INVESTING IN IRAN : LEGAL CONSIDERATIONS · Market leaders • FT Innovative Lawyers Europe Award 2015 • Global Construction Law Firm of the Year 2016 for the last nine years –

INVESTING IN IRAN :

LEGAL CONSIDERATIONS

3RD MARCH 2016

GEORGE BOOTH, PARTNER AND HEAD

OF IRAN PRACTICE

Firm overview

• Pinsent Masons is a full-service commercial law

firm. We respond to the pressures and

opportunities facing global businesses with

innovative solutions. We were recognised as

the most innovative law firm of 2015 at the FT

Innovative Lawyer Awards Europe.

• With over 20 offices globally, wherever your

commercial demands take you, we have the

footprint and expertise to support you. We have

particular expertise in four key global sectors:

- Advanced Manufacturing & Technology

- Energy

- Financial Services

- Infrastructure.

Our offices

Market leaders

• FT Innovative Lawyers Europe Award 2015

• Global Construction Law Firm of the Year 2016 for the last nine years – Who’s Who Legal

Awards

• Hong Kong Construction Law Firm of the Year – Asian Legal Business Law Awards 2015

• Construction Firm of the Year (Southeast Asia) – Asian Legal Business Law Awards 2015

• Energy and Natural Resources Team of the Year 2014 – Legal Business Awards

• Legal Advisor of the Year, Social Infrastructure – Infrastructure Journal Awards 2013

• Construction & Real Estate Winner – China Business Law Journal 2013 China Business Law

Awards

• Energy, Projects & Infrastructure Winner – China Business Law Journal 2013 China Business

Law Awards

• No.1 UK Planning Law Firm, Planning magazine 2014 & 2015

• No. 1 law firm by number of Stock Market clients in Oil & Gas sector (Adviser Rankings, Feb

2015)

Pinsent Masons - Iran

• PM Iran Law Capability

• Farsi speakers

• Cerico (“www.cericosolutions.com”)

• Monthly newsletter

• Education/networking events (including London,

Aberdeen, Paris, Milan, Dubai, Istanbul)

• Monthly presence in Tehran including meetings with

Government departments

• A “one stop” solution

The information in this presentation does not constitute legal advice and may not be relied upon.

Specific legal advice should be taken before acting on any of the topics covered.

Copyright © Pinsent Masons LLP 2016

Iran




Iran




Iran




Iran Sanctions Update




Sanctions Relief

EU Sanctions - What has been lifted?

• Sanctions on banking, financial services, oil & gas products and services,

petrochemical products and services; shipping and ship buildings, and most

imports.

• A significant number of individuals and entities have been removed from the

EU's designated person list.

EU Sanctions - What remains prohibited?

• Numerous Iranian persons and entities remain on the EU sanctions list.

• Prohibition on the supply, transfer or lease military goods or items used for

internal repression; and to invest in Iranian enterprises engaged in

manufacturing military goods.




Sanctions Relief

US Sanctions - What has been lifted?

• Non-US persons - the US has lifted the sanctions that prohibited overseas

businesses (i.e. non-US) from engaging with Iran. 400 Iranian parties removed

from the OFAC list of Specially Designated Nationals.

• Foreign entities owned or controlled by a US person - a general licence has

been issued which authorises foreign subsidiaries of US businesses to engage

in most of the transactions that non-US persons are now allowed to engage in.

• Foreign financial institutions (FFIs) - FFIs are able to conduct or facilitate

transactions with persons removed from the SDN and other sanctions lists.

• US persons - OFAC has introduced a licensing regime which will allow US

persons to import/export commercial aircraft for exclusively civil aviation, and to

import certain Iranian goods into the US.




Sanctions Relief

US Sanctions - What remains prohibited?

• US persons - most trade by US persons (individuals and companies) remains

prohibited and is likely to be prohibited until October 2024.

• SDN and other sanctions lists - 200 individuals and entities remain

sanctioned

• US financial system – the transit of funds through the US financial system and

US dollar clearing transactions remain prohibited except under a general or

specific licence

• US origin products and secondary incorporation rule – restrictions remain




Snap back

• “Snap back" provisions enable the sanctions to be reintroduced within 65

days of any violation of the agreement by Iran

• No retroactive effect - under the proposed Iran nuclear agreement, foreign

companies would be allowed to do business with Iran, and those contracts

would remain in place even if Iran violated the agreement and triggered

economic sanctions.

• No automatic termination of existing contracts - however, sanctions

would have a strong effect on those existing contracts. Sanctions would in

practice force foreign companies to make a choice between honouring their

contracts with Iran or complying with an international sanctions regime.




Iran’s Oil & Gas Regime




Petroleum Regime in Iran

Industry Structure and Control

• The energy sector is overseen by the Supreme Energy Council, established

in July 2001 and chaired by the President of Iran.

• The Council is composed of Ministers of: Petroleum, Economy, Trade,

Agriculture, and Mines and Industry.

• Ministry of Petroleum also controls all subsidiaries of NIOC.

• NIOC is estimated to have between 120,000 to 180,000 employees.

• Current Minister of Petroleum is Bijan Zangeneh.

– As minister, he cancelled the CNPC contract to develop South

Azadegan field due to persistent delay in 2014.




Petroleum Regime in Iran

1979 Revolution saw the petroleum industry fundamentally change. The new

legal regime of the petroleum industry was based on the following:

• Constitution of 1979

• Law of Implementation of the General Policies of Article 44 of the

Constitution (2008) and its Executive Regulations (2009)

• Petroleum Act of 1987 (as amended in 2011)

• Budget Act of 1994

• Fourth, Fifth and Sixth Economic Development Plans of Iran

• Foreign Investment Promotion and Protection Act of 2002 (FIPPA)




National Iranian Oil Company (NIOC)




Opportunities in the Upstream Sector

• During the Tehran Summit in November 2015, representatives from Iran

and NIOC highlighted opportunities in the sector:

– Iran Petroleum Contract (or “IPC”)

– Possibility to invest in the development of 52 oil & gas fields and 18

exploration blocks

• Iran expects to return to its pre-sanctions market share of global oil & gas

production (through cooperation and use of technology)

• Key challenges:

– Limited refinancing capabilities

– Limited access to external financing (e.g. an estimated $185bn

investment required)

– Limited access to modern technologies




Iran’s New Petroleum Contracts (IPC)

• Key features:

– Risk Service Contract – No shared production ownership but $fee per

barrel compensation mechanism

– Joint venture with local Iranian company – Requirement for IOCs to

establish an incorporated or unincorporated JV company, which will be

the Contractor

– Local Content Requirements

– Technology Transfer – Duty for Contractor to transfer know-how and

technology to NIOC/local partner

• Current status?




Investing in Iran –

Legal Issues




Investment Treaty Protection

• Countries with which Iran has signed Bilateral Investment

Treaties:

Afghanistan, Algeria, Armenia, Austria, Azerbaijan, Bangladesh,

Bahrain, Belarus, Bosnia & Herzegovina, Bulgaria, China, Croatia,

Cyprus, Ethiopia, Finland, France, Georgia, Germany, Greece,

Indonesia, Italy, Japan, Kazakhstan, Kuwait, Kyrgyzstan, Lebanon,

Libya, Macedonia, Malaysia, Morocco, North Korea, Oman,

Pakistan, Poland, Qatar, Romania, Serbia & Montenegro, South

Africa, South Korea, Spain, Sudan, Sweden, Switzerland, Syria,

Tajikistan, Tunisia, Turkey, Turkmenistan, Ukraine, Uzbekistan,

Venezuela, Yemen, Zimbabwe.




Double Taxation Treaties

• Countries with which Iran has signed Double Taxation

Treaties:

Armenia, Austria, Bahrain, Belarus, Bosnia & Herzegovina,

Bulgaria, China, Croatia, France, Georgia, Germany, Indonesia,

Jordan, Kazakhstan, Kyrgyzstan, Lebanon, Malaysia, Pakistan,

Poland, Qatar, Romania, Russia, South Africa, Spain, Sri Lanka,

Switzerland, Syria, Tajikistan, Tunisia, Turkey, Turkmenistan,

Ukraine, Uzbekistan, Venezuela.




BIT and DTT

• The following jurisdictions have signed both a BIT and a

double taxation treaty with Iran:

Armenia, Austria, Bahrain, Belarus, Bosnia &

Herzegovina, Bulgaria, China, Croatia, France, Georgia,

Germany, Indonesia, Kazakhstan, Kyrgyzstan, Lebanon,

Malaysia, Pakistan, Poland, Qatar, Romania, South

Africa, Spain, Switzerland, Syria, Tajikistan, Tunisia,

Turkey, Turkmenistan, Ukraine, Uzbekistan, Venezuela.




Doing Business in Iran

Two main options of doing business in Iran:

1. Establishing a branch or a representative office; and

2. Establishing a local Iranian company.

Other issues to consider:

– Investment Incentives and protection (FIPPA)

– Free Trade Zones;

– Local content laws;

– Tax laws; and

– Labour laws.





• Foreign investors may establish and register a company either through

obtaining a foreign Investment Licence through FIPPA or without obtaining a

licence.

• Types of legal entity possible under Iranian Commercial Code include:

– Joint Stock Company;

– Limited Liability Company;

– General Partnership;

– Limited Partnership; and

– Joint Stock Partnership.

• Foreign Participants:

– can hold up to 100% of shares in Iranian companies without the need for Iranian

participation, sponsorship or any special formalities or licences.

– a minimum capital of Rials 1,000,000 is required at time establishing a private

company. This amount is the same in a Joint Stock Company or a Limited Liability

Company. Payment for shares may be either in cash or in kind.





• The Foreign Investment Promotion and Protection Act (“FIPPA”)

passed on 10 March 2002 and its Implementing Regulations passed

on 15 October 2002 are the key foreign investment laws in Iran.

• Some of the rights and incentives include:

– assistance with visas, work permits and residency

– foreign investor is offered national treatment

– no limitations on repatriation of capital

– free export of commodities produced by the project company is

permitted; and

– expropriation protection.




Capital Export Restrictions

• Unless the investor benefits from exemption under a FIPPA licence

or Freezone/Special Economic Zone Licence, repatriation of capital

is subject to approval from the Iranian Foreign Investment Board

(FIB)

• Conditions:

– Fulfilment of all outstanding obligations

– Payment of legal deductions

– 3-month notice to FIB

• Must obtain approval from FIB and Ministry of Economic Affairs and

Finance




Intellectual Property Protection

• Legal framework – Law on the Registration of Patents, Industrial

Designs, and Trademarks 2009 and in its Implementing

Regulation 2009.

• Trademarks

– Registration grants protection for renewables 10-year periods

– Legislation also protects in cases of non-registration

– Penalties – Fines/Imprisonment

• Patents/Industrial Designs

– Registration grants exclusive rights of use for a 20-year period

– Registration also protects registered industrial designs for an

initial 5 years (renewable for two additional 5-year periods)

• International Conventions: WIPO, Madrid Convention, Paris

Convention




Waiver of Sovereign Immunity

• Examples of Iran waiving sovereign immunity:

– Evidence that Iran recognises the exception to sovereign

immunity for activities of a commercial nature (e.g. Iran-US

claims tribunal)

– Some Iranian BITs contain an express waiver of immunity from

suit in relation to international arbitration (e.g. Switzerland)

• Limitation – Referral to arbitration of disputes concerning public

and governmental properties where one party is of non-Iranian

nationality requires the approval of the Council of Minister and of

the Parliament (Article 139)




Ongoing risks

• Staggered sanctions lifting programme

Certain US and EU trade and financial sanctions remain in place

• 2015 Corruption Perceptions Index - Iran scored 27

(0 highly corrupt – 100 very clean)

• The Financial Action Task Force – Iran is “high risk” in relation to

money laundering and terrorism financing

• Test financial crime programmes (Bribery Act/FCPA compliance)

• Know your counterparty

The information in this presentation does not constitute legal advice and may not be

relied upon. Specific legal advice should be taken before acting on any of the topics

covered.


Pinsent Masons LLP is a limited liability partnership registered in England & Wales (registered number: OC333653) authorised and regulated by

the Solicitors Regulation Authority, and by the appropriate regulatory body in the other jurisdictions in which it operates. The word ‘partner’, used in

relation to the LLP, refers to a member of the LLP or an employee or consultant of the LLP or any affiliated firm of equivalent standing. A list of the

members of the LLP, and of those non-members who are designated as partners, is displayed at the LLP’s registered office: 30 Crown Place,

London EC2A 4ES, United Kingdom. We use 'Pinsent Masons' to refer to Pinsent Masons LLP, its subsidiaries and any affiliates which it or its

partners operate as separate businesses for regulatory or other reasons. Reference to 'Pinsent Masons' is to Pinsent Masons LLP and/or one or

more of those subsidiaries or affiliates as the context requires. © Pinsent Masons LLP 2016

For a full list of our locations around the globe please visit our websites: www.pinsentmasons.com and www.Out-Law.com

Pinsent Masons LLP is a limited liability partnership registered in England & Wales (registered number: OC333653) authorised and regulated by

the Solicitors Regulation Authority, and by the appropriate regulatory body in the other jurisdictions in which it operates. The word ‘partner’, used in

relation to the LLP, refers to a member of the LLP or an employee or consultant of the LLP or any affiliated firm of equivalent standing. A list of the

members of the LLP, and of those non-members who are designated as partners, is displayed at the LLP’s registered office: 30 Crown Place,

London EC2A 4ES, United Kingdom. We use 'Pinsent Masons' to refer to Pinsent Masons LLP, its subsidiaries and any affiliates which it or its

partners operate as separate businesses for regulatory or other reasons. Reference to 'Pinsent Masons' is to Pinsent Masons LLP and/or one or

more of those subsidiaries or affiliates as the context requires. © Pinsent Masons LLP 2016

For a full list of our locations around the globe please visit our websites: www.pinsentmasons.com and www.Out-Law.com

Documents

INVESTING IN IRAN : LEGAL CONSIDERATIONS · Market leaders • FT Innovative Lawyers Europe Award 2015 • Global Construction Law Firm of the Year 2016 for the last nine years –