Legal framework for trade with Iran
> June 2016
Most trade sanctions against Iran were lifted earlier this year on 16 January. Deals with the Iranian oil and gas sector are now permitted again. The financial sanctions are no longer in place, along with the resulting reporting and permit requirements for trade with Iran. The general ban on insurance has also been repealed. Numerous Iranian individuals and companies have also been removed from the sanctions list.
The large number of business delegations, which have visited Iran recently indicates how much interest there is among German companies in trading with Iran. Germany's interest in doing business with Iran has led to an increased focus on the Iranian legal system, at least for legal advisors. Awareness of the legal framework plays a vital role in assessing and reducing risks of all kinds.The main pillar of Iranian business law is the Iranian Civil Code, which was adopted in 1929. Its content is a codification of Shi'ite Islamic law, while its structure is based closely on the French Code Civil, which the editors of the Iranian Civil Code took as a template. The large number of parallels with the French civil law system should therefore come as no surprise. Private autonomy, freedom of contract and flexibility are important principles in the Iranian civil law system, and are reflected in Article 10 of the Iranian Civil Code.
Another central pillar of Iranian business law is the Iranian Commercial Code from 1932 and the Reform Code of 1965. These lay out the rights of merchants and in particular also Iranian company law. Iranian company law recognises the difference between partnerships and corporations. Corporations are particularly important in this context. Companies can take the form of a "Sherkat ba masouliat-e mahdoud" (limited liability company) or a "Sherkat-e Sahami khas" (public liability company). Iranian LLCs have no minimum capital requirement, while the capital requirement for PLCs is 1,000,000.00 IR. Iranian LLCs require two partners when established, and Iranian PLCs require three.
The 2002 Foreign Investment Promotion and Protection Act is particularly important for foreign entrepreneurs and investors. Since 2002, foreign investors have been able to hold up to 100% of an Iranian company by following the process specified in the Act.
The Act also contains additional protection standards for foreign investors. Iran has also concluded a number of investment protect agreements with other countries. The agreement between Germany and Iran came into effect in 2005. This agreement provides protection against discrimination, expropriation and similar interference. If German investors believe that their rights under the FIPPA or the national agreement have been violated, they are able to initiate arbitration proceedings against Iran.
Iran signed the 1958 New York Convention in 2002 and is therefore obliged to recognise and enforce foreign arbitration decisions. Iran also passed the International Commercial Arbitration Act in 1997, which is based on the 1985 UNCITRAL-MG. This was developed as a proposal by the United Nations Commission for International Trade Law in order to standardise legislation and accepted by Iran with a few amendments.
It gives the parties numerous ways to influence the arbitration process in line with the international standard. In addition to the language and procedural rules, the parties to the Arbitration Act are now able to choose the legal system used to settle the dispute.
One important restriction imposed by the Iranian legal system in this area is the parliamentary approval required under Article 139 of the Iranian constitution. The Parliament reserves the right to approve arbitration clauses in agreements between foreigners and public authorities. In Iran, this also includes companies organised under public law which are owned by the state. The Iranian Parliament must grant its approval for such agreements before commencing arbitration proceedings. Whether or not this consent applies to bilateral investment protection agreements, such as the one between Iran and Germany, is currently the subject of some debate in Iranian legal literature. Author: Bahram Ardehali > beck middle east