Taxes, Customs & Exemptions Q&A’s IN JORDAN

Taxes, Customs & Exemptions Q&A’s IN JORDAN

What is the current income tax rate?

The primary types of income taxes levied are corporate income tax, individual income tax, withholding tax and distribution tax. The Income Tax Law of 1985 was recently amended to include provisions of particular benefit for investors. This amendment, which came into effect in 1996, allows higher allowances for individual taxpayers and lower tax rates for individuals.

Corporate Income Tax
All companies, local and foreign, operating in Jordan are subject to corporate income tax at the following rates.

Type Rate
Mining, industry, hotels, hospitals, transportation, contracting and other sectors approved by the Council of Ministers 15%
Banks, financial and finance companies, exchange companies and brokerage companies (in case of banks, financial and insurance companies, the tax payable each year should not be less than 25% of their net income before any distributions are made) 35%
All other companies 25%

Foreign companies are entitled to claim tax-free up to 5 percent of their net annual income earned in Jordan as head office allocated expenses (branch office’s share of head office expenses). Income realized from exported goods and certain exported services are exempt from income tax in Jordan.

Taxation of Individuals
Salaries, wages and other income paid to Jordanian and foreign employees are taxable. The Income Tax Law gives a 50 percent exemption from tax on private sector employees’ annual salaries up to JD 12,000 and a 25 percent exemption on amounts above JD 12,000. Foreign employees working for non-Jordanian companies are exempt from paying all income tax. In addition, there are personal and family exemptions given by the Income Tax Law. In the public sector, 50 percent of the salaries and wages of employees are tax exempt.

The taxable income of an individual, not exempted as stated above, is subject to the following tax rates.

Annual Taxable Income Rate
First JD 2,000 5%
Next JD 2,000 10%
Next JD 4,000 15%
Next JD 4,000 25%
Next JD 4,000 30%

Information about Withholding Tax?

Ten percent of any payment made by a Jordanian resident to a non-resident should be withheld as payment on account of the tax due and should be forwarded by the Jordanian resident payer to the tax authorities within 30 days from the date it was withheld.

Every employer who pays salaries, wages, allowances or bonuses to employees must deduct from such payments the tax due and forward it to the tax authorities on a monthly basis.

Information about Withholding Tax?

Ten percent of any payment made by a Jordanian resident to a non-resident should be withheld as payment on account of the tax due and should be forwarded by the Jordanian resident payer to the tax authorities within 30 days from the date it was withheld.

Every employer who pays salaries, wages, allowances or bonuses to employees must deduct from such payments the tax due and forward it to the tax authorities on a monthly basis.

Information on Distribution Tax?

This tax is levied on the distribution of company profits (i.e., dividends) and amounts to 10 percent of the dividends paid out. This tax is required to be deducted and forwarded by the entity distributing the dividends to the Tax Department within 30 days from the date of such distribution. For purposes of this tax, profits transferred abroad by a foreign company operating in Jordan shall be considered as distributed profits.

Information about Taxable Income?

According to law, income arising or deemed to be arising in Jordan shall be subject to tax. In order to determine a taxpayer’s taxable income, all expenses wholly and exclusively made or incurred in the production of income during the year shall be deducted.

Company expenditures on training, marketing, research and development are tax exempt. Profits from the export of goods and services are totally exempted, with the exception of exports of phosphate, potash, fertilizers and other exports that are governed by trade protocols.

Information about Social Service Tax?

A social service tax is due from each individual and equals 10 percent of the taxpayer’s income.

Information about University Tax?

This tax is payable by shareholding and foreign companies at a rate of 1 percent of net income before taxes and distributions.

Information about Sales Tax?

The taxpayers as defined by the Sales Tax Law are the manufacturers, merchants or service providers whose sales amount to JD 100,000 per annum and importers of any goods or services irrespective of the volume of their imports. The sales tax rate ranges from 0 percent up to 20 percent of the value of goods, and for services, the sales tax is fixed at a rate of 10 percent.

This tax is payable when the sale is accomplished or the service is rendered. In the case of imported goods, the sales tax is payable at the customs clearance stage, before the release of such goods.

What are the singed treaties for the Prevention of Double Taxation available in Jordan?

Jordan has signed agreements to prevent double taxation with Austria, Bahrain, Belgium, Canada, Cyprus, Denmark, Egypt, France, Iraq, Kuwait, Libya, Malaysia, Oman, Pakistan, Qatar, Romania, Saudi Arabia, Spain, Syria, Tunisia, Turkey, United Arab Emirates, United Kingdom and Yemen.

Are there tax holidays or other incentives possible?

Yes, the government of Jordan is prepared to offer high value added investments special tax holidays and incentives in addition to the incentives already offered in the Investment Promotion Law.

What is the Investment Promotion Law?

Businesses in the following sectors receive exemptions under the Investment Promotion Law:

Industrial
Agriculture (without prejudice to privileges provided by other laws).
Hotels
Hospitals
Maritime transport and railways
For the purposes of this law, the geographical areas that receive tax exemptions are classified into three development areas, A, B, and C, and are subject to the degree of the economic development of such areas in each of the sectors listed in Article (3) of this law, pursuant to a regulation to be issued for this purpose.

The government will decide that any the project that falls within one of the sectors or sub-sectors listed in Article (3) of this law shall be exempted from income and social services taxes, by the following percentages in accordance with the development area:

25% if the project is in a Class A development area
50% if the project is in a Class B development area
75% if the project is in a Class C development area

Specific Incentives

The exemption period upon the committee’s decision shall be (10) ten years starting from the date of commencement of work for services projects, or from the date of commencement of production for manufacturing projects.

The Committee shall grant an additional exemption if the project has been expanded, developed or modernized with the result of increasing its production capacity. The additional exemption period shall be for one year per each increase in production capacity, not less than 25 percent, and for a maximum of four years.

The fixed assets of the project shall be exempted from fees and taxes provided that they are imported into the Kingdom within a period of three years from the date of the committee’s decision approving the lists of fixed assets of the project. The committee may extend this period if it deems that the nature of the project and the size of work required.

Imported spare parts for the project shall be exempted from fees and taxes provided that the value of such spares does not exceed 15 percent of the value of the fixed assets for which they are required, and provided that they are imported into the Kingdom or used in the project within a period of ten years from the date of commencement of production or work, in accordance with a decision taken by the committee approving the lists of spare parts and their quantities.

The committee shall exempt from fees and taxes fixed assets that are required for the expansion, development or modernization of the project if such expansion, development or modernization shall result in an increase in the production capacity of the project by not less than 25 percent.

The Committee shall exempt from fees and taxes any increase in the value of the fixed assets which are imported for the Project if such increase is a result of a rise in the prices of such assets in the country of origin, of a rise in the freight charges applicable thereto or of changes in the exchange rate

View complete Investment Promotion Law

What are the common depreciation practices?

Fixed assets can be depreciated following an accelerated or straight line depreciation method.

Where does VAT occur and how?

VAT is not levied, however sales tax is payable for goods and services.

Where are the foreign trade zones and how do they function?

Free Zones
Aqaba Special Economic Zone
Qualifying Industrial Zones

Free Zone
There are four public free zones and 17 private free zones in the Kingdom. The public free zones are Zarqa Free Zone, Sahab Industrial Estate Free Zone, Queen Alia International Airport Free Zone, and the Gateway Qualifying Industrial Zone.

Both Jordanian and foreign investors are permitted to invest in trade, services, and industrial projects in free zones. Industrial projects must meet one of the following conditions:

Depend on advanced technology;
Use raw material and/or locally manufactured parts that are locally available;
Complement domestic industries;
Enhance labor skills and promote technical know-how;
Provide consumer goods and contribute to reducing market dependency on imported goods.
The following incentives are granted to investors in the free zones:

Profits are exempt from income and social services taxes for 12 years, with the exception of profits generated from storage services that involve goods released to the domestic market.
Salaries and allowances for non-Jordanian employees are exempt from income and social services taxes.
Goods imported to and/or exported from free zones are exempt from import taxes and customs duties, with the exception of goods released to the domestic market.
Industrial goods manufactured in free zones enjoy partial customs duties exemption once released to the domestic market, depending on the proportion of the value of local inputs and locally incurred production costs.
Construction projects are exempt from licensing fees and urban property taxes.
Free transfer of capital invested in free zones, including profits.

Aqaba Special Economic Zone
The Aqaba Special Economic Zone (ASEZ) was established in 2001 to offer an attractive incentive package for investors. ASEZ offers investors a streamlined investment environment and encourages private sector participation in the zone’s development and operations, ensuring world-class infrastructure and services to Aqaba’s investors, residents and visitors. To date, ASEZ has attracted US$700 million in actual investments and US$2.1 billion in committed investment. In 2005, twice as many tourists visited Aqaba compared to 2000, and over 20,000 jobs have been created in the Zone over the past five years.

The ASEZ enjoys special fiscal regulations, including:

5 percent flat tax on net business income (except banking, insurance, and land transport services)
No social services tax
No sales tax on the vast majority of goods and services
No annual property tax
No tax on distributed profits and dividends
No customs duties on imported goods (except motor vehicles)
No foreign equity restrictions on investment (100 percent foreign ownership)
No foreign currency restrictions
Full repatriation of capital and profits

Qualifying Industrial Zones
Goods produced in a Qualifying Industrial Zone (QIZ) can be imported into the United States free of duty if they involve economic cooperation between Jordan and Israel, and if 35 percent of the product’s content comes from the QIZ, Israel, and/or the West Bank/Gaza. This makes investment in a QIZ particularly attractive to industries whose products are assessed with high tariffs when they are imported into the United States. There are 13 QIZs; three are publicly owned; ten are privately owned. As of December 2004, the bulk of QIZ exports are garments and textiles. Since 1999, the QIZs have attracted US$450 million in capital investments, generated more than US$2 billion in exports to the United States and created 40,000 new jobs.

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What are the Customs procedures?

Following the registration of the customs declaration the customs official concerned shall inspect goods wholly or partly according to the instructions issued by the Customs Director.

A – Inspection of the goods shall be conducted at the customs zone. However, the inspection shall be allowed to be conducted outside the custom zone upon the request
of the concerned person and on his account and in accordance with the rules set by the Director.

B – The transfer of goods to the inspection post, their unpacking and re-packing and all other steps required for the inspection shall be paid for by the person who resented
the declaration and on his responsibility.

C – Goods deposited in stores or in places set for inspection may not be transferred without the prior approval of the Department.

D – Those involved in the transfer of goods and presenting them for inspection should be acceptable to the Department.

E – It shall not be permitted for any one to enter the stores, warehouses, the depots, shelters, and yards prepared for the storing or depositing the goods for inspection without prior approval of the Department.

The inspection shall not be carried out except in the presence of the person who presented the declaration or his representative. When a shortage in the contents of the packages is detected, the responsibility thereof shall be defined as follows:

If the packages were brought into the stores and warehouses in an apparently sound condition under which the shortage is certain to have occurred in the country of
origin before shipment, then prosecution for the shortage shall be dropped.

When establishing a business outside the FTZs (either public or private), businesses must comply with the rules and regulations of the Customs Department of Jordan, usually a customs brokerage company will handle all processes on behalf of the client.

The Jordanian Customs Department has developed a program to expedite the customs’ clearance times called the Golden List program. Businesses in international trade complete a rigorous audit process and if it’s determined they are considered low risk and practice due diligence in their customs procedures, they qualify for expedited clearance. Belonging to the Golden List reduces the U.S. clearance time for businesses exporting to the United States.

There are currently plans to establish an inland port in Maan area just north of Aqaba to deal with the clearance of shipments incoming and outgoing of Aqaba port to expedite the custom clearance process.

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What is the property tax rate and can it be waived / reduced?

The property tax rate is based on the location of the investment and the government is prepared to offer special incentives to large investments employing a considerable number of Jordanians regardless of plant location

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