All commercial activities in Jordan can be conducted only after registration with the Ministry of Industry and Trade’s Company Controller Department. Registration can be as individuals; as incorporated companies limited by shares, which may be public or private; or as partnerships. Public company shares are listed on a stock exchange, while a private company is any company other than a public company.
The types of companies allowed under Jordanian law are general partnership, limited partnership, limited partnership in shares, limited liability company, private shareholding company and public shareholding company.
The Jordanian corporate tax regime is not a two-tier taxation: company income is taxed at the company level; however, dividend income distributed by companies to shareholders is not subject to income tax except dividends made to banks, telecommunication companies, insurance and reinsurance companies, brokerage companies and leasing companies.
Transparent entities commonly used in Jordan include partnerships, which, like incorporated entities, are not subject to two-tier taxation. In a general partnership, partners are jointly and severally liable. A creditor of the general partnership may sue the company and partners therein for all the partnership's liabilities, as opposed to a limited partnership, in which the limited partners contribute to the capital of the partnership without having the right to manage the company or to realise its operations, and the liability of each one of them towards the company debts and liabilities is limited to their share in the capital of the company.
Limited partnerships must have a general partner who manages the partnership and its operations and is jointly and severally liable for all the partnership’s debts and liabilities with unlimited liability.
A company is considered resident in Jordan if it is incorporated in Jordan; or if registered as an operating foreign company, then the Jordanian branch of the foreign company is considered a Jordanian entity.
The corporate tax rate for incorporated businesses in 2020 is 20%, except for entities that work in the telecommunications, electricity generation and distribution, mining, insurance and reinsurance, and brokerage sectors, which have a corporate tax rate of 24%. The corporate tax rate for banks is 35%. In addition to those corporate tax rates, certain sectors are required to provide a contribution to the National Fund as follows based on taxable income:
Capital gains and losses arising from real estate transactions located in Jordan (including real estate associations) are not taxed, unless they are realised by an entity that engages in the sale of real estate as part of its corporate objectives.
Transparent entities, such as business partnerships, are subject to taxation in Jordan at the partnership level. Dividends distributed to partners are not taxable as such. Dividends distributed to partners are not taxable as such. Dividends by publicly listed companies are not taxable; however, there is a flat tax of 0.08% on buy-sell orders for stock exchange transactions.
Jordanian companies' income is taxed on a worldwide basis, based on a flat rate of 10% of the net income declared in the financial statements of the foreign branch. Also, any foreign income realised using funds or deposits generated from any activity in Jordan, and then used to invest outside Jordan is subject to a flat rate of 10% of the net income generated from such investment. Foreign companies are only subject to Jordanian tax with respect to their Jordan-sourced income.
The company’s net income is calculated according to the International Financial Reporting Standards (IFRS), which, once reconciled with the provisions of the Jordanian Tax Code and its regulations, determines the tax base for corporate tax purposes. In general, the accrual method of accounting is used by Jordanian companies to report their income for accounting and tax purposes.
There is allowance for certain taxpayers to be exempt from having financial books and records, and such taxpayers’ tax liability is in calculated based on schedules prepared by the tax department.
To encourage start-up investments in the information technology sector, Jordanian tax law allows IT companies that create, process or store data, as well as companies working in programming to exempt from corporate taxation all capital gains generated from the sale of company shares. This exemption is valid for the first-time sale of shares within 15 years from the date of company incorporation, and may be extended by a Cabinet decision.
Corporations engaged in industrial activities are entitled in 2020 to a 20% reduction of their corporate tax rate. Similarly, corporations in the drug and garment industries are entitled in 2020 to a 30% reduction of their corporate tax rate. Additionally, entities registered as venture-capital companies are exempt from corporate income tax.
Accelerated depreciation, up to 300% of the regular rate of depreciation, is allowed regardless of the industry type provided that the accelerated deprecation rate selected is maintained for the remainder of the asset life. This does not apply to buildings, which normally have a fixed depreciation rate of 2% for non-industrial buildings, a 10% depreciation rate for temporary buildings, and 4% for buildings housing industrial equipment and machines.
Additionally, Jordan has established within its territory free zones in which there is reduced or no income tax. Specifically, the Aqaba Special Economic Zone (ASEZ) allows enterprises registered with the Aqaba Special Economic Zone Authority (ASEZA) to enjoy a 5% income tax on income generated from activities inside the ASEZ or outside Jordan except for banking, insurance and land transport services. Additionally, there are several free zone areas in Jordan that allow enterprises registered within them to enjoy exemption from income tax on all income generated from dealings outside Jordan; ie, transit commerce out of the free zone.
Operating losses incurred from a branch of the business or trade may be used to offset any other operating income or gain recognised by the company in the same tax year. Capital losses can only be offset against capital gains. Net operating losses of a company may be carried forward for five years, although they may not be carried back and cannot be carried forward for losses incurred from exporting goods and services.
Carry-forward loss generally survives ownership change.
Generally, sums paid on interest are deductible, provided that the capital was used for the production of taxable operational income. Generally, all income is expected to be associated with a cost, and therefore it is acceptable to deduct the cost of that income to arrive at the gross taxable profit.
Jordanian law does not allow for consolidated tax grouping. Each corporate entity has its own tax number and file.
Capital gains realised inside the Kingdom are generally exempt from income tax, except for the following:
However, the sale of shares in a non-listed company will trigger an escalating income tax from 0.5–5%, based on the value of the sale and not the capital gains realised.
All contracts executed by incorporated businesses are subject to stamp duty at 0.3% for contracts among private parties, and 0.6% of the value of contracts among private and governmental entities.
VAT/sales tax is paid by the final consumer, and not by the manufacturing or selling company; however, incorporated entities are responsible for collecting and forwarding the sales tax to the Income and Sales Tax Department (ISTD). Excise tax, however, is paid directly by the incorporated entity. Excise tax is regulated by Cabinet resolution and falls only on specified goods and activities, such as cigarettes, alcohol and cellular devices. Transfer tax applies to the sale of real estate.
Jordan charges VAT/sales tax on transactions in Jordan and on the importation of goods and services into Jordan, the standard rate of which is currently 16%, and 7% for the ASEZ. A transaction that is a sale of goods is deemed to have taken place in Jordan if, in the case of a tangible asset, it was delivered in Jordan or exported and if, in the case of an intangible asset, the seller is a Jordanian resident. Brokerage firms and financial institutions are subject to 24% income tax, and banks are subject to 35% income tax.
There is a tax on paid salaries (salary tax), which is deducted from the salary of the employee and delivered by the employer to the ISTD. Salary tax is an escalating tax starting at 5% up to 30%, subject to certain adjustments. Businesses are entitled to recover input VAT/sales tax costs in connection with goods or services used by them to create their taxable (including a zero rate) supply.
Jordan imposes customs duties in accordance with the Customs Law.
It is difficult to ascertain how most closely held businesses operate in practice. However, in the event that they do incorporate, the responses laid out below will apply.
The Jordanian corporate tax regime generally taxes only the corporation and does not impose any taxation for the distribution of dividends; therefore, it is not based on two-tier taxation. The corporate tax rate for incorporated businesses in 2020 is 20%, except for entities that work in the telecommunications, electricity generation and distribution, mining, insurance and reinsurance, and brokerage sectors, which have a corporate tax rate of 24%. The corporate tax rate for banks is 35%.
The highest applicable marginal tax rate on ordinary income is 30% (in 2021).
Closely held corporations are taxed on the income that stems from their operations, based on the income tax rate specific to their specific sector. The corporate tax rate for incorporated businesses in 2020 is 20%, except for entities that work in the telecommunications, electricity generation and distribution, mining, insurance and reinsurance, and brokerage sectors, which have a corporate tax rate of 24%. The corporate tax rate for banks is 35%.
In addition, in the event that a closely held corporation has not distributed a dividend, the distribution of the dividend does not damage or negatively impact the company, and the lack of distribution is not a means of tax avoidance because there are no taxes on dividends.
Buyers and sellers of traded shares are subject to 0.08% tax upon the sale or purchase of shares in publicly traded companies. Dividends of publicly traded companies generally are not subject to taxation.
Individuals are subject to 0.08% tax upon the sale or purchase of shares in publicly traded companies. Dividends of publicly traded companies are not subject to taxation.
The sale of shares in a non-listed company will trigger an escalating income tax from 0.5–5%, based on the value of the sale and not the capital gains realised, although a taxpayer with audited financial statements does have the option of choosing not to go with this escalating income tax, and rather be taxed based on the actual capital gain on the sale as measured against the original book value of the assets demonstrated by the audited financial statements for the relevant years.
In the absence of an applicable income tax treaty, the following particular withholding taxes apply to foreign residents.
Jordan has entered into income tax treaties with Algeria, Azerbaijan, Bahrain, Bulgaria, Canada, Croatia, the Czech Republic, Egypt, France, India, Indonesia, Iran, Iraq, Italy, South Korea, Kuwait, Lebanon, Libya, Malaysia, Malta, Morocco, the Netherlands, Pakistan, Palestine, Poland, Qatar, Romania, Saudi Arabia, Sudan, Syria, Tunisia, Turkey, Ukraine, United Arab Emirates, the United Kingdom, Uzbekistan and Yemen.
Jordan signed the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting in 2019.
Jordan does not have a formal position on the use of treaty country entities by non-treaty country residents.
Tax law requires all transactions between related parties to be based on arm’s-length terms such that if a preferred price was obtained due to a special relationship between the parties, the transaction is expected to be reported based on the market’s actual price. The ISTD would often compare the price of the transaction with the price of a similar international transaction between unrelated parties. The ISTD must amend the price between the related parties to match the price otherwise used between unrelated parties.
There is likely to be more focus in the future on transfer pricing as a result of the OECD's initiatives on BEPS, and the forthcoming implementation of legislation following such initiatives.
In Jordan, an agent acting for the foreign principal under an agency agreement does not constitute a permanent establishment as a dependent agent in Jordan. Therefore, if a foreign company sells goods via subsidiaries or other affiliates in Jordan that do not assume the responsibility of a fully fledged distributor, no tax is assessed on the foreign company’s revenue generated from the sale in Jordan, because the ISTD views such revenue as generated from sales to Jordan and not as income generated by sales in Jordan.
In a typical commissionaire arrangement, a person (the agent) concludes contracts for the sale of products in a certain jurisdiction in its own name. However, the sale is made on behalf of an overseas principal (typically an enterprise) that also owns the products and fulfils the contract. No enforceable rights and obligations are being created between the overseas principal and the customer buying the product. Commissionaire arrangements that involve a Jordanian party facilitating commercial transactions between two foreign countries are subject to 16% sales tax.
ISTD regulations and Jordanian courts have not addressed the issue of existence of a permanent establishment in Jordan in the case of commissionaire arrangements with a foreign principal.
Jordan signed the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting in 2019. It is not clear if this signing will affect the way the ISTD addresses the status of foreign principals using distributors in Jordan, or if it will result in a revised definition of permanent establishment.
Although the OECD Transfer Pricing Guidelines are not explicitly included in Jordanian legislation, the Income Tax Law contains a reference to international standards, and guidelines on transfer pricing issued by international agreements concerned with taxation. Thus, the OECD guidelines alongside could be used for referencing and interpretation when ISTD auditors deal with transfer pricing cases.
In 2021, there have been no international transfer pricing disputes resolved through double tax treaties and mutual agreement procedures.
Transfer pricing adjustments (profitability adjustments) are applied by multinationals and groups of companies to adjust the transfer prices in transactions between related entities so that they are at arm's-length level. Such adjustments are usually based on analyses of comparative data (benchmarking analysis) performed.
Typically, taxpayers undertake adjustments to transfer prices after the end of their tax year, when they have knowledge of any circumstances that might have affected the profitability of their intra-group transactions during the given year. Such circumstances may include exchange rate fluctuations, or the actual cost of the transaction was only estimated or assumed during the year.
Although the adjustment mechanism is commonly used by groups of companies, and the possibility of making such adjustments is indicated in the OECD Guidelines (ie, compensating adjustment), the rules governing the recognition of such adjustments for corporate income tax purposes and determining the moment of recognition had not became part of the Corporate Income Tax Act until 2019.
Detailed regulations governing transfer pricing and compensating arrangements were issued by the government in 2021.
The uncertainty of the tax implications resulting from application of this mechanism in previous years will affect taxpayers for quite some time, even after implementation of the new rules.
The income of Jordanian or overseas companies is taxable if it is accrued in, or derived from, Jordan.
Important points to note regarding branches include:
Capital gains on the sale of depreciable assets are considered taxable income. Capital gains from the sale of shares in publicly listed companies are exempt from income tax. However, the sale of shares in a non-listed company will trigger an escalating income tax from 0.5–5%, based on the value of the sale and not the capital gains realised. Sale and purchase of shares in publicly listed companies is subject to 0.08% tax paid by both the seller and purchaser.
Transfer tax is payable on the transfer of ownership of real estate located in Jordan, even where such ownership is indirectly held through intermediate holding companies. The transfer tax is 9%, traditionally split 5%–4% between seller and buyer.
No specific formulas are used by the tax authorities to determine the income of foreign-owned local affiliates.
Rather, the taxable profits of a local branch of a foreign company are generally calculated by reference to the income and deductions attributable to the branch under the assumption that it operates as an independent business unit and in accordance with transfer pricing rules.
There is no specific standard applied in allowing a deduction for payments by local affiliates for local management and administrative expenses incurred by a non-local affiliate. The deduction must be carried out in accordance with the fair market value of such services.
Income tax law defines a related party as:
Jordan has thin capitalisation rules in place. In broad terms, interest paid or payable to related parties is deductible, provided that the amount permissible for deduction does not exceed a ratio of 3:1 of the total debt to the paid-up capital or the average equity, whichever is greater. Therefore, interest (including capitalised interest) on the related-party debt exceeding the 3:1 debt-to-equity ratio would not be deductible for corporate income tax purposes.
In light of newly enacted regulations governing transfer pricing, entities should review and update transfer pricing documentation to ensure that it supports that the economic substance matches the contractual terms of related-party financial transactions. Transactions shall be disregarded if artificial or fictitious and have not been performed for the purposes of the business, but rather for the purpose of reducing the tax payable or of shifting the tax burden.
Jordanian resident corporations are not subject to corporate income tax on their worldwide income unless that income is raised from sources that originate and relate to Jordanian deposits and funds, in which case this income would be taxed at rate of 10%. The total net incomes achieved by the branches of the Jordanian company operating outside the Kingdom and declared in its final financial statements approved by an external legal accountant are taxable at a rate of 10%.
No local expenses deductions are allowed on the total net incomes achieved by the branches of the Jordanian company operating outside the Kingdom.
Dividends received from a foreign subsidiary are taxed based on a flat rate of 10%. Also, any foreign income realised using funds or deposits generated from any activity in Jordan and then used to invest outside Jordan is subject to a flat rate of 10% of the net income generated from such investment.
In general, income generated from the sale or lease of Jordan-based intangibles is taxable. Intangibles are not a good or service and thus are subject to corporate income tax only and not subject to sales tax. All the above is subject to compliance with transfer pricing rules.
A controlled foreign corporation (CFC) is a corporate entity that is registered and conducts business in a different jurisdiction or country than the residency of the controlling owners. Income from a CFC must be included in the gross income of the parent company and will be taxed at a 10% income tax rate. CFC income is determined for each individual foreign entity level based on its audited financial statements, and then attributed to the Jordanian parent company to be taxed.
Resident companies must include in taxable income their relevant share of the undistributed profits of a CFC, as CFC income is determined for each individual foreign entity level based on its audited financial statements, and then attributed to the Jordanian parent company to be taxed. This means that Jordanian CFC rules apply to passive and active income; that is, income derived from active business operations.
There are no specific rules that relate to the substance of non-local affiliates.
Generally, a Jordanian company’s gain from the sale of shares in foreign subsidiaries is included in the taxable income and is subject to income tax according to the following:
Anti-avoidance provisions empower the ISTD to disregard part or all of any arrangements or transactions deemed artificial and/or fictitious with a goal of reducing payable taxes.
This is often seen with refusal to consider unjustified expenses, and transfer pricing not on an arm’s-length basis. All those would normally be subject to restrictions and limitations pursuant to the application of general anti-avoidance principles.
The ISTD determines the entities that will be subject to audit based on a statistical sample of the companies that filed a tax return for that year. The tax returns filed by companies not included in the sample are considered accepted by the ISTD, even though such nominally accepted tax returns can still be audited within two years if the ISTD Director decides additional income information was revealed.
Tax records and financial information for the taxpayer should be kept for a minimum of four years starting from the latest of the following events:
Generally, the tax authorities cannot make a financial claim against a tax return more than four years from the date the tax return was filed.
The final financial assessment of the tax auditor may be appealed by the taxpayer to a committee within the ISTD. The decision of the committee can be appealed to the tax court, which in turn may be appealed to the tax appellate court.
Jordan signed the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting in 2019.
Jordan has already begun to implement certain BEPS recommendations, especially in the area of transfer pricing as incorporated in the latest amendments of the Income Tax Law effective in 2019. In this regard, the taxpayer may be required to provide the ISTD with complete documentation of the international transaction, including the method used for price calculation. This would fall within the BEPS Action 13 recommendation regarding transfer pricing documentation.
Furthermore, consistent with BEPS Action 5, which addresses harmful tax practices, the ISTD recently enacted legislation granting preferential tax rates to technology and hi-tech companies with respect to capital gains derived from sales of shares in such companies. Specifically, Jordanian tax law allows IT companies that create, process or store data, as well as companies working in programming, to exempt from corporate taxation all capital gains generated from the sale of company shares. Such changes can also be viewed as being part of the governmental push for attracting capital investments.
One notable area still untouched is e-commerce. The Tax Code explicitly declares as taxable the income generated from e-commerce for goods and services. However, the ISTD has yet to issue guidance on what that actually means from an implementation point of view. Specifically, what, if any, procedures will be applied to enforce taxation of income applicable to non-Jordanian internet companies selling goods or providing services to the Jordanian market through the internet, as well as the VAT/sales liability of internet services companies. The governmental response to this area has largely been, thus far, through the Customs Department’s treatment of goods received through the mail service from non-Jordanian internet companies.
As a result of Jordan signing the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, the ISTD has no option except to follow and implement the OECD’s recommendations in the BEPS reports and, accordingly, the authors expect to see amendments to domestic legislation, the enactment of regulations and the publication of guidance papers by the ISTD, which will indicate the ISTD’s position.
International tax has significant media exposure and hence a high public profile in Jordan, especially with respect to the taxation of non-Jordanian internet companies. Jordanians are not receptive to the attempts to tax payments made to such companies, because they view such purchases as legitimate overseas shopping that should not be subject to taxation.
The recently implemented increased customs fees on goods purchased from internet companies such as Amazon were not well received by the public. There is not much discussion on taxation of the non-Jordanian internet companies themselves, and whether they are paying sufficient tax on their activity in Jordan. The newly amended Tax Code has explicitly declared as taxable the income generated from e-commerce for goods and services. The ISTD has yet to issue guidance as to what that actually means from an implementation point of view. It is not clear yet how the media focus on this issue, together with signing the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, will increase Jordan’s motivation to implement the BEPS recommendations.
The government is trying to encourage investment in the Jordanian economy and make it a business-friendly jurisdiction. However, the government has been struggling with determining what level of personal and corporate taxation does not discourage economic activity. Recent income tax increases have had a mixed record in terms of increased tax collection, and there is considerable concern about tax burden saturation. A considerable challenge for Jordanian tax policy is to have a more equitable collection of tax revenues from income and VAT/sales tax. Currently, approximately 75% of Jordan’s tax returns are collected from VAT/sales tax, which is considered lopsided.
Income derived in free zones from industrial activity or from selling, assigning, or supplying goods and services within the boundaries of these areas is taxable at the same percentage as such activities outside the free zone.
As part of an investment approach, however, Jordan grants extensive income tax benefits to commercial activities within economically disadvantaged areas ranging from a 100% to 40% reduction on the applicable tax rate, to qualifying activities established in such areas, but in any case such entities must pay at a minimum 5% of the otherwise assessed tax sum.
VAT/sales tax is at 0% on goods or services sold to entities within free-zone areas and exported from the free zones; however, VAT will be due upon utilisation of those goods or services for purposes not related to the practice of licensed activity in the free zones.
There are currently no proposals for dealing with hybrid instruments.
Jordan has a semi-territorial tax regime. Foreign income derived from Jordanian-based funds – eg, dividends or capital gains income from foreign companies – is taxable if the foreign assets were acquired using funds located in Jordan. There is a de facto presumption that dividends and capital gains acquired by Jordanian companies from overseas fall under taxable income.
Income from a CFC has to be included in the gross income of the parent company and will be taxed at a 10% income tax rate. CFC income is determined for each individual foreign entity level based on its audited financial statements, and then attributed to the Jordanian parent company to be taxed. The authors do not expect any significant change to the current Jordanian CFC regime.
Jordan maintains a conservative approach with respect to granting treaty benefits. Anti-avoidance provisions empower the ISTD to disregard part or all of any arrangements or transactions deemed artificial and/or fictitious with a goal of reducing payable taxes.
This is often seen in the refusal to consider unjustified expenses, and transfer pricing not on an arm’s-length basis. All those would normally be subject to restrictions and limitations pursuant to the application of general anti-avoidance principles.
The government has issued regulations governing transfer pricing and is expected to continue their enforcement moving forward.
Regarding profits from intellectual property, the rule is that such income paid to overseas subsidiaries of the Jordanian company, including royalties, is taxable at a rate of 10%. The authors cannot comment yet on the potential impact on Jordan from BEPS proposals involving intellectual property.
The authors believe that the BEPS proposal for transparency and country-by-country reporting will improve enforcement.
The Tax Code explicitly states that the income generated from e-commerce for goods and services is taxable. The ISTD has yet to issue guidance as to how that actually works from an implementation point of view. Specifically, what, if any, procedures will be applied to enforce taxation of income applicable to non-Jordanian internet companies selling goods or providing services to the Jordanian market through the internet, as well as the VAT liability of internet services companies.
The governmental response to this area has largely been, thus far, through the Customs Department’s treatment of goods received through the mail service from non-Jordanian internet companies.
No information has been provided in this jurisdiction.
No information has been provided in this jurisdiction.
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