Jordan Corporate Tax Guide

Jordan

Amman GMT +3

EY

+962 (6) 580-0777

Mail address: Fax: +962 (6) 553-8300 P.O. Box 1140 Email: amman@jo.ey.com Amman 11118

Jordan Street address: 300 King Abdullah Street Amman Jordan Principal Tax Contact

 Ali Samara +962 (6) 580-0771 Email: ali.samara@iq.ey.com

Business Tax Services, and Tax Policy and Controversy  Ali Samara +962 (6) 580-0771 Email: ali.samara@iq.ey.com

Business Tax Advisory, and International Tax and Transaction Services –Transaction Tax Advisory  Jacob Rabie +962 (6) 580-0777 Email: jacob.rabie@jo.ey.com People Advisory Services

 Abdullah Al-Husban +962 (6) 580-0777 Email: abdullah.al-husban@jo.ey.com

A. At a glance

Corporate Income Tax Rate (%) 35 (a) National Contribution Tax Rate (%) 7 (a) Capital Gains Tax Rate (%) 35 (a) Branch Tax Rate (%) 35 (a) Withholding Tax (%)

Dividends 0 (b)

Interest 5/7/10 (c)

Other Payments to Nonresidents 10 (d) Branch Remittance Tax 0 (e)

Net Operating Losses (Years)

Carryback 0 Carryforward 5

(a) This is the maximum rate. For a listing of rates and further details, see Section B. (b) See Section B for details on the domestic tax treatment of distributions of dividends.

(c) This withholding tax is imposed on interest paid by banks to depositors (excluding interest paid on local interbank deposits). In addition, a national contribution tax ranging from 1% to 7% may apply. For further details, see Section B.

(d) In addition to the 10% withholding tax, payments made to nonresident indi viduals in excess of JOD200,000 are subject to a 1% national contribution tax, and payments made to nonresident corporate entities are subject to a national contribution tax at rates ranging from 1% to 7%. For further details, see Section B.

(e) Jordan’s income tax law is silent on whether profit distributions made by a branch to its foreign head office are subject to tax (with the exception of banks), and the matter is currently under debate. If profit distributions are taxable, it is expected that the same rates and principles applicable to pay ments made to nonresidents would apply. For further details, see footnote (d) above.

B. Taxes on corporate income and gains

Corporate income tax. In general, income tax is levied on corpo rate entities and foreign branches with respect to all income earned in, or derived from, Jordan, regardless of where the pay ment is made, and on income generated from investing Jordanian capital outside Jordan.

Rates of corporate tax. Corporate income tax in Jordan is imposed at flat rates. Rates for resident corporations vary from 20% to 35%, depending on the type of sector. The following are the corporate income tax rates for the various sectors.

Sector Rate (%)

Banking 35

Electricity generation 24

Basic mining companies 24

Finance, financial intermediaries and financial leasing 24

Telecommunication 24

Insurance and reinsurance 24 Other 20

In addition, a tax rate of 10% applies to the net income of Jordanian companies’ foreign branches and net income realized by residents of Jordan from foreign sources, if such income is generated from Jordanian monies or deposits.

National contribution tax. A national contribution tax is imposed on taxable income of all corporate entities and foreign branches in Jordan. The national contribution tax rates vary from 1% to 7%, depending on the type of sector. The following are the na tional contribution tax rates for the various sectors.

Sector Rate (%)

Basic mining companies 7

Finance, financial intermediary and financial leasing 4 Banking 3 Electricity generation 3

Telecommunication 2

Insurance and reinsurance 2 Other 1

The above national contribution tax rates also apply to payments made to nonresident juridical persons at the rate applicable to the recipient’s sector. For payments from Jordan to nonresident natu ral persons in excess of JOD200,000, the excess amount is sub ject to the national contribution tax at 1%.

Capital gains. Capital gains derived from the sale of depreciable assets are subject to the corporate income tax and national contribution tax rates as applicable to the type of activity in which the company engages. In addition, except for the first sale, capital gains derived from the sale of stocks or shares of

information technology companies and institutions that deal with creating, processing and storing information using electronic devices and software are subject to tax at the applicable corporate income tax rate if the sale occurs after the lapse of 15 years from the date of establishment of such companies.

Capital gains derived from the sale of shares or stocks by a juridical person are subject to capital gains tax, which is assessed using either of the following:

• A deemed profit method, whereby a tax rate ranging between 0.5% to 5% is applied on the gross sale consideration

• An actual profit method, whereby the capital gain is calculated based on the audited financial statements of the Jordanian entity in which the shares are being disposed of, at the prevail ing corporate income tax and national contribution tax rates as applicable to the sector of the company in which the shares were disposed per current practice

Sales of listed shares are subject to tax at the rate of 0.08% of the transaction value payable by each party to the transaction (that is, both the buyer and the seller are each liable to pay a 0.08% tax). The tax is withheld by the financial intermediary facilitating the sale.

Administration. The tax year for corporations is their accounting (financial) year. Tax returns must be filed electronically on a prescribed form in Arabic within four months after the tax yearend.

The tax return includes a payroll listing and information pertain ing to goods and services supplied for the year, including details related to the corporation’s income, expenses, exemptions and tax due.

The total amount of tax due must be paid at the time of filing to avoid penalties. If a taxpayer fails to electronically submit a com plete filing package using the Income and Sales Tax Department (ISTD) web portal by the filing deadline, the taxpayer will be subject to late filing penalties at JOD1,000 (approximately USD1,410) for private and public shareholding companies, and JOD300 (approximately USD423) for other entities.

The ISTD may conduct an income tax audit for up to four previous years and may assess the taxpayer additional taxes (together with the applicable penalties) during these tax audits.

Taxpayers whose gross income equaled or exceeded JOD1 mil lion in the preceding financial year are required to make an advance tax payment within 30 days following the end of the first half of the tax year and another advance tax payment within 30 days following the end of the tax year. Each advance payment is equal to 40% of the preceding year’s tax if the current year’s interim financial statements are not available.

Dividends. Dividends distributed by limited liability companies, general partnerships, limited partnerships, public shareholding companies and private shareholding companies resident in Jordan are exempt from tax, except for dividends received by the following, which are subject to tax at the corporate income tax

and national contribution tax rates that correspond to the recipi ent’s industry:

• Banks

• Main telecommunication companies

• Basic mining companies

• Insurance companies

• Reinsurance companies

• Financial intermediaries

• Financial companies and legal persons engaged in financial leasing activities

However, if a company owns at least 10% of another company’s capital, distributions of profits are subject to tax at a rate not exceeding 10%.

If the recipient of the dividend income is a Jordanian entity, the lower of 25% of dividend income or the total claimed expenses of the recipient is disallowed.

Interest. Interest paid by banks to depositors, except for interest on local interbank deposits, is subject to a 7% withholding tax for corporate entities and a 5% withholding tax for natural persons. The withholding tax is considered to be a payment on account for resident companies and a final tax for individuals and nonresident companies. Interest paid from Jordan to nonresident banks and nonresident finance companies for deposits that are held in Jordan is not subject to withholding tax in Jordan. Any other type of interest (non-depository) paid to nonresidents is subject to a 10% withholding tax. Interest payments on loans from nonresi dents are subject to withholding tax at 10% and a reverse general sales tax at 16%.

Interest payments subject to withholding tax are also subject to national contribution tax at the following rates:

• Interest payments made to resident entities are subject to national contribution tax at the rate applicable to the sector of the loan provider (for further details, see National contribution tax).

• Interest payments made to nonresident entities are subject to national contribution tax at the rate applicable to the sector of the recipient entity (for further details, see National contribu tion tax).

• For interest payments made to individuals (resident or nonresident) that are in excess of JOD200,000, the excess amount is subject to a 1% national contribution tax.

Foreign tax relief. Foreign tax relief is granted in accordance with tax treaties signed with other countries.

C. Determination of trading income

General. All income earned in Jordan from trading or other sources, except for income exempt under Jordanian legislation, is taxable.

Business expenses incurred to generate income are generally allowable, with limitations on certain items, such as entertainment and donations. A certain percentage of entertainment expenses is deductible. Head office charges are limited to 5% of the branch’s net taxable income.

Provisions and reserves. Provisions and reserves are not allowed as tax deductions, except for insurance companies’ reserves and doubtful debts’ provisions for banks.

Tax depreciation. Regulation No. 55 of 2015 (as amended) sets out the maximum depreciation rates applicable to various fixed assets for corporate income tax purposes. If the rates used for accounting purposes are greater than the prescribed tax deprecia tion rates, the excess is disallowed for tax purposes. The follow ing are some maximum straight-line depreciation rates.

Tangible assets Rate (%)

Industrial, ordinary and temporary buildings 2/4/10 Furniture for dwelling, sleeping and work purposes, manufactured from iron, wood and fixed plastics 5

Furniture for hospitals, tourist services, hotels and restaurants 15 Other furniture 20 Means of transport 15

Computers, appliances, machinery used in production and medical equipment 35 Others machinery and equipment 20

A taxpayer is entitled to benefit from an accelerated depreciation method up to three times the straight-line amount if the taxpayer uses the accelerated-depreciation method until the asset is fully depreciated.

Machinery, equipment and other fixed assets that are imported on a temporary-entry basis (equipment that the government allows foreign contractors to import on a temporary basis for the pur pose of carrying out certain contractual work in Jordan) do not qualify for the accelerated depreciation method.

Used assets are depreciated at the above statutory rates applied to the purchase price.

The following are some straight-line amortization rates.

Intangible assets Rate (%)

Key franchising (in practice, money paid to a business owner to vacate the premises so that the payer can take over the lease) 25 Computer software and programs 50 Other intangible assets, such as goodwill, trademarks and publishing rights 10

Relief for losses. Taxpayers can carry forward unabsorbed losses up to five years to offset net profits of subsequent periods. Losses may not be carried back.

Groups of companies. The Jordanian income tax law does not con tain any provisions for filing consolidated returns or for relieving losses within a group of companies. Companies must file separate tax returns and financial statements for Jordanian tax purposes.

D. Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)

General sales tax (similar to value-added tax) 16 Social security contributions, on salaries and all benefits except overtime; the maximum salary subject to social security contributions is JOD3,349 for individuals joining the social security system on or after 1 March 2014 (adjusted for inflation on an annual basis); different rules regarding maximum salary apply to individuals who joined the social security system before 1 March 2014; the amount of the social security contribution is based on the employee’s January salary; changes to the salary made during the year are not reflected in the employee’s social security contribution until the following January; contribution paid by Employer 14.25 Employee 7.50

Withholding tax on the value of imports; paid on account against the taxpayer’s final tax liability 2 Withholding tax on payments to nonresident service providers (also, see footnote [d] in Section A) 10

E. Miscellaneous matters

Foreign-exchange controls. The currency is the Jordanian dinar (JOD). Jordan does not currently impose any foreign-exchange controls.

Debt-to-equity rules. A 3:1 debt-to-equity ratio applies with respect to related-party debt. Interest paid on related-party debt exceeding this ratio is not deductible for tax purposes.

Transfer pricing. On 7 June 2021, Jordan introduced transfer-pric ing rules that adopt the arm’s-length principle reflected in the Associated Enterprise article of Jordan’s tax treaties and in the Organisation for Economic Co-operation and Development Transfer Pricing Guidelines for Multinational Enterprises (MNEs). The rules also introduce new compliance requirements for Jordanian entities that engage in related-party transactions with an annual value exceeding JOD500,000 (approximately USD705,000) for any reporting period ending after 7 July 2021.

The following are the specific requirements:

• A transfer-pricing disclosure form to be submitted with the annual income tax return (that is, within four months after the end of the fiscal year)

• A Master File on the global business operations and transferpricing policies of the taxpayer’s MNE group to be submitted within a period not exceeding 12 months following the tax period

• A Local File containing information on all transactions with related parties to be submitted within a period not exceeding 12 months following the tax period

The taxpayer also needs to present a signed affidavit from the taxpayer’s appointed chartered accountant confirming the taxpayer’s compliance with the group’s transfer-pricing policy and detail ing the impact of such policy on its financial statements.

Members of an MNE group also need to submit a Country-byCountry Report within 12 months following the end of the group’s tax period if the total consolidated revenue in the group financial statements exceeds JOD600 million (approximately USD846 mil lion).

F. Tax treaties

Jordan has entered into double tax treaties with Algeria, Azerbaijan, Bahrain, Bulgaria, Canada, Croatia, the Czech Republic, Egypt, France, India, Indonesia, Iran, Italy, Korea (South), Kuwait, Lebanon, Malaysia, Malta, Morocco, the Netherlands, Pakistan, the Palestinian Authority, Poland, Qatar, Romania, Sudan, Syria, Tunisia, Turkey, Ukraine, the United Arab Emirates, the United Kingdom, Uzbekistan and Yemen.

In addition, Jordan has entered into tax treaties, which primarily relate to transportation, with Austria, Belgium, Cyprus, Denmark, Italy, Pakistan, Spain and the United States.

The following is a table of treaty withholding tax rates.

Dividends Interest Royalties % % %

Algeria 15 15 15 Azerbaijan 8 8 10

Bahrain 10 10 10 Bulgaria 10 10 10 Canada 10/15 10 10 Croatia 10 10 10

Czech Republic 10 10 10

Egypt 15 15 20

France 5/15 0/15 5/15/25 India 10 10 20 Indonesia 10 10 10

Iran 5/7.5 5 10

Italy 10 10 10 Korea (South) 10 10 10 Kuwait 5/10 5 30 Lebanon 10 10 10 Malaysia 10 15 15

Malta 10 10 10 Morocco 10 10 10 Netherlands 15 5 10 Pakistan 10 10 10

Palestinian Authority

Poland 10 10 10 Qatar 10 5 10 Romania 15 12.5 15

Saudi Arabia 5 5 7

Sudan 15 15 15

Syria 10 10 18

Tajikistan 10 10 10

Turkey

United Arab

United Kingdom

Uzbekistan

Yemen

treaty

not

Dividends Interest Royalties

12

10 10

10

10 10

20

10 10

maximum withholding tax rate.