Viewpoint: Khaled Asfour
Jordan is becoming a major investment destination in the region, and the government has strived to promote and encourage investments by granting investors an array of incentives for doing business within Jordanian territories. Investors focus largely on the costs associated with carrying out their commercial activities in Jordan. A major cost that often seems to emerge as an obstacle when assessing the feasibility of investing in Jordan is stamp duty.
The Stamp Duty Law No. 20 of 2001 imposes a documentary tax on any document pursuant to which transaction is or will be effected and which relates to Jordan generally. This includes documents executed or issued in connection with an asset located in Jordan, a Jordanian party or where the transaction is to be implemented or performed in Jordan.
The main problem with the Stamp Duty Law is the ambiguity in its application. The law contains generic language as to the application of stamp duty on the value of the documents, but provides no guidance or mechanism for valuating complex transactional documents. As a result of this ambiguity, we advise our clients to take the conservative approach to ensure compliance with the law. This usually leads to prohibitive amounts of stamp duty, which can seem unreasonable in light of the structure of the relevant transaction. Generally, stamp duty is applicable at the rate of 0.3% or 0.6% of the value of the document, depending on the nature of the party and the nature of the document. In the event that stamp duty is not paid when due, penalties will start to accrue and can reach up to 200% of the stamp duty amount. Failure to pay stamp duty will not render the agreement void, but it will be inadmissible as evidence before Jordanian courts until payment of the full amount of the stamp duty and any penalties there may be.
Stamp duties are payable (i) at signing if the document is signed in Jordan, or (ii) if the document is signed outside Jordan, at the time the document is used in Jordan. The Stamp Duty Law does not clarify what “used in Jordan” exactly means. It can be argued that this includes enforcement before Jordanian courts, filing of the document with a local authority or even performance of the document.
An example of a transaction where stamp duty becomes prohibitive is the transfer of a business as a going concern. An omnibus transfer document may contemplate the transfer of several assets in return for an aggregate consideration that can be broken down into several valuations of the assets subject of the transfer. Stamp duty is payable on the omnibus agreement based on the aggregate consideration. Upon actual transfer of title to certain assets, there are perfection requirements for registrable assets. This type of asset, which includes vehicles and shares, must be filed with the relevant registry. Upon filing the transfer deeds, stamp duty is payable to the relevant authority based on the value of the assets being transferred. This means that stamp duty may be paid twice for the same transaction.
Additionally, there are certain cases where the omnibus transfer document constitutes a cross-border transaction which involves assets also located in other jurisdictions. In such an event, stamp duty is payable on the whole consideration under the document, even though certain assets are not, and will not be, located in Jordan.
There are no court precedents to sufficiently help in clarifying these gaps in the law. A mechanism for valuating larger, more complex documents should be set out in a separate regulation or in an amendment to the Stamp Duty Law as a whole, so as to provide better guidance in this respect. Furthermore, and in a continued effort to encourage investors to invest in Jordan, a cap on stamp duty fees may be introduced. This will promote investment in Jordan, and also increase the chances of payment of stamp duty to the Treasury and, therefore, benefit Jordan as well.
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