Maku Free Zone

 

About Maku

Maku city and Bazargan border, in the northwest of Iran, is one of the historical cities of the country, which as a trade gateway between Iran and Europe, has long played a significant role in the commercial activities of Iran and the region. The proximity of this region to the countries of the Caucasus, along with its proximity to the industrial hub of Tabriz and the enjoyment of the developed infrastructure of the region, has also increased the strategic importance and capacities of this region.

Maku Free Trade-Industrial Zone, enjoying the advantage of those capacities, was established in 2010, with an area of ​​500,000 hectares. This Zone, which includes parts of Maku, Bazargan, Shoot and Poldasht, shares borders with the Republic of Azerbaijan and the Autonomous Republic of Nakhchivan, on the east, and with Turkey on the west. Also, the natural and climatic features of this region and its natural, cultural and historical tourist attractions have made Maku Zone have a significant place in the Iranian tourism industry.

The most important goals and activities of the Maku Free Trade-Industrial Zone include the expansion of trade and transit services, tourism and ecotourism industries, processing and agricultural industries, as well as the development of large agro-industrial units and the transfer of new technologies to the Zone.

 

Why Maku?

Geographical Position

Geographically, Maku Free Zone encompasses Maku, Showt, Poldasht and Bazargan border city, which is located in the northwestern tip of the country and occupies about 75% of the country’s free zones. This zone is located next to Turkey and the Republic of Azerbaijan (Nakhchivan Autonomous). Border length of the Islamic Republic of Iran in this zone is 140 km and 130 km with the Republic of Azerbaijan and Turkey, respectively. In terms of country divisions, Maku Free Zone with an area of ​​3860 square kilometers encompasses 3 counties, 6 cities, 6 districts, 13 rural district and 261 inhabited villages. According to the general population and housing census of 2016, the population of the region was 192,603 ​​people, which is 0.24% of the total population of the country and 5.9% of the total population of West Azerbaijan province.

Maku Free Trade-Industrial Zone, in addition to bordering Turkey and Nakhchivan, is adjacent to Armenia and the Caucasus region, and is the bottleneck of the North-South land corridor (on land rival of the Suez Canal) and the junction point of Asia and Europe. Considering the importance of the Caucasus’s strategic transportation for Iran, major trade and political exchanges between Iran and Europe are in through this path. The short distance of Maku Free Zone from the ports of Mersin in the Mediterranean Sea and Trabzon in the Black Sea is a significant advantage in accessing European markets through land and sea, compared to the southern ports in the Persian Gulf. Regarding distance and economical expenses, there is no doubt that this region is the most economical bottleneck on land in comparison to the east-west sea route.

 

History and Culture

The oldest historical buildings in Maku date back to the Urartu or Khalid period. Stone rooms in the villages of Sangar (Maku-Bazargan) Chirkandi in Chay Basar and Delik Dash in Siyah Cheshmeh and Sheddi in Aras near Poldasht, and the discovery of cuneiform inscriptions in Bastam village and around Bazargan and the excavations and discoveries of the German delegation in Qara Bastam and the deciphering cuneiform inscriptions by Iranian and foreign archaeologists and the writings of ancient and modern historians such as Musa Khoren (Armenian) and B.B. Pyotrovsky (Russian) prove that the original inhabitants of Maku were the Urartians. Rosa, their biggest city, was built near the village of Bastam.

 

Business Subjects

Logistics and Transportation

Being the most important commercial and passenger border of the country on land, Bazargan and Poldasht borders are located in Maku Free Zone, in addition passage of the east-west corridor through this zone which connects China to Europe through railways and road transit routes, has turned logistics and transportation industry into the most important business subject in Maku Free Zone. The region has the potential to create added value in regional and international trade flows with an annual trade volume of over $ 1,000 billion.

Being on China-Europe trade route, reduction of cost and time in transiting goods, passage of export gas pipeline and access to cheap energy sources, talented labor force as well as tax and customs exemptions, Maku free zone holds a unique position on regional and international trade and on the global supply and production chain, especially by using the potentials of the 25-year strategic agreement between Iran and China, which makes this region attractive for investment and transit of goods.

Holding the capacity to implement combined transport along with the ongoing Tabriz-Kars railway, besides Maku International Airport, Sardar Soleimani Highway, and the ongoing project of the logistics village of Maku Free Zone, along with a significant number of fleet owners and transport companies have turned Maku Free Zone into a place to become a logistics hub for production and exports.

Agriculture (Agronomy, Horticulture, Animal Husbandry and Fisheries)

Presence of 10 dams which are holding 420 million cubic meters of water, flooded rivers along the great Aras River and having about 98,000 hectares of arable land and 32,000 hectares of pressurized irrigation network in Maku Free Zone are among the potentials of this region for the development of agricultural activities. Annual production of 260,000 tons of horticultural, agricultural, livestock, fishery and natural honey products in Maku Free Zone, as well as the preparation of downstream lands of the dams in Maku Free Zone for investment by agro-industrial companies, construction of greenhouses and large industrial farms and affiliated industries creates a huge capacity to set up processing, conversion and packaging industries that complete the production cycle and create employment in the region. In addition, production and export of lobster and aquatic animals using the capacity of Aras River, has placed this region on top of non-coastal cities of the country regarding aquatic production.

Mining and Mining Industries

The only free zone in the country, Maku Free Zone, has various mines with high reserves and 25 active mining units, and due to the exploration operations in the form of two areas in the whole region by IMIDRO organization, there is a huge capacity to invest in the field of discovered mines. Preventing sale of raw materials, processing minerals and completing its chain, due to abundance of decorative and facade stones, magnesite, silica, copper, iron, basalt and construction materials, are among the goals of Maku Free Zone Organization.

Industry

Presence of five on-stream industrial towns with an area of ​​300 hectares in the region and two under construction industrial towns with an area of ​​200 hectares with more than 125 on-stream industrial units along with foreign investors from China, Turkey, Canada and India, as well as production of unique products including dentures, edging tape, honeycomb paper, flooring and wall coverings, etc., and accessing skilled labor force, has turned the field of industry into another central business in this region. Maku Free Zone Organization by accomplishing all administrative processes including issuing various types of licenses and delivering land with minimal bureaucracy and focusing on the formation of export-oriented production units to meet domestic needs and reduce imports, completing the industry chain based on relative advantages focusing on handicrafts, animal husbandry, clothing, leather, furniture and cosmetics, sanitation and ferroalloys have formed a bright future for the industry of this region.

Tourism (Nature and Ecotourism)

Maku Free Zone, as one of the most remarkable tourist destinations in the country, hosts more than two million and five hundred thousand domestic and foreign travelers annually. Having pristine nature, diverse climate, numerous tourist attractions and historical monuments, have turned this zone into a destination for investment on construction of accommodation centers, eco-tourism resorts, recreation and leisure centers (such as zip line, karting, ski slope, cable car, etc.), shopping centers (such as the Grand Border Bazaar and Omid Bazaar) and Multi-purpose complexes such as Azarmal, etc. It holds an unparalleled capacity in setting up a variety of sport centers, water and beach recreation spaces, health tourism centers and the handicrafts development, especially carpet and rug weaving.

 

Advantages of Investment and Economic Activity in Free Zones

Legal advantages

  • Having advantage of value added law
  • 20-year tax exemption for various economic activities from the date of operation  
  • Duty exemption of raw materials and production machinery import (customs duties and commercial profits)
  • Duty exemption for export of products and re-export from the zone
  • Dispatching products into the country under customs duties exemption up to the approval of the Value Added Commission of Free and Special Economic Zones
  • Possibility of importing raw materials of group four to the zone, provided that 100% of the produced products are exported
  • Possibility of partnership with foreign investors without limit on the proportion of partnership and possibility of 100% foreign investment
  • Possibility of registering a company with 100% foreign shares
  • Providing full guarantee of foreign investment by the government through the law of attraction and protection of foreign investment
  • Providing monetary, banking and insurance services by banks and public and private insurances
  • Possibility of renting land to foreign investors
  • Possibility of establishing every kind of economic activity for foreign investors
  • No need to obtain a visa for entry and exit of foreign nationals
  • Issuance of residence permits for foreign nationals by the organization

 

The Relative and Unique Advantages of the Zone

  • Having a peculiar position regarding transportation and transit of goods thanks to connection to the markets of Europe and Central Asia
  • Having an airport with the possibility of international flights
  • Turning 60 km of roads into highways in the zone
  • Holding the largest and most important land customs in the country, namely Bazargan Customs in addition to Poldasht Customs
  • Having developing logistics infrastructure (warehouses and smart parking lots) to facilitate exports and imports
  • A significant part of Aras Border River as well as Aras and Karamabad dam are located in the zone
  • Existence of large lands for agricultural activities (agriculture, horticulture, animal husbandry, fisheries)
  • Existence of facade and decorative travertine stones, mine, basalt and marble stones and non-metallic minerals, magnesite, silica
  • Existence of abundant natural, cultural and historical tourist attractions with the potential of developing nature tourism and ecotourism (existence of unique historical monuments such as Zor Zor churches, Qarah Kelisa, Baghcheh Jooq palace, the remnants of Urartu city etc. )
  • Having a power plant with foreign investment
  • Existence of developing cement factory and various construction materials
  • Existence of gas transmission pipelines to supply gas required by industries
  • Existence of industrial parks for specialized activities (light, semi-heavy, energy-intensive industries)
  • Lying on the route of land tourists to Turkey and Europe paves the way for businesses to benefit from tourists
  • Having significant young population and over 50,000-people workforce
  • Existence of developing educational and health centers to serve the local community and investors
  • Locating on one of the new Silk Road (OBOR) routes
  • Neighborhood with Turkey and the Autonomous Republic of Azerbaijan
  • Planning to connect Tabriz railway to Turkey through the zone
  • Availability of energy and water resources and abundance of building materials
  • Low-cost labor
  • Possibility of establishing and expanding services in the field of ICT due to being on the path of European fiber optics;
  • Assigning suitable land with minimum cost

 

Concept and Benefits of Value-Added Commission for Production Units Located in Free Zones

1 -Import of Raw Materials

1-1 Import Duties:

According to paragraph 1-8 of the instructions and the executive method of the duty collection regulations in the free zones, the duties for importing raw materials and machinery are zero to ten percent of the CIF value and are determined by the board of directors of the organization. In Maku Free Zone in order to support production; it is considered zero (exempt from customs duties) (first important advantage).

2-1 Imported Raw Materials’ Registration Order

Pursuant to Article 14 of the Law on the Administration of Free Trade Zones, trade with foreign countries after customs registration (declaration) is excluded from the scope of export and import regulations, and according to the Court’s decision to import any goods (other than goods prohibited by law or Sharia) there is no need to register a customs order (exempt from order registration) from abroad to free zones (second important advantage). While in the mainland, the import of any kind of goods requires an order register.

 (Important Note: According to Article 3 of the Regulations on Export, Import and Customs Affairs of the Free Zones, it is necessary for all goods imported to the Free Zones to be registered statistically (the entire process is done by the organization itself).

The above legal advantages are applicable if the process of determining the added value of the activity of the production unit and the sale of products happen within the free zone, and in case of sale and export outside the zone, it is only possible to other free zones or abroad. In other words, in case of export of the product to the mainland, the customs laws of the mainland will apply, but the mentioned exemptions will not be completely eliminated, but part of the two exemptions mentioned above will remain in force. In this case, the production unit is required to:

1- Customs clearance: payment of part of customs duties on raw materials (only for the total volume of exported product to the mainland)

2- Order registration of raw material: for a part of the volume of exported product (so-called surplus of allowed percentage) to the mainland

In other words, the exemption from paying customs duties on raw materials (for the entire product export to the mainland) will be up to the value added percentage and the exemption from registering the order will be up to the permitted percentage of goods to enter the mainland.

(The aforementioned percentages will be announced by the Value Added Commission. Further explanations are provided below)

Important Note:

It is forbidden to register an order without transferring currency to free zones. For some of the production units applying for Nimayi currency, according to the agreement made with the Central Bank, it is possible to register an order as a free zone trader using bank currency procedure or from the export of raw materials used in products exceeding the permitted percentage of goods entering the mainland.

2- Article 15 of the Law on Administering Free Zones:

Imports of goods produced in the free zones to other parts of the country, up to added value [1] in that zone with the approval of the Council of Ministers [2] are exempt from payment of all or part of customs duties and commercial profits [3]. (It can be claimed that the most important legal advantage of free zones originates from this legal article)

In general, for each production unit, the following 3 cases are considered regarding the type of supply of raw materials:

1- All from inland

2- All from abroad

3- Part of it from inland and part of it from abroad.

The above legal advantages apply to production units. The process is such that after setting up the unit and at the production stage, the exploitation license is issued by the organization. In case of supply of raw materials (in whole or in part) from abroad and the desire of the production unit to benefit from the benefits of the above value added commission, the relevant forms are completed and after the approval of the expert of Organization and the Secretariat of the Supreme Council of zones, in the meeting of the Value Added Commission (with the approval of the Council of Ministers, the authority and responsibility for this issue is assigned to the Value Added Commission) and percentages of “permitted goods import to the mainland” and “added value” are determined.

 

Trade and Commerce in Maku Free Zone

Free trade zones are parts of the territory of Iran that are governed by special laws and regulations and are basically exempt from the laws governing the mainland. In fact, these areas are beyond the scope of customs authority (customs law) and enjoy more freedom in transferring goods in and out. Unique geographical locations, well-developed infrastructure and foreign investment incentives have provided many opportunities for trade as well as domestic and foreign investment in the zones. In describing the position of trade and business in the free zones, it suffices to know that the United Nations (UNIDO) has defined the free zones as a “stimulus” to industrial exports. In Maku Free Zone, due to speed of business processes, a suitable environment has been created to increase the volume of trade, for many commercial and industrial activities in comparison with other parts of the country, especially in the export sector. The legal advantages such as easy import of raw materials and machinery and the export of products in Maku Free Zone, alongside with the efforts of the experts and managers of this organization, have turned Maku Free Zone into a land of golden opportunities for investment. The main advantages of Maku Free Trade Zone in the field of trade and commerce are as follows:

  • Placement of Bazargan Customs as the largest land customs in the country as the country’s communication highway (rival of the Suez Canal on land)
  • Location of Poldasht border terminal on the route to Azerbaijan and Iran’s relations with Armenia, Azerbaijan and the Caucasus have led to a boom in the country’s economic relations with North Asia and Europe.
  • Possibility of importing machinery and raw materials of industrial and service units in the shortest possible time without the need for a business card and time-consuming currency procedures
  • Export of the final product to the mainland and payment of customs duties and commercial profits based on raw materials
  • Import of commercial goods from the region to the mainland with less commercial profit than other customs
  • Possibility of importing 950 items of group 4 goods as passenger goods for tourists in the region (importing to the mainland outside the free zones is banned)
  • Transit and re-export of foreign goods with the least bureaucracy and operating costs
  • Special geoeconomic position and location on the Silk Road and the trade confluence of Europe and Central Asia
  • Being the closest free zone to Europe, the CIS market, the Caucasus and Russia
  • Freedom of flow and outflow of capital and developing profits from economic activities in industrial free trade zones

In recent years, the region’s trade balance (export-to-import ratio) has always been positive. During the 11 months of 1400, the export of goods and services from the region to abroad was more than 60 million dollars. The largest share of goods entering the region is related to machinery and raw materials of production and service units located in Maku Free Zone, which are only for industrial activities and ultimately boosting employment and GDP. In fact, most of the goods imported to the region are for processing and production, which is far more than the goods that have entered the region as manufactured products. To clarify the amount of trade in Maku Free Trade Zone, one can refer to the vast amount of trade that commercial and customs infrastructure has provided to help the national economy. Due to the special location of the zone and the existence of facilitator infrastructure, the amount of goods exports from this region to abroad in the first eight months of 1400 is more than two billion dollars. The main export commodity groups are petrochemical products, vegetable, agricultural products and stone. During the mentioned period, the value of goods transit was more than 13 billion dollars, which indicates the extensive trade activity and the importance of Maku Free Zone in the world trade corridor. Most of the goods imported from the region were machinery, vehicles and raw materials.

 

Sources: www.makufz.org/en , www.freezones.ir/en