Jordan Chamber of Commerce and Industry

DOING BUSINESS IN JORDAN

Jordan in a snapshot

Jordan managed to hold an advanced position on the Arab and international investment map, down to the components and requirements it has, which investors seek; by adopting a clear economic approach to achieve real growth and as a result of the efforts of His Majesty King Abdullah II Ibn Al-Hussein, who constantly emphasizes the necessity of proceeding with the economic and financial reform programs, developing the investment environment to ensure the attraction of foreign investment, and launching a series of procedures and remedies which would:

• Increase the national economy product. • Improve its investment environment and strengthen its competitive edge. • Restore the solid and proper financial situation. • Adopt a wide set of adequate legislative and regulatory frameworks for investment. • Deregulation of trade and economic openness, along with the integration. into the world economic through accession to several international, regional and bilateral agreements.

Due to its role, as the primary incubator for the Commercial Sector in Jordan, Jordan Chamber of Commerce is keen to extend bridges with various economic activities and institutions from over the world, and having an active and vital presence thru participating in all forums and conferences, which contributes in developing the Arab economic relationships with various international economic entities, in order to promote investment opportunities, and to seize all incentives, advantages, security and political stability that Jordan offers and provides.

WHY INVEST IN JORDAN?

JORDAN AT A GLANCE

Jordan is an Arab country strategically positioned to serve as a regional business platform. Since King Abdullah II’s 1999 ascension to the throne, Jordan has strongly encouraged foreign investments and has developed a modern-oriented, market-based, and globally-competitive economy. Jordan is also uniquely placed to host investments focused on the reconstruction of Iraq, Syria, and projects in other regional markets. Jordan is committed to prioritizing growth in the coming years after demonstrating resiliency in spite of a series of exogenous crises that slowed down its GDP growth to 2% from an average of 6.5% during the period prior to the global financial crisis, regional turmoil and border closures. For Jordan to grow as in the past, it must attract FDIs, increase its exports, and decrease its dependence on imported energy, all of which require a competitive investment ecosystem. Jordan ranked 104th out of 190 countries in the 2018 Doing Business ranking published by the World Bank.

INFRASTRUCTURE & ICT

Jordan infrastructure is modern and follows international standards. The country is internationally connected by two main airports: Queen Alia International Airport, Jordan’s main and largest airport located in Zizya (30 kilometres south of Amman) and Aqaba Airport (also known as King Hussein International Airport), located in the vicinity of Industrial City, northern suburb of Aqaba in Jordan. Finally, Jordan has only one port situated in the Red Sea: Port of Aqaba (12 terminals operated by five different operators). Jordan has also succeeded in creating and developing a highly competitive Information and Communications Technology sector, which is considered to be one of the leading sectors in the MENA region. In 2018, the Information & Communication

Technology sector constituted the third largest contributor to the GDP in Jordan, at a rate of 14%, with the number of the companies operating in this sector reaching over 400 companies, employing approximately 16,000 people (data: Jordan Investment Commission). A number of incentives and measures have been undertaken to further facilitate and provide incentives to the development of this sector.

RECONSTRUCTION HUB

When investing in Jordan, foreign investors must think about the country as a future regional hub: Jordan must not be considered only as an arrival destination but also as the starting point of future middle-eastern ventures. The country represents a perfect gateway for the entire region and especially for the countries that will face a long reconstruction period. These countries are Iraq and Syria. According to UN estimates, Iraq would need roughly 100 billion $ of investments to reconstruct the country. Syria on the other hand would need more likely 250-300 billion $, according to Staffan de Mistura, former UN special envoy for Syria. After re-opening land borders with the two countries, Jordan invested in large infrastructures capable of channelling huge amounts of goods to both countries. The plan is to establish a logistics hub and other facilities in Mafraq in northeastern Jordan, near the country’s frontier with Iraq and Syria.

INSTITUTIONS FOR INVESTMENT

Jordan Chamber of Commerce

A non-profit institution that serves its members in all economic, commercial and service sectors. The main task of the Chamber is summarized in providing an umbrella for the activities of sixteen national chambers of commerce and ten major commercial sectors across the cities of the Hashemite Kingdom of Jordan. Jordan Chamber of Commerce sought aspiration from the royal directions of the homeland leader HM King Abdullah II, who is utterly keen to promote the drive of the economic growth, invigorate all economic activities and sectors, raise the level of citizen livelihood, attain renaissance in all fields for Jordan to become an example to follow, and to position the Kingdom of the world investment map and integrate the national economy into the world economy. Major activities of the Jordan Chamber of Commerce include achieving the interests of the business community, providing of information and consultancy to the members, building up the economic development, providing of economic and market condition statistics, encouraging foreign investments and facilitating international trade. Main objectives of the Jordan Chamber of Commerce include:

• Participating with the public bodies in drawing up policies related to trade and service sectors, including information technology and communications, and participating in developing strategies and plans necessary for implementation thereof; • Participating in the efforts of development and promotion of trade and service, including small and medium sized enterprises; • Promoting cooperation between the Jordanian Chambers of Commerce on the one hand, and the Arab and foreign Chambers and associations of Commerce, on the other hand; • Supporting and Consolidating the capabilities of the national Chambers of Commerce and coordinating their efforts; • Participating, along with relevant authorities, in organizing economic and commercial conferences at local,

Arabic and international levels; • Conducting, publishing, and updating economic studies and research in relation to trade and services.

The Chamber carries on its activities at a fast- pace with a view to promote the commercial sector activity at local and external levels through the join ministerial and higher committee. It has also participated in many local, Arab and international economic and commercial forums, conferences and symposia. It further continued to assume its role in supporting the organization of economic gatherings and forums within Jordan and abroad which it deems to be in the interest of the Jordanian economic and a potential to attract foreign investments. The Chamber has also received many of Arab and international economic and commercial delegations; played a major role in holding symposia, workshops, training session and bilateral meetings for those visiting delegations, all of which created opportunities to introduce the members of the delegations to the atmospheres of investments and available

potentials in the Kingdom, as well as to familiarize them with the laws, legislations, regulations and instructions regulating the investment, and the economic and commercial activity within the Kingdom. The Chamber has also contributed to holding bilateral meetings between the members of the Arab and foreign visiting delegations and Jordanian businessmen, entrepreneurs, investors and company owner’s counterparts. At the same time, the Jordan Chamber of Commerce had signed several protocols and agreements on cooperation with the Arab and foreign chambers of commerce and industry; it had also signed several agreements on creation of joint business councils with those states, and held several meetings for such councils within Jordan and abroad.

Jordan Investment Commission

The Jordan Investment Commission (JIC) is an independent governmental authority, established in accordance with the Jordanian Investment Law no. (30) for the year 2014. The Commission aims to establish a leading authority that attracts and embraces foreign investments and enables local investments in order to achieve economic prosperity in Jordan. This is achieved through the Commission’s work in supporting the investment environment in the Hashemite Kingdom of Jordan by simplifying and facilitating the establishment of investment projects in Jordan and the process for obtaining vocational and other licenses via the establishment of the Investment Window. The Investment Window comprised of representatives from various governmental bodies, effectively providing a “one-stop shop” for the registration and licensing of investment projects. The Commission further aims to improve the legislative framework and regulations related to investments, and enhance the incentives granted to investors.

Aqaba Special Economic Zone

In the year 2001 and under the direction and leadership of His Majesty King Abdullah II the Aqaba taskforce was created with the objective of turning Aqaba into a competitive international investment hub by maintaining a streamlined investment environment, encouraging private sector participation in all aspects of the Zone’s development and operations, and ensuring the provision of world-class infrastructure and services to the Aqaba community. Being a liberalized, low tax, duty free and multi-sector development zone, not only does ASEZ reflect His Majesty King Abdullah II’s vision of modernization, reform, and private sector led growth, it reflects Jordan’s assertive reform strategy to provide investors, from all over the world, with an attractive business environment and a distinctive destination for living, business, and tourism.

DOING BUSINESS IN JORDAN

An introduction to basic Corporate, Tax and Labour laws fundamental to understand how to start, run and operate a business in Jordan. A first technical approach to a growing dynamic economic market.

CORPORATE

The 2014 Investment Law provides for equal treatment to be granted to foreign and local investors alike, unless otherwise provided for under applicable laws. This means that there are no additional restrictions on foreign investment other than those stated in the applicable regulations (see LIMITS ON FOREIGN INVESTMENTS AND OTHER CONSIDERATIONS), and unless expressly prohibited, foreign investors may hold up to 100% of any investment in Jordan.

ESTABLISHMENT OF AN INLAND COMPANY

Business vehicles in Jordan are mainly regulated by the Companies Law of 1997. The main business forms are the general and limited partnerships, the limited liability company, the limited partnership in shares, the private and public shareholding companies and the branches of foreign companies. Different requirements apply to their formation, minimum capital, governance and other compliance rules.

General partnership

A general partnership is formed by at least 2 and at most 20 partners. Each partner is personally jointly and severally liable, along with the other partners, for the debts and obligations of the partnership. The person or persons responsible for managing the general partnership must be indicated in the partnership agreement. The partner authorized to assume such a role is treated as the legal representative of the partnership and is required to submit periodic reports to the other partners to account the management.

A general partnership is dissolved in any of the following cases:

• Agreement by all the partners to dissolve or merge • Expiration of the partnership’s term of operations • Completion of the objective • Remaining of only one partner and inability to admit one or more new partners • Declaration of bankruptcy; • A partner is declared bankrupt or and the other partners decide not to continue the partnership • Dissolution of the partnership by a court decision • Cancelling of the partnership in accordance with the Companies Act

Limited Partnership

A limited partnership consists of general and limited partners, with the general partners assuming responsibility for the management and the conduct of its activities. The general partners remain personally jointly and severally liable for the debts and obligations of the partners. The limited partners have no right to manage the partnership but are required to contribute to the partnership’s capital, with their liability being limited to such contributions.

Limited Partnership in shares

A limited partnership in shares is composed of at least two general partners who are personally liable for the company’s debts and at least three limited partners whose liability is limited to their shareholding. Limited partnerships in shares are required to maintain a minimum capital of at least JOD 100,000divided in negotiable shares, each with an equal value of JOD 1. The management of a limited partnership in shares is the responsibility for its general partners as set out in the partnership’s association. The main supervisory bodies of a limited partnership in shares are its general assembly, consisting of all of the general and the limited partners, and the supervisory council, consisting of at least three members elected from among the limited partners.

Limited Liability Company (LLC)

A limited liability company is composed of 2 or more shareholders, but formation by a single person may also be permitted with the prior approval of the Controller of Companies. The minimum share capital requirements of an LLC are JOD1 if all the shareholders are Jordanian. Foreigners must make a minimum share capital contribution of JOD 50.000. Public subscription for raising capital is not permitted. The LLC is a separate legal entity from its shareholders, and wherein the liability of the shareholders is limited to their respective capital contribution. Rights granted to each shareholder shall be in accordance with their respective shareholding percentage of the LLC. The LLC is managed by a General Manager or a Management Committee. A limited liability company is managed by an appointed manager or by a management committee consisting of at least two members but not exceeding seven, which elects a chairman, a deputy chairman and any other person authorized to sign on behalf of the company.

Public company (or joint-stock company)

A public shareholding company must have at least two founders, although the Minister of Industry and Trade could approve a single person to establish such a company or the transfer of the company’s ownership to one person who

purchases all its shares. Each founder subscribes for shares that may be listed on the stock exchange and his liability is limited to the proportion of his share ownership in the company. A public shareholding company has to maintain a minimum capital of JOD 500.000, with a subscribed capital of at least JOD 100.000 (20% of the authorized capital). The minimum capital requirements for specific sectors may be higher: for example, in the banking sector the minimum capital requirement is JOD 100 million for Jordanian banks and JOD 50 million for foreign banks. The first general assembly of shareholders must be held within 60 days from the establishment. Thereafter, an ordinary meeting of shareholders must be convened at least once every year, within 4 months following the end of the company’s fiscal year. An extraordinary meeting may be convened at any time to deal with special matters. A public company may be wound up voluntarily or by the court.

A company may be wound up voluntarily in any of the following situations:

• The duration of the company has expired and has not been extended • The objectives of the company have been fulfilled • The general assembly dissolves or liquidates the company

A company may be wound up by the court in any of the following cases:

• The company commits serious violations of the law or of its memorandum of association • The company fails to fulfil its commitments • The company suspends its operations for 1 year without any justified reason • The company’s losses exceed 75% of its subscribed capital and increase its capital

Private Shareholding Company (PSC)

A private shareholding company is composed of 2 or more shareholders, although in some cases a single person may establish such a company with the prior approval of the Minister of Industry and Trade. The minimum share capital requirements of a PSC are JOD 50.000, if all the shareholders are Jordanian. The liability of the shareholders in the company is limited to the value of shares to which they have subscribed. A PSC may issue shares, corporate bonds, and other securities. The PSC is a separate legal entity from its shareholders, and wherein the liability of the shareholders is limited to their respective share capital contribution. The PSC offers flexibility to shareholders, in that in accordance with the certified Memorandum and Articles of Association of a PSC, a PSC may provide for various types and categories of shares which might differ in terms of their nominal value, voting force, method of profit and loss distribution among shareholders, as well as their rights, priorities, restrictions, and advantages. The PSC is managed by a Board of Directors. The liquidation of a private shareholding company is similar to the conditions and procedures applied to the liquidation of a public shareholding company.

Holding company

Under the Companies Law, a holding company is a public shareholding company that controls the financial and administrative affairs of one or more subsidiary companies. Such control could be exerted through the ownership of more than 50% of the capital of the subsidiary company and the formation of the board of directors. An existing public shareholding company may be converted to a holding company through the amendment of its objectives to conform to those of a holding company.

A holding company may have any of the following objectives:

• Management of subsidiary companies and participation in the management of other companies • Investment in shares, bonds and securities • Advancement of loans and financial assistance to the subsidiary companies • Ownership of patents, trademarks, concession rights and other intangibles

Foreign Company – Operating

An operating branch of a foreign company may be incorporated for the execution of certain works (e.g. construction) in Jordan, under a contract with a Jordanian employer. There are no restrictions as to the type of employer, public or private. The foreign operating company is limited to the purpose and period of the said contract. The foreign operating company is not a distinct legal entity, does not grant limited liability to its Parent Company, and is not subject to any minimum capital requirements. A Jordanian representative/manager must be appointed to act as a liaison with governmental and regulatory authorities.

Foreign Company – Non-operating

A non-operating branch of a foreign company may be incorporated to act as a regional or representation office in Jordan for operations it concludes outside of Jordan. The foreign non-operating company is prohibited from carrying out any business or commercial activities in Jordan, including operations of commercial agencies and intermediaries. The foreign non-operating company is not a distinct legal entity, does not grant limited liability to its Parent Company, and is not subject to any minimum capital requirements. A Jordanian representative/manager must be appointed to act as a liaison with governmental and regulatory authorities. Venture Capital Company (VCC) The venture capital company (VCC) was included in the Jordanian legal framework by Law 34 of 2017 amending the Companies Law. A VCC can be set up for the purpose of direct investment or for the creation of mutual funds and investment in the capital of unlisted companies with important growth potential. A VCC cannot invest in listed companies. The VCC’s participation in the capital of any of the companies cannot not exceed 50% of its paid-up capital and the percentage of ownership in any of the investee companies may not exceed 51% of the capital of such companies. VCCs must be registered in a special register with the Registrar of Companies. The details on the formation, capital requirements, management and liquidation of these companies are regulated by Regulation 143 of 2018 published on 27 December 2018.

Working IN A SPECIAL ECONOMIC ZONE

The Jordanian Free Zones

The Jordanian Free Zones (FZ) are large areas offering commercial, industrial and storage facilities to foreign investors. FZs are an ideal location for manufacturing companies exporting their products abroad, thanks to low cost of industrial and storage space and their convenient location close to main cities, coastal areas and important transport hubs, which may also appeal to entrepreneurs involved in the tourism business. The Jordan authorities currently operate six free trade zones:

• Aqaba FZ, the country’s largest with the most generous benefits (independent authority) • Al Karama FZ • Al Karak FZ • Sahab FZ • Al Zarqa FZ • Queen Alia International Airport FZ • Mwaqqar FZ

These free zones offer advantages including 100% foreign ownership, even in restricted sectors (see LIMITS ON FOREIGN INVESTMENTS AND OTHER CONSIDERATIONS), advantageous real estate and no custom duties on all imported products required for the company’s investments. The Aqaba FZ offers additionally a reduced corporate tax rate of 5%, complete exemption from property tax and a 70% admissible quota on foreign employees. In order to conduct operations in a Free Zone, a company must obtain approval from the Aqaba Special Economic Zone Authority if incorporating in Aqaba or from the Jordan Investment Commission, if incorporating in all other FZs.

The Jordanian Development and Industrial Zones

Jordan authorities currently operate 12 development zones, which are industrial estates located inside Jordan’s main cities:

• Al Hussein Bin Talal Development Zone (Mafraq) • Al Thuraia Development Zone • King Abdullah II Development Zone (Sahab) • Al Muwaqqar Development Zone • Maan Development Zone • Al Muhammadiyah Development Zone (Maan) • Al Hussain Bin Abdullah II Development Zone (Karak) • Dead Sea Development Zone • King Hussein Business Park Development Zone • Ajloun Development Zone • Irbid Development Zone • Al Hasan Industrial Zone

All six development zones offer identical benefits for operations conducted in those areas, including 100% foreign ownership (also in restricted sectors); a reduced corporate tax rate of 5%; exemption from VAT; exemption from all custom duties on all imported products required for the company’s investments; no quota on foreign employees and no social security contributions and payroll tax on foreign employees’ salaries. In order to conduct operations in a development zone, a company must obtain approval from the Jordan Investment Commission. In order to get the approval, companies must evaluate the eligibility of their project by drafting a detailed business plan fulfilling registration requirement and register their company directly with the JIC One Stop Shop.

OFFSHORE ESTABLISHMENT / COMPANY

An offshore company is a company which has been previously incorporated outside of Jordan and is registered in Jordan as a “foreign non-operating entity”, therefore not allowed to pursue commercial or productive activities within the Kingdom. The words “exempt company” must also be added to its name.

Jordan offshore companies are therefore mainly used by businessmen to:

• Serve as regional headquarters for their Middle East operations • Sign contracts corresponding to operations executed outside of Jordan and receive related revenue • Hold both Jordanian and foreign shares and other assets • Minimize taxation and protect the privacy of net wealth and revenue

An offshore company can be registered with only JOD 1 of share capital, one corporate shareholder and one director, whom can be of any nationality. The Ministry of Trade and Investment will still require a registered address in Jordan. The company must possess at least two years of existence to serve as offshore company’s parent company. Jordanian authorities will indeed request the two last audited financial statements in order to approve the offshore company’s registration in Jordan. Such company benefits from reduced registration requirements, as foreigners may register an o shore company with a share capital of only JOD 1, while they must contribute at least JOD 50.000 to setup other Jordanian business entities. In addition, offshore companies do not need to publish an incorporation notice in the official gazette and are also exempt from registration requirements with the Jordanian Chamber of Commerce and Chamber of Industry. In general, foreign companies find that an offshore company is great to receive foreign-sourced income, because such business entity will be able to receive earnings from abroad on its non-resident corporate account in Jordan, which will be exempted from all transfer commission fees charged by the Central Bank. All foreign-source earnings remitted to an offshore company are exempt from corporate tax and capital gains tax; An offshore company will also not pay withholding tax on dividends distributed to its foreign parent company; taxes levied by foreign governments will be reduced by Jordan’s double taxation avoidance agreements with 35 countries including Italy.

PUBLIC-PRIVATE VENTURES

With the objective to create a driving force for economic growth, the Jordanian government encourages the formation of strategic partnerships with the private sector in certain key markets, notably infrastructure, multiple utilities and services. It is to this end that the government enacted the Public-Private Partnership (PPP) Law in 2014, establishing an exclusive legal framework for such business vehicles. Government institutions that could create a PPP contract include ministries, state-owned agencies, Councils, authorities, municipalities and firms wholly or at least 50% state-owned. A PPP contract may not last more than 35 years. The government body responsible for receiving applications for PPP bids, reviewing, approving, supervising, regulating and supporting all PPPs is the Public-Private Partnership Unit, which reports directly to the Ministry of Finance, together with the Public-Private Partnership Council chaired by the Prime Minister.

AGENCY / DISTRIBUTION

The Commercial Agents and Intermediaries Law No. 28/2001 governs contractual agreements between foreign firms and commercial agents. Private foreign entities, whether licensed under sole foreign ownership or as a joint venture, compete on an equal basis with local companies. This option again avoids the need for foreign companies to establish a physical presence in Jordan and allows foreign companies to leverage the agents or distributor’s local market connections. From a cost and risk perspective it can also be lower, because it allows savings on the costs of physical establishment and uses third parties’ existing buyers.

JOINT VENTURES

Foreign companies wanting to enter the Jordanian market or develop their existing operation beyond an agency or distribution arrangement could operate a joint venture (JV). JV’s enable the foreign investor to take an equity stake and role in the operation and management of their Jordanian entity whilst still benefitting from the participation of a local partner. The local partner may contribute financially or by way of technical skills or local connections and reputation. A joint venture does not constitute a separate legal entity (and therefore does not require proper registration) as there are no detailed statutory provisions governing the setting up of such a business vehicle. Nonetheless, the law requires the parties to the agreement to underline the respective rights and duties of the partners towards each other and towards the business venture, and the future distribution of profits and losses amongst themselves.

LIMITS ON FOREIGN INVESTMENT AND OTHER CONSIDERATIONS

Foreigners are prohibited from wholly or partially owning investigation and security services, sports clubs (exception: health clubs), stone quarrying operations for construction purposes, customs clearance services, and bakeries of all kinds, and prohibited from trading in weapons and fireworks. The Cabinet, however, may approve foreign ownership of projects in these sectors upon the recommendation of the Investment Council. To qualify for the exemption, projects have to be categorized as being highly valuable to the national economy and must employ a large number of Jordanians. Investors are limited to 50 percent ownership in a number of businesses and services, including the ownership of periodical publications, printing/publishing companies, aircraft or maritime vessel maintenance and repair services, land transportation services, retail and wholesale trading. Foreign firms may not import goods without appointing an agent registered in Jordan; the agent may be a branch office or a wholly-owned subsidiary of the foreign firm. The agent’s connection to the foreign company must be direct, without a sub-agent or intermediary.

DISPUTE RESOLUTION

Arbitration

Since 1972, Jordan has been a contracting state to the International Centre for Settlement of Investment Disputes (ICSID convention). Only a small number of cases between foreign investors and the Jordanian government have been brought before ICSID tribunals. Jordan is also a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York convention).

In January 2018, the Parliament passed amendments to Arbitration Law 2017, which aims to facilitate the use of arbitration as an alternative to dispute settlement procedures.

TAX

Most operations in Jordan should commonly be subject to taxation, so taxes are an important consideration when planning to do business in Jordan. Importantly, one shall divide between the Mainland and Development, and Free Zones dealt with above.

DIRECT TAXES

The Jordanian Income Tax system is regulated under the Income Tax Law No 34 of 2014 as amended (shortly, the “Income Tax Law”). In late 2018, the Parliament has approved slight amendments carried through the new Income Tax Law No 38 of 2018 published in the Official Gazette on 2 December 2018 and effective as of 1 January 2019 (hereinafter the “New Income Tax Law”). The New Income Tax Law deals with a number of issues concerning both corporate and individual taxpayers. This Guide takes into account the most relevant amendments for corporate taxpayers.

Corporate Income Tax

The Income Tax applies to both individual and corporate taxpayer on any income generated “in or from the Kingdom” (regardless of the place of payment) listing a number of activities that shall be included, such as, but not limited to: (i) business profits, (ii) royalties, (iii) income from selling or leasing intangible assets located in Jordan, included goodwill, etc. Any other income that is not exempted, may be taxable. A list of exempted persons/activities is set forth in the Law and, among others, the following shall be considered:

Exemption

Profits of foreign company not operating in the Kingdom, generated from businesses outside the Kingdom Capital gains realized inside the Kingdom Income generated by Venture Capital companies, defined and registered in accordance with Law Dividends from stocks and shares by LLC, LPs, GPs, and public and private shareholding companies residing in the Kingdom Income of non-Jordanian resident investor from sources outside the Kingdom from foreign investments Any income generated by Banks and financial companies and profits gained by re-insurance companies not operating in the Kingdom

Note

See below “International”

Few exceptions

Few exceptions

CIT rates in Jordan are applied based on the industry, unless falling under the standard rate. As of January 2019, a National Contribution Tax has been introduced, increasing the effective tax rate as follows:

Sector

All sectors Main telecom companies, insurance and reinsurance companies Electricity distribution and generation companies Basic mining material companies Financial intermediaries, companies, etc. Banks

CIT rate National Contribution

Effective Rate

20% 1% 21% 24% 2% 26% 24% 3% 3% 24% 7% 31% 24% 4% 28% 35% 3% 38%

The standard tax rate will be gradually decreasing in the industrial sector except for pharmaceutical and clothing sectors from 25% to 5% tax rate in the timeframe between 2019 and 2023 (and between 50% and 5% tax rate for entities engaged in the pharmaceutical and clothing sectors). Activities in the agricultural sector are now subject to a 20% tax rate, provided they exceed certain no-tax threshold for corporate taxpayer (JOD 50,000 net profits) and individuals (JOD 1 Million sales).

Personal income tax

Individuals, such as companies, shall be taxable on income generated “in or from the Kingdome” and also from employment income. Such income is deemed to include: salaries, wages, bonuses, rewards, allowances, and any other cash or in-kind amounts. Payments to the National Security contribution (or other pension plan) and other listed costs payed by the employers on behalf of employees are deductible from the employee taxable base. Some items are tax exempt such as accommodation services provided by the employer at workplace, meals, and furnishing of equipment and uniforms. End of service benefits can gain remarkable exemptions in some cases or be subject to lower 9% rate, according to the following brackets.

Period of services Prior to 2009 Jan 2010 to Dec 2014 Jan 2015 onwards Exemption rate Exemption threshold PIT rate above Exemption 100% - -

50% 9%

- Below 15.000 JOD 9%

A number of deductions from taxable income has been introduced by the New Income Tax Law.

Development and Free Zones

The New Income Tax Law affects taxation also in Development and Free Zones. Transformational industrial activities in Development Zones, with a “total local value-added of at least 30%” will be taxed at 5% rate while taxation for all other projects and activities will be lifted to 10% rate. Profits earned by entities registered in the Free Zones engaged in an industrial activity (or any other activity pertaining to the sale, disposal, or importation of goods and services within the borders of the Free Zones) are now taxable according to standard Income Tax rates applicable depending on the status (either corporate or individual). It is worth to stress that the New Income Tax Law does not waive the tax exemption applicable to the export of goods and services outside Jordan and transit trade.

International

Entities are deemed to be “resident” in Jordan if either (i) established or registered in Jordan and having a centre or branch carrying on administration and control of activities therein; or (ii) having the place of main or effective management in Jordan. Foreign source income is taxable at a flat 10% rate (and it is not permissible to deduct any amount whatsoever) in Jordan either (i) if generated by a resident person from money or deposits from the Kingdom: or (ii) by a branch of a Jordanian company operating outside the Kingdom. Foreign companies not operating in the Kingdom (representation offices) shall not be taxable upon their business profits generated from businesses carried out outside the Kingdom. For the sake of clarity, it is worth to stress that no clear definition of permanent establishment is provided for. Importers in Jordan shall pay a 2% rate of the import value as a “down payment” to be collected and remitted by the Jordan Customs to the Department.

TP, Thin-Cap and WHTs

The New Income Tax Law introduced Thin-Cap rules providing that interests (and Mudarabah profits) payments to related parties, exceeding the 3:1 debt-to-equity ratio cannot be deducted by the payer. New transfer pricing (TP) has been introduced holding that the Department shall assess whether any transaction,

agreement, or arrangement among related parties is different from the terms and conditions that “could have been agreed” between independent parties. Such assessment shall be carried out “in accordance with international standards”. Indeed, it is important to underline that, whether the it was artificial or fictitious, the transaction will be disregarded, and tax shall be assessed as if the transaction did not occur. Under Jordan Income Tax Law, withholding obligations upon “passive income” (income from deposit interest, commissions, profits of deposits participating in investments of banks and interest-free financial companies), is withheld as follows: (i) at a 5% rate for individual recipients; (ii) at a 7% rate for a legal person. Italy and Jordan signed a Double Tax Treaty in 2004 (in force as of 2010) and, under the relevant treaty taxes withheld in any of the two countries (upon outbound payments) with very few exceptions (such as interest payment, where the payor is the State) the threshold summarised below cannot be exceeded.

Dividend 10% Interest 10% Royalties 10% Capital Gains

SALES TAX (VAT) AND CUSTOMS

A general sales tax is imposed at the rate of 16% on: (i) Sales of goods or services and: (ii) Importing any service or goods from outside Jordan or from the Free Zone areas and markets inside Jordan. Export of goods and services outside Jordan, to the Free Zone areas and markets, to the Aqaba Special Economic Zone (ASEZ), and to development areas are zero-rated. Exemptions apply with respect to sales of listed goods such as bread, water packed in less than five litres, tea, sugar, gold, money, and electricity. Services exempt from sales tax include the following: air transport, education, disposal of sewage and waste, public health and similar activities, activities of religious organisations, activities of social organisations. Jordan is member country of the WTO and has entered into a Free Trade Agreement with the EU which led, in 2016, to a simplified rule of origin used by Jordan exporters to the EU, revised in December 2018 and to be applied until 2030.

OTHER TAXES AND LEVIES

Municipal tax

There are no governorate or local taxes in Jordan.

Tax on Real Estate Properties

A property tax is levied according to the tax rate determined by the municipality (depending on location and size of the property and, in case of buildings, depending on annual rental value). Transfer of property is subject to taxation at a 9% rate, while registration fee is charged at 5% rate and sale of property at a 4% rate.

LABOUR

Employment relations in Jordan are primarily covered by the Jordanian Labour Law No. (8) for the year 1996, as amended. The Labour Law sets a minimum standard of employment conditions, and wherein, employers may provide for more favourable employment conditions, but may not detract from the minimum rights granted to employees by virtue of the Labour Law. The Labour Law applies equally to foreign and local workers in Jordan.

SOCIAL SECURITY

Each employer employing one or more employees must register such employees with the Social Security Corporation, and pay the respective contribution. Social security is imposed on both the employer (at 14.25% rate) and the employee (7.5% rate) with rates calculated on the monthly salaries plus certain allowances. The employer is asked to report and withhold such amounts on a monthly basis.

The maximum monthly salary subject to social security contributions is JOD 3.186.

LABOUR STANDARDS

Minimum wages

Jordan has very low labour costs. Monthly wages in Jordan are recorded at an average of USD 560 and can be as low as USD 230, as such is the minimum wage enacted by Jordanian Labour Law.

Working hours

Total working hours shall not exceed 8 hours per day with different arrangements and shifts, provided that the total working hours per week shall not exceed 48 hours. Employees are entitled to a weekly, paid free day. Employees are further entitled to compensation for any overtime work and for any work performed during the free day and public or religious holidays, at a premium to their normal wage.

Annual leave

Each employee shall be entitled to an annual leave with full pay, amounting to 14 working days per each year of service. Employees who have completed five consecutive years of service with the same employer, shall be entitled to 21 working days of annual leave per each year of service thereafter. Employees are entitled to further leave entitlements in certain circumstances including Maternity Leave and Hajj Leave.

Sick leave

Each employee shall be entitled to 14 days per year of sick leave with full pay, based on a report from a physician approved by the employer. The employee shall be entitled to an additional 14 days per year sick leave with full pay, if he is hospitalized patient or based on a report of a medical committee approved by the employer.

Health Insurance

The Jordanian Labour Law does not compel the employer to provide the employee with health insurance. The employer may do so at its own discretion, and it shall be considered as an extra benefit. However, once the employer provides the employee with a health insurance, it becomes an acquired right and as such, it cannot be withdrawn.