After years of economic stagnation under international trade sanctions, Iran is preparing for the post-sanctions era following the historic deal with P5+1 (entitled the "Joint Comprehensive Plan of Action" (JCPoA)) in Vienna on 14 July. The deal could result in the lifting of economic sanctions and the Iranian market reopening for international business.
Like any other emerging market, Iran is an inviting and exciting environment for foreign investors to operate in. At the same time, it can be challenging and complex.
Investors planning to enter Iran for the first time, or to expand an existing presence, should prepare and equip themselves for the challenges ahead.
This update explores some of the legal factors that investors should take into account in planning their market re-entry strategy.
Despite the JCPoA deal, Iran will remain under sanctions until IAEA verification of Iran's compliance with its nuclear obligations has been made and the necessary legislation passed in the relevant jurisdictions. Even after the necessary legislation has been passed there will be residual sanctions that apply to Iran (notably to US persons).
Before taking any steps for engaging in Iran-related business, investors should identify and comply with any sanctions obligations that are still applicable to them.
Has anything changed in your absence?
As the next step, investors will need to make an assessment as to how any of the recent developments in the local Iranian legal and regulatory environment would affect their business in Iran. For instance, in certain sectors, new laws have been introduced under which financial incentives such as tax breaks are offered to attract private sector investment. By contrast, the law has recently changed to require higher percentage of local content for investments in, for instance, 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.
Another important issue to consider is 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. Even if investors are planning to continue with former relationships, it may be worth carrying out fresh due diligence before resuming business relationships.
Agency and franchising
Franchising and agency relationships were popular methods of doing business with Iran prior to sanctions. Investors considering re-entering the Iranian market using the same model but using a new business partner, you should consider the following issues:
- What steps are needed to undo an existing relationship? Is it necessary to de-register an agency relationship? To what extent is the agent’s cooperation needed to achieve such de-registration?
- What are the consequences of terminating those relationships? Is it necessary to pay compensation to an existing Iranian agent or franchisee upon a change?
Corporate law issues
Investors who already have a business vehicle in Iran will need to consider what steps to take to revive and reactivate it. 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 that they need to account for to Iranian authorities arising from activities in the past before applying for licence renewal.
Investors planning to expand operations in Iran will need to consider whether their existing business structure would allow 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, if you are planning to expand your operations.
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.
Many investors were forced to withdraw from the Iranian market by the sanctions and to terminate or suspend their relationships. There might therefore be dormant or pending disputes (including labour disputes) against such investors. Until those disputes are resolved, they may adversely affect future operations and the ability to obtain the necessary approvals and permits. Investors subject to such disputes may want to make an immediate assessment of their legal position to determine the best options for settling such a dispute (including via alternative dispute resolution mechanisms such as mediation) if they are planning your return to the market and cannot afford to engage in lengthy litigation.