Foreign Investment in Special Touristic Zones of Iran
Special touristic zones, foreign investment, OIETAI, ICHTO, tourism policy.
It is explained on the website of the Organization for Investment, Economic and Technical Assistance of Iran (OIETAI) that:
With the goal of capitalizing on the already productive domestic market, Iran’s Cultural Heritage, Handicrafts, and Tourism Organization (ICHTO) has identified 1,200 Tourism special Zones that investors can take advantage of them. With the support of OIETAI, ICHTO aims to attract a much larger FDI figure to the tourism industry in 2013.
To shed more light on the above statement, in this Legal Report we will discuss the following issues:
a) Policies to support and encourage investment in tourism industry;
b) Legal basis of foreign investment in the tourism industry; and
c) Practical issues about investment in the tourism industry of Iran.
More detailed study of the above three issues will be included in our booklet on Tourism Law in Iran.
I. Policies to support and encourage investment in tourism industry
In her Master’s Thesis titled “Tourism Planning and Policy Making of the Islamic Republic of Iran, Analysis of Four Five-Year Development Plans”, Ms. Roxana Faghri summarizes her understanding of the above subject in the following paragraph at page 77:
Globalization and the increased competition in tourism markets has required a continuous improvement and a constant striving towards quality and efficiency. This can be achieved only through a proper and careful planning for sustainable tourism development. The main general point to keep in mind for tourism industry of Iran is that sustainable tourism development can be achieved only through teamwork and collaboration.
Two keywords in the above paragraph are “teamwork” and “collaboration”. Have the tourism laws of Iran promoted and encouraged collaboration between different government Ministries during the last 37 years or not? If the response is positive, what measures have been taken by the government in the laws and regulations of Iran to create a synergy of efforts and results?
In order to respond to these two questions, it is necessary to look to some of the laws that play an important role in tourism law of Iran.
II. Legal basis of foreign investment in the tourism industry
2.1. Foreign Investment Promotion and Protection Act (FIPPA)
A package of facilities and guarantees are included in the following Articles of FIPPA:
a) Investment within the framework of “Civil Participation”, “Buy-Back” and “Build-Operate-Transfer” (BOT) schemes (Article 3);
b) Foreign Capital is guaranteed against nationalization and expropriation (Article 9);
c) Foreign Investment and its profits may be transferred in foreign currency or goods (Articles 13-18);
d) Investment-related disputes may be referred to international arbitration (Article 19); and
e) Rate of exemption of touristic installations from income tax is 50%.
2.2. Direct Taxation Act (DTA)
Under Note 3 of Article 132 of DTA: “All enterprises for internal and international tourism that hold exploitation permit from the Ministry of Culture and Islamic Guidance shall enjoy an annual exemption with regard to 50% of their applicable taxes.”
2.3. Act on the Administration of Free Trade and Industrial Zones
a) Natural and legal persons engaged in any kind of economic activity in a Zone are exempt from payment of income and property tax subject to Direct Taxation Law as for a duration of 15 calendar years from the date of the commencement of the operation mentioned in the permit with respect to any type of economic activity in a Zone, and upon the lapse of the initial 15 years in issue, the tax exemption shall be subject to the tax regulations to be enacted by the Islamic Consultative Assembly (Majlis) upon the proposal by the Cabinet (Article 13).
b) Inflow and outflow of capital and expatriation of profits generated by economic activities in each Zone are permitted. The required regulation for attraction and protection of investment in each Zone and the modality and participation of foreigners in activities in each Zone shall be approved by the Cabinet (Article 20).
2.4. The Act on adding Provisions to the Laws Regulating Part of the Financial Rules of the Government (2002)
Under Article 22 of the above Act, to expedite the process of development of hotels, the following actions must be taken by the following entities:
a) The National Housing and Land organization shall offer the required land to investors;
b) The Forestry and Grassland Organization shall make the needed land available to investors;
c) The ICHTO shall suggest changes in using the land for construction of hotels and the High Council of City Construction and Architecture shall decide upon this issue.
III. Practical issues about investment in the tourism industry of Iran
As explained on the website of cito.ir:
Tourism investment opportunities packages have been prepared in Farsi and English and are ready to be handed out to investors for the following opportunity areas:
· Special Touristic Zones’ accommodations such as hotels, motels and camping sites;
· Ecotourism and tourism target villages;
· Handicraft bazaars;
· Historical monuments that can be restored by cultural heritage bases;
· Hydrotherapy complexes;
· Coastline investment; and
· Tourism investment services in Free Trade and Industrial Zones.
According to the same source, the process of investment in the tourism industry of Iran comprises the following eight stages:
1) Gathering preliminary information;
2) Introducing the tourism Facilities and its meaning;
3) Handing in Applications to Receive Bank Facilities;
4) Issuing the building license and construction permit;
5) The Issuance of Agreement Letters by the Organization;
6) Preparing architectural plans according to the Regulations of the Organization;
7) The approval of facilities and introduction to banks; and
8) The examination of the case by the investment bank.
Stages 3, 7 and 8 are perhaps the most challenging parts of the approval process because in each of them, the application must be approved for the purpose of receiving banking facilities (stage 3), or to have access to building facilities (stage 7) and finally to receive loan or other financial assistance from investment banks (stage 8).
It must be noted that according to the explanations on the same website, the banks shall refrain from giving facilities to the investors if their situation corresponds to any of the following items:
1- Having bounced checks at any bank;
2- Being barred from receiving financial facilities by judicial authorities;
3- Having outstanding debts without making reasonable efforts to reimburse them;
4- Lack of sufficient financial, technical or economical justification for the proposed project;
5- Failure in providing collaterals to the banks by the investor.
After submission of the letter of introduction from ICHTO, the bank shall take action to examine the application, to verify the documents, and to announce its decision within one month.
GOOD TO KNOW
To learn more about the issues mentioned in this Legal Report, you may read the following text. If after reading this Legal Report and the following text, 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.
RELEVANT LEGAL NEWS:
1. Law in Iran Legal News: Could IRAN be the top tourism destination of 2016? Monday, October 19, 2015.
2. Law in Iran Legal News: Foreign Investment in Post-Sanctions Era, Wednesday, August 12, 2015.
RELEVANT LEGAL REPORTS:
1. Law in Iran Legal Report No. 2: Three Forms of Foreign Investment in Iran, Wednesday, August 12, 2015.
2. Law in Iran Legal Report No. 9: Branches and Representative Offices in the Laws of Iran, Thursday, September 24, 2015.
1. Law in Iran Booklet No. 2: Foreign Investment Law of Iran, Wednesday, August 12, 2015.
2. Law in Iran Booklet No. 9: Methods of Carrying on Business in Iran, Thursday, September 24, 2015.
Farhad Emam, Foreign Investment Law of Iran, Yalda Publications, 1994 (in Persian).
All rights reserved for Mr. Farhad Emam. No part of these pages, either text or image may be used for any purpose other than personal use. Therefore, reproduction, modification, storage in a retrieval system or retransmission, in any form or by any means, electronic, mechanical or otherwise, for reasons other than personal use, is strictly prohibited without his prior written permission and shall have legal consequences.