improvement of technology level in the same entity.
37.How foreign investment can take place in an existing Iranian company?
From the standpoint of admission regulations, such investments can be covered under FIPPA and enjoy its privileges upon completion of admission procedure and obtaining the investment license, on the condition that they bring about value addition .
38.In what manners a foreign investor can invest in an existing Iranian company and become a shareholder?
There are two ways:
1. Acquiring shares of a company based on agreed terms and conditions.
2. Subscription of the shares resulting from the capital increase of the company by way of assigning the first refusal rights of the existing shareholders to the foreign investor.
39.Under what legal framework BOT contracts are implemented?
For the purpose of conducting BOT contracts including BOOT, BOO, etc., the foreign investor may proceed either by establishing a branch office in Iran or by way of incorporating an Iranian company (i.e., Project Company).
40.What is meant by proprietary rights?
Proprietary rights are certain rights arising from having ownership over property and assets and/or rights assigned to the recipient under a contract. This right has been recognized in FIPPA and is applicable to a series of rights including right of ownership, right of operation and profitability, as the case maybe.
41.What is meant by assignment of proprietary rights in BOT contracts?
In BOT contracts assignment would cover the ownership right as well as the rights acquired under the contract which can be assigned to Iranian party of the contract.
42.Are foreign investment companies authorized to open bank accounts outside Iran?
Foreign investment companies are authorized to have bank accounts for the purpose of depositing their export earning. This would facilitate any and all payments due to the foreign investors by way of having a quick and direct access to export earnings from the export of products and services.
43.Is there any requirement for reintroducing export earnings to the Country for joint venture companies and investee firms?
No, no commitment for the return of export earnings is required. Export earnings are at free disposal of the exporter, to be used at his own discretion.
44.Can foreign investor insure his investment? What kind of insurance?
Foreign investor may insure his investment against non-commercial (political) risks with an insurance agency of his respective country. In the event a payment is made to the investor under the insurance contract, the insurer in the capacity of the investor’s subrogee may apply for compensation resulting from the rights the investor is originally entitle to claim.
45.Which authority is competent to settle investment disputes between Iranian and foreign investors or between a foreign investor and the Government?
In general, an investment dispute between Iranian and foreign investors can be referred to domestic or foreign courts or to an international arbitration based on the (prior) agreement of the two parties. However, should the Iranian party to the dispute be a government sector or company, referral of the dispute to foreign courts or international arbitration can be done only upon observance of relevant legal formalities by the Iranian (government) party. To this effect, referral of disputes to international courts and arbitration based on prior agreement between the Iranian Government and the investor’s respective government has been accepted in bilateral treaties.
46.How investment disputes may be settled?
Investment disputes may be classified in 3 categories, each of which may be settled in a different manner:
· Disputes between local and foreign investors: This type of dispute may be settled, in the first place, through friendly negotiations. In the event a settlement is not reached, the dispute may be referred to domestic courts, foreign courts and/or international or ad hoc arbitral tribunals. There is no legal impediment for accepting any of the aforementioned methods as is mutually agreed between the parties to the disputes.
· Settlement of disputes between an investor and the host government: As contemplated in Article19 of FIPPA, in the event a dispute between an investor and the Iranian Government is not settled through negotiations, the investor may approach through either of the following options:
a) Referring to domestic courts;
b) Referring the dispute to the competent arbitration tribunal stipulated in the Agreement on Reciprocal Promotion and Protection of Investment with the investors` respective government (i.e. Bilateral Investment Treaties: BITs).
· Settlement of disputes between host and home governments: This type of disputes are not usually of the same nature as disputes raised between investors. Moreover, they are attributed to the commitments and obligations of the respective governments vis-à-vis in respect of the implementation and interpretation of the contracts. Settlement of such disputes is also included in the bilateral and multilateral investment agreements.
47.Is ownership of land by foreign nationals permitted in Iran?
Yes. Ownership of land to the extent typically required for personal use by foreign nationals is permissible. Recognition of such ownership is dependent upon a specificpermission from the Ministry of Foreign Affairs.
48.Is it permissible to own land by foreign nationals for the purposes other than personal use (i.e. industrial, agricultural, services, etc.)?
The answer is no. On the overall, the ownership of land for the aforementioned purposes which are considered to be beyond personal use, is not permitted.
49.Then how the “ownership of land” in foreign investment projects is resolved?
As explained in previous answer, ownership of land in the name of foreign nationals is not permitted. However, in the event the implementation of foreign investment project results in establishment of an “Iranian Company”, ownership of land in the name of that company which bears an Iranian identity, would be permissible.
50.What is meant by the term “ Iranian Company”?
Iranian company is a company established and registered in Iran in accordance with Iranian Commercial Code, regardless of the identity and nationality of its shareholders or partners.
FAR law firm