Iran Cross-Border Tax Guide

Tax Residency Rules

• 183+ day rule: An individual is considered a tax resident of Iran if physically present in the country for 183 days or more in any 12-month period. The days of arrival and departure are counted as full days for the residency calculation.
• Centre of vital interests: Even if the physical presence test is not met, an individual may be considered a resident if Iran is the centre of vital interests — the place where the individual's economic and personal ties are strongest (e.g., the permanent home, the family, the business interests).
• Dual-residence tiebreaker: In the case of dual residence, the tax treaties (where applicable) provide a tiebreaker rule based on the permanent home, the centre of vital interests, the habitual abode, and the nationality.

Worldwide vs. Source-Based Taxation

• Residents — worldwide income: Iranian tax residents are taxed on their worldwide income — all income derived from both Iranian and foreign sources. The foreign income must be declared on the annual tax return, and the foreign tax credit (see below) applies.
• Non-residents — source income only: Non-residents are taxed only on the Iranian-source income (the "درآمد اتباع خارجی" — the "income of foreign nationals"). The Iranian-source income includes the salary for work performed in Iran, the rental income from Iranian property, the dividends from Iranian companies, and the capital gains from the sale of Iranian assets.
• Iranian-source income definition: The income is considered Iranian-source if the payer is resident in Iran, the services are performed in Iran, or the property is located in Iran. The specific sourcing rules depend on the income type.

Tax Treaty Network

• 55+ treaty partners: Iran has an extensive tax treaty network with more than 55 countries, including many OECD members such as Germany, France, Italy, Spain, Switzerland, Japan, South Korea, and Turkey. The treaties generally follow the OECD Model Tax Convention.
• Withholding tax rates: The treaties typically reduce the domestic withholding tax rates on dividends (from 42.5% to 5-15%), interest (from 35% to 5-15%), and royalties (from 35% to 5-15%).
• Permanent establishment threshold: The treaties define a permanent establishment (PE) threshold of 3 to 9 months (depending on the treaty) for the construction and the service projects. A PE triggers the corporate income tax liability in Iran.
• Treaty relief procedure: To claim the treaty benefits, the non-resident must submit a treaty relief application to the Tax Affairs Organization (the "سازمان امور مالیاتی" — the "TAO") together with the certificate of residence from the home country tax authority.

Foreign Tax Credit

• Unilateral foreign tax credit: Iran provides a unilateral foreign tax credit (the "اعتبار مالیاتی خارجی" — the "foreign tax credit") for the taxes paid abroad on the foreign-source income. The credit is limited to the Iranian tax attributable to the same foreign income.
• Calculation: The foreign tax credit is calculated on a per-country basis. The credit may not exceed the Iranian tax that would have been payable on the foreign income. Any excess foreign tax may be carried forward for up to 3 years.
• Treaty credit vs. unilateral credit: Where a tax treaty applies, the treaty provisions on the foreign tax credit (the "ordinary credit" method) take precedence. In the absence of a treaty, the unilateral credit under the domestic law applies.

Free Trade-Industrial Zones and Special Economic Zones

• Free Trade-Industrial Zones (FTZs): The FTZs (the "مناطق آزاد تجاری-صنعتی" — the "free zones") — including Kish, Qeshm, Chabahar, Anzali, Arvand, and others — offer a 15-20 year tax holiday on the corporate income tax for the licensed activities. The tax holiday starts from the date of the business licence issuance.
• Eligible activities: The tax holiday applies to the manufacturing, the trading, the services, and the tourism activities conducted within the FTZ. The income from the export of goods produced in the FTZ to the mainland Iran is also exempt (subject to the value-added threshold).
• Special Economic Zones (SEZs): The SEZs (the "مناطق ویژه اقتصادی" — the "special zones") offer a reduced corporate tax rate of 15% (instead of the standard 25%) and certain customs duty exemptions. The SEZs do NOT offer the full tax holiday available in the FTZs.
• Conditions: The tax incentives are subject to the fulfilment of the investment and the employment commitments specified in the licence. The failure to meet the commitments may result in the clawback of the tax benefits.

FAQs

Is foreign employment income taxable in Iran?

Yes, if the individual is a tax resident of Iran. The foreign employment income is subject to the progressive individual income tax (IIT) rates of 0-35%. The foreign tax credit is available for the taxes paid in the source country.

Are foreign bank accounts reportable?

Yes. The resident individuals and entities must report the foreign bank accounts and the foreign assets on the annual tax return. The failure to report may result in penalties.

Do FTZ companies need to file tax returns?

Yes. Even though the income is exempt during the tax holiday period, the FTZ companies must still file annual tax returns and obtain a tax clearance certificate to maintain the exempt status.