Economy, Business And Markets

Investment Laws Friendly for Foreign Companies

Finance Desk
Investment Laws Friendly for Foreign Companies
Investment Laws Friendly for Foreign Companies

Ardeshir Atai is one of the Iranian professionals who have recently returned home from abroad to practice their careers, but he also is part of the growing numbers arriving steadily to be part of the new opening in the wake of the historic nuclear deal between Iran and the six world powers.

Dr.Atai sees potential for foreign investment and hopes for visible improvement in a post-sanctions era in various sectors of the economy, including his own law-firm geared toward offering advice to foreign companies wanting to deal with business.  An alumnus of the University of London, he also teaches at the Islamic Azad University.

The Financial Tribune caught up with him after he returned from a speech trip at the ongoing Milan Expo. He attended the event at the invitation of the Expo organizers to present an overview of the Iranian legal system for doing business. The topics that Atai covered included the FIPPA (Foreign Investment Promotion and Protection Act of Iran) to encourage foreign firms to enter the Iranian market, the stock exchange and the over-the-counter market and FDI in manufacturing sectors namely oil/gas.

“We told them that as a new incentive by the Iranian government, foreign companies can establish a wholly-owned company – 100% shareholding by foreigners — which is a very important step to make the climate attractive and friendly for foreign firms,” he noted.

He told an Italian audience, comprised of Italian companies, engineers and banks, that foreign companies with branches in Iran could also bid for projects offered by the government, for example in construction and engineering such as EPC (engineering procurement and commissioning). He also spoke about the ability of foreign investors to transfer capital and machinery to Iran under the FIPPA and the protection of the government by giving compensation for example in case the investment was nationalized or expropriated and guarantee non-discrimination of investments and investors under the FIPPA provisions.    

 New Magnet

Some of the advantages he ascribes to doing business in Iran are the ones he discussed with the Italians; namely flexibility of labor laws and the tax law — at 25% which is considered very low compared to western states and capital exporting countries.  

The Dispute Resolution Mechanism that allows foreign companies access to alternative dispute resolution channels, such as the Arbitration Chamber of Iran Chamber of Commerce (AIACC), which combined with the general business-friendly climate, have rendered Iran as a new  magnet for foreign investors.

Asked how much interest he found on the part of foreigners to move into Iran, Atai said he sees plenty of enthusiasm to explore ways to build partnership with local firms in Iran.

“The question uppermost on their minds was the situation of a foreign company after it enters Iran, including, for example, the legal status of hiring foreign staff in Iran and the relevant labor laws, forming foreign partnership with local companies…

“I told them that we have very flexible foreign-investment laws and that foreign companies could easily form joint ventures. I also said that they can enter into any form of contract with Iranian companies because Iranian law upholds the freedom of contracts—meaning that private contracts are recognized under civil law.”

Companies are particularly interested to know more about the openness in big industries such as oil and gas, banking. The Italian government Finance Institution SIMEST was also present and they were asking for ways to finance these projects.

 Strong Beginning

When the French mission—MEDEF-- travelled to Iran at the end of September to sign contracts, Atai attended the high-profile event. He says the event was significant in that for the first time, France’s biggest finance company singed a MoU with an Iranian financial institution to train staff and transfer knowledge and technology.

Atai believes there are “no restrictions” when it comes to investment in Iran. “There are several free economic zones across Iran -- including in the Persian Gulf islands and northern Caspian region and Salafchegan south of Tehran and while in the past foreign banks could operate in these free economic zones now they can establish banks even in the mainland with a new government law set to facilitate that.”

 Removing Red Tape

The government is passing a new law to remove the remaining barriers to foreign banks operating in the market or purchasing Iranian banks, but crucial issue is the full implementation of the Joint Comprehensive Plan of Action (JCPOA). The Majlis (Parliament) this month approved the agreement reached between Iran and the six world powers in July paving the way for the removal of sanctions which should take effect by early 2016.

“But even before that we need to join the SWIFT—which is expected to happen soon – and that would be a very important step because based on my observations I see that European delegations travelling to Iran are interested to secure a foothold in the country before things actually begin,” he says.

Of course, some hurdles need to be cleared, and one of these is the Europeans’ fear of raising American suspicions, Atai says. Many of the European companies still need to obtain licenses from the Office of Foreign Assets Control (OFAC) which is affiliated to the US Department of Treasury.  

On the Iranian side all is not well either; a bloated bureaucracy is still an issue although it is being addressed, an online business registration system has been launched but it is still a pilot project.

The Freedom of Information Act has was passed into law a few years ago but came into force very  recently and that law is designed to promote transparency and access to information and provision of statistics by government institutions, which is a very important step, is another good measure taken by the government to ease economic transactions.  

The government has also extended the two-week visa to one-month issued on arrival that is another good initiative, helping foreign investors to see the new climate at close range.

“I think we still need to streamline our trade laws to make them more compatible with international laws and WTO regulations,” he says.

“But if I had to give one advice to policymakers it would be to facilitate full participation of foreigners in the stock market, which has now been raised to 20% investment but needs to be expanded further according to FIPPA, a measure that would also help promote the protection of Iranian companies.”

Atai however, believes that Iran with vast natural recourses and a large consumer market is the best location for foreign investment but agrees that political risk exists everywhere including in the UK and US and in Iran’s case there could be “sabotage” from anti-Iran pressure groups and lobbies.  

But recalling that Iran has already signed more than 50 investment agreements with other countries so far, he believes the obstacles are surmountable.

Urging the Tehran government to expedite the process of privatization, Atai sees investment in the Iranian renewable energy sector, hydroelectricity, banking and oil/gas sectors as the hotspots for future foreign investment.