The Law for Development of New Financial Instruments and Institutions

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Article 1:
The following definitions shall apply for the purposes of the terms and phrases
used herein:
a) Investment Unit means the uniform securities issued by the mutual fund
and shall, in return for the investments made by individuals/entities in the
fund, be delivered to them recording the specifications of the fund,
investor and the amount invested.
b) Free Floating Shares mean a portion of the listed company shares whose
holders are typically prepared to offer and sell such shares and do not
have the intention of having a say in the company management by
retaining such portion of shares.
c) Securities and Exchange Organization means an Organization which has
been established by virtue of the Securities Market Act of the I.R.I., ratified
on Nov. 22, 2005 and is hereinafter referred to as the “Organization”.
d) Special Purpose Vehicle (SPV) means one of the financial institutions
under the Securities Market Act of the I.R.I. which is authorized to raise
funds by issuing securities through the conduct of transactions under the
category of Islamic contracts.
e) Mutual Fund means a financial institution which invests the financial
resources derived from issuance of investment units in its designated area
of activity.

Article 2:
The State Organization for Lands and Deeds Registration shall, merely by virtue of
the Organization’s license, have to register the funds under paragraphs (19) and
(20) of article (1) of the Securities Market Act of the I.R.I. and the mutual funds
under paragraph (1) of article (14) of the “Law for Management and Protection
of Housing Construction and Supply” passed on May 15, 2008 and other funds
which fall under the category of financial institutions in conformity with the rules
of the Securities Market Act of the I.R.I.. Such funds shall become a legal entity as
of the registration date.
Article 3:
In return for the investment in the funds under article (2), a registered investment
unit is issued. The responsibility of investors in such funds shall be confined to the
size of their amounts so invested.
Article 4:
Establishment, registration, operations, dissolution and liquidation of the funds
under article (2) shall be fulfilled in accordance with the following requirements:
a) The duration of the business of such funds shall have to be specified in the
articles of association commensurate with the fund’s type of activity;
b) The minimum capital required for the formation of mutual funds shall be
the amount of five billion (5,000,000,000) Rials. The Securities and
Exchange High Council shall have the authority to increase the minimum
capital required for the formation of mutual funds by making allowances
for changes in the inflation rate;
c) Whether the fund is open-end or closed-end as well as the possibility and
procedure of transferring the investment unit of funds through issuance
and redemption and/or purchase and sale shall have to be stipulated in
the fund’s articles of association;
d) The fund shall, by virtue of the arrangements provided in the articles of
association, have at least one administering body and one supervisory
body acting in the capacity of the inspector/auditor;
e) The functions, powers and responsibilities of the said bodies and other
bodies such as the guarantor shall be entrusted to the qualified legal
entities that accept positions in the fund. The scope of responsibilities and
powers of each one of the bodies shall be specified in the articles of
association. The administrating body may be appointed from among the
eligible natural persons.
f) The procedures for the fund liquidation at the termination of its business or
dissolution shall be subjected to the requirements set forth in the articles of
association and the fund manager may also act as liquidator unless he
forfeits his eligibility to run the fund. The mutual funds are managed in
accordance with the provisions of their articles of association.
Article 5:
Any dispute arising from investment in the funds under article (2) and their
activities and accordingly the disputes among the fund’s bodies shall be
resolved by the arbitration board as stated in the Securities Market Act of the I.R.I.
Article 6:
The article (143) of the Direct Taxation Act passed on Feb. 22, 1988 and its
subsequent amendments, upon deletion of note (1) thereto and retention of
notes (2) and (3) as renamed notes (1) and (2) has been modified as follows:

Article 143: Ten percent (10%) of income tax gained from sale of the
commodities listed on the commodity exchanges and ten percent (10%)
of the income tax of the companies whose shares have been listed for
trading on the domestic or foreign exchanges and five percent (5%) of
the income tax of the companies whose shares have been listed for
trading on the domestic or foreign OTC markets shall be exempted with
the approval of the Organization as of the listing year to the year during
which they have not been delisted from the listed companies on such
exchanges or markets. The companies whose shares are listed for trading
on the domestic or foreign exchanges or on the domestic or foreign OTC
markets shall enjoy a tax exemption for double the said exemptions
provided that they have at least twenty percent (20%) free–floating shares
at the end of their fiscal year as confirmed by the Organization.
Article 7:
The text below along with four notes thereto is added as article (143 bis) to the
Direct Taxation Act passed in 1988:
Article 143 (bis): Out of any transfer of shares and preemption rights of
companies, whether Iranian or foreign, on the exchanges or on the
licensed OTC markets, a flat tax for the amount of half percent (0.5%) of
the sales value of shares and preemption rights shall be collected and, in
this respect, no more funds shall be claimed as income tax for transfer of
shares and preemption rights and value added tax for purchase and sale.
The brokers of exchanges and OTC markets shall have to collect the given
tax from the transferor during each transfer and pay it into the account
which has been assigned by the State Taxation Organization and shall,
within ten days from the transfer date, send the relevant receipt along
with a list containing the number and amount of shares sold and the
preemption rights so transferred to the local Tax Affairs Department.
Note 1: All incomes of the mutual fund within the context of this law and
all incomes gained from investment in securities under paragraph (24) of
article (1) of the Securities Market Act of the I.R.I., ratified in 2005 and the
proceeds derived from transfer of such securities or the proceeds earned
from issuance and redemption of them shall be exempt from income tax
and value-added tax as per the Value-Added Tax Act passed on May 23,
2008 and no tax whatsoever shall be claimed for the transfer, issuance
and redemption of the foregoing securities.
Note 2: The profit and fees paid or allocated for securities as referred to in
note (1) of this article, excluding the dividend and shares of companies,
and the profit gained on investment units of funds, on the condition of
registering these securities with the Organization, shall be regarded as
parts of acceptable expenses for assessment of taxable income of such
securities issuer.
Note 3: If any natural person or legal entity domiciled in Iran, who is the
shareholder of the company listed on the exchange or OTC markets, sells
his shares or preemption rights in foreign stock exchanges or foreign OTC
markets, no tax whatsoever shall be levied on and collected in Iran in this
respect.
Note 4: The mutual fund shall not be authorized to engage in any other
economic activity whatsoever outside the area designated in the licenses
issued by the Organization.

Article 8:
In article (104) of the Direct Taxation Act amended on Feb. 16, 2002, the phrase
“exchanges, OTC markets and transaction fees and settlement of securities and
commodity in exchanges and OTC markets” is added before the word “banks”
and the word “contract” precedes the word “transport”.
Article 9:
The paragraph (11) of article (12) of the Value-Added Tax Act is amended as
follows:
11: Banking and credit services rendered by banks, credit institutions and
cooperatives and authorized interest-free loan funds (Gharz Ul- Hassanah– a
benevolent loan free from Riba–usury) and transaction services and settlement of
securities and commodity in exchanges and OTC markets.
Article 10:
Trading in commodity and securities in the commodity exchanges and all
activities carried out by individuals/entities in such exchanges shall be subject to
the rules provided in chapter six of the Securities Market Act of the I.R.I. and
perpetrators of the offences stated under the said chapter shall be prosecuted
in compliance with article (52) of the same Act.
Article 11:
The SPV shall be exempt from payment of any tax whatsoever and transfer tax
and charges and income tax for that category of the assets for which the funds
are raised through issue of securities for public offering. The funds raised through
issue of securities by such institutions shall be pooled in a special account and
any withdrawal from such account shall take place under the supervision and
with the approval of the Organization. The regulations governing the activities of
the SPVs shall, within three months, be approved by the Securities and Exchange
High Council upon the recommendation of the Organization.

Article 12:
The proceeds gained from selling assets to the SPV so as provide financial
resources through public offering of securities shall be exempt from tax and no
tax and charges whatsoever shall be levied on the transfer of such securities. The
depreciation expenses arising from assets value appreciation in the repurchase
of the same assets by the seller, in whichever manner, shall not be regarded as
parts of the tax deductable.
Article 13:
The managers of financial institutions, issuers of securities and self-regulatory
organizations inclusive of the board members and the managing director shall
not have a record of effective absolute criminal conviction and shall hold the
required professional qualifications. In the case of ineligibility or their professional
disqualification, the appointing authority shall have to reject their appointment
to the said positions and/or remove the directors so appointed from their
positions. The requirements and criteria for the professional qualifications of the
said directors merely in terms of education background and related job
experiences and also the method of their disqualification by the Organization
shall be provided in a bylaw which shall, upon the recommendation of the
Securities and Exchange High Council, be approved by the Council of Ministers
(the Cabinet).
Article 14:
The issuers of securities, financial institutions and self-regulatory organizations and
also the persons who are appointed as their directors shall be deemed to be
violators in the case of infringing the laws and regulations relating to the activity
of each of them and the Organization shall have the authority to receive cash
penalty from the violators from ten million (10,000,000) Rials to one billion
(1,000,000,000) Rials and credit such penalty to the treasury account in addition
to the disciplinary actions prescribed in articles (7) and (35) of the Securities
Market Act of the I.R.I. The bylaw governing the amount of cash penalty in
keeping with the act committed shall be drafted upon the joint
recommendations of the Ministry of Economic Affairs and Finance and the
Ministry of Justice for the approval of the Council of Ministers (the Cabinet).
Note 1: The sums of cash penalty shall, once every three years, be
modified upon the recommendation of the Securities and Exchange High
Council and approval of the Council of Ministers in agreement with the
Consumer Price Index (CPI) which have officially been published by the
Central Bank of I.R.I.
Note 2: The verdicts rendered with regards to penalties shall be binding.
Such penalties can be collected through the executive divisions of
Registration Department and the Courts’ Judgments Enforcement Division.
Note 3: The Judiciary may regard the Organization’s report on the
commission of offences as the report of justice officers where this
Organization acts as a complainant and, in pursuance of article (52) of
the Securities Market Act of the I.R.I., takes legal action with the
competent judicial authorities. The Organization staff shall, in enforcing
the court orders as to the said offences, be vested with all those powers
and responsibilities which have been expressly stated or stipulated for the
officers of justice in the Law of Criminal Procedures. The staff concerned
shall be appointed by the ordinance of the prosecutor general and on
the recommendation of the Organization president.
Article 15:
If the securities listed on the stock exchange or on the OTC markets and/or the
commodity-based securities which are listed on the commodity exchange carry
the profit approved, matured or guaranteed, it shall be distributed and paid in a
timely manner within the framework of prevailing rules. Where the issuers fail to
do so and the securities holders or the Organization lodge a complaint, the
matter shall be brought up with the Arbitration Board envisaged in the Securities
Market Act of the I.R.I. and the awards passed in this respect shall be
enforceable through the Courts’ Judgment Enforcement Division.

Article 16:
Upon the request made by the Organization, all regulated entities such as issuers,
financial institutions and self-regulatory organizations shall have to submit records,
documents, information and reports requisite for the exercise of the functions
and responsibilities legally vested in the Organization. The Organization shall
have the power to deliver such information, records, documents and reports to
the competent domestic and/or international authorities and institutions within
the context of their legal jurisdictions with the approval of the prosecutor general.
The directors of the regulated legal entities, in case they fail to comply with the
said issues, shall be sentenced to the penalties referred to in article (49) of the
Securities Market Act of the I.R.I.
Note 1: Where the provider of information, records and documents
declares that the issues presented are regarded as a part of his trade
secrets and can not be published, the matter shall be considered at the
board meeting of the Organization for decision-making. The decision
taken by the Organization board of directors in this respect shall be
binding and serve as a basis for further action.
Note 2: The trade secrets are treated to be confidential and in case of
their disclosure, the Organization shall be held liable to compensate for
the loss and damage sustained by the provider of such documents,
records and information providing that the disclosure of trade secrets has
taken place by the Organization and in the circumstances not legally
allowed to do so.
Note 3: The government, state-owned companies and municipalities shall
be excluded from the application of the duties assigned to the issuers of
securities under articles (13), (14), (15) and (16) of this law.

Article 17:
The purchase and sale of the commodities listed on the commodity exchanges
which are traded in compliance with the rules governing such exchanges by the
Ministries, organizations, institutions, governmental and public establishments and
executive agencies shall not require the offering of tenders or bids and fulfillment
of the related formalities and procedures.
Article 18:
The government shall have to exclude the commodity listed on the exchange
from the pricing system.
Note: This article shall not apply to drugs.

This law comprising 18 articles and 7 notes was ratified at the open session
of the parliament (Islamic Consultative Assembly) on Wednesday, Dec. 16,
2009.

FAR Law Firm

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