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Maliyat Journal (Iranian Tax Review)

No. 27, Spring 2000

English Section









By publication of this issue, the journal of Maliyat will enter its eighth year of existence and activity. The primary subject emphasized on in the editorial of the first issue of the journal, was that of the significance of taxation under the prevailing circumstances of the country. Now after elapse of  seven years, the vital role of taxation has been considerably increased. The developments in the sphere of national and international economies have resulted in a situation where there remained no alternative, except substituting more safe and reliable sources (like taxation) for the income earned through the exportation of crude oil.

This undeniable fact is reflected clearly in the third development plan of the government for the coming five years period. The content of this document is indicative of the attention paid by the government in making the national budget rely more and more on taxes rather than oil. The tax revenues forecasted for the years of the plan are suggestive of a considerable trend of increment.

The importance of taxation was so great in the view of those drafting the plan, that they did not suffice to express their view in the text of the plan, or to forecast certain  revenue figures therein. They have also paid attention to the necessity of introducing suitable changes to the organization and responsibilities of the tax administration, so that to enable it to accomplish the huge tasks that the plan put on its shoulders.

A wholly new organization has been envisaged for the tax machinery. According to the plan, a separate and specialized organization is to be created as an affiliate of the Ministry of Economic Affairs and Finance. The powers and duties of this new organization will be determined under a special statute, which will give it an autonomous legal status, while being under the overall supervision of the Minister of Finance and Economy.

So far, the tax administration has always acted as a branch of the Finance Ministry, like any other subdivision thereof. Under the new arrangement, the responsibilities of the tax administration would considerably enhanced, which we hope it would successfully accomplish.


Dr. Aliakbar Arabmazar



An Introduction to the

Iranian Tax System

By: Dr. Mohammad Tavakkol

(Part 7)



Different types of property taxes were reviewed in previous parts of this series of articles. Then we begun our study on the title C of the Direct Taxes Act (DTA), which deals with the provisions of income tax. After a brief review of the structure of the title C, the first type of income taxes, namely the tax on rental income, was touched upon. The general rule of DTA regarding the taxability of rental income was referred to first, then it was stated that besides the ordinary cases of lease of real property that are subject to taxation, two types of special cases are also distinguished under the law. First, the cases that are considered, for the purpose of taxation, to be subject to the rules of lease and rental, though they may not be titled as such from the legal point of view. Second, the cases where it is assumed that no tenancy relation subject to rental tax does exist, although there might be some argument against such assumption. The first type of the above cases, and also two cases of the second type, were studied in last issue. Further cases of the latter type are as follows:


III. According to Note 1 of the Article 53 of DTA:


"The habitation of the owner's father, mother, spouse, child or grandparents, as well as that of the persons dependent on him, shall not be considered leasehold, unless it is proved by documents that the rent is paid. Where several properties are allocated for habitation of the owner or the aforesaid persons, only one property for dwelling of the owner and another one for all the other aforementioned individuals, both at the choice of the owner, shall be excluded from the taxation of the present chapter. Should there be more than one permanent wife for the owner, the dwelling place of each of such permanent wives shall also be considered as non-leased property".


Under the Iranian Civil Law, two types of marriage are recognized: permanent and temporary (for certain duration of time agreed between bride and bridegroom). Therefore, the wife's place of dwelling will be considered as not being leasehold, and thereby not being subject to taxation, when the marriage relation between spouses is of permanent type.

Meanwhile, as it can be understood from the text of the law, for the rule of the Note 1 of the Article 53 to be effected, there should be no evidence indicating that a rent is actually paid for the dwelling in question. In other words, the tax law assumes that where close relatives of the landlord occupy a house, no rental payment is customarily demanded from them. But if it becomes evident that the opposite case is true, then there will remain no room for such an assumption to be resorted to.


IV. Another case similar to that stated above is mentioned under the Note 2 of the same Article 53, which provides:


"The real properties that are put, free of charge, at the disposal of the organizations and institutions mentioned in paragraphs (a), (b), (d) and (e) of the Article 2 hereof, shall not be considered as leaseholds".


The Article 2, DTA enumerates a series of organizations and institutions that are excluded from the application of the Direct Taxes Act. Such entities and organizations are divided into 5 categories and include government institutions, municipalities, certain public organizations of charitable and welfare character, some foundations and entities whose resources and activities are devoted to the aims of the Islamic revolution or religious purposes, public service institutions, and the like (for detailed information see the text of the Article 2, DTA and its Notes).


Taxable income

The first sentence of the Article 53, DTA presents a general definition of taxable income:

The taxable income of the leased real property consists of the total rent, whether in cash or otherwise, less a deduction of 25% to cover expenses, depreciation and commitments of the owner with regard to the leased property

The commitments of the owner with regard to the leased property are determined in the Civil Code and other relevant regulations. The Article 486 of the Civil Code provides:

"The repairs and all other expenses necessary in order to maintain the property leased in a state, in which appropriate profits could be derived therefrom, are the responsibility of the proprietor, unless other conditions have been agreed upon, or unless the local customary law provides the contrary. The same rule hold for the instruments and appliances, which are necessary for taking benefit from the leased property".


Special cases

Specific rules are envisaged for the following special cases:


1. "Where the lessor is not the owner of the leased property, his taxable income shall be the difference between the rent that he receives and the rent that he pays

for the same leasehold" 

(Penultimate sentence of the Article 53).

The above rule relates to cases of second hand leasing, where the lessee leases out the leased property to third parties. Such a practice will not be legal, unless the original contract between the owner and first hand lessee would allow it.


2. "Where some furnishings or machinery are leased in conjunction with a real property, the rental income attributable to such fittings and machinery shall be included as a part of the income of the property, and shall be taxed according to the provision of the Chapter" under review (see Note 4 of the Article 53, DTA).


3. "Additions made by the lessee, in conformity with the lease agreement, to the leased property for the benefit of the lessor, shall be appraised on basis of taxable value of the date of delivery of the same to the lessor, and 50% thereof shall be treated as a part of taxable rental income of the lessor for the year of such delivery" (Note 5 to the Article 53, DTA).


4. "The expenses that are to be born, under the law or the agreement, by the landlord, but are made by the tenant, as well as the expenses undertaken by the tenant in conformity with the terms of lease agreement, while customarily are to be paid by the landlord, shall be appraised at the taxable value of the date of occurrence of such expenses, and shall be added, as non-pecuniary rent, to the sum of the rental income of the year in which such expenditures are effected" (Note 6 to the Article 53).

The meaning and manner of determination of the taxable value will be given later.


5. "If the owner of any superstructures created over a leased land, lets the property, wholly or partially, the rental paid by him for the land, in proportion to the estate he lets, shall be deducted from the rental he receives, and the balance will be taxed according to the provisions set forth at the beginning of the present Article" (Note 7 to the Article 53).

The above rule pertains to a case where the tenant has constructed a building over a land that he has leased from the owner of the land (or had bought or inherited such a superstructure). Cases of this type may occur mostly in rural areas. The tenant of the land, who is the owner of the building as well, may lease the superstructure to a third party and receive rental on that while he is not the owner of the land .


6. "Where the owner of a residential house or apartment lets the same out and leases another place for his own residence, or dwells in an employer-provided house, the rent he pays under an official deed or according to an agreement, or the rent deducted from his salary by the employer, or the amount of the same that is evaluated as the salary in kind for tax purposes, shall be deducted, for computation of the taxable income of the present chapter, from his entire rental income" (Article 55).


The term official deed means a deed or document registered with a notary public, and the word agreement as used in this context means a document agreed upon between the parties without being officially registered by a notary public. The chapter referred to in the above text means the chapter I of the title C of DTA, which deals with the tax on real estate income.

In the next issue of the journal,  the study on the real estate income tax will continue.



Highlights of the Tax Treaty with


the Republic of Turkmenistan


By: M. T. Hamadani



On 23 December 1995 a tax treaty between the Islamic Republic of Iran and Republic of Turkmenistan was signed in Ashkhabad. After an approximately long interval, the treaty was ratified by the Parliament on 30 September 1998. The effective date of the treaty was 3 August 1999 and that is why it was notified to the Finance Ministry for enforcement in September 1999.

This treaty follows, like most of the other tax treaties concluded by this country, the OECD Model Convention, but it also adopts a number of specific provisions not envisaged under the latter convention. The most important provisions of the treaty are analyzed below.



The treaty states (exactly like the OECD Model) that it applies to persons who are residents of one or both of the contracting states. The rules concerning the residency are provided under the Article 4, of the treaty.

The Article 4 is similar to that of the OECD Model convention, but without reflecting the amendments introduced on 21 September 1995 on basis of the OECD Council's recommendations. In other words, the following phrases and words are not inserted in the text of the Article 4 of the treaty:

1. The phrase "also includes that state and any political subdivision or local authority thereof" (in respect of the first sentence of the paragraph 1);

2. The word "only" which had to be added to sub-paragraphs a, b and c of the paragraph 2; and

3. The same word (only) with regard to the paragraph 3.


Taxes Covered

The text of the Article 2 of the treaty coincides, by and large, with that of the OECD Convention. There are, however, some points worth of mentioning in this regard:

1. The paragraph 1 of the Article 2 confines the scope of the treaty to two categories of taxes, namely the "tax on income" and the "tax on capital".

 Then the paragraph 3 of the same article refers to the existing taxes in contracting states, which correspond to the above categories of taxes on income and capital.

In case of Iran reference is made to "income tax" and "property tax". This means that according to the treaty, the property tax in this country corresponds to the tax on capital as used in the paragraph 1 of the same article.

But, these two types of taxes do not go together in many respects. There are several kinds of taxes known under the Iranian tax law as property taxes, but they can not be attributed to the concept of the tax on capital as is understood under the treaty.

To be more specific, there are five groups of property taxes in Iran, from which only the first one, namely the annual tax on real properties, is in some degrees comparable to the tax on capital as is understood under the treaty (as well as under the OECD Model Convention). It suffices to say that the most important type of property tax under the Iranian law is the inheritance tax.

Everybody knows that the inheritance tax is out of the scope of the OECD Model Tax Convention on Income and on Capital, and thus can not be considered as the tax on capital, which is subject to the said convention.

Another type of property tax, according to the Iranian law, is the "stamp duty". There is no need to go long for demonstrating that the stamp duty may not be considered as the tax on capital.

2. There is a type of income tax under the Iranian law, which is titled as the tax on "incidental income". Most of the cases referred to in this part of the tax law are clear examples of gifts as used in the European tax laws. As we know the tax on gifts is also dealt with under another type of tax treaties and in no ways can be attributed to tax treaties of the type of income and capital.

3. Few words should also be said about the tax on capital gains, which is handled by the Article 13 of the treaty. To impose a special and separate tax on gains referred to in this article is not envisaged in the Iranian tax law. Let us take the case of the gains derived from the alienation of immovable property. When a person sells his real property, tax will be imposes on basis of the taxable value of the property, whether the transferor gained or lost.


Permanent Establishment

Article 5 of the treaty under review presents a definition of permanent establishment in line with the OECD Model Tax Convention. Some additions are, however, made in the treaty, which are as follows:

1. According to the paragraph 3 of the OECD Model, a building site, construction or installation project will constitute a permanent establishment, only if it has been maintained for more than 12 months. The same has been envisaged under the Iranian treaty, while adding the following:

(i) supervisory activities in connection with the above sites and projects; and

(ii) provision of services (including consultation service) with regard to the said projects, where such services are rendered by the employees or other agents of the relevant permanent establishment. Meanwhile the above period of 12 months of the paragraph 3 of the OECD Convention has been changed to 36 months.

2. The paragraph 6 of the Article 5 of the Iranian treaty envisages another case of permanent establishment unprecedented in the OECD Model. According to that paragraph:

"Where an insurance enterprise of a Contracting State (except for reinsurance cases) collects premiums, or insures against accidents in the territory of the other Contracting State, through a person (Other than an agent of an independent status, to whom paragraph 7 applies), then such enterprise shall be deemed as having a permanent establishment in that other country".


Taxation of Income

Articles 6 through 21 of the OECD Model Tax Convention are reflected (with negligible alterations) in the text of the treaty. Provisions of the treaty with regard to income from immovable property, business profits, shipping, etc., associated enterprises, dividends, royalties, capital gains, independent and dependent personal services, director's fees, artists and sportsmen, pensions, government services, students and other income are, by and large, similar to the corresponding provisions of the OECD Model Convention.


Taxation of Capital

Article 22 of the treaty is similar to that of the OECD Convention, except for an additional paragraph, which reads as follows:

"Capital represented by shares of corporate rights in a company, the assets of which consist mainly of immovable property situated in a Contracting State, may be taxed in that Contracting State".




Elimination of Double Taxation

Article 23 of the Iran-Turkmenistan tax treaty provides for applying the credit method to eliminate double taxation. This method is exactly the same as envisaged under the Article 23B of the OECD Tax Convention.


Non - Discrimination

This topic is provided under the Article 24 of the treaty, which agrees with the Article 24 of the OECD Convention in all respects, except that the paragraph 6 of the OECD Convention, which reads as follows:

"The provisions of this Article shall, notwithstanding the provisions of Article 2, apply to taxes of every kind and description" has been deleted from the text of the Iranian treaty.


Mutual Agreement Procedure and Exchange of Information

Articles 25 and 26 of the treaty, which cover the above topics are in agreement with the corresponding provision of the OECD Convention.


Mutual Assistance for Collection of Taxes

The article 27 of the treaty is devoted to the above subject. No provisions of this kind are provided under the OECD Model, and the writer of these lines is not aware of any other treaty containing such regulations.

According to the Article 27, the contracting parties have undertaken to assist each other for collection of escaped taxes in their relevant territories.

The main features of this mutual assistance are the following:

1. The assistance relates to taxes, fines and interests accrued as a result of non-payment of tax liabilities.

2. The relevant tax claim should have been reached the final stage from the legal point of view, so that to be collectible according to the law of the claiming country.

3. The procedure and method of collection are subject to the law of the collecting state.

4. The ordinary costs of collection shall be born by the claiming state, but in case of occurrence of extraordinary expenses; the collecting state shall bear the cost (unless otherwise is agreed upon by the parties).


Language of the Treaty

The treaty has been prepared and signed in three languages: Persian, Turkmenian and English. In case of any divergence of interpretation, the English text shall prevail.



Tax News



Amendment of the Article 203 of the Tax Law


The Iranian Parliament recently approved an amendment to the Article 203 of the Direct Taxes Act (DTA). The amendment consists of deletion of a phrase from the text of the Note of the Article 203, and addition of a new Note to the same article. As a result of the amendment, the existing Note has been numbered as the Note 1, and the new Note is numbered as the Note 2. The amended text of the Note 1, and that of the Note 2 of the Article 203, DTA read as follows:


Note 1. If the taxpayer or his relatives or employees, in case of his absence, refuse to accept the process, and also when non of such persons is available at the relevant place, the serving officer shall record their refusal from accepting the process, or their absence at the place, on both copies of the tax notice, and shall post the first copy at the door of the place of residence or work of the taxpayer. The tax papers served in such manner shall be considered legal and the date of the posting shall be deemed as the date of serving on the taxpayer.


Note 2. The Ministry of Economic Affairs and Finance may use the registered mail services for the serving of tax papers. The mailman shall serve the copies of the tax notice on the taxpayer in person, or on a relative or employee of him at the relevant place, and shall get a receipt on the second copy.  If the taxpayer or the said persons refuse to accept the process, the mailman shall take a note of that on the copies of the process, and shall post the second copy at the relevant address and return the first copy to the tax office. When non of such persons is available at the place, the postman shall record the date of calling at the place and also the phrase: We shall visit the place after 15 days from this date on the copies of the notice, and shall post the second copy at the specified address, and return the first copy. Should the said persons be absent at the second visit, the mailman shall record the fact at the foot of the copies of the tax notice, and shall post the second copy at the relevant address, and give back the first copy to the tax office. The tax papers served in such manner shall be deemed as served at the date of posting.


The above amendment was approved by the Parliament on 13 October 1999, and the Council of Guardians confirmed it on 21st of the same month (according to the Iranian Constitution, the laws passed the Parliament must be confirmed by the said Council, otherwise, they will not become effective   see the Articles 91 to 99 of the Constitution).

Our readers having at their disposal the English translation of the Iranian Direct Taxes Act (published by this journal), are hereby asked to ignore the previous Note of the Article 203, DTA (page 135 of the translation), and insert the above text of Notes 1 and 2 under the same Article.


Summary table of direct and indirect tax revenue


during the period 1375-1377, and the first half of the year 1358


 (millions of national currency)


Direct Taxes




First half,  1378

Corporate tax





Income tax





Wealth tax





Total Direct Taxes





Indirect Taxes





Grand Total







1. The years mentioned above are Iranian, the equivalents of which are: 1996-97, 1997-98, 1998-99, 1999-2000. The Iranian solar year extends from March 21 of each Gregorian year to March 20 of the next one.

2. The Corporate tax includes the income tax collected from public and private corporations, as well as the tax of a category of government entities called Centers for Preparation and Distribution of Goods. The tax received from the latter entities is negligible, comparing to that of the first categories.

3. The Income tax includes various individual taxes, business tax and tax on income from real estates.

4. The term Wealth tax covers the taxes referred to under the Direct Taxes Act (DTA) as the Property tax, including inheritance tax, annual tax on real properties, tax on unoccupied real properties, tax on idle lands and stamp duties. Certain types of taxes are also included here, though they are referred to as income tax under DTA. They are the tax on incidental income (gifts, etc.) and the tax on transfer of immovable properties and good will.

The following chart is prepared on basis of the figures of the above table, except that the revenue of the year 1358 is calculated for 12 moths instead of 6 months (the amount of the tax is simply doubled).


Chart of revenue of the Iranian government from direct and indirect taxes, during the period 1375-1358*


Figures at the left hand are in millions of national currency (Iranian Rial)


* Revenue of the year 1358 is calculated by doubling the amount of taxes collected during the first half of the same year.




Abstract of Persian Articles



The first article of this issue is devoted to the subject of increasing importance of tax revenues in financing the government expenditures. This matter is clearly referred to in the third development plan of 2000-2004. The plan has also provided for complete reorganization of the tax administration with the aim of enabling it to achieve the goals envisaged in this respect. The editorial (of both the Persian and English sections of the journal) reflects on the same topic.


Highlights of the Tax Treaty with Turkmenistan

A newly published tax treaty between Iran and Turkmenistan is reviewed in this article. The author analyzes the most important provisions of the treaty, particularly in comparison with the previous tax treaties of Iran. A similar article is also provided in the English section of the journal. In the English version of the article comparison is made with the amended text of the OECD Model Tax Convention on Income and Capital.


Inheritance and gift tax treaties

The fourth part of this study is provided in the present issue of the journal. The study reflects on double taxation treaties in the field of inheritance and gift tax, which is a wholly new idea in this country. The model inheritance and gift tax treaty of OECD is analyzed by the author with special emphasis on its implications (when taken into account  in the light of Iranian legal system).



Transfer Pricing


Because of the prevailing tendency of developing countries to  attract foreign capital and technology, and also the expansion of the geographical sphere of multinational and supranational companies' operations, the issues like transfer pricing are to be taken more seriously into account. But, the subject of transfer pricing is a new topic in this country, and, therefor should be studied in all its dimensions. The third part of the study that this journal has started in this field,  is provided in the present  issue.


Tax Revenues

A detailed table of direct and indirect tax receipts of the government is printed in the Persian section of the journal. The  summary of the same is provided in the English section, together with a chart drawn on basis of the figures of the table.


A Page of tax history

Maqrizi was an Arab historian living in Egypt of late 14th and early 15th centuries (during the rule of Fatemid Caliphs). A story narrated by him about taxation of lands is provided in the Persian section of the journal.  


Rulings and Regulations

The text of new tax laws and regulations, circular letters of the tax administration, rulings of the Supreme Tax Council and verdicts of the Administrative Court of Justice are presented in the Persian section of the journal. Some of these rulings and regulations are also provided in the English section under the heading "Tax news".


Tax Glossary

Several tax terms and expressions are presented and defined in each issue of Maliyat journal.



The End