Branches and Representative Offices in the Laws of Iran
Foreign company, foreign branch, representative office, foreign banks, oil and gas companies.
The available information about the number of branches and representative offices of foreign banks in Iran tell us that:
1.1. The following 30 foreign banks have representative offices in Iran:
1) Bank ABC; 2) Banca Intesa SpA; 3) Banca Nazionale Del Lavore; 4) Banco de Sabadell, S.A.; 5) Bank Intesa; 6) Bank of Tokyo; 7) Banko Central Hispano; 8) Commerz Bank; 9) Crédit Agricole; 10) Credit Suisse Bank; 11) Deutsche Bank AG; 12) Emirates NBD; 13) Euro Paeasche; 14) Fortis Bank; 15) Habib Bank; 16) Halkbank, 17) HSBC Bank; 18) Hypovereins Bank; 19) Inter Alpha Group of Banks; 20) Lloyds Bank; 21) Mediobanca; 22) Mizuho Corporate Bank; 23) National Bank of Dubai PJSC; 24) Natixis Bank; 25) Pamuk Bank; 26) Standard Chartered Bank; 27) State Bank of India; 28) Sumitomo Mitsumi Banking; 29) UFJ Bank; and 30) United bank limited.
1.2. The following 4 foreign banks have opened their branch offices in Iran: 1) Europäisch-Iranischen Handelsbank AG with representative offices in Tehran and Kish Trade and Industrial Free Zone; 2) Future Bank; 3) Islamic Regional Cooperation Bank for Development and Investment (Taawon Bank); and 4) Standard Chartered Bank.
1.3. The list of foreign companies involved in oil and gas activities in Iran that appears on the website of http://www.iranoilgas.com/companies/listforeign include the following names:
1) AB Petrochem Pvt. Ltd.; 2) ABB (PJSC); 3) AIOTEC GmbH; 3) Alfa Laval Iran; 4) Alldos Eichler GmbH; 5) Al-Mansoori Mehran Oilfield Services (AMOS); 6) Atlantic International Operation Limited; 7) Atlas Copco Iran BAF Valves Pars; 8) Barwil; 9) BGP Iran Kish; 10) Borusan Lojistik Co.; and 11) Bureau Veritas.
II. Legal basis
Article 4 of The Company Registration Act (1931) states that foreign companies may opt for one of the two methods of carrying on business in Iran: 1) To establish a branch; or 2) to open a representative office in Iran. This dichotomy is repeated in the Act Permitting Registration of Branches or Representative Offices in Iran (1997) and its Executive Regulations (1999).
The following rules and regulations are applicable to activities of the branches and representative offices of foreign banks in Iran:
2.1. Regulations for the Manner of Establishment, Operation and Dissolution of the Representative Offices of Foreign Banks in the Islamic Republic of Iran (1984) – Article 6 of the Regulations states that:
The Central Bank of Iran (CBI) shall supervise the operations of the representative offices in accordance with its statutory obligations. The Supervision Department of the CBI shall carry out the necessary supervision and report the results of its activities to the Commission for Supervision of the Operations of the Representative Offices of Foreign banks.
2.2. Executive Directive of the Regulations for the Manner of Establishment, Operation and Dissolution of the Representative Offices of Foreign Banks in the Islamic Republic of Iran (1994) – According to Article 18 of this Directive:
Representatives of foreign banks may, in conformity with the relevant laws and regulations, engage in consultation and information services to the banking system and other organizations and legal entities of the country. They may also act as information liaison office between their own banks and Iranian organizations. However, they are not authorized to carry out any operations which may be considered as banking transactions.
2.3. Executive Directive of the Regulations for the Manner of Establishment, Operation and Dissolution of the Branches of Foreign Banks in the Islamic Republic of Iran (2011) - Under Article 15 of this Directive:
In performing banking operations, branches of foreign banks shall be bound to observe the Act on Usury (Interest) Free Banking Operations and its regulations. They are authorized to offer services in the framework of the articles of association of the foreign bank and the license to be issued in their name by the Central Bank of Iran.
III. Practical issues
3.1. The level of control applied to the activities of foreign companies in Iran
First, under Article 1 of the Executive Regulations on Registration of Branches and Representative Offices of Foreign Companies in Iran, foreign companies are only authorized to carry on business activities in one of the seven subjects strictly defined by the Iranian law.
Secondly, under Article 3(3) of the same Regulations, a foreign company that applies to establish a branch in Iran must submit a feasibility report to the Corporate Registration Office containing information on the company’s activities, the reason(s) for registering the branch office in Iran, nature and scope of its authorities and area of activities, as well as the number of Iranian and foreign manpower needed for such activities and its intended source of Rial and foreign currency. This report shall be considered as a roadmap for the future activities of the branch in Iran.
Thirdly, according to Article 6 of the Regulations, the Iranian authorities may revoke the “activity license” issued in the name of the foreign applicant. As a result, the foreign company shall take the necessary actions to wind up its branch or representative office within the period specified for the same purpose.
What are the elements that influence the decisions to be taken by a foreign company and its Iranian counterpart in each of the phases of establishment, operation and dissolution? We will analyze this matter in one of our Booklets in the near future.
3.2. Taxation of branches and representative offices
Under Article 8 of the above Regulations:
Natural persons and juridical entities falling under the requirements hereof shall be required to submit a report on their branch office activities in Iran together with audited accounts, statements, within four (4) months after the end of each fiscal year.
Furthermore, under Note 3 of Article 107 of the Direction Taxation Act:
Branches and agents of foreign companies and banks in Iran that are engaged in gathering information or finding markets in Iran for their parent enterprises, without having the right to make transactions, and receive remuneration from them against their expenditures, shall not be subject to taxation in respect of such remuneration.
Under Directive No. 18921/1623/232 of the Iranian National Tax Administration (INTA) in 2006, the tax authorities were required to look into the activities of the representative offices to discern whether they had been involved in profit making activities directly or indirectly or not. At the beginning, the foreign companies were under heavy pressure especially because Directive No 17236/3705/4/30 required the tax assessors to find the Iranian clients of the foreign companies in order to control and verify the transactions claimed to be concluded with them by the branches or representative offices of the foreign companies. Implementation of the above Directives resulted in certain irregularities. Finally, under an Order issued by the Ministry of Economic Affairs and Finance, the tax officers were reminded of their duty to respect the applicable laws and regulations as well as the treaties signed by Iran with the respective countries of foreign taxable persons. An important point in this Order was that the tax authorities were not authorized to infer from the existing relationship between a branch or a representative office with its main company that the latter persons had to pay “commission” to the main company. The tax officers were also reminded that the documents submitted by the branches and representative offices had to be considered valid unless the contrary could be proved.
The last information in this respect is that under the latest changes applied to the Direct Taxation Act in 2015, the taxes to be imposed on the activities of foreign companies in Iran shall be subject to new regulations to be passed in 2016.
GOOD TO KNOW
To learn more about the issues mentioned in this Legal Report, you may read the following texts. If after reading this Legal Report and the following texts, you still have questions that call for detailed responses, you may send them to us by clicking on “Our Services” button and following the procedure explained there.
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Law in Iran Legal Report No. 2: Three Forms of Foreign Investment in Iran, Wednesday, August 12, 2015.
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2. Law in Iran Booklet No. 2: Foreign Investment Law of Iran, Wednesday, August 12, 2015.
1. Farhad Emam, Doing Business with Iran (Part 3 on “Establishing a Business in Iran”), Kogan Page, 2002.
2. Farhad Emam, Foreign Investment Law of Iran, Yalda Publications, 1994 (in Persian).
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