The Direct Taxation Act of 2002, amending certain articles of the Direct Taxation Act, was passed by the Islamic Consultative Assembly and ratified by the Guardian Council on 16 February 2002.

The new tax law shall take effect from 21 March 2002. For companies and branches of foreign companies, the new tax law is effective for fiscal years commencing a year earlier, 21 March 2001. For salaries and wages, the tax law will be applied from 17 February 2002.

The new law introduces major reductions in various tax rates as follows:

- Top salary tax rate has been lowered to 35% from the previous 54%.

- The ceiling of the exempt first tax band for salaries has been increased to Rls1.3 million ($162.5) for the period starting 17 February to 20 March 2002 and Rls1.45 million ($181.25) thereafter from the present Rls520,000 ($65). At the same time the tax rebates for overtime pay and "expert" bonus have been removed.

- Corporation tax and shareholders tax have been combined in a single flat rate of 25%, from the current 10% plus progressive of up to 54% on the remainder. This is a final tax and shareholders will not be charged any further tax on the distributed or non- distributed profits. The same rate will be applied to the taxable income of branches of foreign companies (contractors, consultant engineers and the like).

- The taxable income of foreign resident and non-resident entities from performing contracting and engineering work in Iran, including technical assistance and training, will be 12% of receipts for contracts signed before 21 March 2003. Thereafter, the profit and loss basis will be applied.

- Taxable income of foreign resident and non-resident entities from Iran in respect of royalties, license fee and screening right of motion pictures will be 20% to 40% of receipts.

- For companies quoted on the Tehran Stock Exchange, there is a further 10% rebate on computed taxes.

- In the special case of foreign contractors sub-contracting part of their project to Iranian sub-contractors, the foreign contractor is only required to make a tax withholding of 2.5% from payments to the Iranian contractor.

Italy pledges more credit

Following his talks with the Head of Iran’s Export Guarantee Fund, Nowrouz Kahzadi, Mr. Tellini said that Iran with its 70 million population, has huge potential for investment, adding that industries such as oil, petrochemical, textile and foodstuff are among the potential domains in which the Italian companies increase their activities.

Mr. Tellini said that his organization will release credit lines to Iranian banks to enable them to provide loans in the form of buyer credits to the small and medium size enterprises.

Mr. Kahzadi further said that the cooperation between the Iranian Export Guarantee Fund and Sace will be a great encouragement for the Iranian and Italian companies to work together in the reconstruction of war-shattered Afghanistan.

Mr. Tellini is in Tehran to take part in the Fifth Tehran-Rome Joint Economic Cooperation Commission, which convened in Tehran on 24 February 2002.

New listing criteria for Tehran Stock Exchange

According to the new rules, the TSE will have 3 boards and based on the performance of each company, it will get listed on one of these boards once accepted.

Two of these boards will constitute the main floor of the TSE and the third one will constitute the second floor.

Based on the new rules, companies wanting to enter the TSE, require a track record of at least 2 years and a minimum capital of Rls10 billion ($1.25 million). Also, no less than 10 shareholders should own more than 80% of the company’s shares. This ratio should be lowered to 75% after 2 years of being accepted at the TSE. Furthermore, within 6 months of acceptance and during the period that the company is listed on the second board of the TSE, the company should have a minimum of 500 shareholders.

In addition, the total amount of shares owned by the Government, ministries, governmental organizations and companies should not exceed 49% of the total. If the company listed on the first board does not show good performance, it will get transferred to the second board and from there to the secondary floor.

Mr. Mir Motahari announced that between 21 April and 22 July 2002, all presently listed companies will be moved to one of the three new boards.