A conversation with Anahita Asgari Fard, Partner of Asgari’s law firm in Iran on key issues on foreign investment. (especially about FDI control in Iran.)
Table of Contents
The law on foreign investment in Iran under the name the “Foreign Investment Promotion and Protection Act “(FIPPA) was ratified by the parliament in 2002. The FIPPA and its executive by-laws have enhanced the legal framework and operational environment for foreign investors in Iran. According to FIPPA, all foreign investors are permitted to invest, in all areas of industry, mining, agriculture, and services in Iran.
Alongside FIPPA, the General Policies About Principle 44 of the Constitution of the Islamic Republic of Iran ( 2005 ), and later law on Implementation of General Policies of Principle 44 of Constitution Law ( The Privatization Act 2008 ), and the Six Economic Development Plan, are main regulations governing the foreign investment in Iran.
The organization for Investment, Economic, and Technical Assistance of Iran (OIETAI) was founded in 1975. The requests made by foreign investors concerning admissions, inflow, use, and outflow of capital must be submitted to OIETAI.
The president of the OIETAI is the Deputy Minister for investments and international affairs of the Ministry of Economic Affairs and Finance.
The OIETAI aim is to harmonize, regulate and conduct affairs related to foreign investments, admission of foreign investments, grant loans, and credits to governments and international investors, acquisition of any loan and credit from abroad, and provide legal protection and full security to foreign investors by way of facilitating the flow of capital into the country, in line with the FIPPA 2002.
Alongside the issuance and extension of the investment licenses, OIETAI provides coordination required with respect to the matters related to the issuance of visa, residence, and work permits for individuals related to foreign investment projects. Furthermore, OIETAI organizes and coordinates international economic relations with other countries and has established Joint Economic Commissions with several countries
All Foreign natural and judicial persons, international organizations, institutions, and companies including foreign state-owned companies are allowed to invest inside the country. . In addition, following provisions of FIPPA, investments by Iranian nationals can enjoy the 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 commercial and economic activities outside the country.
Foreign investors are permitted to invest in all areas open to Iranian private entities, including industry, mining, agriculture, and services. However, only investments that have obtained required licenses from OIETAI under the FIPPA 2002 regulations, are eligible to enjoy the privileges and protections provided for foreign investors.
Pure commercial activities are not considered foreign investment under the FIPPA. However, should they be complementary to the producing activities in connection with approved projects, they can be taken into account as foreign investment.
Foreign Direct Investment in oil and gas upstream activities is not permitted, but Foreign Investment in such areas with the framework of contractual agreements is permissible. By contractual agreements, we mean all forms of project financing methods within the frames of civil partnership, buy-back arrangements, and different types of Build, Operate, and Transfer (B.O.T) Schemes. In general, foreign investment in sectors reserved for the government may only be carried out by contractual agreements.
Offering shares of some of the state-owned companies to foreign investors is possible through issuing a license by the Supreme Council for the Implementation of General Policies of Principle 44 of the Constitution, in line with the regulation of FIPPA and the Islamic Republic of Iran Stock Exchange Market Law 2005.
In addition, foreign investors can invest in Free Trade Zones (FTZs). One of the main objectives of the FTZ is to attract and promote foreign direct investments in the country to boost manufacturing exports. The Law on the Administration of Free Trade-Industrial Zones, offers full protection and guarantees for foreign investors. Some of these protections and guarantees are as follows:
Furthermore, the investment by a foreign government in Iran is dependent upon the approval of the Islamic Consultative Assembly, on a case-by-case basis. Investments by foreign state-owned companies are deemed private.
Admission of foreign investment should be made per the provisions of FIPPA and an investment license should be issued by the OIETAI.
The criteria below should be met by an investment plan to obtain a license. The investment plan should:
Furthermore, the ratio of the value of the goods and services produced by the foreign investments, contemplated in FIPPA, to the value of the goods and services supplied to the local market, at the time of the issuance of the investment license, should not exceed 25 percent in each economic sector and 35 percent in each sub-sector field. However, foreign investments for the production of goods and services for export purposes, other than crude oil, are exempted from the aforementioned ratio.
There is no minimum or maximum for foreign investment in respect of the percentage of shareholdings in FIPPA. Foreign investors don’t need to have local partners in Iran. However, in most cases, they prefer to cooperate with local partners as they are more familiar with the business environment, regulatory and administrative requirements, and opportunities locally available.
However, the Bylaw on Foreign Investment in the Exchanges and OTC Market 2010 (Foreign Investment Bylaw) stipulates that foreign investment is permitted to invest in the exchange or OTC market up to the threshold designed in the FIPPA unless the Securities and Exchange High Council imposes some restrictions in some cases.
The restrictions imposed on the possession pf shared by the non-strategic foreign investors on every exchange or OTC market are set as follows:
Moreover, the law concerning the protection of knowledge-Based companies and institutions and the Commercialization of Innovations and Inventions (Technology Startup Law) 2011, offers certain protections and facilities to knowledge-based companies and institutions. These protections apply to foreign investors in two conditions:
In addition, in some public utility and infrastructure projects, foreign contractors are required to comply with local content requirements concerning the establishment of a joint foreign-Iranian consortium for undertaking certain projects and contracts.
Furthermore, the Local Content Law (1997), applies to a broad range of entities, including:
the procurement of engineering and construction services from foreign suppliers by government entities is prohibited. In the event of a lack of domestic capacity for the implementation of the projects, a partnership between domestic and foreign companies should carry out the project on the condition that the share of domestic suppliers makes up at least 51 percent of the total value of the project.
According to FIPPA regulations, the ratio of the value of the goods and services produced by the foreign investments, contemplated in FIPPA, to the value of the goods and services supplied to the local market, at the time of the issuance of the investment license, should not exceed 25 percent in each economic sector and 35 percent in each sub-sector field. However, foreign investment for the production of goods and services for export purposes, other than crude oil, is exempted from the aforementioned ratio.
Furthermore, according to the Law for the ownership of Immovable Property by Foreign Nationals 1921, ownership of the land of any type and to any extent in the name of foreign investors is not permitted. However, with the permission of The Ministry of Foreign Affairs ownership of land to the extent typically required for personal use by foreign nationals is permissible. In addition, if the implementation of foreign investment project results in the establishment of an Iranian company, ownership of land in the name of that company with an Iranian identity is permitted.
For investigation and deciding on applications referred to the OIETAI, a board under the name of “Foreign Investment Board ” ( FIB ) is established under the chairmanship of the Vice Minister of Economic Affairs and Finance who is ex-officio the president of the OIETAI, 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 minister of the relevant ministries, as the case may be.
The FIB has the discretion to review the applications and decide whether they qualify as an investment project. For this purpose, the FIB is required to observe the criteria mentioned in our response to question 4 above to reach its decision.
Furthermore, as we mentioned in our response to question 4 above, according to the Local Content Law (1997), the procurement of engineering and construction services from foreign suppliers by government entities is prohibited. In the event of a lack of domestic capacity for the implementation of the projects, a partnership between domestic and foreign companies should carry out the project on the condition that the share of domestic suppliers makes up at least 51 percent of the total value of the project. However, the Council of Economy, upon the recommendation of the Management and Planning Organization, may authorize derogation from the above requirements.
The criteria below should be met by an investment plan to obtain a license:
The ratio of the value of the goods and services produced by the foreign investments, contemplated in FIPPA, to the value of the goods and services supplied to the local market, at the time of the issuance of the investment license, should not exceed 25 percent in each economic sector and 35 percent in each sub-sector field. However, foreign investment for the production of goods and services for export purposes, other than crude oil, are exempted from the aforementioned ratio
The OIETAI is the sole official organ in charge of approving and rejecting foreign investments transactions. Once an investment license is issued, all transactions related to the investment project should be approved and facilitated.
However, in some investment projects, it may be found that the project is a threat to national security and public interests after the license is granted. For instance, causing damage to the environment, cultural heritage smuggling, money laundering, and other financial crimes may be found after the project is carried out. In such cases, the transactions can be rejected by the relevant authorities.
Additionally, the transfer of immovable assets such as lands to non-Iranian persons is permitted under certain circumstances and for personal use (not industrial and agricultural use) and by approval of the Ministry of Foreign Affairs.
According to the FIPPA regulations, if as a result of the enactment of legislation or Cabinet Decree, the execution of financial agreements approved within the framework of FIPPA is prohibited or interrupted, the resulting losses, up to a maximum of installment by maturity, should be provided and paid by the government
There is no guideline for foreign investors to notify their transactions. An investment license is required for the foreign investment projects which will be issued by the OIETAI. Once the license is issued the OIETAI and other authorities are obliged to facilitate the investor’s transactions.
However, if a project after the execution, is found to be contrary to the criteria of Article 2 of FIPPA, the regime has the authority to suspend or even terminate the project. One example is the Turkish company Turkcell’s investment in the telecommunication sector, which was recognized by the parliament, as harmful to national security and public interests and was terminated by the authorities.
It is generally possible to close a transaction before obtaining a license from the OIETAI and other relevant authorities globally or locally. However, foreign investors will not be granted protection and be treated as Iranian investors without obtaining a license under FIPPA regulations.
Clearly, in major infrastructures, the investment projects cannot be performed inside Iran without being approved by the OIETAI.
There is no deadline required to file a transaction or an investment application. All investment applications including admissions, importations, utilization, and repatriation of capital should be submitted to the OIETAI. The OIETAI, after the preliminary review, will apply to the FIB along with its recommendations, within the maximum period of 15 days after the receipt of the application. The FIB then reviews the application within a maximum period of one month from the date of submission and notifies its final decision in writing. The FIB is obliged to observe the principles mentioned in Article 2 of FIPPA to accept foreign investment.
Upon the notification of the investment license, the foreign investor is required to bring an appropriate portion of his capital into the country, within a period determined by the FIB based on the peculiarities of the investment project, otherwise, the investment license shall be null and void.
In case, establishing a corporate entity is required to initiate the investment project, it takes 20 days to one month to register the company with the Registration Office.
Any non-Iranian natural or judicial persons or Iranians using capitals of foreign origin can apply for the investment license with the OIETAI.
The foreign investors who would like to make investments in Iran within the framework of FIPPA, need to first fill out a special form ( to be obtained either in person or online ) and submit it to the OIETAI along with the specified documents
Choosing the form depends on the type of foreign investment and investment agreement. The form has to be submitted in English except for when the investor is an Iranian expatriate or from a Persian-speaking country.
After conducting necessary investigations and taking the viewpoint of the ministry responsible for the related sector, the OIETAI will bring the investment application along with its expert advice before the FIB within a maximum period of 15 days. Based on the decisions adopted by the FIB for which the acceptance of the foreign investor has already been obtained, the investment license will be drafted and issued, and upon confirmation and signature by the Ministry of Economic Affairs and Finance.
According to FIPPA, foreign investors will be treated like Iranian nationals once they obtain the investment license. Therefore, penalties applied to Iranian individuals or judicial persons in the event of an infringement of the applicable laws will also apply to foreign investors.
In some cases, an investment license can be revoked. For instance, if a foreign investor fails to bring an appropriate portion of his capital into the country, within a period determined by the FIB based on the peculiarities of the investment project, the OIETAI will revoke the investment license.
Furthermore, the foreign investor will lose the FIPPA protection in some cases. According to article 24 of FIPPA Bylaw, the foreign investor is required to announce the entry of its capital including cash or non-cash items to the OIETAI within the framework of the license issued for the foreign investor so that they will be registered in the Organization and subjected to FIPPA. Failure to register the entered capital is tantamount to not being covered by FIPPA.
There is no statutory law that mandates confidentiality. However, in practice, the FIB decisions and announcements regarding the investment application will not be published to the public.
Once the application is submitted to the FIB, representatives of foreign investors are usually invited to take part in the FIB meeting.
After making a decision, to ensure that the investor is satisfied with the decision of the FIB, a draft license will be communicated to the investor before the issuance of the final investment license.
Foreign investment after obtaining the investment license from the OIETAI will be treated like Iranian entities. Therefore, a merger control regime will also apply to the merger procedures of companies established by foreign investors.
Chapter 8 of the Privatization Act talks about the formation and responsibilities of the Supreme Council for Implementation of the Act and one of the duties of the Supreme Council is a compilation of strategies to avoid the influence and domination of foreigners over the national economy.
However, to attract more foreign investment to the country, in some circumstances, the law exempts foreign investors from the prohibitions of the Competition Law. For instance, according to Article 5 of the Privatization Law, there is a ceiling of ownership for each joint-stock enterprise or joint-stock cooperative company or any non-governmental pubic institutions in banking, financial industry, credit institutions, and monetary firms. However, according to Note 5 of the said article when a joint bank by Iran and a foreign country is to be established, the share of the foreign partner is exempted from the ceiling specified in this article.
For more information on the merger control regime in Iran, see Iran merger control.
The Law on Sixth Five Year Economic, Cultural, and Social Development Plan 2016-2021 (The Six Development Plan) was approved by the parliament in March 2017. The plan compromises three pillars: The development of a resilient economy, progress in science and technology, and the promotion of cultural excellence. The plan includes a sharp rise in foreign investment. Among its priorities are the reform of state-owned enterprises and the financial and banking sectors and the allocations and management of oil revenues.
The plan lets the government arrange up to an average of $ 30 Billion of foreign financing each year, composed of $15 Billion of annual direct foreign investment and up to $20 Billion of foreign investment conducted with local partners.
Furthermore, the government is authorized to issue guarantees for foreign investment in projects that are in line with the current regulations and approved by the government’s Economic Council. The projects should be deemed eligible by the Planning and Budget Organization of Iran in the case of public projects while private projects should comply with Public Audit Law as well.
In the power sector, the country’s goal is to increase renewable energy projects to meet growing domestic demand and expand its presence in the regional electricity market.
Overall, the government is prepared to attract foreign investment through political and legal reforms, addressing major concerns of foreign investors such as transparency and transfer of funds, dispute resolution, enforcing international arbitration awards, and nationalization.
Produced in partnership with Asgari & Associates
Specialist Legal Advice for Foreign Investment in Iran
Lawyers at Asgari Law have a unique experience in this area as they mainly advise foreign investors jurisdiction of Iran. In fact, Asgari Law has led the way by advising the first and more significant foreign investment projects in Iran. Deep knowledge of the legal framework of the country and a vast experience in representing foreign investors´ interests before the governments and local authorities are part of Asgari Law´s track record. From highly complex regulated markets, like the energy, finance, and insurance markets, to agricultural and tourism projects, our team of lawyers has been providing for years top legal support to foreign investors.
We would urge those seeking personalized legal assistance in the investment in Iran to contact our law firm directly. As a foreign investor client, our lawyers can provide full-service assistance and legal guidance for all of your interactions with Iranian Law. Contact us today by using our contact form or by email/phone. Our foreign investment lawyers in Iran look forward to responding to your questions .