Iran is officially open for business after four years in the global wilderness.
Following the imposition of financial sanctions in 2012 by the US for its burgeoning nuclear weapons programme, it was almost impossible for the west to do any business with Iran. Those sanctions were lifted earlier this year after France, Germany, UK, Russia and US had earlier reached an agreement with Iran on a nuclear deal.
Iran could provide an enthusiastic new trading partner for the UK post Brexit according to Shahrzad Atai, head of the Middle East desk at law firm Child & Child and external adviser to the government’s legal department, Government Legal.
However, there has only been a trickle of business between the two countries since sanctions were lifted. Atai says: “The UK is falling behind and should be grabbing the opportunity to trade with Iran, boosting the economy after Brexit.”
Iran is a large potential market. The second largest economy in the Middle East after Saudi Arabia, it also has the second largest population in Middle East after Egypt, with 77m people. There is little foreign debt, and the country boasts an attractive tax regime: the maximum tax rate in Iran is 25 per cent while dividends and bank interest are tax exempt.
Among cash-rich Iranians, Atai sees pent up demand for a long list of goods: medicine, electronics, luxury goods and cars. There is also appetite for investment in infrastructure and other projects within Iran.
In terms of export potential, Iran can offer the rest of the world its renowned Persian rugs, prized agricultural products such as saffron, pistachio and caviar, and its large oil and gas reserves.
There are now only a few sanctions remaining in place and Iran is keen to get back to the level of exports it had before the sanctions, be that in oil and gas or general trade and commerce. For example, Tehran has passed legislation to enable foreign companies to own 100 per cent of their company or branch office in Iran. Previously, foreigners needed to have an Iranian partner who owned 51 per cent of the company.
However, while some companies may be keen to get back in the Iranian market, others may have sour memories. Once sanctions were imposed, many contracts between Iranian and European companies were frozen causing complications including reputational damage and loss of profit.
UK banks have proved particularly reluctant to engage despite the lifting of EU restrictions on financial transfers, banking activities, financial messaging services to and from Iran. Atai says this may be because HSBC was fined heavily for dealing with Iranian clients.
“One question comes to mind is that if the UK government is allowing the financial transactions with Iran, is why the banks in UK are still reluctant to enter any kind of transaction with Iranian individuals, companies or banks. Do they UK banks follow the local government’s rules or the foreign government’s rules? What is the governing law in the UK jurisdiction? Surely the local law.”
There are large amounts of Iranians' monies frozen in UK bank accounts; the release of these funds could allow Iranians to purchase goods and services from the UK.
Atai says UK firms should take legal advice to make sure their activity is kept within the allowed legal framework and as to what structure suits them best depending on the nature of activity and volume of business.
While UK firms prevaricate, others are forging ahead with new deals with Iran. The value of EU trade with Iran is around $8bn and is expected to increase to $16bn in the next two years. Since January, many European countries – Italy, France, Switzerland and Germany - have signed contracts with the Iranian government or private companies.
But a great unknown is potential ramifications from the Trump presidency. Atai says: “Another question here, is how Trump would treat the agreement with Iran. Will he honour it? It is difficult to say whether Trump will go back on the agreement regarding the lift of the sanctions and make any harsh changes, or will he build the next Trump Tower in Tehran. After all he is a businessman and there are existing Trump residences in Turkey, Azerbaijan, Emirates and other countries in the region. So why not have one in Iran?”
She advises firms that want to do business with Iran to seek legal advice.