Legal Aspects of Doing Business in Automobile Industry

Legal Aspects of Doing Business in Automobile Industry

Bayan Emrooz International Law Firm renders services tailored to the automobile industry. The Firm is pleased to offer services to local and international automobile/spare part manufacturers in the following areas.

Presence and Operation of Foreign Car Manufacturers in Iran

At present, there are several possible ways for the presence of foreign car manufacturers in Iran. This could be accomplished through the registration of an Iranian company, creating a branch or representative, or investing in Iran.

Thanks to the latest changes in Iranian corporate law regulations, foreign natural and juridical persons can now establish a company in Iran. The registered company will be an Iranian company and shall enjoy all benefits conferred to Iranian companies such as the appropriation of land and/or relevant tax exemptions. It is also important at this stage to register the intellectual property rights of foreign car producers in Iran. Principally, trademarks, industrial designs, and brand names could be registered to hinder possible infringements. It is important that a company incorporated in Iran may require licenses from different government authorities to operate in the market and registration of a company is not always adequate. Another choice would be to establish a branch or a representative in Iran. However, the mandate of branches and representatives is limited. Branches or representatives can be established to offer after-purchase services in Iran, perform contractual obligations of foreign companies in Iran, cooperate with Iranian technical and engineering companies to work in a third company, and help the transfer of technology to Iran. To engage in other services and activities, obtaining a separate license might be necessary. At the present, many leading cars manufacturers in the world have representatives in Iran and offer services through their Iranian representatives.

Foreign companies that enter the Iranian market as foreign investors enjoy incentives offered by Foreign Investment, Promotion and Protection Act (FIPPA). FIPPA allows for foreign investment in the form of BOT, Joint Venture, and Foreign Direct Investment. However, to qualify as an investor under FIPPA, a license must be obtained. Grant of such license, requires a minimum amount of investment. Besides, a number of procedural steps must be completed.

Car Imports/Exports:

Due to the government’s supportive role for national automobile industries, there is a rather complex set of Customs import regulations including several types of concise and duty. These rates may be calculated based on the CIF, FOB, or total I.R. Rial value of car prices (CIF price + tax customs) depending on their type. Foreign car manufacturers could directly import their cars to the country subject to certain requirements, namely the existence of after-sale services and availability of spare parts. In such a case, to import cars directly, they would require the assistance of a local law firm for customs release and other related issues. Bayan Emrooz Law firm has had solid experience in this area, working with German law firms and car manufacturers.

On the other hand, Iranian car/spare part makers which might be interested in exporting their products abroad, require legal assistance for the drafting of contracts as well as support in the management of possible future disputes. The law firm can accompany such enterprises through all stages, benefiting from the experience and expertise of its partner law firms abroad, and particularly in neighboring countries.

Contracts in the Automobile Industry

The car industry has its own peculiarities. A wide range of contracts is concluded among different market players regulating their legal relationships. Manufacturers of spare parts, for example, usually sign contracts with their contractors. Car producers, on the other hand, enter supply agreements with spare parts manufacturers. They also have contracts with their sales representatives. Final consumers also purchase cars through a sales contract. This chain of legal agreements needs to be carefully designed so as to avoid potential disputes.

Foreign producers normally sign agreements with their legal representatives in Iran. They might also negotiate collaboration contracts with Iranian carmakers to produce cars in Iran under their license. In the event of foreign investment, an investment contract must be concluded with the state. These contracts are also necessary if Iranian car/spare part producers want to export their products abroad through exporting and/or investing abroad.

Taxation

The principal body of law regarding direct taxes in Iran is the Direct Tax Law of Iran, which was enacted in 1966, but has been amended on a number of occasions.

Foreign and local companies need to be familiar with the tax structure of the country and make their tax declarations within legal time limits and in the right format. Foreign and local companies need to be familiar with the tax structure of the country and make their tax declarations within legal time limits and in the right format.

Labor Law

The recruitment of skilled workers is a major concern for all market players. Labor Law of Iran, enacted in 1990, regulates matters related to the relationship between employers and employees. Seeking legal assistance from the initial stage, drafting an employment contract, could mitigate the risks of future disputes. In addition to the labor law of Iran, the Social Welfare Law of Iran obliges employers to insure employees. This insurance will cover the costs of accidents resulting in physical injuries or death of employees which may occur at the workplace. Labor law also plays a vital role in the business operations of foreign companies. Services in this sector include applying for the work permits of the foreign employees, drafting the employment contract with local staff, advising on insurance-related matters, and employment of foreign staff.

Legal Training

Bayan Emrooz Law Firm provides short intensive workshops, in Persian or English, familiarizing managers with general and specific laws and regulations applicable to the car industry. Such workshops are particularly useful since knowledge of laws and regulations could significantly improve the ability of managers to make the right decisions. The pieces of training are designed to equip managers with rudimentary legal knowledge required for making important policy decisions in cooperation with their legal departments.