Taxes play a vital role in shaping the economy of every country. They are a primary source of revenue for governments, enabling them to finance public services and infrastructure. Taxes also influence the behavior of consumers and producers, contribute to social welfare, and stimulate investment—making them a fundamental element of fiscal policy worldwide.
For foreign investors exploring opportunities in Iran, it is essential to understand the country’s taxation system, including the different tax categories and available exemptions.
Taxation can be defined as the transfer of a portion of income or profits earned through economic activity to the government, since it provides the tools and infrastructure that facilitate such earnings. The main law governing taxation in Iran is the Direct Tax Act of 1988, revised in 2015 (referred to as DTA).
Individuals Liable for Tax in Iran
To fully understand Iran’s tax framework, one must first know who is required to pay taxes. Under Article 1 of the DTA, the following individuals and entities are subject to taxation:
All owners, whether natural persons or legal entities, with property or properties located in Iran;
Iranian natural persons residing in Iran, on all income earned in Iran or abroad;
Iranian natural persons residing outside Iran, on all income earned within Iran;
All Iranian legal entities that earn income either in Iran or abroad; and
Any non-Iranian person (natural or legal) earning income in Iran or receiving income from granting licenses, providing training or technical services, or transferring cinematographic films—whether the income is received as fees, exhibition rights, or under any other title.
Individuals Exempt from Paying Tax
According to Article 2 of the DTA, certain individuals and organizations are exempt from taxation. These include:
Government ministries and institutions;
Government-funded enterprises;
Municipalities; and
Foundations and statutory bodies authorized to be exempt by the late Imam Khomeini or the Supreme Leader.
Types of Taxes in Iran
Iran’s tax system consists of two main categories: Direct Tax and Indirect Tax. Each category contains several subtypes, described below.
1. Direct Tax
Direct tax is collected directly from individuals or companies based on their income or assets. Natural persons are subject to progressive tax rates, while legal entities, such as companies, are generally taxed at a flat rate of 25% (Article 105, DTA). Direct taxes are divided into property tax and income tax.
1.1. Property Tax
Property tax applies to wealth or assets acquired or inherited by an individual. It is often used as a tool to adjust wealth disparities in society. Examples include:
Inheritance Tax: As stated in Article 17 of the DTA, property remaining after a person’s death is subject to inheritance tax.
Stamp Duty Tax: This tax applies to all negotiable commercial instruments issued, negotiated, or used in Iran, as well as to documents indicating ownership of goods such as bills of lading and merchandise insurance policies.
1.2. Income Tax
Income tax is imposed on the income and profits of individuals or entities. The tax rate generally increases with higher income levels, and may differ depending on the income type. The main categories include:
Real Estate Income Tax: Covers income from real estate transactions, including rental income, vacant house tax, real estate transfer tax, goodwill tax, and sales of newly built properties.
Agricultural Income Tax: Income derived from agricultural activities—such as animal husbandry, fish farming, beekeeping, poultry, forestry, horticulture, and palm cultivation—is exempt from tax (Article 81, DTA).
Salary Income Tax: Salaries and wages paid to individuals by employers are subject to this tax. Employers are required to withhold and remit the tax before paying salaries.
Professional Income Tax: Applies to income earned by professionals and self-employed individuals such as tradesmen, doctors, lawyers, and mine operators.
Corporate Income Tax: Under Article 105 of the DTA, all profits earned by companies or other legal entities, after deducting non-exempt losses and exemptions, are taxed at a flat rate of 25%, unless otherwise specified.
Incidental Income Tax: As per Article 119 of the DTA, cash or non-cash income received as gifts, awards, or under similar titles is subject to incidental income tax.
Aggregate Income Tax: When income is earned from multiple sources, tax is calculated on the total annual income.
Income Tax Rates for Natural Persons
According to Article 131 of the DTA, income tax for natural persons—unless otherwise specified—is applied as follows:
Up to IRR 500,000,000 → 15%
From IRR 500,000,000 to IRR 1,000,000,000 → 20%
Above IRR 1,000,000,000 → 25%
2. Indirect Tax
Indirect taxes are levied on goods and services, with the consumer bearing the cost. They include three main types:
Import Tax: Also known as customs tax, imposed on imported goods. The rate depends on the type and value of the goods. Key examples include customs duties, commercial profit tax, and imported car duties.
Consumption and Sales Tax: Applied to certain goods, especially luxury or high-demand items such as petroleum products, alcohol, tapes, and caviar.
Value-Added Tax (VAT): Calculated as the difference between purchase and sales tax over a period. Sellers collect VAT from consumers and remit it to the tax authority. As of February 6, 2025, the VAT rate in Iran is 10%, according to the Budget Act.
Tax Exemption vs. Zero-Rate Tax
Although often used interchangeably, tax exemption and zero-rate tax have distinct meanings.
Tax Exemption means certain sources of income are legally excluded from taxation, typically to support specific industries or social goals.
Zero-Rate Tax allows individuals or companies to pay no tax for a limited period (e.g., five years) to encourage investment, job creation, and production.
Key differences include:
Tax exemption generally applies to specific industries permanently, while zero-rate tax applies temporarily (e.g., five or ten years).
Entities under tax exemption are not required to file tax returns, but those under zero-rate tax must submit tax returns and records to the Iranian National Tax Administration (INTA) to qualify.
Examples of Zero-Rate Tax
Production and Service Units with Over 50 Employees: Non-governmental production, mining, and service units (including hospitals, hotels, and tourist centers) enjoy zero-rate tax for 5 years, or 10 years in less-developed regions.
Tourism and Pilgrimage Agencies: 100% of income from foreign tourists or pilgrimage trips to Saudi Arabia, Iraq, or Syria is zero-rated.
Raw Material Exports: 20% of income from the export of raw materials qualifies for zero-rate tax.
Non-Oil and Agricultural Exports: 100% of income from exporting non-oil goods and agricultural products qualifies for zero-rate tax.
Municipal Subsidiary Organizations: If wholly owned by municipalities and operating in public or urban service fields, they are subject to zero-rate tax (Article 280, DTA).
Examples of Tax Exemptions
100% of income earned by agricultural development funds, rural or worker cooperatives, and their unions is tax-exempt.
Income from educational and training activities by nonprofit schools and universities (with proper licenses), as well as kindergartens in less-developed areas, is exempt.
Payments made under life insurance policies are exempt.
Income from handwoven carpet workshops and handicrafts, including their cooperatives and unions, is exempt.
Dowry, marriage portions, scholarships, scientific awards, and income earned by inventors or researchers (with valid licenses) are all tax-exempt for 10 years.
Conclusion
The tax system in Iran plays a central role in supporting the nation’s economy, funding public services, and encouraging investment. For foreign investors, understanding tax liabilities, exemptions, and incentives is essential for informed decision-making. Tax exemptions and zero-rate policies offer significant opportunities in manufacturing, agriculture, tourism, and exports.
However, given the complexity of Iran’s taxation framework, investors should seek professional advice to ensure compliance and optimize their tax position. While this overview outlines the key principles, detailed due diligence and local expertise are vital for successful investment planning in Iran.
Source: Rezvanian International Website
