Payroll Tax in Iran: What Every Employer Should Check Before Closing the Month
If you run payroll for a small or mid-sized Iranian company, this is usually the first tax obligation you face every month and, in the files I have handled, one of the most common sources of avoidable penalties. Below is the practical logic: which pay items are taxable, how the progressive calculation actually works, what the deadlines are, and where employers typically lose money.
What counts as salary
Iran's Direct Taxes Act defines employment income broadly: any cash or non-cash benefit received in return for employment. Naming a payment an "allowance", "advance" or "support payment" in your ledger does not remove it from the base. The substance of the relationship governs, not the account title.
The counterweight is Article 91, which lists genuinely exempt items, and Article 92, which forgives fifty percent of the tax for staff working in officially designated less-developed regions. Separating these two groups correctly is most of the work.
| Pay item | Payroll tax treatment | Practical note |
|---|---|---|
| Base salary, fixed wage | Taxable | Core of the bracket calculation |
| Overtime, night and shift premiums | Taxable | Added to the month of payment |
| Housing and food allowance (cash) | Taxable | Fully included |
| Year-end bonus | Exempt up to one twelfth of the annual ceiling | Excess taxable |
| Non-cash benefits (car, company housing) | Exempt up to the Article 91 cap | Requires documented valuation |
| Travel and mission allowance | Exempt | Needs a mission order and receipts |
| Severance, unused leave buy-out | Exempt | Keep the personnel file evidence |
The annual exemption ceiling, the bonus cap and the bracket thresholds are set each year in the budget law. Do not roll last year's table forward; check the current circular from the Iranian National Tax Administration.
How the progressive calculation works
Income up to the annual exemption is taxed at zero, and amounts above it fall into ascending rate bands. The most frequent misunderstanding is assuming that crossing into a higher band re-prices the whole salary. It does not — only the portion inside each band carries that band's rate.
Monthly steps
- Total every cash and non-cash item paid to the employee in that month.
- Deduct the fully exempt items you can document.
- Deduct one twelfth of the annual Article 84 exemption as the month's basic relief.
- Apply the current year's bands to the remainder, band by band.
- Apply the fifty percent Article 92 relief if the employee genuinely works in a listed region.
- Show the deduction transparently on the payslip and reconcile it to the filed list.
I also recommend a cumulative year-to-date check alongside the monthly one. Where pay fluctuates — quarterly bonuses, heavy overtime seasons — the cumulative view prevents a large under- or over-withholding surfacing at year end.
Payments to non-employees
Companies routinely pay a trainer, a part-time consultant or a project worker and book it under miscellaneous expenses. The note to Article 86 treats those salary-type payments to individuals as subject to a flat ten percent, with no basic exemption. Where the counterparty is a registered business invoicing for services, the obligation shifts to Article 104 withholding tax instead. Getting that boundary right is the difference between a deductible expense and an assessed liability.
Deadlines and the monthly list
| Obligation | Deadline | Source |
|---|---|---|
| Withhold tax | At the time of payment | Article 86 |
| File the list and remit | Within 30 days of payment | Article 86 |
| Correct an erroneous list | Before audit, via an amended list | Administrative practice |
| Retain personnel documentation | Through the statutory limitation period | Article 95 and regulations |
Filing goes through the national tax services portal, and the tracking code is your defence document. Keep each month's list and payment receipt in one annual folder next to the statutory records — on audit day, having that folder ready removes several rounds of correspondence.
Penalties fall on the company
Failing to file the list triggers a penalty based on the salaries paid; failing to remit withheld tax on time triggers a fixed penalty plus a monthly late charge. This debt belongs to the company even if the employee left years ago and even if nothing was ever deducted from them. The remedy is a documented penalty waiver request, which normally requires the principal to be settled first.
In family-run companies I frequently see director or relative salaries left off the list while the cash still leaves the company account. That pattern shows up quickly in both payroll audits and bank transaction reviews.
Reconciling with the social security list
The payroll tax list and the social security list use different bases, and that difference is where mismatches begin. The year-end bonus is outside social security contributions but partly inside the tax base; child allowance is treated differently again. If the two filings are not generated from one payroll dataset, discrepancies accumulate and resurface during a social security inspection or a tax audit.
If your payroll structure is complex — project-based, multi-shift or multi-branch — a single structured review is usually enough to fix the template for the rest of the year.
Key takeaways
- Substance decides taxability, not the label on the account; exemptions must be documented.
- Progressive rates apply only to the portion within each band.
- Withhold at payment and file within thirty days; keep the tracking code.
- Unwithheld payroll tax is the employer's liability, permanently.
- Rebuild the calculation table at the start of each Iranian fiscal year.
Frequently asked questions
When must payroll tax be filed and paid in Iran?
Who is liable if the employer fails to withhold?
Is the year-end bonus taxable?
What about payments to people who are not our employees?
Have a question? Just ask
One short call is usually enough to know where you stand. If I miss you, I will call back.