Capital Increase and Asset Revaluation: Which Route Actually Fits Your Company

Capital increases in Iranian companies are usually driven by one of two motives: raising real funds, or repairing the look of the balance sheet. This note is for directors and shareholders who want to know, before deciding, what each route costs in tax and registration terms, and why asset revaluation is not always the answer.

Four routes, four different effects

The sentence I repeat most often in these meetings: only the first route brings money into the company. The other three change the structure of equity, not the company's ability to pay. If your real problem is liquidity, capitalising a revaluation surplus will not solve it; it will only make the ratios look better.

Cash contributions and shareholder claims

In both cases an extraordinary general meeting approves the increase and existing shareholders' pre-emption rights are respected. An unused right can be transferred, and the resolution should say how that is handled.

Converting matured shareholder claims into capital is common where an owner has funded the company for years and the current account balance has grown large. A liability leaves the balance sheet, and a balance that would have attracted audit questions takes a clean legal form. The condition is that the claim is genuine, documented and due; converting a vague balance into share capital simply relocates the problem.

Capitalising retained earnings

Where the company holds retained earnings and shareholders do not want cash out, transferring those earnings to share capital is one of the cleanest options. Because the profit already bore the 25% charge under Article 105, capitalising it creates no new corporate tax event. How this connects to the general meeting process is covered in profit distribution and its tax treatment.

Asset revaluation: relief with conditions

This is the technical heart of the subject. Note 1 to Article 149 provides that the increase in value arising from revaluation of a legal entity's assets, subject to compliance with accounting standards, is not subject to income tax. Two conditions come attached.

1. The depreciation on the uplift is not deductible. The carrying value rises, but the additional depreciation creates no tax shield and must be added back in the tax computation.
2. The interval is mandatory. The implementing regulations require at least five years between revaluations of the same asset class.

A third point gets less attention: on disposal, taxable gain is generally computed from historical cost, not the revalued amount. Revaluation therefore does not reduce the tax on a future sale. If you plan to dispose of the asset in the near term, build that into the analysis.

The Article 141 use case

The situation I meet most often is a company whose accumulated losses exceed half of its share capital, bringing it within Article 141 of the amended Commercial Code. The meeting must then choose between dissolution and continuation, and until the position is repaired the company faces practical constraints, from bank facilities to tender eligibility.

Capitalising a revaluation surplus is one way to repair that ratio and is often the right answer. Two warnings apply. It does not fix the operating loss, so without a change in cash generation you will be back at the same point in two years. And the capacity is limited: with the five-year interval, this is not a move you can repeat annually. How the decision reads in the statements is covered in reading financial statements.

Share premium and new investors

In growing companies, a new investor often subscribes above par. The difference between the amount paid and nominal value is share premium and belongs in equity, separate from share capital, not in the income statement. Booking it as revenue inflates book profit artificially and becomes an argument in audit.

Stamp duty and registration duties

Whichever route you choose, the increase attracts stamp duty under Article 48 at half per thousand, payable within the prescribed period after registration. The amount is small next to other tax items, but omitting it surfaces later in clearance checks and carries a penalty.

A working procedure

1. Define the real objective: liquidity, ratios, escaping Article 141, or admitting a new partner.
2. Choose the route that matches it; only cash answers a liquidity problem.
3. For a revaluation, appoint an official valuer and fix the scope of assets covered.
4. Document the valuation report and compliance with accounting standards.
5. Hold the extraordinary general meeting and state the source of the increase in the resolution.
6. Register the resolution and obtain the published notice.
7. Pay the Article 48 stamp duty within the deadline and file the receipt.
8. Add back the non-deductible depreciation on the uplift in the tax computation.

Costly mistakes

The most frequent is deducting post-revaluation depreciation in full and never adding back the uplift portion; assessors find this reliably. The second is revaluing sooner than the regulations allow, which forfeits the relief and can make the surplus taxable. The third is treating revaluation as a strategy in itself: without a plan to restore profitability it only buys time, which is why it belongs inside a wider framework such as lawful tax planning.

Key takeaways

• Only a cash contribution brings money in; the other routes restructure equity.
• The revaluation surplus escapes income tax under Note 1 to Article 149, but its depreciation is not deductible.
• A minimum five-year interval between revaluations is a condition of the relief.
• Capitalising retained earnings creates no new tax charge, but Article 48 stamp duty still applies.
• Revaluation buys time under Article 141 but does not replace fixing operations.