Four rules for successful business in Iran
If you are willing to run a successful business in Iran, there are some simple rules that you should follow carefully. Iran is the land of opportunities, however, like other parts of the globe, has its own cultural, political, commercial and legal specifications. In this article we are discussing four simple principles which should be carefully considered by a foreign investor prior to start his business in Iran.
This article has been drafted by Iran best Lawyer to provide the foreign investors with the basic principles and rules which should be considered carefully prior to start their business in Iran.
Why Iran is an attractive market for international investors?
Very clearly, entering into the Iranian market is as attractive option for the foreign investors, Iran is rich in natural resources, it is the second world’s largest proven natural gas reserve holder (18.2 % of total) and the third in the crude oil reserves. Iran also has huge reserves of copper, iron, ore, zinc and lead. Very educated human resources and the amazing hospitability of its kind people and friendly social environment make working in Iran a pleasant.
Iran is making advances in various areas. Iran ranked 16th on global output of academic articles and is placed 43rd worldwide on availability of scientists and engineers. Bloomberg included Iran in their 2013 overview of the 50 most innovative countries.
Despite its economic isolation in the past years, Iranians are generally very educated and lots of young people are bilingual. social media are used extensively to stay informed of the latest news in the world, and technological and economic developments.
The Iranian government has ambitious plans for the country’s future with domestic industries being stronger exporters, reduced unemployment and research and development to become even more central to growth (with a target of 4% of GDP spent on R&D by 2030). Iran is increasingly nurturing SMEs and business creation, clearly acknowledging their importance for growth. To further spur entrepreneurship, awareness campaigns are being launched and policies implemented to create a friendly environment for new business. On the ‘Ease of Doing Business‘ Index for the category ‘Starting Your Own Business‘, Iran is currently ranked 62nd out of 189 countries – a promising score. Numerous Iranian accelerators and incubators are further evidence of a growing base of young entrepreneurs. These initiatives demonstrate an ambitious drive for Iran to become both a hub in a region with more than 400 million inhabitants and a global business player to be reckoned with.
What is the main challenges to start your business in Iran?
With all these positives, Iran is being discussed in the boardrooms of many multinationals, but at the same time it is not an easy place to do business and foreign companies must tread with care. Despite a promising outlook, Iran is still a fragile economy, plagued with uncertainties. Foreign companies need to establish a strategy for coping with Iran’s unique business context and culture. The Iranian government understands that foreigners are nervous about conducting business in Iran and emphasizes privatization and economic reform – some experts believe this is even more important than the lifting of sanctions and eagerly anticipate more economic reform.
Four rules for successful business in Iran
Based on our experience which has been obtained through direct assistance of the foreign companies and investors in Iran, we have identified four rules to facilitate a smooth entry.
1. GET THE BASICS RIGHT
A good understanding of the country’s history, culture and business landscape is a minimum pre-requirement. Having a Farsi (or Persian speaker in your team is essential, many documents are only available in Farsi and some Iranians specially who works for the state-entities do not speak English. Obtainment of a good understanding and the making the trust will not happen overnight, and definitely not through e-correspondences. The email is not frequent in the sate-organizations exactly vice versa the private-sector companies, therefore in order to build up your connections, your physical presence is essential.
2. Be careful about the hierarchy of governmental bodies
Considering the centralized nature of companies and governments bodies, it will take considerable time to get good result if you start your negotiations with the low or mid-level authorities. It may not be easy at first to reach the high level authorities of the organizations, but it will speed up the overall process and expect to mirror the level of seniority in terms of attendance. By having a professional team of consultants, it is always best to go directly to senior management whenever possible, otherwise, it could be waste of time.
Considering the above situation, they are group of people who allegedly work as the mediator between foreign investors and the local authorities. This is not always easy to trust these mediators, they always claim their efficiency and necessity, however, our experience shows that sometimes they are useless and sometimes they make the situation more complicated, therefore, you cannot trust them without having a clear information regarding their past records. In general, we strongly suggest to follow-up the procedures through the certified team of lawyers.
3. PREPARE YOURSELF LEGALLY
Following the JCPOA and election of Mr. Biden in US, it is expected that most economic sanctions for non US-companies will be lifted or waived in the third quarter of 2021. regardless of the status of sanctions whether they are in the process of being waived or are already lifted upon entering Iran, foreign investors and companies need to have an acceptable understanding of the Iranian legal rules in order to evaluate their potential risk. to mitigate the investment risk one way is to structure the business in a way that it covers by one of the Bilateral Investment Treaty (BIT) and/or another investment agreement.
There are more than 50 BITs applicable between Iran and other countries, such as Germany, France, Italy, Austria and SwitzerlandBITs with Iran provide protection against expropriation without compensation, free transfer of capital, guaranteed equal treatment with nationals and, in principle, the possibility of arbitration proceedings (UNCITRAL), even though the free choice of the governing law is limited.Even more efficient than the BITs, protection and incentives are also provided under Iranian national law.
The Foreign Investment Promotion and Protection Act 2002 (FIPPA) guarantees important privileges to foreign investments such as an equal treatment standard, transfer of funds and dividends, compensation against expropriation and access to foreign courts. However, in order to be privileged, the foreign investor has to obtain a permit from the relevant organization. The permit will be issued rapidly, if, based on the initial business plan, the investor can demonstrate that the business activities are eligible. as is often the case, the only problem is fulfilment of the details. The precise and timely preparation of the business plan is essential. A positive aspect is that foreign investors are, with few exceptions in some field of activities, allowed to hold up to 100% of the capital shares in the Iranian companies, which is a very rare privilege in this region.
Foreign investors can also choose freely between the legal forms provided by Iranian Commercial Law, with the Private Joint Stock Company proving to be the most common and suitable corporation form for foreign investors. There are also various tax and legal provisions privileging the establishment of foreign companies in free trade zones and special economic zones. Iran has concluded numerous double taxation conventions (DTC) essentially based on the OECD Model Tax Convention with Germany, France, Spain, Austria and Switzerland. It is highly advisable to engage a law firm with expertise in international business that has on-the-ground experience in relation to the above-mentioned points in Iran and can provide reliable knowledge in this regard.
4. POSITION FOR THE LONG TERM
However, incorporation a company does not legally require an Iranian partner, it could be recommendable to the foreign investors to make a partnership with the local Iranian companies. Finding a partner may seem not difficult given the big size of the economy, but finding a trustable and well-known Iranian company with a clear background is not necessarily simple. Iranian partners expect a long-term commitment which means building a business, based on mutual respect and transfer of knowledge and expertise. To support such an approach, building local employment through offices and factories is a strong commitment. A long-term approach will be partly automatic.
The patience is the key element to have a successful business in Iran, the governmental organs, sometimes, are slower than usual standards and finding a capable team of employees may take time, but after having all the elements i.e. required certificates from the government and the efficient and professional partner and employees, your business will boost magically within few years.
If you have any question regarding the topic of this article or any other subject related to Iran, please don’t hesitate to send us a message.
