Based on the MoU, Matisa will cooperate on overhaul and retrofitting of ballast cleaners, tampers and regulators as well as sourcing of 21 track machines with Iran's RAI railway company, Press TV reported.
RAI Deputy Head Maziar Yazdani said the initial value of the deal is €20 million, which will rise to €80 million later.
The agreement comes less than a month after the Swiss firm Stadler Rail said it was ditching a $1.4-billion railway deal in Iran because of US President Donald Trump's decision to re-impose sanctions on the Islamic Republic.
"Switzerland has been a neutral country for hundreds of years, and has always maintained its neutrality on political issues," Matisa CEO Franz Messerli said during the signing of the agreement in Tehran.
"And at this stage, it will continue to operate in Iran regardless of US sanctions," said Messerli whose company is the only supplier of existing railway machines in Iran along with Austria's Plasser and Theurer.
Stadler Rail had signed a letter of intent in Tehran at the end of February to deliver 960 subway cars. Its sales chief Peter Jenelten has said he was disappointed that the company had to terminate the agreement.
"Swiss railway companies have invested heavily in the Iranian market. It is frustrating that all these efforts have now been for nothing," he told Swiss German-language daily newspaper Blick.
Iran's rail sector has become a magnet for rail engineering and rolling stock firms from all over the world, but European companies are most likely to lose out to their Russian and Chinese counterparts.
According to Jenelten, "the craziest thing about the story" is that US sanctions should benefit Russia and China in the first place.
"The Iranians cannot wait forever. That's why the Chinese are likely to take the subway order away from us."
Iran plans to become a transport hub in the heart of Eurasia where regional countries have drawn up their own development strategies.
Iranian officials have announced plans to invest $25 billion over the next 10 years in the modernization and expansion of the country's railway network.
Under the plan, Iran seeks to stretch out the nationwide railroad line to 25,000 kilometers by 2025 from under 15,000 kilometers now.