Jordan’s new Income tax law number (34) of the year 2014 (published in the official gazette) is put in force as of January 1, 2015. Major changes included in the new tax law related to capital market gains are the following:
- The new tax law included some changes regarding the withholding tax related to income from investment, and any other non-exempted income paid by a resident directly or indirectly to a non-resident person. Article (12/B) of the new income tax law, states the following: “Every person responsible for the payment of a non-exempted income, directly or indirectly to a non-resident person shall at the time of payment deduct tax at the rate of (10%), He shall also prepare and submit to the Income Tax Department, and the beneficiary a declaration of the amounts generated and the tax deducted.
- The amounts deducted in accordance with Para (1) above can be considered as final taxes in accordance with the instructions issued thereto”.
It is worth mentioning that the amendment to this provision raised the withholding taxes from (5%) to (10%), taking in consideration the above article includes interest income generated from investments and any other non-exempted interest income paid by a resident directly or indirectly to a non-resident person including coupon interest payments of government and corporate bonds.
Para (H) of the same article states that the person responsible for deducting taxes related to article (12/B) above shall deduct and pay the withholding taxes within (30) days of payment date, The tax that has not been deducted and paid shall be recovered and collected as if it were tax due from such person.
Para (I) of this article also referred to instructions that will be issued to set procedures and provisions necessary to enforce this article. The said instruction has not been issued yet.
The new tax law kept the following activities exempted from tax, and added to those exemptions income derived from trading of Sukuk instruments:
- Profits from stocks and dividends distributed by a resident to another resident, except profits of mutual investment funds of banks and financial companies, telecommunication companies, insurance, financial services companies. Exempted from taxes.
- Capital gains incurred inside the Kingdom, other than profits from assets subject to depreciation.
- Income derived from inside the kingdom from trading in dividends and stocks, bonds, equity loan, sukuk, treasury bonds, mutual investment funds, currencies, commodities in addition to futures and options contracts related to any of them, except that incurred by banks, financial companies, financial intermediation and insurance companies and legal persons who undertake out financial lease activities.
- Personal exemption of 12,000 Jordanian dinar (JOD) – provided they stay in Jordan for more than 183 days during the calendar year (continuous or interrupted)
- Family exemption of JOD 12,000 – provided the family stays in Jordan for more than 183 days during the calendar year (continuous or interrupted.)
- Monthly retirement benefit exemption of JOD 3,500 – down from JOD 4,000 under the old Law
- Additional personal and family exemption of JOD 4,000 on medical expenses, university education expenses and interests paid on housing loans, housing rent, technical services, engineering services, and legal services.
- For the additional personal and family exemption, supporting documents and invoices must be available, and the exemption is granted case-by-case basis following the Income Tax Department’s review of the supporting documents.
WITHHOLDING TAX CHANGES
Withholding tax for non-resident services providers is increased to 10 percent (up from 7 percent.
The 5 percent withholding tax on real estate rent has been abolished.
As of 1 January 2015, certain service providers are subject to a 5-percent retention, including doctors, lawyers, engineers, Certified Public Accountants, experts, consultants, insurance agents, custom clearing agents, arbitrators, speculators, agents and commission brokers, financial brokers, freight forwarders, and other persons specified by the Minister of Finance in related regulations.
The withholding tax on cash and in-kind prizes and Jordanian Lottery winnings in excess of JOD 1000 per each prize is increased to 15 percent (from 10%).
In-kind and in-cash dividends are not subject to withholding tax when paid by a resident to a non-resident party.
INTERIM CORPORATE INCOME TAX PAYMENTS
Corporate taxpayers that had annual total gross income over JOD 1 million (previously JOD 500,000) in the preceding tax year are required to pay interim corporate tax payments at a rate of 40 percent of the corporate income tax liability calculated based on the reported interim financial information related to the interim period (previously 37.5 percent), or 40 percent (previously 37.5 percent) of the income tax amount declared to the tax authority in the preceding tax year. These payments are due within 30 days from the end of the first half and second half of the fiscal year.
LOSSES CARRIED FORWARD
Under the new law, approved losses can be carried forward for up to 5 years (the period was unlimited in the previous law).
SOCIAL SECURITY CONTRIBUTIONS
Monthly social security contributions increased to 20.25 percent (from 19.50 percent), as of 1 January 2015, implemented as follows:
The employees’ monthly contribution increased to 7 percent (from 6.75 percent).
The employer’s monthly contribution increased to 13.25 percent (from 12.75 percent).
EXEMPTION FROM FINES AND PENALTIES
An exemption has been granted from penalties and fines related income tax, sales tax, customs duty, stamp duty and property tax1. The exemption covers penalties related to the tax years 2014 and before, provided that taxes and duties claimed have been fully settled before 31 March 2015. Such exemption is reduced to 75 percent if the amounts are fully paid during the period from 1 April to 30 June. From 1 July 2015 to 30 September 2015, the penalties are phased out at 50 percent.
EXEMPTION FOR RENEWABLE ENERGY INPUTS
Jordan’s Renewable Energy Law2 is amended to include a full exemption from sales tax and customs duty on the renewable energy inputs, including spare parts and equipment.
Treaties for the Prevention of Double Taxation
Jordan has signed agreements for the prevention of 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, the United States and Yemen.
Snapshot of the New Tax Law:
- For individuals
– A tax free threshold of JD12, 000 for individuals, the same as the previous law.
– A further JD4, 000 exemptions is also added if supported by invoices of expenses related to medical services, and interest paid on housing loans.
– 7 percent tax for the first JD10, 000 above the exempted JD12, 000. In the previous law, the first JD12, 000, after the exempted amount, was subject to a 7 percent tax.
– Under the new law, a second bracket has been created with the second JD10, 000 subject to a 14 percent tax. There will further be a 20 percent tax for individuals who earn above this.
– This is compared to the previous tax law, which entailed a tax of 14 percent on any sum above the first taxed JD12, 000.
– The new law provides a tax free threshold of JD24, 000 for a household’s combined annual income, plus the JD4, 000 exemptions on expenses related to medical services and interest paid on housing loans.
- For businesses?
– Banks: 35 percent income tax (up from 30 percent)
– Industrial sector: 14 percent levy on every JD100, 000 generated, which rises to 20 percent on every JD1 above that amount. (The same as the previous law)
– Telecommunications, electricity distribution, mining, insurance, brokerage, finance and companies or persons who provide rental and leasing services: 24 percent tax on every JD1 earned
– Agriculture: Totally exempt from tax (Previously 14 percent tax after the first JD75, 000)
– Other businesses and partly owned government entities: 20 percent tax (up from 14 percent tax)