The annual income tax in Iran is the most trivial of all taxes that you are going to face in your operations in the country. At the end of each fiscal year, you will calculate your company’s revenue and subtract all expenses to come up with the profit. You will then pay a portion of the profit to the government.
The following applies to all companies that are established in Iran or are operating in the country through registered branches.
The income tax in Iran is a flat rate at 25% of the year-end profits. You will have four months after the end of your fiscal year to pay the tax and deliver the reports.
Iran’s tax law also allows you to carry forward previous years’ losses to decrease your income tax. You may also be able to enjoy existing tax holidays. These exemptions are awarded to companies based on their field of activity, their location, their shareholder structure, and whether or not they are high-tech companies.
We encourage you to examine if your business can use any of these exemptions before incorporating your business in Iran.
When you establish your company in Iran, you have two months to register your company with Iran’s National Tax Administration (INTA). The registration starts by submitting the company’s documents online. INTA will then assign a regional tax bureau for your company to report to. You will have to visit the bureau to set up your tax account. All matters regarding the income tax will be settled through these local entities.
The first step is to select the right fiscal year when you set up your company. The tax law does not restrict the business’s fiscal year. So, you can choose the year to match your headquarter’s fiscal calendar or select any other arbitrary date as the beginning of the year. We advise you to choose a fiscal year that ensures your reporting will fall within a low-workload period.
Anyway, the importance of the fiscal year is that, after it ends, you have four months to submit your accounting documents to the tax bureau. You will also pay your tax to INTA within this four-month period. At this stage, the tax you pay is what you calculate. However, you will have to “defend” your reports at the local tax bureau, and they will determine your final payable tax.
To do so, you will have to send the accounting ledgers (these are handwritten accounting books!), balance sheet, statement of income, and the cash flow statement. Having a financial and accounting software will help you accelerate these processes since you will also be submitting your accounting reports online. Then you will receive an invitation letter from the tax bureau to visit them and prove the accuracy of your report.
If you have a sound accounting procedure in place, you will not have to worry about this meeting. Otherwise, if the tax officer refuses your accounting reports, they will determine your payable tax using their calculations. If this is the case, they will inflate your revenue and deflate your expenses to come up with higher income. So, make sure you have the right finance manager and create reliable accounting reports.
OK, all the above explanations apply to companies that have a local presence. What if you are a contractor, who is working in Iran as a foreign entity? Or a company planning to sell your license to an Iranian partner? Do you still have to pay the income tax in Iran?
The answer is yes. You are obligated to pay taxes on any income that you make from the country. The rate of the income tax for you is still 25%. The difference is in the way INTA calculates your profit. At INTA, they have tables that determine what percentage of your revenue is subject to the income tax.
For example, the taxable income of foreign oil exploration contractors is 15% of their contract value. So, their payable tax is 25% times 15%, which is 3.75% off of their contract value.
If you need to know the exact rate for your specific company, contact us. We will be happy to assist you.