France’s Peugeot Citroen has signed an agreement with Iranian car manufacturer Iran Khodro to form a joint venture to produce vehicles in the Middle Eastern country.

The deal emerged during President Hassan Rouhani’s visit to France just a week after nuclear-related economic sanctions against Tehran were suspended.

The agreement marks Citroen Peugeot’s return to Iran after exiting the country in 2012 due to new sanctions. The company sold nearly half a million cars in Iran in 2011.

Citroen Peugeot said the 50:50 joint venture plans to invest up to €400m ($436m) over the next five years in manufacturing and research and development. The company aims to develop a manufacturing base in Tehran to produce and market Peugeot 208, 2008 and 201 models.

The first vehicles are expected to be produced in Tehran in the second half of 2017.

The French group said the deal also involves the “restoration of contractual relations concerning the manufacture of Peugeot-branded vehicles currently produced in Iran”.

According to media reports, Iran Khodro continued to sell Peugeot-branded vehicles after 2012 using other parts and not paying royalties.

In 2015, the company assembled about 350,000 cars with parts sourced from local companies, the French group estimates.

The Iranian market reached a peak of 1.6 million vehicles in 2011 and it is expected to regain this level within two years to reach 2 million vehicles a year by 2022.

Citroen Peugeot estimates put the number of Peugeot cars on the road in Iran at more than 4 million.

Rouhani visited France after three days in Italy, where deals worth about €17bn were signed between the two countries.

While in France, the president also expects to oversee a deal to buy 114 passenger planes from European aircraft manufacturer Airbus.