Iran gets ready for business
Iran is back in the media again but this time it is for promoting business and attracting and welcoming foreign investors, says Shahrzad Atai who heads up Child & Child's Middle East practice.
Iran is open for business after four years in the global wilderness. Following the imposition of financial sanctions on Iran in 2012, it was almost impossible for the west to do any business with Iran. Although the Chinese and Indians continued to profit from the situation, many contracts between Iranian and European companies were frozen, causing numerous complications - from reputational damages and indirect loss to loss of profit - as the sanctions did not fall within the categories of force majeure, an act of god or breach of one of the parties and therefore companies were required by Iran to carry out their contracts. This was a difficult situation for many companies with investments and interests in Iran with the only areas where trade was permissable during the sanctions being food and humanitarians/medication. Since last year and the start of the negotiation to lift the sanctions, many European companies were keen to get back into the Iranian market. Iran has a population of around 80 million people, and has no foreign debts, and therefore a very attractive market for any potential business or industry
Since January 2016, many companies /governments of European countries such as Italy, France, Switzerland and Germany have actively signed contracts with Iranian government or private companies. In the UK as the numbers are not as high as other European countries. The main reason seems to be the UK banks which are still worried about doing business with Iran, or even having clients who have dealings with any person or entities in Iran. In fact some banks are still attempting to close the bank accounts of British Iranians, who are just simply born in Iran, but have lived here over 30 years!
This is despite the Iranian banks being removed from the sanction list and also being recently reconnected to SWIFT, the Society for Worldwide Interbank Financial Telecommunication. even though SWIFT is not actually operating and no actual transfer of funds has taken place between Iranian banks and any bank in the UK. Even though there is no limit on the amount of funds and no requirement under the European regulation to report or to obtain authority for transferring funds, it is just simply practically impossible.
The real question must be why there is a such a delay and who benefits from it while there is such interest Iran and so much potential for business in all industries, from luxury goods, to mining, oil and gas, automobile industries, food, and hospitality to name a few areas open for business. One wonders if the recent penalties imposed by the US is the reason, as many European banks (including BNP Paribas and HSBC) were punished, and paid very expensive penalties to the US. However, a number of US investors are actually considering Iran and some US goods such as apple products, are found almost in any home in Iran.
Doing business in Iran
There are mainly two groups of companies who are interested the Iranian market (as well as governments at higher scale of business deals):
- Companies which had a presence in Iran prior to the 2012 sanctions but were cut off from the iranian market for the last four to five years. These companies, know exactly what they want and what they can do in Iran and will not hesitate to get back into the market for doing business in Iran.
- Companies without a presence in Iran prior to the 2012 sanctions. These are the ones studying the market and considering the risks and advantages/disadvantages with a view of entering the Iranian market.
In both cases, Iran has taken steps to pass legislation to enable foreign companies to own 100 per cent of their company or branch office in Iran, without a condition of having an Iranian partner ( previously foreigners needed to have an Iranian partner who owned 51 per cent of the company).
There are different types of companies, to incorporate in Iran - from a branch office or limited Iranian company to a joint stock company. As each of these have advantages and disadvantages, interested companies have to take specific legal advice as to which route is the most suitable for them, considering the nature of business and volume of activity, volume of investment, weather estate protection of investment is required or not and number of employees they employ in the company in Iran. One benefit is that tax rates are much lower than the UK and most other European countries. Maximum tax rate in Iran is 25 per cent while dividends and bank interests are tax exempt.
Iran is making every effort to get back to the level of export it had before the sanctions - from oil and gas to general trade and commerce - and is offering very attractive facilities to encourage and welcome foreign businesses into the country. Whether the banking system will find a way to accommodate payments between UK and Iranian banks, only time will tell!