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Maliyat Journal (Iranian Tax Review)

No. 28, Summer 2000

English Section







An objective study of the factors contributing to the efficiency of social, as well as natural phenomena is a fundamental condition for arriving at desired conclusions and taking proper actions in any and every fields. This journal has always done its best to follow the same path in respect of the subject of taxation, with the aim of finding and analyzing the determinant causes and incentives, within which the operation of tax system takes place.

A study of this type would draw, from the outset, our attention to the fact that taxation is a two-sided and reciprocal issue. The tax administration with all its objectives and responsibilities on one side, and taxpayers and their individual and group motivations and reactions on the other side.

Our discussion concerns the second party of this relationship, namely the taxpayers. There is no doubt that the behavior of taxpayers may play a very eminent role in this regard. Nobody in today's world would object to this undeniable fact.

But, what can be done to affect behavior of taxpayers? Preaching and appealing to their conscience is a good idea. But any measure of this kind would prove to be useless, and even might leave negative impression, if it is not coincided with appropriate preconditions and creation of a positive behavioral environment in the tax system.

One has to take account of the fact that we talk about payment of tax on a permanent basis, and not about some occasional charitable donations and contributions.

For creating a suitable atmosphere, the primary role is to be played by the tax administration. The manner and behavior  of tax officials and taxpayers’ file treatment have serious effects in this respect, and the administration has to make its best to leave a sound impression on the conscience of taxpayers.

Several rulings issued in recent periods by the tax administration are indicative of a new positive trend adopted in this direction. Few examples of this type of rulings are as follows:

- Some circular letters allowing the implementation of self-assessment system in respect of tax on rental income of residential properties. According to these circulars, majority of tax returns will be accepted without checking, and only a low percentage of files will be selected in random for being checked in a careful manner.

This arrangement is in common with most of developed countries. The Iranian tax law provides the same as well, but it had scarcely been practiced before.

- Another circular obliges tax officials to fully observe a special tax exemption envisaged under the law for Encouragement of Construction and Supply of Rental Residential Units. Article 11 of this law provides for tax exemption of rental income of certain residential dwellings.

Many other circulars can also be mentioned here, which follow the same goal of observance of taxpayers' rights. The subject matters dealt with in some of these rulings are as follows:

- Serving of verdicts of the Supreme Council of Taxation to the relevant taxpayers, on time and without delay.

- Complete and full implementation of the provisions of the Note to the Article 149 of the Direct Taxes Act regarding the deductibility of the cost of production of Iranian cinematographic films from the income of relevant producers.

- Acceptance of petitions of taxpayers with regard to the notice of tax assessment, in cases where such petitions are sent through the post office.

- Observance of the rule of the Article 90 of the Direct Taxes Act, which states that if the statutory books and documents of taxpayers are rejected, but there are sufficient grounds indicating that such books and documents may be used for determining the actual income of taxpayers, then the officials are required to take account of them in assessing the taxpayer's liability.

We hope that all these measures would result in realization of the goals expected and planned. We wish also they would attract the taxpayers' confidence on the tax system of our country and sincerity of the tax administration in observing their legal rights and privileges. Such state of affairs will enhance the integrity of the tax machinery and possibility of optimum use of its potentialities as well.


Dr. Aliakbar Arabmazar



An Introduction to the

Iranian Tax System


By: Dr. Mohammad Tavakkol

(Part 8)


Different types of property taxes (annual tax on real property, tax on unoccupied real estates, tax on idle lands, inheritance tax and stamp duty) were reviewed in previous issues. Then we discussed about the tax on rental income, which is dealt with under the first chapter of the title C of the Direct Taxes Act. In this issue we will continue, and conclude, our discussion on the same subject of the tax on rental income.





Before touching upon the specific exemptions referred to under the Direct Taxes Act (DTA), we should first make mention of a very significant exemption provided by a special law enacted in June 1999. It is titled the " Law for Encouraging the Construction and Supply of Rental Residential Units " (hereinafter referred to as the law of June 1999).  The Article 11 of this law states:

“All residential units having a useful substructure of not more than 120 square meters, that are leased for dwelling, shall be exempt from the payment of 100% of the tax on rental income".

The following points are worth of mentioning in this regard:

1. These days one can scarcely find a leased dwelling with a useful substructure of more than 120 square meters. Most residential units are constructed as small or moderate size apartments, and a dwelling of 120 square meters is considered  quite large. So, a tax exemption of such magnitude means the exemption of at least 80% of all leased dwellings.

2. The exemption granted under the Law of June 1999 is very common and unrestricted. No limitation is envisaged as regards the number of residential units leased out by a single owner. Therefore, the major owners of residential properties will enjoy the exemption, notwithstanding how large is the number of apartments they may have leased to tenants.

3. Thus, the other tax exemptions provided under the Direct Taxes Act (DTA), become useless in respect of most of rented properties. But, they will continue to be applied to the properties leased for purposes other than dwelling (businesses, professions, etc.).

The most visible defect of DTA in this regard is that it provides for quite negligible amounts of tax exemption. During the long time that past from the date of approval of the law (February 1988), the inflation eroded the purchase power of money in a considerable manner. That is why the monetary figures mentioned in DTA look so poor and negligible.

The most important exemptions provided under DTA are as follows:

a) The taxable rental income of individuals with no other source of income is exempt from taxation up to an amount of 125,000 Iranian Rials per month, and the balance is subject to taxation. For the purpose of this exemption, the retirement pensions, annuities paid to surviving dependants, bonuses and interests received on bank deposits shall not be deemed as income (Art. 57, DTA).

b) Taxpayers having disabled and backward children under their custody shall enjoy a monthly tax exemption with regard to their taxable rental income up to IRR 10,000 for each of such children (Note 3 to Art. 57).

c) If the owner leases a part of his residential place for purpose of dwelling, his rental income shall be exempted from taxation up to an amount of IRR 30,000 per month, and the balance of the rental income will be treated as taxable (Art. 56).

To have an idea of how negligible are the amounts mentioned above, one has to take into account that the average rental for a small and simple apartment in the capital and other cities amounts to something around IRR 500,000 to 700,000 per month.

The Ministry of Finance has drafted a new amendment to the Direct Taxes Act, which is under review at the present stage. We hope it would take account of the defect just mentioned, though the first draft of the amendment did not, most probably, refer to this subject.


Assessment of rental income

Two main methods are envisaged by DTA for assessment of rental income for tax purposes. The first one is to determine the income on basis of the official deed of lease contract concluded between lessor and lessee. Official deed is a deed or document registered by a notary public. Such documents are given a high degree of validity and enforceability by the law.

The second method is to assess the rental income by reference to the rent of similar properties. This method is applicable in some specific cases, including:

1. Cases where no official deed exists, or in case the taxpayer refrain from submission of such deed.

2. If the lessor receives extra payments in addition to the original rent, as deposit or under any other title (Art. 54, DTA).

The appraisal of the rent of similar properties is to be effected by the tax assessor of the district where the leased property in question is situated. The relevant chief assessor must confirm such appraisal as well. In case of disagreement, the view of the chief assessor will be taken as valid (Note to Art. 54).

Our review concerning rental income taxation comes to end at this point. In next issue, the tax on transfer of real properties will be considered.








The text of the guidelines of the Tax Administration regarding the salary tax of expatriate employees (circular letter No.  30/4/1616/52726 dated 26 January 1999) was printed in the issue No. 25 of this journal. Now we provide the English translation of another circular issued further to the said circular and in respect of the same subject.



CIRCULAR LETTER NO. 30/4 – 9124/42176,


DATED 08/23/1378 [NOVEMBER 14,1999]


Further to circular letters No. 4917, dated 02/21/77 [May 11, 1998] and No. 30/4-1616/52726, dated 11/06/77 [January 26, 1999] that were issued for the purpose of observance of the policy of abiding by the law, securing tax equity and collection of the salary tax of expatriate employees working in Iran in an appropriate and correct manner, it is hereby declared that:

 1. A considerable number of employers paid respect to the laws of the Islamic Republic of Iran and submitted correct and complete information in respect of salaries and fringe benefits of their expatriate employees.

 2. A number of employers, including some foreign companies engaged in agency, marketing and similar activities, tried at the beginning of enforcement of the above circular, to avoid complying with the regulations of the Islamic Republic of Iran by creating a negative atmosphere and resorting to unfounded propaganda to the effect that collection of tax in this way would prevent investment, whereby they succeeded in attracting support of some authorities who were unaware of the reality and substance of tax-evasion attempts of this type of taxpayers. Fortunately, when the relevant facts were explained, the truth of the issue was revealed.

Now it is hereby announced that the execution of the aforementioned circulars resulted in an overall desirable outcome and there was a substantial growth in collection of tax from the above source, in comparison with the previous years. It has been made known and clear to all employers having expatriate salary receivers that the tax authorities of this country would act seriously in fulfillment of the legal program of assessment and collection of salary tax of income receivers.

Nonetheless, ambiguities have arisen and enquiries have been made, orally and in written, by assessment officials and those subject to the aforesaid circulars, as a result of diversity of occupations, posts, nationalities and duration of employment of expatriate salary receivers working in Iran, and also because of difference in their personal status, as to having Iranian wife and children or not, and variation of the position of employers in respect of their belonging to public or private sector.

Hence, for removing such ambiguities and answering the relevant questions, and also for the sake of establishing a common procedure and determining the manner of issuance of the tax clearance envisaged under the Article 89 of the Direct Taxes Act [DTA] in conformity with the requirements of different cases, the existing records of the section of salary tax of expatriate employees were studied and reviewed. Based on this study, the employers, foreign citizens working for them, actions to be taken by employers and the examples existing in the country were classified into eight groups according to the enclosed table. The tax officials are required to take measures, in respect of each group, in conformity with the respective regulations and according to the following procedure:

  A. The employers described under the numbers 1 to 6 [of the enclosed table] are required to insert in the table No. 1 attached to the circular letter No. 30/4-1616/52726, dated 11/06/77 [January 26, 1999] all the information regarding the total salary and fringe benefits paid, in foreign currency and Iranian Rials, to their employees. The amounts of payments should be mentioned under separate titles (including salary, job benefits, allowances for working abroad, attraction allowance, etc.). They should submit, to the relevant tax assessment office, the table so filled, together with the photocopy of the respective employment documents showing the amount of salary and benefits and other allowances subject to salary income tax, and also the tax return filed by the salary receiver with the tax authorities of the country of whom he/she is a citizen.  The photocopies so submitted should have been authenticated by the competent authorities of the said country as being in conformity with the original documents, which authentication must have been verified by the embassy of the Islamic Republic of Iran. The tax assessment offices are, obviously, required to determine a time limit for submission of the said documents. The time limit, which must not be shorter than two months and longer than four months, should be fixed by due regard to the distance of the relevant location and formalities of consulate affairs in each country.

The salary tax of employees, whose employers submit the aforesaid documents in the manner described above, shall be computed and claimed on basis of the submitted documents. Should, however, some evidence, indications and supportive documents be at hand, or found later, which would demonstrate incorrectness of the amounts mentioned in the said documents, then the difference of the accrued tax shall be claimable according to the law.

  B. Should the tax clearance of the Article 89 [DTA] be needed for renovation of work permit or for leaving the country, the issue of the clearance will be allowed after collection of the tax on basis of the amount of the salary declared by the employer. In case of necessity and if the situation would require, a deposit or valid guarantee, up to the amount of the tax applicable to the salary mentioned in the table of the estimation of the foreign citizens’ salary and fringe benefits attached to the aforementioned circular, shall be obtained.

  C. In cases where the tax is computed and collected on basis of the documents provided by the employer, as described under the paragraph A above, the following sentence should be inserted on the tax clearance so issued: “If it becomes evident that the actual salary was more than the amount constituting the basis of the tax collected, then the issue of the this clearance will not prevent further claiming of the tax”.

  D. In respect of those employers who fail to submit the documents of the paragraph A, or whose submitted documents are rejected for some demonstrative evidence – such as failure to submit the tax return filed with the relevant tax office of the respective country, deficiency of signature, or lack of confirmation of the related authorities and verification of the [Iranian] embassy – the relevant officials may employ the applicable part of the table enclosed to the circular letter No. 30/4-1616/52726, dated 11/06/77 [January 26, 1999] for calculation of the salary and its tax. They may do so, if they would consider that the situation so requires and there is a necessity for this kind of treatment (i. e. in case of non-availability of any documents, evidence or indications, on basis of which the amount of the received salary could be ascertained).

  E. Extension of the time limit for presentation of the documents of the paragraph A by the employer is allowed, provided that some justifiable evidence would support this measure and a written request for that purpose is submitted by the employer.

  F. As regards the disputed cases that are referred to the Board of Settlement of Tax Disputes [BSTD], if the employer applies for a respite for presentation of documents, a respite, of three months at maximum, may be granted by issuance of a writ to that effect. The session of the BSTD, however, shall be held not later than one month from the submission of documents.

  G. In case of the persons described under the number 7 of the above-mentioned table, since such persons usually declare that they do not receive their salary in foreign currency from abroad, and this assertion has been found – in the light of studies undertaken – to be correct, therefore, the tax assessment office should determine their salaries and fringe benefits on basis of legal and acceptable documents and books of accounts, after investigating the conditions of the company that is the employer of the relevant expatriate salary receiver and becoming sure about the correctness of the presented financial information. Otherwise, they should determine the salaries and benefits by due regard to the records of the case and level of the respective job, in comparison with similar occupations, and also after obtaining the confirmation of the relevant assessor-general.

  H. As for the individuals referred to under the No. 8 of the enclosed table, who are usually citizens of the countries mentioned therein, and have the same conditions as described in relevant section of the table – namely they have been employed by the 100% Iranian private companies and enterprises, or possibly by the Iranian public and governmental organizations and foundations, because of their long residence in Iran and marrying Iranian spouses – the following procedure shall be implemented: those working for private sector, will be treated as provided under the paragraph G above, and in respect of the others, the amount of the salary declared by the public and governmental organizations and foundations, as the case may be, will be taken into consideration.

 3. Important points:

  3-1. The sentence mentioned in paragraph C of this circular shall be inserted on all tax clearances that will be issued.

  3-2. The table No. 1 enclosed to the circular letter No. 30/4-1616/52726, dated 11/06/77 [January 26, 1999] must be signed by the relevant employer and expatriate salary receiver, and the copy of the valid tax return submitted to tax office of the respective country should also be attached.

  3-3. In cases where the foreign company has a contract in Iran, but commissions the needed employees from its own central office, or from other companies affiliated therewith, the employment documents should have envisaged salaries and benefits, payable in foreign currency and Iranian Rial, and all benefits and allowances for working abroad. If in such cases a special contract for an uncustomary amount (i.e. excessively different from that of the table enclosed to the circular letter No. 30/4-1616/52726, dated 11/06/77 [January 26, 1999] is provided for working in Iran, it will be deemed unjustifiable, unless the correctness and supportability thereof could be ascertained under the provisions of the subparagraph A of paragraph 2 of the present ruling.

  3-4. Since foreign employers pay the salary of their employees in currency of their own country, any employment documents issued from the central office, principal company or a foreign affiliated company, in which the salary for working in Iran is denominated in Iranian Rial, should be rejected.

  3-5. The employment of expatriates for working in Iran is usually for full-time jobs, therefore, the employment documents, under which the salaries and benefits fixed for half-time jobs, must be refused.

  3-6. The term “tax return” means the tax return for the fiscal year ending at 12/31/1998, or ending at the end of the latest fiscal year in accordance with the tax regulations of the country, of whom the salary receiver is a citizen. Meanwhile, it is recommended that the photocopy of the tax return of each year be submitted to the tax assessment office up to four months from the end of the fiscal year.

  3-7. The salary income of foreign crew of aircraft and ships chartered by Iranian companies according to agreements concluded with alien corporations, shall be considered, irrespective of the charter agreement, as being subject to salary income tax in accordance with the Article 84 [DTA] for the reason of their working in Iran, and they shall be regarded as the group 4 of the classification table.

  3-8. Some employers who have concluded contracts referred to in Articles 111 and 107 [DTA], allege that the tax applicable to such agreements are undertaken by relevant government organizations and therefore, the salary of their expatriate personnel is not subject to the provisions of circular letters No. 4917, dated 02/21/77 [May 11, 1998] and No. 30/4-1616/52726, dated 11/06/77 [January 26, 1999]. This argument is absolutely void of legal justification, and their expatriate employees are, irrespective of contractual relationship between the parties to the agreement, subject to Iranian taxation. Undertaking of tax by the respective government organization would not mean tax exemption and the applicable taxes shall be claimable from the employers of the expatriate salary receivers.

  3-9. The provisions of this circular letter should be notified to all employers and other persons subject to the regulations thereof.

  3-10. Exceptional and ambiguous cases are to be reported, through the channel of administrative hierarchy, to the office of the Vice Minister for Taxation for reviewing and commenting.

The content of this circular letter has been confirmed by the plenary session of the Supreme Tax Council.

Aliakbar Arabmazar


Vice Minister for Taxation




Abstract of Persian Articles




Observance of taxpayers’ rights has been the subject of several regulations adopted in recent period by the tax administration. The editorial of the present issue deals with this matter in both Persian and English sections of the journal.



Under the regulations of the budget law of the Iranian year 1379 (2000-2001), several foundations are deprived from their preferential status envisaged under the Direct Taxation Act, and have to pay income tax as any other commercial entity. Certain indirect taxes are also levied on a number of goods to be produced and imported during the budget year. These and other tax regulations of the budget law are examined and commented on by the author.


Tax Avoidance Tricks

This article analyzes some rulings of the Finance Ministry in respect of several tax-avoidance schemes adopted by taxpayers (Iranians and foreigners alike) in recent period.


A Comment on the Verdict of the Administrative Justice Court (AJC)

AJC, which is a judicial court, has recently examined a petition filed by a publisher concerning two circular letters of the tax administration. The issue related to the date of applicability of a tax exemption envisaged under the Note 6 of the Article 132 of the Direct Tax. The petition and the verdict of AJC thereon is analyzed and criticized by the author.



Tax Embargo

According to the regulations of the U. S. tax law, credits for taxes paid abroad may not be granted if the relevant transactions are made with certain categories of countries (including those with whom the United States has no diplomatic relations, etc.). The author has reviewed these regulations under the title of tax embargo.


Inheritance and Gift Tax Treaties

The study undertaken by the author in respect of this type of tax treaties is continued in this issue of the journal. The focus of the study is on the model of OECD.


Transfer Pricing

This is also a continuation of the study undertaken in the field of transfer pricing. The fourth part of the study is provided in the present issue of the journal.



The regulations of the Direct Taxation Act regarding the cases of examination of tax files in random are reviewed by the author and comparison is made with the procedures followed in the United States with regard to the same manner of tax examination.


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