Iran has managed to attract 1.5 billion dollars of Foreign Direct Investment in 2022. The amount of FDI attracted in Iran in 2022 has increased $ 75 million compared to a year earlier. Investing in Iran requires knowledge of legal barriers and government support. Without proper understanding, investors may face costly obstacles. Seeking advice from legal experts is the safest and most profitable way to invest in Iran. Karimi & Associates Law Firm offers specialized legal advice and support from a team of experienced lawyers in various fields.
Foreign Direct Investment
Foreign Direct Investment (FDI) is one of the most known methods of investment by a company or an individual in another country which refers to purchase of an asset giving the purchaser direct control over it. This can include buying lands, buildings, or even owning a controlling stake in a business or productive assets like factories.
Status of Iran
Iran’s economy has potential for progress due to its young and highly educated population, geopolitical location, and numerous vast natural resources such as various types of mines, water resources, oil, and gas, etc. According to the World Economic Forum’s 2011 report on global competitiveness, Iran was ranked 62nd out of 142 countries. Additionally, in 2010, Iran was ranked as the sixth highest country in the world for attracting foreign invest.
From 1993 to 2007, foreign investors focused their investments on various sectors of the Iranian economy, including oil and gas, copper mining, vehicle manufacturing, petrochemicals, food, and pharmaceuticals. During this time, Iran received a total of US$ 24.3 billion in foreign investment. Additionally, from 1992 to 2009, attracted US$ 34.6 billion for 485 different projects.
Iran is ranked second in the world as an oil producer within OPEC. It currently holds around 9% of global oil reserves, which amounts to roughly 94 billion barrels. The country is also known for possessing the second largest natural gas reserves worldwide, with an estimated 812 trillion cubic feet. Additionally, Iran possesses an abundance of mineral resources, such as coal, copper, iron, zinc, and gold, which has led to the development of numerous processing industries, especially in steel production. As a result, Iran is now the third largest global producer of copper.
According to the United Nations Conference on Trade and Development, Iran was the sixth highest country in the world in terms of attracting foreign investments in 2010. In 2008, Iran ranked 142 out of 181 countries in terms of working conditions, according to the head of the Organization for Investment, Economic and Technical Assistance of Iran (OIETAI).
In terms of business start, Iran stands at 96, 165 in getting permits, 147 in employment, 147 in registering assets, 84 in getting credits, 164 in legal support for investments, 104 in tax payment, 142 in overseas trade, 56 in feasibility of contracts, and 107 in bankruptcy. Iran is a member of the World Bank’s Multilateral Investment Guarantee Agency and ranks 69th out of 139 in the Global Competitiveness Report. Additionally, Iran has signed more than 50 bilateral investment treaties with other countries.
Iran has placed a strong emphasis on the development of non-oil exports as a top priority. The country benefits from a wide-ranging domestic industrial foundation, advanced technology, a highly educated and motivated workforce, affordable labor and energy resources, and a strategic geographical location.
This location allows Iran to access a potential consumer base of approximately 300 million individuals in Caspian markets, Persian Gulf nations, and other countries further east. In fact, Iran’s consumer potential is comparable to Turkey, its oil reserves are on par with Saudi Arabia, its natural gas reserves are akin to those of Russia, and its mineral reserves are similar to those of Australia.
Furthermore, Iran possesses a land area roughly equivalent to the combined territories of the United Kingdom, France, Spain, and Germany. Additionally, Iran’s diverse climate enables the country to cultivate a broad array of agricultural products.
Foreign Direct Investment Statistics
The most leading countries which invest in Iran are India, UAE, Singapore, Oman, the Netherlands, Spain, UK, Germany, Canada, Liberia, Australia.
In 2007, Asian entrepreneurs invested in 40 out of the 80 foreign-funded projects in the Islamic state, making the largest investments. The industrial sector, which included food and beverage, tobacco, textiles, clothing, leather, chemical, steel, and oil derivatives, received the highest amount of foreign investment, surpassing $ 8.76 billion.
The water, electricity, and gas sector ranked second, attracting $ 874.83 million, while the real estate sector absorbed over $ 406 million. Investments in service, telecommunication, transportation, and mines reached $ 193 million, $ 14.3 million, and $ 14.2 million, respectively. Asian countries invested $ 7.666 billion in various projects, followed by multinational consortia. European entrepreneurs were involved in 34 projects, but their investments in the Islamic Republic only ranged around $ 1.2 billion. American countries committed $ 12.329 million, while African states invested close to $ 4 million.
Laws Concerning FDI
In Iran, there are two types of laws that apply to foreign companies.
- The first type includes laws like the Foreign Investment Promotion and Protection Act (FIPPA) that specifically deals with issues related to foreign companies and individuals.
- The second type includes general laws with certain articles or by-laws that pertain to foreign companies, such as the Taxation Law and the Labor Law.
If you are a foreign company looking to do business in Iran, there are some important laws and regulations to keep in mind. These can be divided into different categories such as:
- Contract work: It is possible for a foreign company to engage in contractual work in Iran, either directly or through a registered branch office. However, it is worth noting that branch offices in Iran do not have a separate legal status like LLCs, and the parent company is responsible for their actions.
Opening a representative office in Iran may not count as foreign direct investment for legal and tax purposes. To establish a legal presence in Iran, it’s recommended to work with a local advisor who can guide you through the process of incorporation, office rental, recruitment, staff, business contracts, customs, and the laws in general.
- Investments: The Foreign Investment Promotion and Protection Act (FIPPA) allows foreign companies and individuals to invest in newly established factories and industries. These companies can own 100% of the businesses in accordance with the terms of the act.
Settlement of Investment Disputes
There are three main categories, each with their own unique methods:
- Disputes between local and foreign investors: In these cases, it is best to attempt to settle the issue through friendly negotiations. If that fails, the dispute can be referred to domestic courts, foreign courts, or international/arbitral tribunals. As long as both parties agree, any of these methods can be used to settle the dispute.
- Disputes between an investor and the host government: Pursuant to Article 19 of the FIPPA, if negotiation is not settled, the investor can take one of two routes. They can either refer the dispute to domestic courts or to the arbitration tribunal specified in the Agreement on Reciprocal Promotion and Protection of Investment with their respective government (also known as Bilateral Investment Treaties: BITs).
- Disputes between host and home governments: These types of disputes are generally different in nature from those between investors. They typically relate to the commitments and obligations of the respective governments in relation to the implementation and interpretation of contracts. These disputes are also covered in bilateral and multilateral investment agreements.
If you are a foreign investor with an interest in investing in Iran, it is important to note that the government provides support for foreign investors and there is a strong potential for foreign investment in various industries. To begin the investment process, it is recommended that you seek legal consultation. You can contact Karimi & Associates Law Firm through our “contact us” section to receive specialized legal advice from our team of expert lawyers.