Establishment of Foreign Representatives and Branch Offices
By: Jahanbaksh Nouraei( Esq. )
Barrister and Solicitor
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January 2016–The Registration of Companies Act, the Law for Allowing the Registration of a Branch or Representative of Foreign Companies and its By-law, the Law of Protection of the Rights of Consumers and certain other legislation lay down rules for foreign companies acting in Iran through representatives and branch offices. Today, all foreign enterprises are in principle allowed to register and open branch and representative offices in the Islamic Republic of Iran in pursuit of their economic interests.
Are foreign companies obliged to register their branch and representative office/s initiating commercial activity in Iran?
According to Articles 3 and 4 of the Registration of Companies Act, approved in 1931, any foreign company that wants to carry out commercial, industrial or financial activities in Iran through a branch office or a representative, must first have already been recognized in its country of origin as a legal entity and then it should be duly registered in Iran. According to Article 4 of the Law of Protection of the Rights of Consumers (ratified in 2009): “all the suppliers whether producers or importers of capital goods including heavy or light vehicles, industrial or agricultural and road construction machinery, home appliances, electrical and electronic products, audio and video equipment and communication devices are bound to have registered agents and authorized repair shops, to supply spare parts and render after sale services”. The registration shall be done in the related department of the Ministry of Industry, Mines and Commerce.
What are the consequences of non-registration?
In accordance with Article 5 of the Registration of Companies Act, any person engaged in industrial, commercial or financial affairs in Iran, as a representative or a branch manager on behalf of foreign companies who has not applied for registration, shall be liable to payment of a fine in the first instance. If this violation of law persists, then the government shall suspend the activities of the representative or branch manager. It should be noted that foreign goods offered on the Iranian market without having registered their respective agency, are considered contraband.
What are the conditions for setting up branch and representative offices?
According to Article 1 of the By-law of the Law for Allowing the Registration of a Branch or Representative of Foreign Companies (issued in 1999): “Foreign companies which are recognized as legal companies in the country where they have been registered, may, on the provision of reciprocal conduct of their home country, register their branch or representative office for initiating 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- Executing all operations of the contracts concluded between Iranian persons and foreign companies.
3- Studying and preparing the necessary conditions 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 government agencies legally authorized to issue permits, in areas such as offering services in the fields of transportation, insurance, inspection of goods, banking, etc.”
How is a branch office defined under Iranian law?
Article 2 of the said By-law reads: “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 local branch shall be conducted under the name and liability of the principal company”.
What documentation is required for registration of a branch?
A foreign company applying for registration of a branch office in Iran, should prepare the following documents and submit them to the related Companies Registry.
1- Written letter of application from the foreign company to the Companies Registry requesting registration of its branch office in Iran.
2- True copy of the articles of association of the foreign company, notice of establishment in the Official Gazette (if any) and subsequent changes in the company as registered with the relevant authorities.
3- True copy of the last audited financial statement of the foreign company.
4- Explanatory report containing information on the activities of the foreign company. The following items should be included in the report.
Types and background of the activities of the foreign company; justification for the necessity of setting up the branch office in Iran; determination of the scope of powers and the place of operation of the branch office in Iran; estimation of required Iranian and foreign manpower; sources and manner of providing the money in Iranian currency (rial); and foreign currency needed for running the branch office.
5- A letter of certification issued by a governmental entity (ministry, organization, company, etc.) in the event that the foreign company has concluded a contract with the entity.
6- Completed form of declaration of registration.
7- Certificate of the registration of the foreign company.
8- Letter of commitment issued by the foreign company stating that in the event that the permission for their operation in Iran is canceled by the competent Iranian authorities, the company shall take necessary measures, within the time period determined by the Companies Registry, for dissolution of the branch and appointment of the liquidator.
9- Power of attorney of the foreign company’s chief representative or representatives in Iran for managing the branch office.
10- Information regarding full name and passport particulars and a true passport photocopy of the chief representative or representatives, if his/her (their) nationality is not Iranian.
11- Power of attorney given to an Iranian corporate attorney-at-law, in the event that the lawyer is delegated to carry out the registration procedures.
What is the legal definition of a representative/agent?
According to Article 4 of the aforesaid By-law, “The representative (agent) of the foreign company is the natural or juridical person responsible according to the representation (agency) contract with carrying out a certain part of the objectives 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.”
Where are the branches and representative offices actually registered?
This is accomplished at the Office for Registration of Companies and Non-commercial Establishments (a.k.a. Companies Registry) in Tehran or its provincial bureaus as the case may be.
What documentation is required for registration of a representative/agent?
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 documents and information together with their written application to the Companies Registry.
1- A certified copy of the representation contract.
2- Identification documents of the applicant: birth certificate and address of domicile for natural persons. Articles of association and establishment notice of the juridical representative and the last changes registered with the related authorities.
3- Presentation of the background and particulars 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, notice of establishment and the last changes registered with the related authorities.
5- A report on the activities of the principal company and an explanation of the reasons and necessity of assuming representation.
6- Last confirmed financial statement of the principal foreign company.
7- Letter of introduction from the related ministry (when required).
8- Power of attorney given to an Iranian corporate attorney-at-law, in the event that the lawyer is delegated to carry out the registration procedures.
What about the directors of the branch and representative offices?
The branch or representative office registered in accordance with the said by-law should be managed by one or a number of natural persons, whether Iranian or foreign national, residing in Iran. The branch must be managed by a director designated as the “chief representative”. The representative office is managed by a director delegated by the principal company to act within the limits of the powers given to him. Changes in the relative position of the foreign company representatives or branch managers must be registered and published in the Official Gazette. If such changes are not duly recorded, all acts performed by the former representative or manager in the name of the company shall be considered as the liability of the company. Alterations in the foreign company’s name, type, address, nationality, and capital must also be registered at the related Companies Registry.
If the chief representative is replaced, what must the new chief representative do?
The submission of the following is required for registration of his position.
1- Completed form of declaration of registration in the Farsi language
2- Respective power of attorney.
To what laws and regulations are the office of the foreign branch and representative subject to?
The labor law, taxation and social security regulations shall govern the branch and representative offices. Residency and work permits shall be issued for the foreign managers of branch and representative offices. On the basis of Article 105 of the Direct Taxation Act, foreign juridical persons and entities shall be taxed at the flat rate of 25% on the income derived from the operation of their investment in Iran or from the activities performed by them, directly or through their branches and representatives. If it is established that the branch / representative office is in fact a liaison / marketing office and it has no direct earning in Iran, income taxation would not be applicable. The salary of the foreign and Iranian employees of the branch and representative offices as well as their fringe benefits related to the job, are liable to taxation. In the event that the foreign national receives monies and benefits under entitlements such as “commission” and “consultation fee” and the like, such income shall also be taxed in accordance with the rates set out in Article 131 of the Direct Taxation Act. According to the Direct Taxation Act, all the foreign branches and representatives must keep statutory books for reference of the tax assessors. An annual tax declaration must be submitted to the Tax Affairs Organization at the end of each business year. Since Commercial Cards are not issued for branch offices, they cannot directly import goods.
What about product liability as it relates to branches?
As stipulated by Article 16 of the Law of Protection of the Rights of Consumers, branches and agents shall have joint responsibility with the mother company in redressing the damages inflicted upon the consumers, arising from defective products.