Investing in Iran, Legal Challenges and Solutions

Investing in Iran, Legal Challenges and Solutions Investing in Iran, Legal Challenges and Solutions

Iran has ample investment opportunities. With almost 80 million people it is too big a market to ignore for ambitious entrepreneurs and international goods and service providers. Moreover, a wide range of competitive advantages make the country a key player in the strategic Middle East.

An educated and young workforce, relatively low remuneration, enormous natural  resources of  petroleum, natural gas, coal, chromium, copper, iron; appropriate transportation infrastructure (12,000km railroads, 220,000km roadways, 54 airports and 11 commercial ports) and access to international waters, strategic position and  land border with seven countries (Afghanistan, Azerbaijan Armenia, Iraq, Pakistan, Turkey and Turkmenistan) and proximity to other countries in the Middle East and Central Asia, major tourist attractions and tax free zones place the country as a land of business opportunities.

Yet there are some concerns among the investors that might affect their decisions. Similar to other developing markets, economic stability concerns are the main potential risks on the list of investors. In terms of legal risks, legal predictability and prospects for fair and reliable litigation in relation to possible disputes are other key concerns that have to be addressed clearly before investments start coming in.                                  

Regardless of the veracity of these issues, businesses leaders need to know that there are appropriate solutions to ensure optimum settlement of investment disputes under international law. The most popular mode of dispute settlement is arbitration which can be incorporated into the contractual terms and will be respected by Iran’s judiciary.

 According to    

Article1-a of International Commercial Arbitration Act (ICAA) “arbitration” means the extra-judicial settlement of disputes between parties by one or more natural or judicial persons thus nominated by common consent or appointed. As per section “b” of this article, “International arbitration” implies that one of the parties, at the time of conclusion of the arbitration agreement, is not considered an Iranian national according to Iranian law. ICAA passed by parliament in 1997 is based on UNCITRAL Model Law on International Commercial Arbitration.

Disputes emerging from international commercial relations such as the purchase and sale of goods and services, transport, insurance, financial affairs, consulting services, investment, technical cooperation, representation, commission agency, commission, contracting and similar activities can be subject to arbitration governed by this Act.

According to section 1 of Article 27 parties are able to choose applicable law, this article states ‘the arbitrator shall decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute. Any designation of the law or legal system of a given state shall be construed, unless otherwise agreed by the parties, as directly referring to the substantive law of that state and not to its conflict of laws rules.’

Moreover, the designation of arbitrators lies with the disputing parties. If not designated, a panel of three arbitrators shall be appointed to settle the dispute. Parties to the arbitrations can choose arbitrators with foreign nationality as well as Iranian nationality. However, the Iranian party may not, so long as a dispute has not arisen, commit itself in any manner whatsoever to refer a dispute that may arise to arbitration by one or more persons who have the same nationality as the other party or parties.

According to section 1 of Article 20, the arbitration proceedings shall be conducted in the place agreed by the parties. Failing such agreement, the place of arbitration shall be determined by the “arbitrator” having regard to the circumstances of the case and the convenient accessibility of the parties. On the other hand, Iran’s government has ratified The New York  1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards so investors will be able legally to enforce arbitration awards against the losing party who owns properties in Iran.

Foreign Investment Promotion and Protection Act (FIPPA) ratified in 2002. FIPPA replaced the Law for the “Attraction and Protection of Foreign Investment” (LAPFI) which was in effect since 1955. FIPPA’s replacement of LAPFI has further enhanced the legal framework and operational environment for foreign investors in Iran.

According to FIPPA foreign capital is guaranteed against nationalization and expropriation, and in such cases the foreign investor shall be entitled to receive compensation (Article 9); if laws or government regulations lead to prohibition or cessation of approved financial agreements within the framework of this Act, then the government shall pay the resulting damages (Article 17); the purchase of goods and services of the foreign investor is guaranteed in case a state-run organization is the only buyer or supplier of a product or producer of a service at a subsidized price (article 11); foreign investments subject to this Act shall enjoy the same rights, protections and facilities available to domestic investments in a non-discriminatory manner (Article 8); the foreign investment and its profits may be transferred in foreign currency or goods (Articles 13-18).

Iran also has ratified the bilateral investment treaties (BIT) with 58 countries which provide remarkable advantages in favor of investors.

In general, all the above-mentioned legal tools and government protections can significantly mitigate many legal and economic risks faced by foreign investors as long as they apply smart legal solutions.

Behnam Ensafi Azar is  Lawyer and member of Arbitration Center of Iran Chamber.