IranTax Obligations Detailed

In Iran, employers face various tax obligations related to employee compensation and corporate income.

Employer Tax Obligations in Iran for 2025

As of today, 5th of February 2025, the following overview is presented, but keep in mind that rates and regulations can be subject to change. Always consult with a tax professional for the most up-to-date information.

Income Tax (Withholding)

• Employee Income Tax: Employers withhold income tax from employee salaries. Rates are progressive, ranging from 0% to 35% based on income brackets adjusted annually. For example, in 2024, incomes up to IRR 672 million were exempt; income between IRR 672 million and 1.8 billion was taxed at 10%, and higher brackets had progressively higher rates up to 35%. Public sector employees historically have had a flat rate, often lower than rates in other sectors. The specific brackets for 2025 would need to be confirmed with updated resources.
• Foreign Employee Taxation: Foreign employees working in Iran are subject to income tax on their Iranian-sourced income. Their tax is based on their salary and applicable Iranian tax laws.

Social Security Contributions

• Employer Contributions: Employers contribute 23% of gross salaries to the Social Security Organization (SSO) for all employees. There may be a maximum daily contribution limit.

Corporate Income Tax

• Standard Rate: The corporate income tax rate is generally 25% of profits.
• Reduced Rate for Listed Companies: Companies listed on the Tehran Stock Exchange or Commodity Exchange might benefit from a reduced rate, possibly 22.5%. Verify current regulations regarding this reduction for 2025.

Value Added Tax (VAT)

• Standard Rate: Businesses generally collect and remit 9% VAT on the sale of goods and services. Specific exemptions might apply depending on the nature of the goods or services.

Other Employer Obligations

• Payroll Reporting and Payment Deadlines: Employers file monthly payroll reports with the Iranian Tax Office. Using the Iranian calendar for payroll calculations and payments is recommended for consistency. There are deadlines for social security contributions and payroll tax remittances, often tied to the Iranian calendar month.
• Foreign Contractors: Specific rules apply to foreign contractors, including reduced withholding tax rates on payments to Iranian subcontractors.
• Work Permits: Employers hiring foreign nationals must comply with work permit regulations. Employers may also need to provide documentation to tax authorities regarding the employment agreements of foreign employees.

This information offers an overview of employer tax obligations in Iran. Always consult updated official resources or a tax advisor for the most recent regulations and specific details for 2025.

In Iran, employees' salaries are subject to income tax, deducted directly from their payroll by their employers. This tax is calculated based on a tiered system with varying rates and exemptions.

Income Tax

Iran's income tax system operates on a progressive scale. A tax-exempt threshold is determined annually. Income up to five times this exemption is taxed at 10%, and any income exceeding that amount is taxed at 20%. Both Iranian residents and foreign nationals working in Iran are subject to this tax on their Iranian-sourced income. Iranian residents are taxed on their global income.

Deductions and Exemptions

Several deductions and exemptions can reduce the taxable income:

• Social Security Contributions: Two-sevenths of the employee's social security contributions are deductible.
• Housing Loan Payments: Payments made towards housing loans can be deducted.
• Employer-Covered Medical Expenses: Medical expenses covered by the employer are exempt from taxation.
• Other Exemptions: Pensions, retirement allowances, termination payments, and service-related travel expenses and allowances are also exempt.

Social Security

Employers are generally required to make social security contributions for their employees. The coverage includes accidents, sickness, pregnancy, wage compensation, disability, retirement, and death. There are provisions for exemption, but often a compulsory accident insurance (3% of salary and benefits) is required instead.

Payroll Procedures and Deadlines

Iran uses a Pay-As-You-Earn (PAYE) system where employers deduct tax directly from employee salaries. Employers must file monthly payroll lists with the Tax Office, following the Iranian calendar months for tax payments and filings.

Other Taxes and Considerations

Besides income tax and social security contributions, there might be other taxes or considerations applicable depending on the specific situation, such as property taxes or taxes on other sources of income. Always consult with a tax advisor for personalized guidance based on the most current regulations and your individual circumstances.

In Iran, the Value Added Tax (VAT) is a consumption tax levied on most goods and services.

VAT Rates and Thresholds

• Standard VAT Rate: 9% (This includes a 6% VAT and a 3% levy).
• Higher VAT Rates:
  • 12% on cigarettes and tobacco products.
  • 20% on gasoline (petroleum), kerosene, and jet fuel.
• VAT Registration Threshold: As of 2025, there is no specific information available regarding the VAT registration threshold. Further investigation may be required, contacting relevant Iranian authorities.

Filing Requirements and Deadlines

• Tax Periods: The Iranian solar year (March 21st to March 20th) is divided into four 3-month tax periods.
• Filing Deadline: VAT returns must be submitted within 15 days after the end of each tax period.
• Payment Deadline: VAT payments are due concurrently with the filing of the return, within 15 days after the end of the tax period.
• Electronic Filing: Though electronic VAT filing was mentioned as delayed in previous years, current information isn't available and needs to be verified.
• Moadiyan System: Businesses performing general industrial or commercial activities are required to register and record their transactions within this system. However, the exact date of full implementation requires further verification with Iranian tax authorities.

Exempt Goods and Services

The following are generally exempt from VAT:

• Unprocessed agricultural products.
• Livestock, live poultry, aquatic products, honeybees, and silkworms.
• Fertilizers, pesticides, seeds, and saplings.
• Basic food items (e.g., bread, flour, meat, sugar, rice, milk, cheese).
• Books, press, notebooks, and printing paper.
• Exports of goods and services (taxes paid are refundable).
• Certain financial services.
• Immovable property.
• Handmade carpets.
• Cultural Events (Information from prior years and needs verification for 2025).

Free Trade Zones

Goods and services within Iran's free trade zones are generally exempt from VAT. However, VAT applies when these goods and services enter Iran's customs territory.

Additional Notes

• Tax Identification Number/Economic Code: Businesses operating in Iran need an economic code to conduct activities, facilitate customer payments, and ensure tax compliance. These are obtained through registration with relevant Iranian authorities.
• Direct Taxes: Corporate income tax is levied at 25%. Listed companies on the Stock Exchange and Commodity Exchange may benefit from a reduced rate of 22.5%.
• Social Security Contributions: Employers are subject to social security contributions of 23% on gross salaries.

Disclaimer: This information is for general guidance only and is current as of February 5, 2025. Regulations are subject to change. It is essential to consult with a tax advisor or the Iranian tax authorities for the most up-to-date and specific information.

Iran offers various tax incentives to attract investment and stimulate specific sectors. These incentives range from full tax exemptions to substantial reductions in the standard corporate tax rate of 25%.

Foreign Investment Incentives

• Foreign Investment Promotion and Protection Act (FIPPA): FIPPA provides several advantages for foreign investors, including no restrictions on foreign shareholding, allowing 100% foreign-owned companies, streamlined investment application processes, and five-year multiple-entry visas and residence permits for investors, directors, and their families. FIPPA also covers risks such as expropriation and nationalization and guarantees the purchase of goods and services in Build-Operate-Transfer (BOT) projects where the government is the sole purchaser.

Sector-Specific Exemptions

• Agriculture: Income from agriculture, horticulture, animal rearing, fishing, and forestry is fully exempt from tax. This exemption applies to both Iranian and foreign individuals and entities.
• Less Developed Regions: A 50% exemption on salary tax is available for employees in designated less-developed regions.
• Education and Sports: Non-profit educational institutions (schools, universities) and sports institutions with proper permits are tax-exempt on income derived from their core activities.
• Culture and Arts: Income from cultural, artistic, and journalistic activities licensed by the Ministry of Culture and Guidance is tax-exempt.
• Cooperatives: Income from cooperatives formed by specific groups, including villagers, farmers, workers, and students, is fully tax-exempt.
• Exports: Income from exporting services and non-oil goods is 100% exempt. A partial exemption of 20% applies to unprocessed goods. Companies exporting at least 20% of their production while utilizing Iranian company capacities and holding a recognized global brand name are eligible for a 50% reduction in the corporate tax rate (effectively 12.5%).
• Tourism: Incentives for tourism sector investment include exemptions on energy, fuel, phone, and insurance costs. Tax exemptions of 5-10 years are available depending on the area of investment, along with VAT exemptions for certain hotels. Further benefits include customs exemptions for tourism equipment imports and facilitated land-use changes for tourism projects.

Free Trade Zones

Investing in Iran's Free Trade Zones offers unique advantages:

• 20-Year Tax Exemption: A full tax exemption applies to all economic activities within these zones for 20 years from the operational start date.
• Other Benefits: These zones also provide relaxed regulations on labor and social security, simplified residence permits for foreigners, and allow the transfer of partially manufactured goods to the mainland without customs duties.

Additional Incentives

• Knowledge-Based and Innovative Companies: Financial and tax support, including tax credits, are available for knowledge-based companies, especially those engaging in research and development in digital technologies and artificial intelligence.
• Industrial Parks and Economic Special Zones: Extended tax exemptions (7 years for industrial parks and economic special zones, 13 years if situated in a less-developed area) apply to these designated areas. Further exemptions apply depending on other qualifications, and extensions for increasing employment are available.

It is important to note that tax regulations and incentives can change. Consulting with a tax professional or relevant authorities for the most current information and specific eligibility criteria is recommended. This overview is current as of February 5, 2025.