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Legal Newsletter
| Contents: |
 28 December 2000 , Foreign representative and branch offices must use official auditors |
| 28 December 2000 , More amendment made to Criteria for Admission of Foreign Investments |
| 23
August 2000 , Parliament approves direct foreign investment |
| 20
August 2000 , Amended Criteria for Admission of Foreign Investments under the Law for Attraction and Protection
of Foreign Investments |
| 28
May 1999 , By-law for Setting up Representative and Branch Offices of Foreign Companies Now in Force |
| 2
March 1999 , Damages for Delay in Payment not Illegal |
| 21 December 1998 , Financial Convicts Shall be Sent to Prison! |
| 21 December 1998 , Iran Accedes to the Stockholm Amendments to Paris Convention |
| 22 December 1998 , CMR and the Transportation Day |
| 22 December 1998 , By-law of Setting up Branches of Foreign Companies in preparation |
| Legal Newsletter |
|
| 28 December 2000 |
|
| Foreign representative and branch offices must use official auditors [TOP] |
According to the decree No.H17790T/28423 dated 24 September 2000 of the Council
of Ministers, all representative and branches of foreign companies operating in Iran, shall be obligated to use
members of Iranian Association of Official Auditors as their "auditor and legal inspector" or "
auditor ", as the case may be, for the purpose of preparing solid financial statements and tax declarations.
Financial statements lacking the reports of the aforesaid auditors shall not be accepted by the ministries, governmetal
organizations and companies, banks, insurance firms, and the like. |
|
| 28 December 2000 |
|
| More amendment made to Criteria for Admission of Foreign Investments [TOP] |
In October and November this year, a second amendment and a new addition
were made to the Criteria for Admission of Foreign Investments
under the Law for Attraction and Protection of Foreign Investments
subject of the Council of Ministers' Decree No. 22021 T/45271 dated 13 Nov. 1999.
For full updated text, please refer to our Foreign Investment page. |
|
| 23 August 2000 |
|
| Parliament approves direct foreign investment [TOP] |
| Iran's reformist parliament on Wednesday passed legislation that would authorise
and protect direct foreign investments in Iran. The bill marks a success for the reform movement of President Mohammad
Khatami, who has been under fire for his inability to revive the sluggish economy. Deputies overwhelmingly supported
the measure which would guarantee against the seizure of foreign capital and the nationalisation of companies in
Iran. The bill still faces debate in the chamber to modify certain details in the legislation, but its approval
marks a key step forward for the reformist goal of instituting economic reform in Iran.Deputy Economy Minister
Mehdi Navab, defending the bill before parliament, urged its adoption to help speed Iran's economic recovery and
create new jobs as hoped under Khatami's latest five-year budget. "Foreign investment will allow us to fully
enter the field of international commerce, "he said." Iran needs 20 billion dollars to finance the creation
of some 800,000 jobs every year," reformist MP Ismail Jabarzadeh told the parliament, citing the figure outlined
in Khatami's latest five-year economic plan. "While other nations such as China rush to get foreign capital,
Iran until now has only been able to attract 750 million dollars in direct foreign investment," he said. Jabarzadeh
also stressed that it was crucial for the government and other key state institutions to "protect foreign
capital." Several MPs in the conservative minorty argued forcefully against the bill, citing articles in the
Iranian constitution adopted after the revolution which expressly prohibit any foreign control over the economy
or Iran's national resources. They expressed fear that the measure could precipitate a financial crisis like that
which rocked Asia in recent years, when the sudden flight of foreign capital played a key role in sparking a regional
market collapse. Khatami has come under heavy criticism for his handling of the economy, particularly from conservatives
as he readies to run for re-election next year. The economy remains wracked by high unemployment and inflation,
while he came to office in 1997 pledging to revive the nation's stumbling economy, much of it lumbering under state
control. Wednesday's approval comes a day after parliament held a closed-door session with top cabinet ministers
to look at ways of easing the barriers to foreign investment.Economy Minister Hossein Namazi, Intelligence Minister
Ali Yunessi and central bank chief Mohsen Nourbakhsh were among the participants at the session, sources said.
Only Iran's lucrative energy sector -- in which foreign firms have a full presence under so-called buy-back schemes
-- has allowed full international investment to date. (AFP-abridged). |
|
| 20 August 2000 |
|
| Amended Criteria for Admission of Foreign Investments under the Law for Attraction and Protection
of Foreign Investments [TOP] |
Council of Ministers’ Decree
(No. 22021 T/45271 Date: 13 Nov. 1999)
Ministry of Economic Affairs and Finance
and The Amendment Decree No. H23270 T/20076
Dated: 8 August 2000
The Council of Ministers at its meeting held on 28.07.1378 (20.10.1999), by virtue of principle 138 of the Constitution
of the Islamic Republic of Iran, approved the criteria for admission of foreign investments under the Law for Attraction
and Protection of Foreign Investments (LAPFI)-enacted in 1334 (1955)- as follows:
Article 1: Applications
for foreign investment which have been approved, through the Organization for Investment, Economic and Technical
Assistance of Iran (OIETAI) within the framework of this Decree, by the Supervisory Board* referred to Article
(2) of LAPFI, shall be covered by LAPFI after ratification by the High Council for Investment stated in Article
(7) of OIETAI’s Charter.
Note: Such
approval requires a positive vote of majority of member ministers of the High Council and shall become effective
|
By-law for
Setting up
Representative
and Branch
Offices of
Foreign
Companies
Now in Force |
The
Iranian Council of
Ministers finally
passed this month
the by-law for
execution of the the
Law for Allowing the
Registration of a
Branch or
Representative of
Foreign Companies.
The by-law lists the
areas of commercial
activities in which
the government shall
allow foreign
companies to
establish a
representative or
branch office in the
Iranian territory.
The By-law of the
the Law for Allowing
the Registration of
a Branch or
Representative of
Foreign Companies,
approved in 1997,
was passed in the
form of a decree by
the Iranian Council
of Ministers under
number
H-19776t/M/78-930
dated 3 May 1999.
We draw your
attention here below
to an unofficial
translation of the
decree.
The By-law of the
Law for Allowing the
Registration of a
Branch or
Representative of
Foreign Companies
Article 1-
Foreign companies
which are recognized
as legal companies
in the country where
they have been
registered, may, on
the provision of the
reciprocal conduct
of their home
country, register
their branch or
representative
office for launching
activities in Iran,
in the following
areas, according to
this by-law and
other related laws
and regulations:
1- Offering
after-sale services
for the goods or
services of the
foreign company.
2- Carrying out the
executive operations
of the contracts
concluded between
Iranian persons and
foreign companies.
3- Studying and
laying grounds for
the foreign
company's investment
in Iran.
4- Cooperation with
Iranian technical
and engineering
companies for
undertaking
activities in third
countries.
5- Increasing the
non-oil exports of
the Islamic Republic
of Iran.
6- Offering
technical and
engineering services
and transfer of
know-how and
technology.
7- Engaging in
activities permitted
by the governmental
agencies which are
legally authorized
to issue such
permits, in areas
such as offering
services in the
fields of
transportations,
insurance and
surveying, banking,
marketing, etc.
Article 2-
The branch office of
a foreign company is
the subordinate
local unit of the
principal company
which carries out
the objectives and
functions of the
principal company in
that location. The
activity of the
branch in the
location shall be
conducted under the
name and
responsibility of
the principal
company.
Article 3-
Foreign companies
applying for
registration of
their branch in
Iran, should submit
the following
information and
documents together
with their written
application to the
Office for
Registration of
Companies and
Industrial Property.
1- Articles of
association of the
company,
establishment notice
and the last changes
registered with the
related authorities.
2- Last confirmed
financial report of
the company.
3- Justification
report including
information relating
to the activities of
the company and
explanations of the
reasons and
necessity of
registration of
the branch in Iran,
determination of the
type and scope of
powers and location
of the activity of
the branch,
estimation of the
required Iranian and
foreign manpower,
and the manner of
securing the sums in
Rials and foreign
exchange needed for
running the affairs
of the branch.
Article 4-
Representative
(agent) of the
foreign company, is
the natural or
juridical person who
is charged,
according to the
representation
(agency) contract,
with carrying out a
certain part of the
object and functions
of the principal
company.
The representative
of the foreign
company, shall be
responsible with
respect to the
activities carried
out in the location
under the agency
granted by the
principal company.
Article 5-
The natural persons
of Iranian
nationality or
juridical persons
applying for
registration of the
representation of
the foreign company
in Iran, should
submit the following
Farsi translations
and original
documents and
information together
with their written
application to the
Office for
Registration of
Companies and
Industrial Property:
1- A certified copy
of the contract
subject of Article 4
of this by-law.
2- Identification
documents of the
applicant person:
birth certificate
card and address of
the legal domicile
for natural persons.
Articles of
association and
establishment notice
and the last changes
registered with the
related authorities.
3- Presentation of
the background of
the person applying
for registration of
representation in
the spheres of
activity foreseen in
the representation
contract.
4- Articles of
association of the
principal company,
establishment notice
and the last changes
registered with the
related authorities.
5- A report on the
activities of the
principal company
and explanation of
the reasons and
necessity of
assuming
representation.
6- Last confirmed
financial report of
the principal
foreign company.
7- Introduction
letter of the
related ministry.
Article 6-
The persons whose
activity permit is
cancelled by the
competent
authorities, are
bound to adopt
measures for winding
up and liquidation
of the branch or
representative
office within the
time limit set by
the Office for
Registration of
Companies and
Industrial Property.
Note- The (branch or
representative of)
companies whose
activity permit is
not extended, shall
have a grace period
of 6 months to take
measures for
dissolution and
liquidation.
Article 7-
The branches of the
foreign companies
which have been
registered for
activity in Iran,
are bound to render
the annual report of
the principal
company including
the financial
reports audited by
the independent
auditors in their
home country, to the
related governmental
organization every
year.
Article 8-
All the natural and
juridical persons
subject to this
by-law, are obliged
to send the related
governmental
organizations a
report of the
activities of the
branch or
representative in
Iran, together with
their audited
financial statements
within 4 months
after the end of the
fiscal year.
As long as the
by-law of Note (4)
of the Law
Concerning Using the
Specialized and
Professional
Services of
Competent
Accountants as
Official
Accountants,
approved in 1994, is
not ratified, the
aforesaid auditing
shall be done by the
Auditing
Organization and
auditing institutes
which are recognized
by the related
governmental
organization and
their partners are
natural persons
approved by the
Supervision
Department of the
Auditing
Organization.
Article 9-
The branch or
representative
office registered in
accordance with this
by-law, should be
managed by one or a
number of natural
persons residing in
Iran.
Article 10-
In order for foreign
companies to enjoy
the privileges of
this by-law and for
continuation of
their activity, the
foreign companies
which have been
active in Iran
through their branch
office or
representative up to
the time of this
by-law going into
force, are obliged
to render the
information and
documents subject of
Articles 3 and 5 of
this by-law to the
related governmental
organizations and
bring their
operations into
conformity with the
by-law.
Hassan Habibi
First Vice-President
|
Damages for
Delay in
Payment not
Illegal |
Until the Islamic
Revolution of 1979,
Iranian courts would
rule for
compensation of the
damages inflicted
due to the delay in
payment of the price
of a contract or
debts.
After the
Revolution, in
execution of Article
4 of the
Constitution which
stipulates:" All the
civil, penal,
financial, economic,
administrative,
cultural, military,
political, etc. laws
and regulations,
must be based on
Islamic
principles...",
compensation of the
damages for delay in
payment was
considered a form of
usury which is
illicit under
Islamic decrees.
The parliamentary
watchdog body, the
Council of Guardians
of the Constitution
which is charged
with implementation
of the purport of
the said Article 4,
soon declared that
damages for delay in
payment foreseen in
various civil and
commercial laws, is
illegal and should
be abandoned.
This opinion,
challenged by
economic and
commercial realities
on the domestic and
international scene,
gradually lost
momentum and tended
to be lightly
revised and
flexible, especially
with respect to the
claims of the
Iranian Banks and
the Social Security
Organization against
debtors.
Recently, the text
of a new and
unpublished opinion
of the Council of
Guardians which we
believe is a major
development in
claiming damages for
delays in payment,
was made available
to us.
In relation to a
case brought against
the Central Bank of
Iran (CBI ) in the
Administrative Court
of Justice, the
Tribunal sought the
opinion of the
Council of Guardians
about the
contractual claims
layed against the
CBI for damages
resulting from delay
in payments by
certain exporters.
The Council
responded in a
general way that may
be utilized by
persons and
entities, other than
th CBI, in their
transactions.
According to the
opinion made at the
14 August 1997
session of the
Council: "The damage
for delay in payment
is not usury and is
not problematic if
agreed upon in the
contract. However,
it shall be illicit,
if not agreed upon."
In light of the
above, we recommend
that foreigners
wishing to transact
with Iranians,
stipulate a clause
in their contracts
concerning the
agreement of the
parties on
compensation of
damages for delay in
payment, and
determine a fixed
amount or a
percentage for
compensation.
In another
development,
respecting Note of
Article 2 of the Law
Amending Certain
Articles of the
Check Law, approved
on 31 May 1997, a
comment by the
Expediency Council
was published
recently on the
compensation of
damages for delay in
payment of the sum
of bad checks.
The Expediency
Council, charged
according to the
Constitution to pass
laws for
extraordinary
situations, enacted
on 12 December 1998
that the courts
handling the check
cases are authorized
to rule for the
compensation of
damages for delay in
payment of the sum
of bad checks.
The monetary rate of
the compensation
shall be according
to the rate of
inflation spanning
the period starting
from the date of
issuance of the
check to the day of
collection.
The inflation rate
shall be the rate
calculated and
annouced by the
Central Bank of
Iran.(For more about
checks, see
Checks in
the Section:
Guide to Iranian
Market).
|
Financial
Convicts
Shall be
Sent to
Prison! |
A new law,
effective from 23
December 1998, has
stipulated the
jailing of persons
found guilty of
non-payment of
financial debts. The
losing party will be
kept in prison for
an unlimited time,
until he/she pays
the judgment debt or
is declared a
pauper.
The Law of the
Manner of
Enforcement of
Financial
Condemnation,
approved on 1
November 1998, this
measure abrogates
existing Iranian
laws prohibiting
putting people in
jail for their debts
and financial
obligations.
According to Article
2 of the Law, any
person convicted or
condemned to pay the
judgment debt, must
pay it. Otherwise,
the court shall
seize his properties
and assets, if
found, to settle the
debt. In the event
that nothing can be
found, the court,
upon the request of
the winning party,
shall put and keep
the debtor in jail
until he pays in
whole or in
installments. If it
is proven to the
court that the
convict/losing party
is a pauper, he
shall be released.
Ratification of the
Law of the Manner of
Enforcement of
Financial
Condemnation, is
good news for
creditors in civil
and commercial
litigation, as far
as the enforcement
of judgments is
concerned.
Many businesspersons
believe that in
light of this new
legislation,
transactions will be
made with more
confidence and
security.
|
Iran Acedes
to the
Stockholm
Amendments
to Paris
Convention |
On 8 December 1998,
Mr. Kamal Kharrazi,
Minister of Foreign
Affairs of the
Islamic Republic of
Iran, signed the
instrument of
accession of Iran to
the amendments made
in 1967 and 1979 at
Stockholm, to the
Paris Convention for
the Protection of
Industrial Property.
Iran became a member
to the Convention in
1959.
The Iranian Majlis
(parliament)
approved the
accession to the
amendments on 8
November 1998, with
a declaration to the
effect that Iran’s
accession shall not
apply to Article 1
(3-4 ), Article 2 (2
) with respect to
subparagraph B ( 1 )
of Article 20. In
addition, Article 28
( 1 ) with respect
to paragraph ( 2 )
of the same article,
shall not be binding
on the Islamic
Republic of Iran at
the present time.
Iran’s accession to
the amendments of
Paris Convention,
coincides with a
cautiously growing
interest in matters
related to the
rights resulting
from intellectual
property. A bill
approving Iran’s
membership to the
World Intellectual
Property
Organization (WIPO),
is currently under
discussion in the
Parliament.
From 12 to 14
December 1998, the
WIPO Asian and
Pacific Regional
Seminar on the
Importance of
Protection and
Management of
Industrial Property
Rights for
Developing Countries
was held in Tehran.
The meeting was
jointly sponsored by
WIPO, the
Registration
Organization of
Deeds and Proprties
of the Judiciary of
the Islamic Republic
of Iran, the
Ministry of Industry
and the Iranian
Chamber of Commerce,
Industries and
Mines. The gathering
was inaugurated by
WIPO Director
General Dr. Kamil
Idris.
|
CMR and the
Transportation
Day |
Seminar were held on
17 December 98 which
is dedicated as
Transportation Day
in Iran. One of the
topics raised in
lectures and
interviews, as a
national
achievement, was
Iran’s joining the
Contract for the
International
Carriage of Goods by
Road (CMR) several
months ago.
CMR and TIR are the
two outstanding
conventions
regulating the
international
transport of goods
by road. These
agreements were
concluded under the
auspices of the
United Nations.
Until recently, the
Islamic Republic of
Iran was only
signatory to TIR
(Customs Convention
on the International
Transport of Goods
Under Cover of Tir
Carnets). Today the
country is also a
member of the CMR
Convention.
The CMR waybill,
defined in the
Convention as the
consignment note,
was already in
widespread use by
Iranian
international
forwarders and road
transport firms.
However, in cases
when a dispute would
arise concerning the
sender, consignee
and the carrier, and
the regulations of
the CMR Convention
contradicted
national laws, CMR
rules were not
recognized by the
Iranian courts which
judged according to
the mandatory
national transport
laws.
Iranian transport
experts and
businesspersons
consistently argued
that national laws
were insufficient
for regulating and
facilitating
internationalroad
commerce in an era
of rapidly expanding
global trade. This
point of view
finally held sway
and the conclusion
was that joining the
Convention on the
Contract for the
International
Carriage of Goods by
Road (CMR
Convention) is a
must for Iran.
Following a lengthy
debate in business
circles and
supported by the
positive approach of
the governmental
organizations in
charge of
international
transport, the law
was passed on 20
July 1997, by the
Iranian Parliament
for joining the
Convention.
This measure was
challenged by the
parliamentary
watchdog body, the
Council of Guardians
of the Constitution,
on the grounds that
the legislation
contained some
"illegal" matters
such as entitling
claimants to receive
interest on
compensation.
Payment of interest
is banned for
Muslims under
Iranian Islamic law.
The question was
passed on to the
Expediency Council
which is responsible
for taking decisions
on contested
legislation.
Consequently, the
Law of Accession of
the Islamic Republic
of Iran to the
Convention on the
Contract for the
International
Carriage by Road and
its Protocol of
Amendment came into
force, fifteen days
after being
published in the
Official Gazette of
14 March 1998.
The CMR Convention
is designed to
standardize the
conditions governing
contracts for the
international
carriage of goods by
road, particularly
with respect to the
relevant
documentation and
carrier liability.
Iran's joining this
uniform treaty law
is indicative of a
national trend
towards greater
participation and
assimilation in the
increasingly
homogenous rules
regulating world
trade. According to
Article 9 of the
Iranian Civil Code,
the Convention is
now considered a
binding law for the
courts of justice.
|
By-law of
Setting up
Branches of
Foreign
Companies in
preparation |
Since the Islamic
Republic of Iran was
founded in 1979, one
of the major
bottlenecks for the
establishment of
representative or
branch offices of
foreign companies in
the country, has
been the proviso
that they should
have already signed
a contract of
cooperation with
state-run or public
entities.
Many foreign
companies could not
or did not want to
submit to this
condition. They
preferred to monitor
the Iranian market
on the spot, through
their representative
or branch offices
and, based on that
assessment, take a
decision for or
against engaging in
commercial
activities.
According to the
provisions of the
Registration of
Companies Act,
approved in 1931,
any foreign company
that seeks to carry
out commercial,
industrial or
financial activities
in Iran through a
branch office or a
representative, must
first be established
in its country of
origin, as a legal
entity. Then it
should be duly
registered in Iran.
However, despite
this legal
obligation, most of
the foreign
companies seeking
access to the
post-revolution
Iranian market,
could not register
their representative
or branch offices
because of their
failure in meeting
the said condition.
Finally a legal
breakthrough was
initiated by the
Iranian Parliament
to remove this
hurdle and, in turn,
boost Iranian
economic growth by
attracting foreign
participation.
According to the
letter and intent of
this new
legislation, foreign
companies enjoy easy
access to official
representation and
the establishment of
branch offices
inside the country.
The Law for
Allowing the
Registration of a
Branch or
Representative of
Foreign
Companies, passed in
November last year,
stipulates that,
"Foreign
Companies which are
recognized in their
country of origin,
may register their
branch or
representative in
the areas specified
by the government of
the Islamic Republic
of Iran, in
conformity with the
country's laws and
regulations, (based)
on the provision
that their home
countries act
reciprocally."
The law, which was
proposed by the
Iranian government
to Parliament, not
only paves the way
for a stronger
foreign commercial
presence in the
Iranian market, but
also assists Iranian
firms in setting up
branches and
representative
offices in foreign
countries. This
opportunity had in
certain cases been
denied them in the
past, based on the
principle of lack of
reciprocity from the
Iranian side.
In presenting the
bill to the
Parliament, the
Government
highlighted and
justified the
significance of this
legal stratagem
noting that: "In
light of the
necessity of
registration of
branch or
representative
offices of Iranian
companies in the
countries we have
dealings with, and
for the purpose of
post-sale services,
organizing and
following up the
administrative
details of non-oil
exports (which is
emphasized in the
First and Second
Five-Year
Development Plans
1989-1998) and
considering that
registration of
companies in the
said countries
requires reciprocal
conduct, this bill
is hereby submitted
to be approved
through legal
formalities."
However, a question
still remains to be
answered: in which
areas of commercial
activities will the
Iranian government
allow foreign
companies to set up
a representative or
branch office?
Iranian officials
are studying this
matter and the
by-law for
establishment of
foreign branches and
representatives
offices in Iran.
In absence of the
aforesaid by-law,
registration of the
representative and
branch offices of
foreign companies,
continues to be
subject to the old
rules as stated in
the booklet
Foreign
Representatives and
Branch Offices.
(See it in the
Section:
Guide to Iranian
Market.) |
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