Commentary | Qudah Law Firm

Middle East Regional Insight

| Jordan Commentary

MACRO-ECONOMY

Jordan is a small-sized country that has emerged as the “business capital of the Levant”. The free market economy of Jordan has grown 7% annually since 1999.

Due to the implementation of liberal economic policies, Jordan has become one of the most competitive Middle Eastern economies. Jordan boasts a modern and developed banking system and is attracting significant foreign investment. Long-term sovereign credit ratings are positive and stable. Along with financial-sector policies that are intended to enhance competition and efficiency, banking supervision and regulation generally conform to international standards.

Over the past year, the government has worked to consolidate the country’s fiscal situation and macroeconomic environment, put under pressure also by the large influx of Syrian refugees.

Jordan is ranked 5th in the region and considered the most favorable in terms of economic risk and has less of a security risk than other regional competitors according to the Heritage Foundation.

Incentives and advantages outside the development areas and the free zones

Production inputs necessary for exercising economic-industrial or vocational activities that are exempted from the custom duties and are subject to the general sales tax in accordance with the provisions of the General Sales Tax Law in force if such activities are imported or locally purchased, provided that Income & Sales Tax Department should refund such tax paid for such activities within (30) days from date of submission of a written refund request thereof. If Income & Sales Tax Department fails to refund such tax within such period, then it shall pay (9%) interest on an annual basis.

Production requirements and fixed assets, and production requirements and the dual-use fixed assets necessary for exercise of economic-industrial or vocational activities that are exempted from the custom duties, where the general percentage provided in the General Sales Tax Law to be reduced to (zero) if such sales are imported or locally purchased, provided that the beneficiary is registered at Income & Sales Tax Department.

The services that are subject to the general sales tax in accordance with the provisions of the General Sales Tax Law in force if such services are imported or locally purchased, provided that Income & Sales Tax Department should refund such tax paid for such services within (30) days from date of submission of a written refund request thereof. If Income & Sales Tax Department fails to refund such tax within such period, then it shall pay (9%) interest on annual basis.

The goods required for the following economic activities that are exempted from the custom duties and are subject to the general sales tax by (zero) if such goods are imported or locally purchased, namely:

Agriculture and livestock; Hospitals and specialized medical centers; Hotels and tourist facilities; Entertainment and tourist recreation cities; Communication centers; Scientific research centers and scientific laboratories; Artistic and media production; Conference and exhibition centers; Transport and/or distribution and/or extraction of water, gas and oil derivatives using pipelines; Air transport, sea transport and railways

The income tax payable in the less developed regions in the Kingdom shall be reduced as to the economic-industrial & vocational activities and the economic activities to a percentage not less than (30%) , and the provisions in connection thereof shall be determined pursuant to a regulation to be issued for this purpose; which determines:

    • The regions that enjoy income tax deduction and category of each region according to their economic development level.

 

    • The economic activities that are excluded from benefiting from income tax deduction.

 

    • The deduction ratio that the economic activity enjoys according to the region in which the activity is exercised.

 

    • Foundations, standards and conditions of enjoyment of income tax deduction.

 

    • Duration of enjoyment of income tax deduction.

 

    • Foundations, standards and procedures of extension of duration of income tax deduction.

 

    • Incentives and advantages inside the development areas and the free zones.

 

The income tax shall be (5%) of the taxable income of the Registered Establishment realized from its economic activity inside the development area.

The income tax shall be (5%) of the taxable income of the Registered Establishment realized from its economic activity in the industrial sector.

The Registered Establishment shall benefit from any operative tax exemptions in the Kingdom concerning the exports of goods and services to outside of the Kingdom.

This shall not apply to the income realized by banks and telecommunications companies that have individual licenses, as well as the financial brokerage companies, and financial companies including the companies that exercise exchange, financing or financial leasing business, and consultation & financial and tax audit companies, transport companies (sea transport, railways, and road freight transport), insurance and reinsurance companies, basic mining and extraction industries, generation and distribution of electricity, and transport and/or distribution and/or extraction of water, gas, and oil derivatives using the pipelines.

The general tax provided in the General Sales Tax Law shall be reduced to (zero) as to the goods and services purchased or imported by the Registered Establishment for the purpose of exercising their economic activity inside the development areas.

The goods’ providers registered under the General Sales Tax Law in the Kingdom may demand refunding the general sales tax that has been previously paid for the goods sold to the Registered Establishments existing in the development area.

The goods and services originated in the development area and are sold to the remaining regions of the Kingdom shall be subject to the general sales tax.

(7%) sales tax shall be collected from value of sale of services to be determined pursuant to the regulation issued for this purpose when being sold for consumption in the development area.

Sales of goods that are subject to the special tax including vehicles, tobacco, and its products, alcohol and beer shall be subject to the sales tax and custom duties collected in the Kingdom when being sold for consumption in the development area.

The Registered Establishments that exercise an economic activity in the development Area – the materials, equipment, machines, supplies, and construction materials in connection with building, constructing, preparing and furnishing all types of projects established by such Registered Establishments in the development area, including the spare parts required for their permanent maintenance, and the goods imported to the development area for the exercise of the economic activity or exported by such economic activity to outside of Kingdom – shall be exempted from the custom duties, except for exports fees, service fees, and the wages payable in accordance with the legislation in force.

The goods produced or manufactured in the development areas that meet conditions of the Jordanian origin shall not be subject to the custom duties and other fees and taxes when being placed for consumption in the local market.

Incentives and advantages inside the free zones

The Registered Establishment that exercises an economic activity in the free zone shall be exempt from income tax on the profits realized from the following activities:

    1. Exporting goods services to outside of Jordan.
    2. Transit trade.
    3. Selling and transferring goods inside boundaries of the free zones.
    4. Providing and supplying services inside the free zone.

 

The will also be exempt from income tax on salaries and allowances of non-Jordanian employees working in the projects executed in the free zone.

Exempted from custom duties and all taxes and fees on the goods exported from the free zone to markets other than the local market, and on the goods imported to the free zone including materials, equipment, machines, supplies, and construction materials in connection with building, constructing, preparing and furnishing all types of projects established by such Establishments in the Fee Zone including the spare parts required for their permanent maintenance. The exemption shall not include the service fees.

Granted exemptions from the licensing fees, buildings and lands taxes, and revenues of paving, organization and improvement concerning the buildings and constructions established in the free zone.

Be permitted to transfer the foreign currencies and their profits from the free zone in accordance with provisions of the legislation in force.

Be permitted to move the machines, equipment, materials, goods, and supplies required to establish, operate or expand any project and the profits realized thereof to outside of the Kingdom in accordance with provisions of the legislation in force.

DEVELOPMENT AND FREE ZONES

The Investment Commission oversees a number of special economic zones, distributed in various locations in the Kingdom and our Investment Window provides simple and fast registration and licensing services to companies operating in development zoznes and free zones.

Free zones facilitate transit of goods, stimulate economic activity and play a significant role in contributing to strengthening Jordan’s position as a centre for trade. Foreign investment in development zones and free zones enjoy 100% foreign ownership, facilitated visa permits, and return of capital and profits to the country of origin.

Specific benefits enjoyed by development zones and free zones are listed below.

DEVELOPMENT ZONES:

    • 5% income tax for income generated from all economic activities undertaken in the zones.

 

    • 5% income tax for income generated from all economic activities undertaken in the zones.

 

    • Income tax exemptions on profits generated from certain economic activities.

 

    • 5% income tax for income generated from all manufacturing activities.

 

    • Enjoy export tax exemptions offered in the Kingdom on goods and services.

 

    • Reduction to (0%) on sales tax for goods and services used by the enterprise for business purposes within the zone with no guarantee.

 

    • 7% sales tax on specific services offered by registered establishments in the zone when offered therein.

 

    • Customs duties exemption except on certain goods.

 

FREE ZONES:

    • Income tax exemptions on profits generated from certain economic activities.

 

    • Exemptions from land and building taxes as well as service charges for street paving, planning and improvements.

 

    • 0% sales tax on services offered by registered establishments in the zone when offered therein.

 

    • 0% sales tax on goods consumed by registered establishments in the zone for business purposes.

 

    • Income tax exemption on foreign workers remunerations.

 

  • Exemptions from customs duties.

INVESTOR FRIENDLY ENVIRONMENT

The Jordanian government has focused on reforms and investment policy aimed at:

    • Liberalization of trade, investment procedures, and elimination of trade barriers.

 

    • Encouragement of foreign investment.

 

    • Encouragement of private sector investment.

 

    • Privatization of previously-owned governmental projects.

 

    • Implementation of stronger trademark and copyright laws.

 

    • Reduction of import tariffs.

 

  • Equal treatment to both Jordanian and non-Jordanian investors, non-Jordanian investors have the right to own any project in full or part, and engage in any economic activity in the Kingdom, with the exception of some trade and contracting services which require a Jordanian partner.

Foreign investments enjoy incentives and benefits offered by the Investment Law, including exemption from custom duties, general sales tax and in some cases reduction on income tax:

    • No restrictions on foreign ownership except in a limited number of economic activities where a Jordanian partner is required.

 

    • Investments in Development Zones and free zones can be wholly owned by foreign investors.

 

    • Foreign investors enjoy privileges and guarantees, including national treatment, free movement of capital, protection against expropriation and options to resort to alternative dispute settlement mechanisms.

 

    • Foreign Investments enjoy facilitated registration and licensing services provided by the Investment Window, in addition to support in obtaining visas and residency permits for investors, their families and employees as well as other services

 

    • No restrictions on capital transfers and repatriation of profit.

 

  • 117 nationalities in industrial and service sectors own companies in Jordan.

According to the investment law of 2014, Non-Jordanian investors may:

    • Remit all or some of the foreign capital in convertible currency under the legislation in force.

 

    • Transfer revenues and profits of his investment to the outside of the Kingdom.

 

    • Liquidate his investment or sell or dispose of his economic activity or his share or stocks in such activity, provided he should fulfill his obligations to any third parties or the Official Bodies in accordance with the legislation in force.

 

    • Manage his economic activity in the manner he deems appropriate and through the persons he chooses, and the concerned bodies should provide the facilities necessary for this purpose.

 

    • The non-Jordanian Investor shall be awarded the same treatment as the Jordanian Investor.

 

  • The non-Jordanian workers working in any economic activity may transfer their salaries and compensations to the outside of the Kingdom pursuant to the legislation in force.

STREAMLINED PROCEDURES AND INVESTOR FRIENDLY POLICIES

JIC’s Investment Window aims to provide a single place service to license the economic activities in the Kingdom and review and simplify the licensing procedures.

Authorized Representatives from 16 public entities have the power to issue the license and take necessary actions in that regard. Through this service window, an investor can register and license his/her project in Jordan and acquire both investor residency and facilitation of work permits for required labor.

SECURITY AND STABILITY

Despite regional turmoil, Jordan continues to be a point of attraction for foreign investors who view the country as an oasis of peace in a volatile region and continuously tries to maintain stability, moderation, and security.

According to the World Economic Forum’s Global Competitiveness Report 2017-2018; Jordan is considered a safe and stable country by both global and regional standards. Jordan boasts a high level of security and stability and is able to overcome challenges and boost its strategic and economic partnerships.Jordan is 22nd most secure country in the world and the second safest country in the Arab world according to the Gallup Law and Order Study of 2018, which was preceded only by Egypt. Based on a survey conducted in 2017, Results are based on telephone and face-to-face interviews with approximately 1,000 adults, over the age of 15 and a total of 142 countries and areas.

Pundits lauded the ranking, which, they stressed, is a remarkable achievement for Jordan and a testimony to the country’s resilience and ability to face security challenges amidst a turbulent region.

In the 2017 index of the Legatum Institute, Jordan ranked 92 out of 149 countries and in security and safety, Jordan ranked 65 and was higher than the regional competitors such as Saudi Arabia 74 Egypt 116 and Turkey 133.