Labour and tax laws in Iran
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Roughly one-fourth of Iran's labour force is engaged in manufacturing and construction. Another one-fifth is engaged in agriculture, and the remainder are divided almost evenly between occupations in services, transportation and communication, and finance. Women are allowed to work outside the home but face restrictions in a number of occupations, and the number of women in the workforce is relatively small in light of their level of education. Some of the numerous refugees in the country are allowed to work but, with the exception of a highly skilled minority, are generally restricted to low-wage, manual labour positions in construction and agriculture.
In 2006, Iran’s labor force was estimated at 26.2 million, of which women accounted for 33 percent. A continuing strong labour force growth unmatched by commensurate real economic growth is driving up unemployment to a level considerably higher than the official estimate of 14%. According to experts, annual economic growth above 5% would be needed to keep pace with the 900,000 new labour force entrants each year.
In 2004, about 45 percent of the government's budget came from exports of oil and natural gas revenues, although this varies with the fluctuations in world petroleum markets and 31 percent came from taxes and fees. Government spending as percent of total budget was 6% for health care, 16% for education and 8% for the military in the period 1992-2000 and contributed to an average annual inflation rate of 14 percent in the period 2000-2004.
[edit] Labour Law
There is a minimum national wage applicable to each sector of activity fixed by the Supreme Labour Council. Membership in the social security system for all employees is compulsory.
Although Iranian workers have, in theory, a right to form labour unions, there is, in actuality, no union system in the country. Workers are represented ostensibly by the Workers' House, a state-sponsored institution that nevertheless attempts to challenge some state policies. Guild unions operate locally in most areas but are limited largely to issuing credentials and licenses. The right of workers to strike is generally not respected by the state, and since 1979 strikes have often been met by police action.
The comprehensive Labor Law covers all labor relations in Iran, including hiring of local and foreign staff. The Labor Law provides a very broad and inclusive definition of the individuals it covers, and written, oral, temporary and indefinite employment contracts are all recognized. In general, Iranians have the reputation to be industrialist and entrepreneurial.
The Iranian Labor Law is very employee-friendly and makes it extremely difficult to layoff staff. Employing personnel on consecutive six-month contracts is illegal, as is dismissing staff without proof of a serious offence. Labor disputes are settled by a special labor council, which usually rules in favor of the employee.
The Labor Law provides the minimum standards an employer must adhere to when forming an employment relationship. The minimum age for workers in Iran is 15 years, but large sectors of the economy (including small businesses, agricultural concerns, and family-owned enterprises) are exempted.
[edit] Provisions of Employment Contract
To have a valid contract concluded under the Law, the following provisions must be included:
- 1. Type of Work, vocation or duty that must be undertaken by the worker;
- 2. Basic compensation and supplements thereto;
- 3. Working hours, holidays and leaves;
- 4. Place of performance of duties;
- 5. Probationary period, if any;
- 6. Date of conclusion of contract;
- 7. Duration of employment; and
- 8. Any other terms and conditions required according to nature of employment.
The employer may require the employee to be subject to a probationary period. However, the probation time may not exceed one month for unskilled workers and three months for skilled and professional workers. During the probation period, either party may immediately terminate the employment relationship without cause or payment of severance pay. The only caveat being that if the employer terminates the relationship, he must pay the employee for the entire duration of the probation period.
[edit] Suspension of Employment Contract
The fact that the employment contract can be suspended by an employee under certain conditions presents yet another challenge to employers. What this allows is suspension of the employment contract under the following conditions:
- 1. The period of military service (active, contingency and reserve), as well as voluntary enlistment during conflicts. This period shall be considered part of the employee's service record at place of employment;
- 2. The closure of a workshop or parts thereof due to force majeure;
- 3. Educational leave for up to four years; and
- 4. The period of detention that does not lead to conviction;
Once the conditions giving rise to the suspension of the contract are removed, the employer must allow for return of the employee to work. If the position is filled or eliminated, the employer is obligated to provide a similar position for the employee. Failure to do the above is considered wrongful discharge and subject to legal action.
[edit] Termination of Employment Contract
The Law allows for termination of the employment contract only under the following instances:
- 1. Death of employee;
- 2. Retirement of employee;
- 3. Total disability of employee;
- 4. Expiration of the duration of the employment contract;
- 5. Conclusion of work in task specific contracts; and
- 6. Resignation of the employee.
The employer is bound to pay benefits under all of the above scenarios according to the years of service.
[edit] Dismissal of an Employee
An employee may only be dismissed upon approval of the Islamic Labor Council or the Labor Discretionary Board. Grounds for dismissal include an employee's neglect in carrying out his/her duties of violation of disciplinary by-laws of the employer. The employer must have provided written prior notice of the employee's violations. If the board is not convinced that the employee's dismissal is justified, the employer must reinstate the employee. Once an employee is dismissed, the employer is obligated to provide the legal severance package.
[edit] Severance & Termination Benefits
The Law mandates the following compensation for terminated, disabled and suspended employee:
- 1. Suspended Employee - Where an employee is suspended without cause the employer must reinstate the employee and pay for all damages and compensation resulted from the wrongful suspension;
- 2. Terminated Employee - An employer is under legal obligation to provide thirty (30) days salary for every year of service for employees made redundant or retired;
- 3. Disabled Employee - The employer must pay 30 days salary for every year of service. Moreover, if disability of an employee is due to working conditions, the employer must pay 60 days salary for every year of employee's service period.
[edit] Working Hours & Overtime
The workweek in Iran is based on a 44-hour week. Typically, employees work Saturday through Wednesday (8 hours per day) and a half a day on Thursday (4 hours). Any hours worked beyond these will entitle the employee to overtime. The Law mandates a payment of 40% above the hourly wage to employees for any accrued overtime. The employee must consent to overtime work.
[edit] Holidays & Leave
- See also: Iranian calendar
Employees are entitled to leave on all official state holidays (approximately 22 days a year) and Fridays. Any employee working during these holidays will be entitled to overtime pay. Additionally, employees are entitled to one-month holiday per annum. The annual leave for those employees engaged in hard and hazardous employment shall be five weeks per annum. Employees are entitled to save up to 9 days of their annual leave.
In case of termination, disability or redundancies, employees must be compensated for any accrued leave. Finally, employees are entitled to 3 days of paid vacation for marriage or death of a spouse, father, mother or child.
[edit] Maternity Leave
Women employees are entitled to 90 days of maternity leave. The employee's salary during maternity leave will be paid according to the provisions of the Social Security Act. Maternity leave must be considered part of an employee's service record. Employers must provide returning employees with the same position.
[edit] Employment of Foreign Nationals
The Law forbids employment of foreign nationals without a proper work permit. Diplomats, United Nations employees and foreign press reporters are exempt from this requirement. A work permit to a foreign national will be issued only if the following conditions are met:
- 1. Lack of expertise among Iranian nationals;
- 2. The foreign national being qualified for the position; and
- 3. The expertise of the foreign national will be used for training of, and later replacement by, Iranian individuals.
Work permits will be issued, renewed or extended for a maximum period of one year. Moreover, no exit visa will be granted to the foreign national unless the national has paid all due taxes, duties, etc.
[edit] Exemption
A very recent law provides that workshops with less than five employees will not be subject to the labor laws.
[edit] Tax Laws
All foreign investors doing business in Iran or deriving income from sources in Iran are subject to taxation. Depending on the type of activity the foreign investor is engaged in, various taxes and exemptions are applicable, including profit tax, income tax, property tax, etc [1]. The Ministry of Finance and Economic Affairs is the government agency authorized to levy and collect taxes.
[edit] Value Added Tax (VAT)
There is no VAT in Iran.
[edit] Property tax
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[edit] History of Income tax
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Income tax was initiated during the times of Mohammad Reza Pahlavi.
[edit] Personal Income Tax of Local Employees
Taxable income consists of salary and benefits. As presented in the following table, income is taxed at 0-35% (maximum).
Employers are required to make the necessary tax deductions from their employees’ payroll and submit them to the tax authorities. However, when calculating taxable income, exemptions and deductions are allowed.
[edit] Social Security Payments
In addition to income tax, employers are required to contribute to the State Social Security Fund and the Employment Fund. For social security and unemployment insurance, the employee pays 7% of salary (between the ages of 18-65), employer (20 to 23%), the State (3%). Independent workers pay 12-18%, depending on the type of coverage sought. Also there is no universal social security coverage in Iran, about 73% of all Iranians workers benefit from this coverage according to the Statistical Center of Iran.
[edit] Local Employees Salary Tax Rates (2004)
| Annual Income/Profit (Rials) | Tax Rate |
|---|---|
| Up to 17,400,000 | 0% |
| 17,400,001 to 59,400,000 | 10% |
| 59,400,001 to 89,400,000 | 15% |
| 89,400,001 to 159,400,000 | 20% |
| 159,400,001 to 309,400,000 | 25% |
| 309,400,001 to 1,059,400,000 | 30% |
| In excess of 1,059,400,000 | 35% |
[edit] Personal Income Tax of Foreign Employees
Foreign nationals working in Iran are also subject to income tax based on their salary. Foreign employees cannot obtain an exit visa from Iran unless they provide proof that they have paid their due taxes, and since they need to obtain an exit permit when their presence in Iran is based on a work permit, the government can easily enforce this rule.
The government assumes a certain salary for employees depending on their position and country of origin. The assumed minimum monthly salaries range from US$2,500 for unskilled European workers to US$7,000 for European managing directors. The income of foreign nationals are subject the tax rate of 35%.
[edit] Corporate and Profit Tax
A new flat rate corporation tax of 25 per cent payable on the profits of corporate commercial entities has been introduced. This rate replaces the old corporation tax of 10 per cent and progressive rates of income tax (12-54 per cent) on reserves and distributable income. Apart from the 25 per cent corporation tax and the 0.3 per cent Chamber of Commerce tax no more taxes will be payable by the corporate entity or the shareholders.[2]
The new rate of corporation tax will also apply to joint venture corporate entities registered in Iran. The tax incidence will therefore be on the corporate entity and not on the shareholder. The calculation of the tax has been simplified.
All contracting work performed by foreign contractors, whether or not the company is registered in Iran, is taxed. For contracts signed before March 21st 2003, gross taxable income is calculated as gross contract receipts less the cost of imported material. Income is then taxed at 12% of gross taxable income less contract retention. For contracts signed after March 21st 2003, taxable income is the gross contract receipts less contract expenses. Income is taxed at 25 per cent less 5 per cent taxes withheld at source.
[edit] Taxation of foreign companies
The Tax Act had divided the source of income earned by foreign companies either direct or through their branches in Iran into three main categories [3]:
- Income earned in Iran by way of contracting operations
- Income earned from Iran by way of royalties and licensing fees
- Other activities - trading operations, etc
[Note: The Amendment has introduced certain changes in the tax treatment of the above activities.]
Income from royalty and licensing fees received from industrial and mining companies, government ministries and municipalities, and income from film-screening rights are subject to a deemed taxable coefficient on income of 20 per cent. All other income from royalties and licences from foreign companies is subject to a deemed taxable coefficient on income of 30 per cent. The coefficients are based on the standard corporate tax rate of 25 per cent, so that the effective tax rate is either 5 per cent or 7.5 per cent.[4]
[Note: The Amendment has removed the confusion surrounding 'technical assistance contracting' by including 'technical assistance' and 'transfer of technology' in contracting operations subject to tax on the basis of 12 per cent of annual fees.]
[edit] Tax on Liaison, Representative and Branch Offices
The same corporate and profit taxes will be applied to the taxable income of branches of foreign companies (contractors, consultant engineers, et al.).
Other income earning activities of foreign branches will be subject to taxation on an actual basis, ie. based on their income tax return as filed and supported by their statutory accounting books. [5]
Expenses incurred in Iran by Iranian registered branches and representative offices of foreign companies that are not authorised by their head offices to engage in any trading activity but are only authorised to conduct marketing and market research in Iran are tax deductible upon presentation of receipts from their head office.
[edit] Tax Advantages & Exemptions
Income tax exemptions are available to new factories established in special areas, and last from four to eight years, from the first day of operations. In addition, 20% of the reported profit of all manufacturing, mining, assembly plant and related engineering companies are exempt from income taxes. Tax incentives, meanwhile, are available to manufacturing, mining, agricultural activities, exports and investment in special areas [6].
[edit] Tax Exemption - Major changes
The exemptions on exports of manufactured and agricultural goods remain in force, but an ambiguity has occurred in the Amendment regarding exemptions extended to the public sector (Iranian Government owned entities). Government owned enterprises and their shares in the private sector entities were excluded from all exemptions granted under the Tax Act.
This exclusion has been removed from the relevant texts in the Amendment. Until clarification is provided, it is not certain whether or not the government minority shares in the private sector manufacturing, mining and exports activities would enjoy the exemptions granted.
The 50 per cent tax exemption previously granted to tourism enterprises has been extended to include five-star hotels.
[edit] Losses
Losses sustained by all taxpayers engaged in trading and other activities, who are required to keep proper books of account, provided they are accepted by the tax authorities; will be carried forward and written off against future profits without any limitation.[7]
[edit] Municipal Tax
This tax only applies to companies, which are subject to a municipal tax at the rate of three per cent of their taxable income.
[edit] Islamic taxes
In addition to these mandatory taxes, Islamic taxes are collected on a voluntary basis. These include an individual's income tax (Arabic khums, “one-fifth”); an alms-tax (zakat), which has a variable rate and benefits charitable causes; and a land tax (kharaj), the rate of which is based on the principle of one-tenth ('ushr) of the value of crops, unless the land is tax-exempt.
[edit] Appeals procedure
It is noteworthy to point out that the Amendment has removed the second stage of appeal process. Appeals to the High Council of Taxation could only be made on questions of non-compliance with the provisions of the Tax Act rather than questions of fact.
[edit] Official accountants
The Amendment has for the first time after 1979 reintroduced the concept of the tax audit to be undertaken by 'official accountants' and their designated firms. The taxpayer or the tax administration can choose to appoint an official accountant or a designated firm of official accountants to examine his records and report to the tax authorities.
[edit] Tariff rates
Following is an indicative listing of tariff rates in 2006:
- chemical products - 10 per cent
- ordinary metals - 10 per cent
- measurement instruments - 10 per cent
- medical equipment - 10 per cent
- food industry - 15 per cent
- mining raw production - 15 per cent
- leather industry - 15 per cent
- paper and wood fabrics - 15 per cent
- mechanical machinery - 15 per cent
- agricultural raw production - 25 per cent
- electric machinery - 25 per cent
- automotive vehicles - 100 per cent
Note: excessive tariffs on consumer goods has favoured contraband into the country in recent years.
[edit] See also
- Education in Iran
- Syndicate of Workers of Tehran and Suburbs Bus Company
- List of trade unions by country
- Iranian calendar
- Economy of Iran
- Bonyad
