Thought leadership from ATOZ experts

The ideal investment platform for a new and hungry market


Earlier this month, Boeing, the American aerospace giant, won a 17 billion dollar contract with Iran. This contact comes after an even more impressive 25 billion dollar deal with Airbus six months ago. Subject to US government approval, these contracts represent over 200 new planes that will replace the rundown national Iranian fleet. Dangerous and dilapidated, the outdated aircraft operated by Iran Air such as the Airbus 300 serves as a reminder of how long economic sanctions have been in place. These sanctions have prevented the country from updating important infrastructure, such as the transportation system. 

The sheer magnitude of the deal suggests that Iran has been waiting (and amassing earmarked capital) for quite a while to inject money into the development of their country. What’s more is that Iran has not forgot the vast potential of Luxembourg as a financial center and investment platform. Today, the Luxembourg Chamber of Commerce has partnered with the Iranian Embassy in Belgium to host a seminar for businesses and investors about how to access the Iranian market.

Sanctions lifted, opportunities abound

In January 2016, the European Union and the United States took the actions necessary to lift nuclear-related and financial sanctions on Iran. Even if certain human rights-related and terrorism-related sanctions remain in place or authorisations may be required in specific cases, such as the Boeing and Airbus deals, new possibilities to trade with Iranian contractors have been created, and investors are looking at the opportunities offered by this country and its strong demographic dynamics.

With population of more than 78 million, and more than half of the population below 35, Iran boasts a literacy rate above 85%, central geographical positioning in Western Asia and a ranking of 16th largest in the world by area. While in 2004 the EU exports to Iran were reaching the level of almost €12 billion, due to sanctions they dropped by 46% to less than €6.5 billion in 2014.

The 20-year embargo and the absence of international cooperation have brought the Iranian economy to a standstill. In this lift of sanctions, Iran also sees the opportunity to address critical needs in terms of infrastructure, transport, telecommunication, agriculture, and R&D. In this new context, multinationals, institutional investors and alternative investors pondering the possibility of investing in Iran should consider using Luxembourg as a platform to do so. This prospect has already been evoked by the Iranian and Luxembourg governments at the beginning of 2016 and will be further discussed during the planned visit of the Luxembourg Chamber of commerce to Iran later this year.

Why choose Luxembourg as a gateway to Iran?

From a legal and regulatory perspective, Luxembourg offers a variety of legal options to structure investments in Iran. Joint-ventures partnerships are very flexible in Luxembourg, and could be governed by foreign law, such as English law. Meanwhile, investment vehicles range from non-regulated companies to regulated investment funds or the forthcoming reserved alternative investment fund (RAIF), which is not regulated while its alternative investment manager is.

Despite the absence of a tax treaty between Iran and Luxembourg, a Luxembourg company owning or committing to hold for an uninterrupted 12-month period at least 10% (or an acquisition price of EUR 1.2 million) of the shares in an Iranian company that is fully subject to Iran corporate tax at the rate of 25% would be exempt from Luxembourg corporate income tax on dividend income distributed by its subsidiary. In addition, no tax would be withheld in Iran. Under the same circumstances, any capital gain realised on the disposal of the shares in an Iranian company would be exempt from Luxembourg corporate tax and not subject to tax in Iran. In such a case, the alternative condition relating to the acquisition price would be set at EUR 6 million.

Proceeds realised by the Luxembourg company may be repatriated to non-resident investors through interest or debt repayment, free of withholding tax free. Dividends paid by the Luxembourg company to qualified corporate shareholders should be exempt from Luxembourg withholding tax, under certain conditions.

A perfect fit

Luxembourg’s favorable regulatory regime makes it an easy choice for investors looking for the stability, experience and brain power that comes with being host to second largest fund industry in the world. Additionally, Luxembourg’s leading position allows investors to mitigate the risk of investing in the freshly accessible Iranian market. Luxembourg and Iran could complement each other perfectly in this sense. It’s time to think about what the Iranian market may have to offer investors and choose the most favourable alternatives to structure investments, thereby creating maximum value for shareholders. Now that the door is open, many may try to rush in, but a step back and careful planning for all kinds of eventualities, including tax, will allow businesses to make smarter, sharper and more astute decisions.

 Jamal Afakir
Jamal Afakir, Partner - Head of International & Corporate Tax

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