The activities of foreign investors are mainly regulated by FIPPA. Although FIPPA entails many of the internationally accepted standards on the protection of foreign investment, it is not well tested and there is no extensive court practice interpreting its application. Therefore, shrewd investors must make well-informed decisions before investing in Iran.
FIPPA is a framework legislation regulating foreign investors’ entry into Iran and their subsequent activities within the country, whilst also providing for a number of privileges and protections for foreign investors. In order to beneﬁt from such incentives a foreign investor must obtain an investment license. However, a foreign investor may choose not to apply for the investment license, and rather invest in Iran without it.
Foreign Investment and Protection Act
Since 1955, the legal framework of Iran’s foreign investment regime had been defined under the Law for the Attraction and Protection of Foreign Investments (LAPFI). In line with reforms in the overall economic framework, Iran’s Assembly undertook to propose and approve a new bill concerning foreign investment law. The new Foreign Investment Promotion and Protection Act (FIPPA) was ratified in May 2002, replacing the LAPFI of 1955.
Some developments introduced by FIPPA for foreign investments in Iran can be outlined as follows:
❖ Broader fields for involvement by foreign investors, including involvement in major
❖ Recognition of new modes of foreign capital exposure in addition to foreign direct
investment, e.g. project financing, buy-back financing arrangements and build – operate –
transfer (BOT) investment schemes.
❖ Streamlined and fast – track investment licensing application and approval process.
❖ Creation of a one – stop institution called the Centre for Foreign Investment Services at the
Organization for Investment, Economic and Technical Assistance of Iran (OIETAI), for
focused and efficient support for foreign investment undertakings in Iran.
❖ Further liberalization of foreign exchange mechanisms as enjoyed by foreign investors.
❖ Introduction of new legal options governing government – investor(s) relations.
Foreign entities as well as Iranian nationals importing capital from abroad are considered foreign investors. Foreign investment is allowed for the purpose of development and rehabilitation and productive activities in the areas of industry, mining, agriculture and services.
Foreign investment is possible in all areas of economic activity. A foreign investor, by importing capital (as defined in a very broad and diversified form, being in cash or in kind, or being machinery and equipment, raw materials, parts, specialized services as well as intellectual property for the purpose of investment in industry, mining, agriculture and services), is eligible to enjoy the privileges
and facilities provided by the FIPPA. Foreign investors must apply and obtain the investment license and FIPPA coverage to enjoy the advantages and facilities of the law.
The FIPPA provides for protection and security of the interests and rights of foreign investors against non-commercial risks. This would commit the Iranian government not only to facilitate the free flow of capital repatriation but also to full and fair compensation for acts of expropriation by the government, as well as for the interruption of a foreign investor’s activities.
The FIPPA does not impose any restriction whatsoever on what is deemed to be legally permissible in the manner of investment, the type of investment, the volume of investment, the percentage of shareholding, profit and capital repatriation as well as internal mutual relations between the parties to
an investment project.
Generally speaking, the FIPPA provides security against non-commercial risks. These risks are usually insured by the export credit and investment insurance agencies. The risks related to transfer issues and expropriation remain the basis of the risks attributed to an investment in a recipient country. The FIPPA honours all the rights and entitlements of investors by facilitating and making available the necessary foreign exchange for transfer purposes either transfers of profits or capital repatriation.
There is no limitation imposed on the amount of profits to be transferred, nor on capital and gains on capital to be repatriated. In the event of expropriation and nationalization of foreign assets, investors are entitled to receive compensation based on the fair market value of the expropriated assets on the day immediately before expropriation takes place.
The FIPPA also recognizes the rights of foreign investors in cases where, as a result of the enactment of a law and/or a decision by the government, the implementation of a project is seized or interrupted.
In such cases the government is obliged to guarantee all the payments which should have been paid on maturity. Foreign investors will enjoy the same and equal treatment that is accorded to local investors. There should be no discrimination vis-à-vis foreign investors, and all facilities, privileges; exemptions will be equally extended to foreign investors. In addition, a “most favoured nation”
treatment may also be applicable to investors from countries with which the Iranian government has entered into a Bilateral Investment Treaty (BIT) which provides for more favourable treatment than national treatment.
FIPPA introduces new legal options in respect of government-investor relations, which symbolize the receptive and constructive approach of the Iranian government toward safeguarding the interests of
foreign investors. Facilities have been placed in the areas of entry & exit visas, residence & work
permits for investors, managers, directors and experts, as well as their immediate relatives. These facilities are provided on a long-term basis which creates comfort and confidence for those involved in investment projects.
The FIPPA provides for investment in all areas of economic activity in Iran. In fact, no area, other than those related to arms, ammunition and security, is closed to foreign investment. According to Article (3) of the FIPPA, foreign investment is divided into two broad categories:
Foreign Direct Investment
Investing in all areas open to the Iranian private sector by way of direct equity participation in the share capital of Iranian companies whether in Greenfield projects or in existing firms or companies. Foreign shareholding is not limited to percentage in Iranian entities.
Foreign Indirect Investment
Foreign investors may invest in business opportunities in Iran through contractual arrangements in any type of investment other than direct investment. This category enables foreign investors to enter in the areas which are closed to the private sector of the Iranian economy or areas in the upstream fields or national projects in which a direct participation is not by law permissible.