A note on Iran “New” Value Added Tax (VAT) of 23 May 2021


What is the new Act seeking?

The strategies adopted by the new VAT Act in Iran can be summarized as follows:

– Better understanding of Iran’s economic framework and embedding it in the new tax regulations

– Literal operational support for domestic production

– Restrictions instead of prohibitions on the economy

– Applying effective exemptions to the VAT system and a significant reduction in the sales price of certain goods

– Comprehensive implementation of VAT regulations all around the country

– Increasing taxes on goods harmful to health

– Attention to contamination caused by production units with emphasis on their contaminating level

What activities are exempt from VAT?

Under the new Act, some services and economic activities are tax-exempt. The list of these activities is as follows:

– Life insurance services, agricultural insurance services, social insurance and complementary health care services

– Transportation services (freight and passenger) inter-city and intra-city, international transportation services on road, railroad or by sea.

– Accommodation services provided by three-star and below hotels, guesthouses and other accommodation centers licensed by the Ministry of Cultural Heritage, Tourism and Handicrafts or related unions.

– Warehousing and cold storage services provided for agricultural products.

In another part of the Act, according to Article (9)(a), unprocessed agricultural products, livestock and its feed, seeds, seedlings , pesticides, fertilizers, water for agricultural purposes, milk , cheese , yogurt, flour and bread, meat, rice , legumes , soy, edible oils, baby formula, fertilized eggs, pulp and waste paper, stationery, printing paper, stationery and newspapers, books, newspapers, magazines, handmade carpets and related raw materials, handicrafts, all types of drugs, human and animal vaccines, etc. are exempt from VAT.

Also, the goods subject to the VAT Act, Article 9(3) include seeds, seedlings, saplings, pesticides and fertilizers and those subject to Article 9(5) are the following goods:

1-5 – Milk, cheese and yogurt

2-5 – Poultry eggs

3-5- Flour and bread

4-5 – Different types of meat and meat products in accordance with the list provided by the Ministry of Health, Treatment and Medical Education and sent to the National Tax Administration (NAT) every year by the end of January in order to be implemented next year.

5-5 – Rice, legumes, soy and soy protein

6-5 – Types of edible oils including vegetable oils and animal oils

7-5 – Baby formula

8-5- Fertilized eggs that are turned into a one-day-old chicks

The new VAT Act has also eliminated previous tax exemptions applicable to sugar and this item will be subject to 9% VAT.

New taxation of gold and precious metals

According to the new VAT Act, suppliers of several types of precious metals including gold, jewelry and platinum and services related to them are entitled to charge customers 9% value added tax only in return for the jewelry-making fee, the contract work and the seller’s profit. Prior to this, a 9% value-added tax was received on the total amount of the invoice.

In the previous VAT Act, which was approved in 2009, airlines were subject to a 5% tax, which will be eliminated by the implementation of the new Act which also includes air services and a 9% VAT will replace the 5% special tax.

Significant change in cash and credit transactions

The new Act distinguishes between cash and credit transactions. Under the former Act, in several cases, while the transaction payment had not yet been made, the economic operator had to pay the VAT. Refusal to pay this tax was also a serious crime. This defect has been overcome in the new VAT Act, and by comparing cash and credit transactions, the payment time of these two different types of transactions has been defined.

What is the VAT incidence date under the new VAT Act?

The incidence date of the VAT was also one of the challenges of the former Act. Previously, according to Article 11 of the former Act, it was emphasized that the incidence date of the VAT is calculated based on the earliest date a service or invoice is provided. In many businesses, the service date was often earlier, while the status of the activity was not approved by the employer and was merely sent to the employer, but was subject to the VAT. According to Article 3 of the new Act, this problem has been solved and the date of invoice has been determined as the incidence date of the VAT i.e. whenever the invoice is approved by the parties, it is considered as the incidence date of the VAT. The new Act is based on the system of taxpayers and store terminals Companies, guild unions and non-guilds are required to issue their invoices through this system Therefore, the date on which the invoice is registered in this system and approved by the other party, is considered as the incidence date of the VAT, according to the new Act.

Modification of auditing processes

One of the major shortcomings of the former VAT Act was the lengthy process of auditing taxpayers’ VAT returns, which sometimes takes up to ten years. This situation caused the taxpayers to remain uncertain and to be unsure about the future. The new ACT seeks to shorten this process by changing the approach to auditing tax returns. Another shortcoming of the former VAT Act was the traditional nature of the tax filing system. In the new Act, attempts have been made to eliminate this shortcoming by making the smart-system approach compulsory. With the new situation of the Iranian National Tax Administration, from now on, the administration can only check the economic activists’ tax declarations if there is a provable violation. Thus, if the tax administration fails to prove the violation committed by an economic activist in the dispute settlement boards, it will not be possible to audit the case. The process of tax litigation or dispute settlement between taxpayers and the tax administration has been reformed and the situation has improved to some extent in favor of taxpayers, allowing dispute settlement boards to review taxpayers’ tax cases with more justice, fairness and independence.

Elimination of ambiguities in field of exports

The new Act also seeks to reduce disputes between exporters and the Iranian National Tax Administration (NTA) in favor of economic operators. In the past, in many cases, the NTA did not consider certain activities as exports, while economic operators, based on business logic, consider these activities as exports. The new Act clarifies and removes ambiguities in this regard.

Solution to self-supply problem

Supplying goods to oneself, according to the note below Article 4 of the former Act on was subject to VAT. For example, if a producer produced a good and used part of it for business purposes, it would be subject to VAT. However, according to Article 1 of the new Act, this defect has been eliminated and if a product is taken for professional use, it is not considered as self-supply and is exempt from VAT.

Another important change in the new Act is the deadlines for submitting VAT. According to the former Act, this period was 15 days after the end of each season and only in winter, due to the Norooz holidays; the above-mentioned period was extended until the end of April. Under the new Act, the deadline has been set until the end of each month after the end of each season. For example, the deadline for submitting the tax declaration of the first quarter is July 22 of the same year.