Foreign direct investment in Iran

Front men

In 2015, The Economist and The Wall Street Journal reported that American companies (incl. Apple Inc. and Hewlett-Packard) are using local (Iranian) front men to seal deals in Iran. In the oil and banking business some "prime contracts" have already been signed while Iran is still under "international sanctions". Boeing, Microsoft, Siemens, BP, Chevron, Gazprom, Eni, Samsung, Renault. Peugeot, GM are also returning to Iran.

Natural resources

Iran holds 10% of the world's proven oil reserves and 15% of its gas. It is OPEC's second largest exporter and the world's fourth oil producer.

Iran's industry and mining map

Iran is OPEC's second largest oil producer. It has approximately 9% of world oil reserves (some 94 billion barrels). It has the second largest reserves of natural gas in the world at some 812 trillion cubic feet. Iran is considered an energy superpower. Iran also possesses enormous mineral resources, including coal, copper, iron, zinc and gold. This has spawned a number of processing industries, particularly steel. Iran is already the third largest producer of copper in the world.

Competitive advantages

Iran has made the development of non-oil exports a priority. The country has the advantage of a broad domestic industrial base, technology an educated and motivated workforce, cheap labor and energy resources and geographical location, which gives it access to an estimated population of some 300 million people in Caspian markets, Persian Gulf states and countries further east. Iran has the consumer potential of Turkey, the oil reserves of Saudi Arabia, the natural gas reserves of Russia, and the mineral reserves of Australia. Iran's area roughly equals that of the United Kingdom, France, Spain, and Germany combined. Iran has a diverse climate which makes it suitable for a wide range of agricultural products.

Investment by natural persons of foreign nationality

In 2006, The net worth of Iranian citizens abroad's abroad was $1.3 trillion. In 2000, the Iran Press Service reported that Iranian expatriates had invested between $200 and $400 billion in the United States, Europe, and China, but almost nothing in Iran. In Dubai, Iranian expatriates have invested an estimated $200 billion (2006).

According to the Civil Code, foreign nationals will, subject to the existence of a treaty on reciprocity, enjoy the same rights and privileges of Iranians. The companies formed by such foreign nationals will be of Iranian nationality and subject to the same laws which regulate the activities of Iranian companies.

Foreign investment in the framework of the Commercial Code

The Iranian Commercial Code is divided into four parts:

1. merchant and trade activities,
2. trade companies,
3. negotiable instruments,
4. contracts and bankruptcy.

Foreign nationals can, in the framework of the Commercial Code and subject to the observance of the relevant procedures, form and register companies in Iran. Iran's Commercial Code does not differentiate between Iranian and foreign stock holders of Iranian companies. In other words, there is no restriction regarding the nationality of those who want to establish companies in Iran. In this context, foreign exchange restrictions are equally applied to Iranian and foreign investors. Such companies, however, do not enjoy the privileges set out in FIPPA (see below).

FIPPA

Provisions of the 2002 Act entitled Foreign Investment Promotion and Protection Act (FIPPA) include:

• Allowing foreign investment in all sectors opened to Iranian private companies.
• A review of the definition of "Foreign Investor" to include Iranian expatriates provided that their investment capital originates from abroad.
• Allowing repatriation of local sales related profits in addition to export-related profits in hard currency at the current official exchange rate.
• Fair compensation in case of nationalization. If an act of the government disrupts the business activity, the government will be under obligation to make payments for any loan installments that are due on behalf of the project company.
• FIPPA allows for international arbitration in legal disputes. There are two major arbitral institutions in Iran: the Tehran Regional Arbitration Centre (TRAC) and the Arbitration Centre of the Tehran Commercial Chamber.
• The establishment of a maximum 45-day period for the processing of individual foreign investment applications.

For the first time, project financing schemes such as buy back agreements and BOT projects (only under an operator status) are specifically covered under the foreign investment law. Under the FIPPA, any foreign natural or legal person importing capital in Iran will enjoy the benefits and privileges of this law as long as:

• The investment leads to economic growth, promotes technology, promotes quality of products, increases employment opportunities, increases exports and entering the international markets.
• The investment does not jeopardize national security and public interests or harm the environment or interrupt national economy or disrupt products of domestic investments.
• The investment does not involve the granting of any special rights resulting in a monopoly.
• The value ratio of goods and services produced by aggregate of foreign investments does not exceed 25% in each economic sector and in each economic branch shall not exceed 35%. FIPPA will be applicable based on the nationality of the Foreign Capital as opposed to the investor. As long as the capital comes from foreign sources, any one importing it will be eligible for FIPPA protection including Iranians residing in Iran or abroad.

Starting in 2014, foreign investors, who establish production lines in Iran and export 30 percent of their products, will be entitled to tax exemptions (up to 50%).

Buy-back

In the 1990s and early 2000s, some indirect oilfield development agreements were made with foreign firms. Buyback contracts in the oil sector, for instance, were arranged in which the contractor funded all the investments, and then received remuneration from the National Iranian Oil Company (NIOC) in the form of an allocated production share, then transferred operation of the field to NIOC after a set number of years, at which time the contract was completed.

In February 2007 the government unveiled its new buyback-contract formula, which significantly extended the length of the contracts to as long as 20 years. The buy-back scheme is a formula used by the Iranian government to attract foreign investment. Following the end of the Iran–Iraq War in 1988, Iran faced a major problem: it needed foreign investment if it did not want to lose its vital income from the oil and gas industry, yet its revolutionary ideology and Constitution forbid granting "concessions". A compromise solution was found in 1989 with the First Five-Year Economic, Social and Cultural Development Plan. Under Note 29 of the said plan, the Iranian government is allowed to employ "buybacks" in its effort to meet the industrial and mineral needs in connection with exports, production and investment. Put in layman's terms, a buy-back transaction is a method of trade where plants, machinery, production equipment and technology is supplied (by a domestic or foreign private firm), in exchange for the goods that will be produced directly or indirectly by means of such facilities.

Build-Operate-Transfer (BOT)

Recent regulations have introduced the Build–operate–transfer (BOT) scheme for Iranian projects. This is a rather new possibility in the Iranian market. In this scheme, the foreign partner invests in one project, which is then operated for a certain period of time by the foreign investor before it is fully transferred to the Iranian government. Iranian authorities are showing some flexibility regarding the BOT, which could potentially pave the way for more foreign investment in the market.

Advantages

Free-trade (FTZ) and special economic zones (SEZ) have been established to provide additional investment incentives such as:

• 20 years tax-exemption (15 years, before 2014);^{[citation needed]}
• no entry visa requirement;
• 100% foreign ownership possible;
• flexible employment regulations;
• flexible monetary & banking services;
• extended legal guarantees & protection.

Locations

As of January 2010, there were six free-trade zones (FTZ) and 16 special economic zones (SEZ) in Iran. More FTZ and SEZ are planned in Iran.