An EPC (Engineering, Procurement, and Construction) contractor working in an Iranian Special Economic Zone (SEZ) faced a legal problem over paying Value Added Tax (VAT) on goods and services needed to complete their project. The issue came up because the contractor paid VAT on these transactions and then asked the employer to refund these costs, as agreed in their contract. After a detailed arbitration process, the tribunal decided in favor of the contractor, making the employer responsible for reimbursing the VAT.
The main question in the case was how VAT laws and the EPC contract terms worked together. According to SEZ rules, these zones are treated as outside Iran’s customs area, so transactions inside the SEZ are normally VAT-free. But in this case, the contractor had to pay VAT on goods and services used outside the SEZ, especially in mainland Iran. We argued that the contract clearly stated the employer must cover any VAT costs connected to the project.
The tribunal carefully studied the contract, which clearly explained who was responsible for VAT payments. The contract specifically said the employer must refund the contractor for any VAT they paid. This clarity, along with the contractor’s detailed records of all VAT payments, convinced the tribunal that the employer’s refusal to pay went against both the contract and the purpose of SEZ rules, which are meant to make business easier.
The contractor’s accurate documentation played a big role in this case. The records included invoices, payment receipts, and official tax filings, all showing that the VAT payments were proper and necessary. This strong evidence proved the contractor acted correctly under Iranian law.
The tribunal’s decision highlighted how SEZ rules are designed to support businesses by giving tax benefits and clear guidelines. It also showed how important it is to write contracts that clearly explain financial responsibilities, especially for big projects like EPC contracts. This ruling helped the contractor recover their VAT costs and set an example for handling similar problems in the future.
This case shows how important it is for EPC contractors to think about tax issues when making contracts and to keep accurate records. Clear contract terms about VAT and strict compliance with tax laws are key to avoiding problems and achieving fair results. The tribunal’s ruling also underlined how SEZs help attract investments and grow Iran’s economy, showing how businesses can benefit by following the rules and planning carefully.