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Income Tax in Jordan


Personal Income Tax

Any income incurred in or from Jordan, for any person, regardless of the place of payment, shall be subject to tax in Jordan.

Personal income tax rates
Personal income tax (PIT) rates are applied progressively as follows:

Taxable income (JOD*)
PIT rate (%)
The first 10,000
7
The second 10,000
14
The remaining balance
20

Local income taxes

The Jordan PIT is the only tax on personal income in Jordan. There are no other taxes on personal income imposed at the local level.

Residency Rule

A resident person in Jordan is a natural person who actually resides in Jordan for at least 183 days during the year, whether consecutive or interrupted, or a Jordanian employee working for the government or any of the official or public institutions inside or outside Jordan.

Taxable Income

Any income incurred in or from Jordan, for any person, regardless of the place of payment, shall be subject to tax in Jordan.

Employment income

Salaries, wages, allowances, and bonuses (in cash or in kind) received from any employment, including the estimated annual value of housing, lodging, boarding, or any other allowance, are taxable in Jordan.

The first JOD 3,500 of monthly pension salary paid by a resident person shall be exempt from income tax.

Equity compensation

Generally, income from stock options and restricted stock are subject to tax within the individual's taxable income.

Business income

Income from professional services or activities, and any other income from business activity or investment, unless specifically exempted according to Jordan's Income Tax Law, is combined with the other categories of income in order to determine PIT through the filing of an individual income tax return.

Note that income generated from agricultural activity inside Jordan is not taxable for a resident natural person.

Capital gains

Capital gains incurred from selling or exchanging capital assets are exempt from PIT. The only exception is capital gains generated from depreciable assets.

Dividend income

Profits from stocks and dividends distributed by a resident to another resident are exempt from PIT.

Dividends received by a resident person from a non-resident person are taxable in Jordan provided that they originate from money or deposits from inside Jordan.

Interest income

Interest income is taxable and should be included in taxable income to determine PIT.

Rental income

Income from leasing property (moveable, immovable, or intangible) in Jordan is taxable and should be included in taxable income to determine PIT.

Exempt income

According to Jordan's Income Tax Law, the following income is exempt from PIT:
· Profits from stocks and dividends distributed by a resident to another resident.
· Capital gains incurred inside Jordan, other than profits from assets subject to depreciation.
· Income derived from inside Jordan from trading in dividends and stocks, bonds, equity
loans, treasury bonds, mutual investment funds, currencies, and commodities, in addition to futures and options contracts related to any of them.
· Compensation paid by insurance entities, other than what is paid as a reimbursement for the loss of income from business activity or employment.
· Income from employment paid to members of non-Jordanian diplomatic or consular bodies representing other countries in Jordan, subject to the reciprocal treatment principle.
· Income from distribution of estates or wills for the inheritors or the devisees, according to the provisions of the effective legislations.

Deductions from Income

Employment expenses

There are no deductible expenses for PIT purposes other than the personal deductions and exemptions mentioned below.



Personal deductions

Charitable contributions
· An individual may deduct any amount paid during the tax period as a donation to any of the governmental departments, public or official institutions, or municipalities from gross income in the period in which the payment occurred.
· Any person may deduct subscriptions and donations paid in Jordan, without any personal benefit, for religious, charitable, humanitarian, scientific, environmental, cultural, sport, and professional purposes if the Council of Ministers approves its character. The deductible amount, according to the provisions of this paragraph, shall not exceed 25% of the taxable income after deducting what is provided for in paragraph 1 above and before making this deduction.

Personal exemptions

To determine taxable income, the following exemptions are deducted from the gross income of a resident individual:
· JOD 12,000 for the taxpayer.
· JOD 12,000 for the resident dependants, regardless of their number.

In cases of submitting joint or separate declarations, the exemption amount granted to a single family shall not exceed JOD 24,000.

Moreover, as per the new income tax law, another JOD 4,000 exemption is granted against the expenses incurred for medical treatment, education, rent, interest on housing, murabaha on housing, and fees for technical, engineering, and legal services.

A Jordanian non-resident person can benefit from the exemption of the dependants residing in Jordan if the non-resident person is responsible for their support.

Business deductions

A taxpayer may deduct acceptable expenses, including the following expenses, according to provisions and procedures defined in the tax law:
· Foreign income tax paid for income earned from sources outside Jordan that was subject to tax under the provisions of the tax law.
· Interest and murabaha (profit-sharing) paid by banks or financial institutions.
· Bad debts.
· Insurance premiums.
· Maintenance expenses for assets that were spent within the tax period.
· Taxes and fees paid on taxable activities.
· Amounts paid as civil compensation under contracts concluded by the taxpayer for the purpose of carrying out taxable activities.
· Expenses of prior tax periods, which were neither defined nor final.
· Hospitality and travel expenses incurred by the taxpayer.
· Marketing, scientific research, development, and training expenses.

Losses

If a loss is incurred by any person from any taxable business activity, this loss can be deducted from the profits of other business activities in the same tax period. If the loss reaches an amount that cannot be fully deducted, then its balance shall be carried forward to the next following tax period and then to successive periods after the tax period in which it was incurred.

As per the new income tax law, any accumulated losses can be carried forward up to five years.



Corporate Income Tax

Corporate income tax. In general, income tax is levied on corporate entities and foreign branches with respect to all income earned in, or derived from, Jordan, regardless of where the payment 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 14% to 35%, depending on the type of sector. The following are the corporate income tax rates for the various sectors.

Sector
Rate (%)
Banking
35
Finance, telecommunication, insurance and reinsurance, brokerage, financial leasing, electricity generation, distribution and mining
24
Industrial
14
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.

Capital gains. Banks, telecommunications companies, mining companies, insurance companies, reinsurance companies, financial brokerage companies, finance companies, and financial leasing companies are subject to tax on their capital gains realized from sales of shares, stocks, bonds, Islamic financial instruments, treasury bonds, mutual investments funds, futures contracts and options in Jordan. In addition, capital gains realized from the sale of depreciable assets are subject to the applicable corporate income tax rate depending on the type of activity in which the company engages.

For other companies, capital gains realized from transactions other than the sale of depreciable assets in Jordan are exempt from tax (except for goodwill). However, a formula is used to calculate the disallowed part of the relevant cost related to the exempt income. This formula is the ratio of exempt income to total income, multiplied by total allowable cost. Capital gains derived from sales of shares in foreign markets that arise from Jordanian funds are subject to income tax.

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

The tax return includes a payroll listing and information pertaining 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. The Jordanian tax authorities may conduct an income tax audit for up to four previous years and may assess the taxpayer additional taxes during these audits.

Taxpayers whose gross income equaled or exceeded JOD1 million 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 received from companies located in Jordan are exempt from tax except for the following:
· Dividends received by banks from mutual investment funds, which are subject to a 35% corporate income tax rate
· Dividends received by telecommunications companies, mining companies, insurance companies, reinsurance companies, financial brokerage companies, finance companies, and financial leasing companies from mutual investment funds, which are subject to 24% corporate income tax rate

Twenty-five percent (subject to change) of dividend income must be added back to income if it does not exceed the total allowable costs; that is, the cap for disallowed expenses is the lower of 25% of dividends or reported costs.

Interest. Interest paid by banks to depositors, except for interest on local interbank deposits, is subject to a 5% withholding tax. 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 nonresidents are subject to withholding tax and general sales tax at 10% and 16%, respectively.

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

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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.


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This blog is Created by CA Anil Kumar Jain.