German Business Network (GBN) - EY · PDF fileGlobal Leader of the German Business Network (GBN) Phone: ... Can I pursue business opportunities in Iran? ... tourism, education)

German Business Network (GBN)

Webcast – Iran: Everything possible again?

September 1, 2016

Page 2

German Business Network (GBN)

GBN Webcast - Iran: everything possible again? (c) 2016 EYGM Limited

Naveed Ahmed Jeddy

Partner Business Tax Services

Ernst & Young Middle East

Kingdom of Bahrain

Office: +97317514940

Mobile: +97339970541

Mail: [email protected]

Your contacts for all Iran matters:

Tino Boller

Partner International Tax Services

Phone: +49 211 9352 22276

Mobile: +49 160 939 22276


Page 3

Your hosts today

GBN Webcast - Iran: everything possible again? (c) 2016 EYGM Limited

Dirk Egbers

Partner Global Leader of the German Business Network (GBN)

Phone: +49 211 9352 18500

Mobile: +49 160 939 18500


Tino Boller

Partner International Tax Services

Phone: +49 211 9352 22276

Mobile: +49 160 939 22276


Dirk Nolte

Senior Manager International Tax Services, German Tax Desk London

Phone: +44 20 7951 6335

Mobile: +49 160 939 16718


Amit Zutshi

Partner

Leader – Strategy Middle East & North Africa

Ernst & Young Middle East

Mobile: +971 561 777 280


Page 4 Doing business in Iran

AGENDA

Political Environment and Status of Sanction Lift

Business opportunities in Iran

Taxation in Iran Regulatory aspects of doing business in Iran


AGENDA





The Joint Comprehensive Plan of Action overview

► The P5+1 (Security Council members plus Germany) and

the European Union (EU) negotiated a rollback of

sanctions in exchange for a commitment by Iran to cease

certain nuclear-related activities.

► The Joint Comprehensive Plan of Action (JCPOA)

provides for phased sanctions relief based on the

achievement of certain milestones by Iran.

► The first, and most significant, phase of sanctions relief

came into effect on 16 January 2016.

JCPOA

Page 7

US companies

► The JCPOA does not significantly affect the primary US trade embargo:

Trade between US and Iran remains prohibited

US dollar-cleared transactions still restricted (no “U-

turn” payments)

Limited exception for Iran-origin carpets and

foodstuffs

Favourable licensing policy for civilian aircraft and

related services

► This means US persons must not deal, directly or indirectly, with:

The Government of Iran and its controlled entities

Companies and individuals in Iran

Goods and services of Iranian origin or for export to

Iran

Iran-related Specially Designated Nationals (SDNs)

or Foreign Sanctions Evaders (FSEs)

► Primary sanctions also apply to foreign companies acting in the US, or their dealings with US companies and individuals.

► Most secondary sanctions, which seek to restrict non-US companies from trading with Iran, are now waived.

► Remaining secondary sanctions target transactions with:

Iranian persons on the SDN List

The Islamic Revolutionary Guard Corps (IRGC)

Persons placed on the SDN List in connection with

Iran’s proliferation of weapons of mass destruction

or their means of delivery

Persons placed on the SDN List in connection with

Iran’s support for international terrorism

► Secondary sanctions may also apply to sales of graphite, semi-finished metals (including aluminium and steel) and industrial process software.

Non-US companies


Can I pursue business opportunities in Iran?

► Non-US subsidiaries of US companies may now pursue a wide

range of Iran-related business opportunities and enter into

agreements with Iranian persons.

► However, US persons remain prohibited from engaging in or

facilitating Iran-related transactions.

► Non-US subsidiaries must ensure that they act independently of

the US parent, affiliates and personnel in all Iran-related business.

► Yes – most businesses are now permitted to do business with

Iran.


Can US dollars be used for Iran-related business?

► Non-US companies are not prohibited from conducting business in US dollars involving Iran, including providing US bank notes to Iran:

However, they are prohibited from directly or indirectly exporting US financial goods and

services, such as US dollar clearing, to Iran.

► US financial institutions and their non-US branches remain prohibited from conducting any Iran-related business, even indirectly:

This prohibits the use of US banks for dollar clearing in support of any Iran-related transactions.

Also, we may continue to see broad prohibitions in US banks’ lending agreements on doing

business with Iran, even if the borrower is permitted to do business with Iran (e.g., a non-US

borrower).

► US and international Anti Money Laundering (AML) authorities, Financial Crimes Enforcement Network and Financial Action Task Force continue to identify Iran as a high-risk jurisdiction for money laundering and terrorist financing.

► Therefore, there are significant practical difficulties in using US dollars.


► EU Member States agreed to an accelerated mechanism – no

consensus is required.

Can these sanctions “snap back”?

Yes, the JCPOA provides for a snapback of both the US and EU sanctions in the event

that the resolution procedures of the JCPOA fail to address concerns with Iran’s

compliance.

► The Office of Foreign Assets Control (OFAC) guidance states that:

A snapback would be clearly communicated to the public in advance.

Permissible activity taken prior to a snapback would not be retroactively penalized.

The US Government would work with companies to minimize the impact of a snapback on legitimate Iran-related activities already undertaken (i.e., potentially authorize a “wind-down” period).


AGENDA





632,1

396,9 339,1

286,4

192,1 165,1

123,2

60,2 54,4 38,2 30,9

KSA Iran U.A.E Egypt Qatar Iraq Kuwait Oman Lebanon Jordan Bahrain

US

D b

illio

ns

Iran is one of the single biggest growth opportunity in MENA today

MENA 2015 Nominal GDP with 2020 forecasted Real GDP growth

Source: IMF

Additional potential

growth due to removal of remaining sanctions

3.1%

4.3%

3.3%

1.7%

2.7%

7.5%

3.8%

4.7%

3.5%

4.3%

2.9%

Real GDP

growth


There are a number of attractive verticals of opportunity

4 to 5 year growth outlook

Se

cto

r s

ize

(c

on

trib

uti

on

to

GD

P 2

01

4)

Medium High

0%

20%

Oil &

gas

Restaurants and

hotels

Manufacturing

Agriculture

Construction

Transport and

communication

Power and utilities

Pharmaceuticals: 12.2%

Automotive: 12.5%

Low growth attributable

to concentration of

domestic players

Mature

sectors with a

stable growth

Financial services

Retail and

consumer

products


Some sectors are favoured by the government and would provide a faster path to profitability

Exploration

Exploration

http://www.forbes.com/sites/drillinginfo/2016/02/29/ira

n-post-sanctions-oil-gas-opportunities-and-

challenges/#3ecb3786456a

Mining

https://en.wikipedia.org/wiki/Mining_in_Iran

Petrochem

http://theiranproject.com/blog/2016/03/17/iran-

petchem-industry-ready-foreign-investment/

Chemicals

https://companylist.org/Iran/Chemicals/

Pharma and food

https://en.wikipedia.org/wiki/Industry_of_Iran#Food_i

ndustry

Exploitation

Metals and metallic goods

Non-metallic minerals

Petrochemicals

Chemicals

Polymers

Cellulose

Food industry Pharma

Textile & garments

Electronic devices

Household appliances

Machinery & equipment

Medical

equipment

Automotive Trade

Consumer led

Private led

Government

led

Resource led Value added

http://www.forbes.com/sites/drillinginfo/2016/02/29/iran-post-sanctions-oil-gas-opportunities-and-challenges/#3ecb3786456a



















http://theiranproject.com/blog/2016/03/17/iran-petchem-industry-ready-foreign-investment/














https://en.wikipedia.org/wiki/Industry_of_Iran#Food_industry




Industry Key Players

Financial Services

Bank Mellat, largest commercial bank; 1600+ branches

Bimeh Iran - USD 1 bn. gross premium

Automotive

Iran Khodro, largest auto manufacturing company, Revenue - USD 12.8 bn.

SAIPA, second largest auto manufacturer, Revenue - USD 7.1 bn

Food &

Agriculture Solico food industries, Revenue USD 1 bn;

1,800+ products predominantly in dairy Dasht Group, large player in canned food, processed fruits and vegetables market

Construction and

energy MAPNA group, largest contractor for power and

industrial projects, Installed capacity of 35K MW Iran marine industrial company; one of the large construction players for energy sector

The market is characterised by strong incumbents

Steel

manufacturing Mobarakeh Steel Company, large steel player.

Total revenue USD 3,971m

Khouzestan Steel Company, large

steel player


You should however consider a number of challenges in relation to your market entry

Structural

Red tape

Banking system

Tax and licensing

regimes

Political risks

Commercial

Transparency

Related party

relationships

Lack of reliable data

Two currencies

Soft factors

Cultural approaches

Language

Low productivity

Relationships


The timeline is short as some of the key global players are considering entering Iran

Present in Iran Interest in Iran

Sources: Business Insider, and www.iranoilandgas.com

http://www.iranoilandgas.com/


There are a number of key success factors that would determine your success in your market entry into Iran

Right market

entry

structure

Right

business

model

Deep

understanding

of on-ground

situation

Right

local

partners

Right

timing

Right

geographical

locations

1

Success!


To summarize…

Iran has a vast potential of

opportunities due to its large

population and economic

independence from the global market

Significant market

opportunities

1

Interest to enter the Iranian market

has vastly accumulated since 16

January 2016 with first-entry window

opportunities narrowing each month

Early mover advantage

3

There are a number of investment

opportunities, both greenfield /

organic and inorganic / M&A

opportunities

Multiple investment

opportunities

2

Given the special circumstances in

Iran, evaluating market entry and

strategy is critical to ensure success

and growth

Different landscape with its

unique challenges

4


AGENDA





Regulatory framework to do business

Global

Competitiveness

►74/140

Paying Taxes

►123/189

Corruption

►136/174

Ease of Doing

Business

►118/189

Network

Readiness

►96/143

Sources: World Bank Group, World Economic Forum, Transparency International


Foreign Investment Promotion and Protection Act

(FIPPA)

Foreign Investment

Service Centre (FISC)

Regulatory framework to do business

FIPPA sectors

► Agriculture, fishing and

forestry

► Mining

► Manufacturing

► Water, electricity, gas

► Construction

(foundations, housing,

materials)

► Transport and

communications

► Services (financial,

tourism, education)

► Licenses, permits and

visa

► Company registration

► Import and export

matters

► Customs and tax

matters

FISC: Organization for

the encouragement,

rationalization and

facilitation of foreign

investment

Protection for foreign

investors

Capital is guaranteed

against nationalization and

expropriation

Additional benefits depend

on sector

Simplified procedures start

with filing an application

form in English

FIPPA License is now usually issued within 60 days


Regulatory framework to do business Legal forms for foreign business activities

Branch Private joint

stock company

Limited Liability

Company (LLC)

Legal personality Yes Yes Yes

Minimum number of person

to set up 1 3 2

Permitted activities Limited Not limited Not limited

Minimum capital None IRR1 million

(US$30) No minimum

Ease of registration Easy Easy Easy

Working visa and permit for

employees Yes Yes Yes

Physical address in Iran Yes Yes Yes

100 % foreign ownership possible

No local shareholder requirement


► Major international banks still refuse to

engage in Iran operations

► Mid-sized European and Asian banks

with no US exposure resume

operations

► SWIFT has completed on-boarding

process for non-sanctioned Iranian

banks

► German Hermes export guarantees

available again for Iran trade

Currency: Iranian Rial (IRR)

► Two different exchange rates

► Strict exchange control with regard to

transfer of money outside Iran.

► Foreign currency received by Iranian

banks can only be paid out in cash in

Iranian rials at the official CBI

exchange rate

► Exchange houses use the free market

rate on inbound and outbound foreign

currency transactions

► Based on recent trends, the official CBI

rate and the free market rate differ by

around 15%

Regulatory framework to do business Financing and banking

Government targets to unify currency

conversion rate by end of March 2017

Key Islamic finance player which

holds over a third of the estimated

total of Islamic banking assets


► Protection of foreign investment

► Free entry/exit of capital and profits

► Easy entry and visa processes

► Corporate tax exemption

► Salary tax exemption

► Customs and VAT benefits

► Exemption from price regulation for

goods manufactured in SEZs, as well

as raw materials and those imported

as completely knocked down (CKD)

units

► No application of general import–

export laws for all goods imported into

SEZs

► Exemption from corporate income

tax for 5 years possible depending on

location and sector of activity

► Customs and VAT benefits for

activities performed in SEZs and

imports from foreign countries

Regulatory framework to do business Incentives: FTZ and SEZ

15 Special Economic Zones 7 Free Trade Zones


AGENDA





Structuring the Iran business Available legal forms

Branch Private joint

stock company

Limited Liability

Company (LLC)

Legal personality Yes Yes Yes

Minimum number of

person to set up 1 3 2

Permitted activities Limited Not limited Not limited

Minimum capital None IRR1 million

(US$30) No minimum

Ease of registration Easy Easy Easy

Working visa and permit

for employees Yes Yes Yes

Physical address in Iran Yes Yes Yes

100 % foreign ownership possible

No local shareholder requirement


Iran Tax System Main features for Subsidiaries and Branches

25 % Corporate Tax Rate

Tax Holidays for

certain activities

0 % Dividend

Withholding Tax

Worldwide income

taxation of Iran

resident companies

Unlimited tax loss

carryforwards No loss carryback

Taxable Income

based on local

statutory

accounts

Corporate tax

filings 4 month

after end of the

fiscal year

No BEPS relevance

for Iran tax legislation


Tax Incentives for foreign investors Tax exemptions and incentives under the direct taxation law and other legislation

Activity Effective Income Tax

Exemption (%)

Duration of exemption Incentive type

Agriculture 100 Perpetual Permanent exemption

Industry and mining 100 5 years Tax holiday

Industry and mining in less

developed areas

100 10 years Tax holiday

Hospitals, Hotels, Tourist

accommodation facilities

100 5 years (10 years if located

in areas designated as

less developed)

Tax holiday

Export of locally manufactured

non-oil goods

100 Perpetual Permanent exemption

Handicrafts 100 Perpetual Permanent exemption

Educational and sports services 100 Perpetual Permanent exemption

Cultural activities 100 Perpetual Permanent exemption

Salaries in less developed areas 50 Perpetual Tax credit

Income from licensed economic

activities in FTZ

100 30 years Tax holiday


Iran Tax System Activities without local presence

Withholding Taxes

on cross border

payments

Technical Training and Assistance 3.75 %

Design and Engineering Services 5.00 %

Construction activities 5.00 %

Oil & gas services 5.00 %

License fees and royalties 5.00 % - 7.50 %

Other services 7.50 %


Key Features Tax Treaty

Signed 1968

Model Treaty Basis 1964

Construction PE 6 Months

WHT Rates (%) D/I/R 15-20/15/10

Employment Income 183 days (tax year)

Method Exemption

Sparing Credits


Individual Taxation and Social Security

Overview Salary Tax

Individual taxation Progressive rates of tax for employment

income

Top rate of 20% for income over IRR

1,248m (approx. US$41K)

Tax treaties There are comprehensive DTAs with 42 countries in force

Withholding ► Obligation starts for employees with Iranian work permit at day 1

► Local employees of foreign companies without local presence need local sponsor

► No salary tax on employees working in FTZ

All employees working in Iran should be covered under the national social

security contributory scheme.

► Social security levies on incomes up to a certain

ceiling (currently IRR 50 million per month)

► Employee’s contribution – 7%

► Employer’s contribution:

23% for Iranian employees

20% for expatriates

► Accident insurance payable by the employer on

expatriates without social security

► 3% – deductible from salaries

Expatriate employees might be exempted from Iranian social security contributions if

they can prove to the Social Security Organization (SSO) that they are insured under

a similar scheme in their country of domicile. Important


Questions and Answers

Page 34

The better the question. The better the answer.�The better the world works.

Thank you.


Disclaimer

► This material has been prepared for general informational purposes only and is not

intended to be relied upon as accounting, tax or other professional advice. Please

refer to your advisors for specific advice.

► The views expressed by the presenters are not necessarily those of EY.

► This presentation is © 2016 EYGM Limited. All Rights Reserved.

Circular 230 disclaimer

► Any US tax advice contained herein was not intended

or written to be used, and cannot be used, for the purpose of avoiding penalties that

may be imposed under the Internal Revenue Code or applicable state or local tax law

provisions.

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German Business Network (GBN) - EY · PDF fileGlobal Leader of the German Business Network (GBN) Phone: ... Can I pursue business opportunities in Iran? ... tourism, education)