‘An ever-growing region of high importance’: doing business in Iran

Iran is a strategic country located in the Middle East, possessing abundant natural resources such as oil, gas, gold, and other mines and minerals. In addition, Iran enjoys the benefits of having access to the Caspian Sea in the north, and to the Persian Gulf and free waters of Oman in the south.

Moreover, Iran is one of the top ten countries in the world with the most officially registered UNESCO World Heritage sites, and is among the few four-season countries of the world which benefits from diverse landscapes and geographical distribution, and thus having the potential to become an attractive tourism destination. Iran, at the same time, possesses a favourable climate for producing a variety of agricultural products, such as saffron and pistachios.

The country is also quite large in terms of the total land area it covers, being the second-largest country in West Asia), with a population of over 80 million people. It is strategically placed at the heart of the Middle East, being direct neighbour to a considerable number of countries; namely Armenia, Azerbaijan, Turkmenistan, Afghanistan, Pakistan, Iraq, Turkey, Kuwait, Saudi Arabia, Bahrain, Qatar, the United Arab Emirates, and Oman; noting that Iran has maritime borders with the last six countries, and Kazakhstan and Russia are also neighbours to Iran by way of the Caspian Sea.

Investment and business opportunities:

Possessing the aforementioned qualities, makes Iran an important country both for those who wish to trade with and invest in Iran, and for those who wish to engage in commerce and investment in its neighbouring countries. In fact, apart from Iran’s rich natural resources, tax incentives, and low-priced labour, its geopolitically significant location – with several free-trade zones at the heart of the West-East corridor, which connects Europe and the Middle East to Asia, or at the centre of the North-South corridor which connects Russia to the Persian Gulf and Arab countries – gives Iran a natural advantage as the focal point for storage, swap, and transit of various commodities, whether it be transiting energy through pipelines, transmitting power, or transshipment of cargo via sea or railway, etc. This is the main reason why in the past several years, some major long-term agreements have been concluded with Iran regarding energy, infrastructure, ports and free-trade zones (such as Chabahar port), etc, with the potential of many more being concluded in the future.

Legal service necessity

Taking into account Iran’s geographical placement as well as the opportunities and attractions that go with it, non-Iranian investors and traders, especially those active in the Middle East region, will invariably at some point require to directly or indirectly solicit legal advice with regard to Iran’s legal system – whether it be in relation to legal framework for investment protection, contract enforceability, starting a business, taxation issues, or other practical issues like dispute settlement procedures, provisional orders, or recognition and enforcement of awards issued by foreign courts or arbitral panels. Put differently, due to Iran’s geography and natural resources, advantages and attractions – being at the heart of the Middle East, centre of the North-South Corridor, and an essential part of the East-West Corridor, controlling power of the Hormuz Strait etc – it is more likely than not that international businesses active in the region will inevitably at some point require legal advice concerning Iranian laws and regulations. Understanding this reality and engagement in rendering timely, accurate, and cost-effective legal advice and services to international players in the region has been a cornerstone of Hatami & Associates’ business model. We have a proven track record of excellence and integrity in provision of effective legal advice, services and even feasibility studies from a legal point of view to a highly satisfied international client-base.

‘We remain proud of our consistent ability to steer our clients clear from obstacles in their pursuit of their business goals and our track record and history of highest client satisfaction testifies to our ability in this regard.’
Ali Hatami, Hatami and Associates

In this ever-growing region of high importance where East meets the West and when it comes to conducting business in the Middle East and beyond, we remain proud of our consistent ability to steer our clients clear from obstacles in their pursuit of their business goals and our track record and history of highest client satisfaction testifies to our ability in this regard. Our purpose and business model at Hatami & Associates is to ‘Guide and Protect’ our clients on all legal aspects of their business journey from A to Z. Where you see opportunity in this region, we pave the legal avenues for you to reach it.

Legal framework

Investment protection

According to Foreign Investment Promotion and Protection Act (FIPPA), foreign investment is possible in all sectors of the country’s economy without a preset ceiling amount for the invested capital. This is so for all foreign natural or legal persons, including dual Iranian nationals that plan to invest capital of foreign-origin.

The protections included in FIPPA are as follows:

• Guaranteeing and transferring foreign capital only by obtaining a foreign investment licence.
• Imposing no ceiling limit on the intended invested capital.
• Ensuring the possibility of exporting products and transferring the resulting currency abroad.
• Guaranteeing capital against expropriation and immediate compensation based on real value of investment before expropriation.
• Observance of national treatment principle regarding foreign investors.
• Possibility of resolving disputes between foreign investors and the government by referring to arbitration.

Foreign investment under FIPPA and its executive regulations can be made directly or indirectly. Indirect investment is made as contractual arrangements, including ‘build-operate-transfer’, ‘buy-back’, and ‘civil participation’. In other words, any type of investment in which a foreign investor does not want or is not eligible to have a share of joint venture capital and ownership is known as indirect investment.

Enforcing contracts

Regarding the efficiency of dispute resolution and quality of judicial process as two key factors in assessment of contract enforcement, and their relation with the cost and time of dispute resolution, it can be claimed that Iran has a competitive advantage in comparison with the other countries in the region. The reason is that Iran has taken some effective actions in recent years which both directly and indirectly ease the process of contract enforcement. For instance, constructing the online platform of filing and service of the judicial documents has reduced the time and indirect cost of filing the lawsuits and servicing related documents or decisions. In addition, forming a special commercial court, with highly professional judges, dealing only with business litigations is another eminent step in court structure and proceeding quality which directly impacts on contract enforcement.

Moreover, when direct costs such as court costs, average attorney fees, and enforcement costs are considered, it becomes evident that the process is a low-cost one.

Practical issues

1. Association and openness to foreign dispute settlement procedures.
2. Recognition and enforcement of a non-Iranian arbitral award.
3. Dealing with international arbitrations under Iranian legal system.
4. Conditions for enforcement of awards which are issued by non-Iranian courts.
5. Categories of costs for settling a dispute in Iran.
6. Iranian courts familiarity with the specification, specialities and requirements of commercial disputes involving non-Iranian factors.
7. Implications of the Iranian legal system for cross-border criminal cases.
8. Iranian legal system’ effectiveness for settling or adjudicating the disputes with foreign elements.

Hatami and Associates International Law Firm

Founded in 1997 by Dr Ali Hatami, Hatami and Associates International Law Firm is a leading global business law firm, that has formed a solid reputation due to its expertise and experience. From its inception to date, the firm has consistently focused its practice on corporate law and international trade and foreign investment, and has brought a diversified range of talented lawyers – complementing each other’s expertise – under the leadership of Dr. Hatami, with an eye to provide unique solutions in addressing, advancing and defending its clients’ interests and needs. Throughout the years, we have worked with distinguished local and international clients from various sectors, and have very efficaciously managed to build an impressive client base from various countries and provided the same with competent advice on Iranian laws and regulations as well as on international matters. The value of the projects and disputes for which the firm has provided its services, amounts to more than $500bn. The firm’s extensive experience in dealing with various clients of all nationalities has enabled us to effectively communicate, understand, and address the clients’ distinct needs with an eye to ensure the delivery of the best possible outcome. Also of particular note is the firm’s success in building a solid network of collaboration with various North American and European law firms and financial consultants in order to best serve our clients’ multifaceted interests internationally.

‘The value of the projects and disputes for which the firm has provided its services, amounts to more than $500bn.’
Ali Hatami, Hatami and Associates

The firm has, since its establishment, advised and advocated its clients in many diverse disputes, with an aggregated value amounting to more than $500bn. Such services include A-Z dispute settlement phases; ie, drafting pre-action legal opinion, clients’ briefings, advocating the clients before the dispute settlement body in every step, including enforcement of the awards. Having in-depth knowledge and experience in international trade and investment law and usages, the achievements of the firm in disputes, especially those involving foreign factors, have been exceptional. The firm has participated in establishing several case laws in the courts of Iran. For instance, in a recent dispute over certain amount of euros, after winning the lawsuit in favour of the Turkish client, a complex legal issue arose about the applicable currency exchange rate. The Iranian loser party did not have euros, so we had to sell its assets and convert the rials to euros. According to the rules of the Central Bank of Iran (CBI), the exchange rates are only legal if announced by the CBI. Yet, such CBI rates, although much lower than the free market rates, are not accessible for enforcement of the awards. The courts tended to apply the CBI rates. It was our team who argued for, insisted on and reasoned in favour of the applicability of the free-market exchange rates. Not only was the court convinced, but also a benchmark was established in the case law.