Special Economic Zones (SEZs) in Iran have been established with diverse objectives, including job creation, export and industrial development, enhancement of industrial technology levels, diversification of complementary and supporting industrial services, and other similar goals. This type of spatial planning in Iran originated in the early 1990s (early 1370s in the Iranian calendar) and expanded in number through various approvals under different governments. One of the most significant drivers for the establishment of SEZs in the country has been the existence of restrictive economic and commercial laws and regulations. The creation of SEZs provides a strategic pathway to overcome these barriers by offering legal advantages and incentives.
This article first defines the concept of Special Economic Zones, then reviews the legal framework establishing SEZs in Iran. Following this, a brief historical overview of the inception of these zones in Iran is presented, and finally, the key commercial and economic benefits associated with these zones are introduced.
Definition of Special Economic Zones
The history of establishing Special Economic Zones and Free Zones dates back to the 19th century with the port of Hamburg, yet these zones gained significant prominence in national economic development programs from the mid-20th century onward. Various definitions exist for SEZs. According to the World Bank (1992), SEZs are “enclosed industrial areas specialized in export-oriented factory production that provide free trade conditions for enterprises operating within the regulatory framework of the zone.” The International Labour Organization (ILO, 1998) describes SEZs as “industrial areas with special incentives to attract foreign investment where imported raw materials are processed and then exported.” The United Nations defines free and special economic zones as “industrial areas within the customs borders of a country that usually lie near an international airport or seaport, with production predominantly aimed at export. Imports of raw materials, intermediary goods, equipment, and machinery necessary for export products are exempt from customs duties, and customs procedures for imports and exports in these zones are expedited.”
Based on these definitions, primarily concerning the first generation of SEZs focused on the production and processing of export-oriented manufactured goods, an SEZ can be described as a designated area of a country located outside the customary customs territory. It benefits from scheduled customs and tax exemptions, along with other specific advantages such as simplified customs procedures, repatriation of profits, and enhanced infrastructure facilities.
Legal Framework for the Establishment of SEZs in Iran
The establishment of SEZs in Iran dates back to 1996 (1375 Iranian calendar) with the founding of the Sarakhs zone. Subsequently, several SEZs designated as Protected Customs Areas were operationalized. The formal legal foundation for SEZs was laid in 2006 (1385) with the approval of the “Law on the Establishment and Administration of Special Economic Zones.”
According to this law, the primary goals of SEZs include supporting economic activities, fostering international trade links, activating regional economies, manufacturing and
processing goods, technology transfer, promoting non-oil exports, creating productive employment, encouraging domestic and foreign investment, facilitating re-export, external transit, and transshipment of goods. The law authorizes the government to establish SEZs in counties with the potential and capabilities to fulfill these objectives.
The legal provisions include detailed regulations on the import and export of goods within SEZs. Trade exchanges between these zones and foreign countries or other SEZs and free zones, upon customs registration, are exempt from customs duties, commercial profits, and any import-export levies under any title, except where prohibited by law or religious decree. Trade with other parts of the country, except for such zones, is subject to national import-export regulations. The law also prohibits the passenger import of goods from the zone to other parts of the country.
Goods produced or processed within the SEZs, when entering other parts of Iran, are considered domestic products proportional to the added value and proportion of domestic raw materials and parts used and are exempt from import duties. The Customs Administration of the Islamic Republic of Iran is required to facilitate requests for direct transit of goods to SEZs from other entry points and provide necessary logistics support. The duration of goods’ stay in the SEZ is determined by the zone’s management. Procedures for foreign investment entry, profit repatriation, and foreign participation levels follow the “Law on Encouragement and Protection of Foreign Investment” ratified in 2001 (1380).
Brief History of SEZs in Iran
The earliest form of zones similar to SEZs in Iran dates back to 1949 (1328), marked by the establishment of a standard warehouse in Khorramshahr. In the 1960s (1340s), plans for free zones and comprehensive development of touristic islands such as Kish and Minoo were proposed. After the Islamic Revolution, the establishment of free trade zones was included in Article 19 of the First Development Plan. Accordingly, in 1990 (1369), the government announced the establishment of the free zones of Kish, Qeshm, and Chabahar. The law on the administration of free trade zones was passed by the Iranian Parliament in 1993 (1372). Later in 2003 (1382), the parliament ratified three new free zones in the counties of Abadan, Khorramshahr, Jolfa, and Bandar Anzali.
Article 19 of the First Economic, Social, and Cultural Development Plan (1989/90) authorized the Iranian government to establish free trade zones at three border locations. Following this, Article 20 of the same plan provided for the establishment of “Protected Special Zones,” which were later renamed Special Economic Zones (SEZs). These SEZs were defined as designated enclosed areas located in both port and non-port regions, falling under the supervision of the Ports and Maritime Organization for port areas and the Iranian Customs Administration for non-port areas.
Following the 1993 legislation, a formal administrative framework for free zones was established. In late 1993, Sirjan became the first approved SEZ not located at a national entry point but centrally within the country. Gradually, other SEZs such as Sarakhs and Salafchegan were approved. A separate 2006 law specifically addressing the establishment and administration of SEZs formalized this expansion. SEZs operate under the executive
regulations approved by the Council of Ministers and enforced by the Iranian Customs Administration since 2007.
Requests for new SEZ creation come from parliamentary representatives, provincial officials, or other institutions to the Secretariat of the Coordination Council for Free and Special Economic Zones. After thorough evaluation, documentation, and indexing of candidate regions, the council reviews and, if approved, submits the establishment bill to the government and then the Iranian Parliament for ratification before implementation.
Currently, Iran hosts 34 SEZs, including Salafchegan, Rafsanjan, Shiraz, Kaveh, Lavan, Payam Airport, Garmsar, and Arg Jadidi. Several zones focus on mining industries under the supervision of the Iranian Mines and Mining Industries Development and Renovation Organization (IMIDRO). Among these are the Lamerd and Parsian Energy-Intensive Industry SEZs, the Persian Gulf Mining and Metal Industries SEZ, and the Kashan Special Economic Zone.
Functions of Special Economic Zones
SEZs in Iran serve three primary functions:
- As models for economic and trade reforms: With their legal incentives and connections, SEZs act as pilot programs facilitating technology access and transfer, capital market entry, international market access, and fostering free interactions with the global economy.
- Development and processing of exports to global markets: This occurs through three phases, exporting products manufactured by industries located in the zones; establishing new export-oriented industries; and re-exporting leveraging advantageous geographic locations.
- Attracting foreign investment: Due to favorable legal conditions, SEZs facilitate foreign investment more efficiently than mainland areas.
The Kashan Special Economic Zone, with its industrial, commercial, and service operations and proximity to the industrial and knowledge hubs of Tehran, Isfahan, and Qom, presents a unique opportunity to capitalize on these advantages. Its connectivity to raw material supply markets via rail and an extensive highway network linking northern and southern transit terminals enables the formation and completion of export-oriented value chains connected to mining industries and machinery production. Additional investment incentives include customs exemptions on production line equipment and machinery and the presence of special warehouse zones and a dry port integrated with the rail freight terminal.
