After years of economic stagnation Iran is preparing for the post-sanctions era following the historic Joint Comprehensive Plan of Action reached by the P5+1 on 14 July. The deal could result in the lifting of economic sanctions and the Iranian market reopening for international business.
Iran is an exciting environment for foreign investors to operate in with healthy demographics, low debt and one of the largest oil reserves in the world.
At the same time it can be a challenging environment. Investors planning to enter Iran for the first time, or looking to expand an existing presence should prepare themselves for the challenges ahead.
In this article, we discuss the legal factors that investors should take into account when planning a market re- entry strategy.
Take note of sanctions obligations which remain in place
Despite the JCPoA deal, Iran will remain under sanctions until the IAEA verifies Iran’s compliance with its nuclear obligations and the necessary legislation has been passed in the relevant jurisdictions. Even after the necessary legislation has been passed there will be residual sanctions applicable to Iran (notably for the US).
Before taking any steps to engage in Iran-related business, investors should identify and comply with sanctions obligations that are still applicable to them.
Be aware of recent legal and regulatory changes
As the next step, investors will need to assess how the recent developments in the local Iranian legal and regulatory environment will affect their business in Iran. For instance, new laws have been introduced where financial incentives (such as tax breaks) are offered to attract private sector investment. By contrast, the law has recently changed to require a higher percentage of local content for investments in the oil and gas sector and auto industry. Investors returning to Iran after a lengthy absence should make themselves aware of any legal and regulatory changes.
Consider whether pre-sanctions relationships are still valid
Investors should carefully consider the terms of pre-sanctions contracts to determine whether those contacts have expired or been duly terminated. It is also important to determine whether it is possible to work with former partners or to build new relationships. If investors are planning to continue with former relationships, it may be worth carrying out fresh due diligence before resuming business relationships.
Understand the boundaries of your existing business structure
Investors who already have a business vehicle in Iran will need to consider what steps to take to revive and reactivate it. In particular, they should consider if the licence is still valid and if not, what steps are needed to apply for a new licence.In this context, investors should consider if they have any outstanding tax (or other financial liabilities) from past activities before applying for a licence renewal account with Iranian authorities.
Investors planning to expand existing operations in Iran will need to consider whether their existing business structure allows them to engage in their new operations. For instance, under Iranian law, a representative office cannot take part in profit-making activities or receive Iran-sourced income. Steps would therefore have to be taken to obtain the necessary licenses before any expansion of operations.
Register your intellectual property rights promptly
It is advisable for foreign investors intending to do business in Iran to register their intellectual property (IP) rights at the outset. Iranian law allows foreign companies to register patents, trademarks and copyright. If an investor has already registered its IP in Iran, it is important to investigate whether there has been any infringement of the IP in the interim and what enforcement action is appropriate.
Resolve any pending disputes you may have
Many investors were forced to withdraw quickly from the Iranian market. There might therefore be dormant or pending disputes (including labour disputes) against investors. Until those disputes are resolved, they could adversely affect future operations and the ability to obtain the necessary approvals and permits.
Investors planning to return to the market and who cannot afford lengthy litigation should make an immediate assessment of their legal position to determine the best options for settling any disputes (including via alternative dispute resolution mechanisms such as mediation).
There is no doubt the market will be watching the sanctions developments closely. The Swiss government is the first nation to remove sanctions against Iran, although as most commodity houses are still bound by US and European sanctions, this will have little effect on the market. Who will be next?
"This relaxation would have a negligible effect - it is more a symbolic move reflecting Switzerland than anything else,”
John Whittaker, Clyde & Co, quoted in Bloomberg