Over the previous decade Jordan has witnessed the introduction of significant economic reforms designed to stimulate growth and increase the flow of foreign direct investment (FDI) into the country. Policy changes, combined with the rise of the kingdom as a secure haven in which companies can operate, have transformed the country into an attractive investment area in the region.

Such policies include domestic investment laws which grant specific incentives to a number of sectors including industry, agriculture, tourism, hospitals, transportation, energy and water distribution. The laws also allow the Cabinet flexibility in offering investment incentives to other sectors.

DOING BUSINESS RANKINGS: In 2012 Jordan was ranked 96th out of 183 countries for ease of doing business by the World Bank’s 2012 Doing Business Report, down one place from its 2011 ranking. The country ranked ninth in the Middle East and North Africa (MENA) region, behind Saudi Arabia, the UAE, Qatar, Bahrain, Tunisia, Oman, Kuwait and Morocco. Jordan received the best rankings for taxation, getting electricity, and trading across borders.

Prior to the financial crisis, Jordan enjoyed steady economic progress, with growth in real GDP averaging 6.9% per year during the period from 2001 through 2007. In contrast, economic activity in Jordan was adversely affected by the global financial crisis as real growth declined from 8.2% in 2007 to 7.2% and 5.5% in 2008 and 2009, respectively.

ADDITIONAL PRESSURES: Furthermore, Jordan was affected by the regional turmoil and social unrest that has gripped neighbouring countries since early 2011. Repeated sabotage attacks on the Arab Gas Pipeline in Egypt have resulted in continuous disruptions to the supply of gas to Jordan.

This has forced the government to import heavier and more expensive fuel, thereby putting pressure on the kingdom’s trade balance and widening its trade deficit, which increased by 22.5% from $4.87bn during the first nine months of 2010 to $5.97bn by the end of September 2011.

Declining exports to countries such as Syria, Egypt, and Libya due to the current social unrest in these countries is believed to have placed additional pressure on Jordan’s trade deficit, which is already suffering as a result of rising imports and prices of oil.

Moreover, the regional turmoil has affected tourism activity and tourism revenues in the Middle East. In Jordan, tourism sector revenue, which is an important source of foreign currency, decreased by around 11% to $1.12bn in the first eight months of 2011.

Nonetheless, Jordan’s tourism sector has performed better than that of other countries in the region given the relatively stable environment that Jordan has enjoyed.

INCREASES IN SPENDING: The social and political unrest has also had an impact on the shape and size of the country’s fiscal accounts. The government has responded to public demands by increasing spending related to social programmes. Such increases in welfare spending are believed to come at the expense of capital expenditure which is the main driver of short- and long-term economic growth.

According to statistics published by the Central Bank of Jordan, current expenditure increased by 18.9% in the first 11 months of 2011. On the other hand, capital expenditure decreased by 2.2% over the same period. Meanwhile, the national budget deficit is expected to increase from 5.6% of GDP in 2010 to 7% of total GDP in 2011.

In terms of unemployment, Jordan was affected by the slowdown in economic activity that accompanied regional turbulence. The rate increased from 12% in 2010 to 13.1% in the third quarter of 2011. This increase was contrary to prior expectations of a decrease in unemployment to 11.5% by 2011.

Meanwhile, workers’ remittances decreased by 3.6% year-on-year by the end of September 2011. This decrease reflects tight job markets in Gulf states which are considered to be the main employers of Jordanian expatriates.

Given the effects of the regional turmoil, the country’s real GDP is estimated to have increased by only 2.2% in 2011, compared to real GDP growth of 2.3% in 2010. Going forward, the social unrest in neighbouring countries will continue to pose a threat to Jordan’s economy.

According to the International Monetary Fund’s Regional Economic Outlook, weakening global activity and increasing political uncertainty are considered to be the largest risks currently facing the Middle East and Africa region.

JORDANIAN INVESTMENT PROMOTION LAW: undefined Investment incentives take the form of exemptions from income tax and Customs fees, which are granted to both Jordanian and foreign investors. The Jordanian Investment Promotion Law (JIPL) No. (16) of 1995, including its amendments for the year 2000, divides the country into three development areas, A, B, and C, based on the level of economic development in such areas.

As per the JIPL, exemptions offered to investors vary depending on the classification of the development area in which the project is established.

According to the law, any project in the following sectors or subsectors shall enjoy the exemptions and facilities outlined for each development area classification:

• Industry;

• Agriculture;

• Hotels;

• Hospitals;

• Maritime transport and railways;

• Leisure and recreational compounds;

• Convention and exhibition centres; and

• Pipeline transportation and distribution for water, gas, and petroleum derivatives. Overall, the total value of investments benefitting from the JIPL is estimated to have declined by 32.3% in 2011, after a drop of 8.8% in 2010. During 2011, the Jordan Investment Board (JIB), which is assigned the task of promoting investments in the kingdom as per the JIPL, approved 342 projects with a total investment value of around $1.4bn.

The industrial sector accounted for the largest share of investments attracted by the JIB, with a total of 294 industrial projects and a value of $911.5m. According to the Central Bank of Jordan, FDI in the kingdom over the first nine months of 2011 reached a total of JD831.1m ($1.2bn), which is a decrease of approximately 14.5% relative to the same period of the previous year.

Foreign investment accounted for approximately 29.6% of the total value of investments that sought JIB approval in 2011. Meanwhile, investments in Jordan from the Arab world totalled $185m.

NEW PROPOSED INVESTMENT PROMOTION LAW: undefined The new Jordan Investment Promotion Law of 2010, which was formulated by the Ministry of Industry and Trade and was scheduled to be passed to Parliament for approval during 2011, is still pending the approval of the Parliament. The new proposed law includes the following components:

• All imported goods, regardless of the importing party or reason for import, are exempt from Customs fees with the exception of goods specified by the Cabinet. The Cabinet is yet to issue a list of the exempt goods.

• All goods and services bought or imported by all industries that are registered with the Income and Sales Tax Department (ISTD) are exempt from sales tax unless otherwise stated by the Cabinet, which will issue a list of the exempt goods and services.

• The Cabinet may exercise its right to grant any additional exemptions and/or privileges to any economic sector subject to the added value of the sector and/or initiative. Under this proposed law, foreign investors are entitled to the following:

• Have the option to withdraw invested capital partly or fully, subject to this law or stipulations of the previously enforced law;

• Revenues and profits generated from investment may be transferred abroad;

• Liquidate or sell investment at any point in time;

• Manage investment using the expertise chosen by the investor without interference of authorities;

• Expatriate employees hired by foreign investors are free to transfer salaries and other benefits abroad;

• Disputes are resolved under the jurisdiction of the Jordanian judicial system; and

• Overwriting all previous constraints on foreign investment capital, this law places no constraints subject to exceptions stated by the Cabinet. An investment window is due to be established in order to serve as a one-stop shop for licensing and facilitation of investment formalities. The investment window is to be located within the premises of the JIB to facilitate ease of access.

All previous exemptions/privileges extended to certain economic sectors stated in previous laws and legislation shall remain in effect.

In the case of a certain project/company enjoying special exemptions or privileges that has not yet commenced operations, it must do so within two years of the issuance of this law in order to enjoy the stated exemptions or privileges.

Investors are permitted to transfer ownership to other parties, whether partly or fully, while all exemptions or privileges remain in effect.

Assets that enjoy special exemptions or privileges shall not be sold or disposed of until full depreciation of the respective assets is incurred.

MAIN ARTICLES OF THE JIPL: As per article (7) of the JIPL, exemption periods last for 10 years. The period starts from the date of commencement of work for service projects, and from the date of commencement of production for manufacturing projects.

Additional exemptions may be granted, subject to the approval of the Investment Promotion Committee (IPC) and provided that the project capacity is increased. The additional exemption period is one year for each increase in production capacity of no less than 25%.

Fixed assets of the project are exempted from fees and taxes provided that they are imported into the kingdom within a period of three years from the date of the IPC decision to approve the lists of fixed assets of the project.

The committee may extend this three-year period if it deems that the nature of the project and the size of work requires an extension.

Fixed assets imported after the exemption period mentioned above may be exempted from Custom fees and taxes provided that the fixed assets are required for the expansion of the project, resulting in an increase of no less than 25% in production capacity. Imported spare parts for the project are exempted from fees and taxes provided that their value does not exceed 15% of the value of fixed assets for which they are required, and provided that they are imported into the kingdom within 10 years from the commencement of production.

REGULATION OF NON-JORDANIAN INVESTMENTS: undefined Jordan Investment Promotion Law No. (16) of 1995 and its amendments for the year 2000 entitles foreign investors to the following:

• Ability to partially or fully withdraw invested capital;

• Ability to transfer any returns or profits generated from investment abroad;

• Ability to liquidate or sell investments at any point in time and transfer the proceeds of sale abroad;

• Ability to manage investment using the expertise chosen by the investor without interference of authorities;

• Ability of expatriate employees hired by foreign investors to transfer salaries and other benefits abroad; and

• Ability for disputes to be resolved under the jurisdiction of the Jordanian judicial system. JIPL offers equal treatment to both Jordanian and non-Jordanian investors, thus allowing a non-Jordanian to own any project in full or in part, except for the following sectors which have restrictions on the percentage of ownership or participation therein:

• The construction and contracting sector;

• Ownership of periodical publications;

• Investigation and security services;

• Sports clubs (except for health clubs);

• Stone-quarrying operations for construction purposes;

• Customs clearance services;

• The commercial trade and services sectors; and

• Most transport services (with the exception of maritime transport and railways, which benefitted from new investment laws allocated in JIPL 2000). The Cabinet may approve foreign ownership of projects in these sectors upon the recommendation of the IPC. In order to qualify for exemption, projects have to be deemed highly valuable to the national economy and must plan to employ large numbers of Jordanians. Except for the participation in public companies and with due observance to the above provisions, investments made by non-Jordanians may not be less than JD50,000 ($70,260).

MONEY TRANSFERS: undefined • The investor has the right to manage the project in a manner s/he deems appropriate, and given sale of part or all of the project, shall be entitled to remit the invested capital abroad, together with any returns or profits accrued;

• Non-Jordanian technicians and administrators working in any project may transfer their salaries and remuneration abroad;

• With approval of the Incentives Committee (IC), the investor may re-export, relinquish or sell the exempted fixed assets to another investor or project not covered by the provisions of this law;

• Any investor, whose investment is guaranteed by his country or by an official agency thereof, may assign to that country or agency any returns on his investment or other compensation to which s/he is entitled;

• Banks are permitted to purchase unlimited amounts of foreign currency from their clients in exchange for Jordanian dinars on a forward basis. Banks are permitted to sell foreign currencies in exchange for Jordanian dinars on a foreign basis for the purpose of covering the value of imports; and

• There is no restriction on the amount of foreign currency that residents may hold in bank accounts, and there is no ceiling on the amount residents may transfer abroad.

INVESTMENT INSURANCE PROGRAMMES: Investments in Jordan are eligible for Overseas Private Investment Corporation insurance and private financing. All eligible projects require a minimum of 25% US equity. Jordan is a member of the Multilateral Investment Guarantee Agency, a World Bank agency which guarantees investment against non-commercial risks such as civil war, nationalisation and policy changes. The programme covers investments in Jordan irrespective of the investor’s nationality.

Several European countries have official debt-to-equity swap programmes that are open to investors of all nationalities.

INDUSTRIAL ZONES: As part of Jordan’s effort to foster economic development and enhance its investment climate, the government has created geographically demarcated commercial zones across the kingdom. These include industrial estates, free zones and special economic zones. The goal of the commercial zones is to encourage clustering among related firms within an industry and also to create synergy with other industries.

The semi-governmental Jordan Industrial Estates Corporation (JIEC) currently owns five public industrial estates in Irbid, Karak, Aqaba, Amman and Maan. There are also several privately run industrial parks in Jordan, including Al Mushatta, Al Tajamouat, Al Dulayl, Cyber City, Al Qastal, Al Hallabat and Jordan Gateway.

The JIEC offers incentives to encourage industrial investors to operate their businesses in the industrial parks including:

• The availability of cost-effective land and factory buildings;

• A reduced cost of utilities, including power and water;

• A comprehensive network of roads and infrastructure;

• The availability of a wide range of ancillary services;

• A dedicated management team as well as a commitment to post-sale services; and

• Access to international markets. In addition, the JIEC offers exemptions in the form of tax and fees, as follows:

• Two-year exemption on income and social service taxes;

• Total exemptions from buildings and land taxes; and

• Exemptions or reduction on most municipality fees. Jordan also has public free zones in Zarqa, Sahab, Karak, Karama and Queen Alia Airport that are run by the publicly owned Free Zone Corporation (FZC). In addition to these, more than 30 private free zones have also been designated and are administered by private companies under the FZC’s supervision. As a result, the free zones are outside the jurisdiction of Jordan Customs and provide a duty- and tax-free environment for transiting goods.

DEVELOPMENT ZONES: In 2008 the Council of Ministers approved and passed the Development Zones Law. The new law aims to improve the economic potential for specific areas outside the capital of Amman by providing special incentives and Customs and tax exemptions.

The Development Zones Committee (DZC) is responsible for formulating policies for the development areas, regulating the investment environment and supervising economic activities.

The kingdom’s five DZC development areas are the King Hussein bin Talal Development Area in Mafraq, Maan Development Area, Irbid Development Area, Dead Sea Development Zone and Jabal Aljoun Development Zone.

Development zones are subject to the following components:

• Jordanian laws for imports and exports apply to development zones;

• Regulations regarding the maximum percentage of foreign ownership specified under the JIPL are not applicable within the development zones;

• Special regulations governing labour will be applied within development areas and will include policies governing recruitment, work permits for non-Jordanians and number of working hours;

• Companies registered under this law are exempt from income taxes applied in the rest of the kingdom, and instead taxed at 5% annually; and

• The income of banks, financial companies, insurance, reinsurance companies and profit from trade in transit goods within the development areas are still subject to the kingdom’s tax laws and not the 5% rate mentioned above. According to the DZC, the following terms apply to registered companies:

• Goods and services purchased or imported by registered companies for the purpose of exercising economic activities within development areas are subject to a 0% sales tax rate;

• Tools, equipment, interior fixtures and any other materials used in the construction and furnishing of company projects are exempt from all related Customs and taxes;

• Goods imported to or exported from development areas are exempt from import fees, Customs and taxes; and

• Registered companies are exempt from applicable social service and dividend distribution taxes on generated income. Inaugurated in 2001, the Aqaba Special Economic Zone (ASEZ) is an independent economic zone that is not governed by the DZC. The special economic zone offers special tax exemptions, a flat 5% income tax and Customs handling at the Aqaba port. In recent years, ASEZ has attracted projects in the hotel and property development industry that were valued at more than $8bn.

LABOUR LAW: The following are the main characteristics of the Jordanian Labour Law No. 8 of the year 1996.

• The minimum wage is set by a committee constituted from an equal number of representatives from the Ministry of Labour, employees and employers. As of February 2012, the minimum wage is set at JD190 ($267) per month and it only applies to Jordanian workers.

• Daily working hours shall not exceed eight, and weekly working hours shall not exceed a total of 48 hours, distributed on a maximum of six days.

• Overtime is payable at 125% of the employee’s normal wage if working hours are exceeded during work days, and 150% of the employee’s normal wage if s/he works on weekly holidays, religious feast or public holidays.

• Employees are entitled to an annual leave with full pay for 14 days per each year of service. If the employee remains in the service of the employer for five successive years, the employee’s annual leave entitlement shall be 21 days.

• Non-Jordanian workers can only be employed if approved by the minister of labour. An approval shall only be granted provided that the work entails experience and qualifications not available in the Jordanian labour market, or that the number of qualified Jordanian workers does not meet the need. Nonetheless, the priority in hiring foreign workers shall be given to Arab experts, technicians and workers.

• Employment permits obtained by non-Jordanian workers are renewable and shall not exceed one year in length. As per the Labour Law, the Ministry of Labour is responsible for running inspections in order to make sure that employers adhere to the provisions of the law. In 2011, the ministry ran a total of 51,822 inspection visits, of which 161 were undertaken overnight. Employers found in violation of the law are subject to penalties and are required to take corrective actions.

For example, employers found in violation of the minimum wage shall be punished by a fine ranging from a minimum of $35 to $140 for each case in which the employer pays an employee a wage less than the minimum wage. The employer is also required to pay the employee the wage difference and the penalty shall be increased if the violation is repeated.

Meanwhile, an employer of non-Jordanian workers who is found in violation of the provisions of the Labour Law regarding foreign workers is punishable by a fine of not less than $140 and not exceeding $211 for each month or part of month of employing a non-Jordanian worker.

In 2011, the Ministry of Labour issued 2708 warnings and 14,523 fines to institutions and companies found in violation of the Labour Law.

CORPORATE INCOME TAX: The Income Tax Law No. (28) of 2009, which became effective in 2010, is the current legislation governing income tax in the kingdom. As per the law, domestic companies are subject to income tax on their income, regardless of the source. On the other hand, foreign companies operating in Jordan are subject to income tax only on their income from Jordanian sources.

The income tax rate applicable to corporate taxable income ranges from 14% to 30% depending on the sector as follows:

• 30% for banks;

• 24% for insurance, stockbrokers, telecommunication companies, finance companies, leasing companies and currency-exchange companies; and

• 14% for mining, industry, trade and other services. The rates presented above are not applicable in free zones, Aqaba Free Zone or development areas where the applicable tax rates, under certain conditions, are 0%, 5%, and 5%, respectively.

PERSONAL INCOME TAX: This applies to both resident and non-resident individuals working in Jordan. The applicable tax rate is 7% for taxable income of up to JD12,000 ($16,862), and 14% for taxable income above JD12,000 ($$16,862).

TAX ALLOWANCES FOR INDIVIDUALS: The following are the applicable tax allowances available for resident individuals under the current tax law:

• A tax deduction of JD12,000 ($16,862) is available for each individual; and

• An additional tax deduction of JD12,000 ($16,862) is available for individuals with dependents. The allowance is fixed at JD12,000 ($16,862) regardless of the number of dependents.

WITHHOLDING TAX: This is levied on payments of taxable income made to non-resident companies and individuals. The payer is required to withhold a certain percentage, the withholding tax rate, of the total payment and pay it on behalf of the recipient to the ISTD. As per the Law a withholding tax of 7% applies to all sources of taxable income made to non-resident companies and individuals, including:

• Interest paid to a non-resident;

• Royalties paid to a non-resident;

• Technical service fees paid to a non-resident; and

• Management fees paid to a non-resident. It is worth noting that Jordan has double-taxation agreements with countries including Algeria, Bahrain, Canada, Croatia, Czech Republic, Egypt, France, India, Indonesia, Iraq, Kuwait, Lebanon, South Korea, Sudan, Libya, Malaysia, the Netherlands, Qatar, Pakistan, Poland, Romania, Syria, Tunisia, Turkey, the West Bank, Bulgaria, Yemen, Azerbaijan, Iran, Ukraine, Morocco, Malta and the UK.

TAX EXEMPTIONS: The following are exempt from taxes under the Income Tax Law of 2009:

• Income generated by foreign financial institutions through dealings with local banks operating in the kingdom. Such income is limited to interest on deposits, commissions and deposit profits generated by investing in interest-free banks and financial companies.

• Profits made by re-insurance companies from insurance contracts concluded with other insurance companies operating in the kingdom.

• Export profits are fully exempt from tax. The exemption includes profits arising from exports of most goods produced in Jordan. Exports of some services are also exempt. The following is a list of services whose export profits are fully exempt from taxes: – Computer services; – Feasibility study services; – Legal, engineering, accounting and auditing services; – Managerial, financial and human resource consulting services; – Operations consulting services; – Pharmaceutical studies; – Information technology; and – Services offered over the internet. Banks, financial institutions, financial brokerage companies, insurance companies, juristic persons conducting financial lease activities and foreign-exchange dealers are subject to a capital gains tax on realised gains from investments inside Jordan. For other companies, capital gains realised from investments inside Jordan are exempt from tax, but a percentage of cost is disallowed. This percentage is determined as the ratio of exempt income to total income, multiplied by total allowable cost.

Dividends received are exempt from tax except for dividends from mutual investment funds offered by banks and financial institutions. 25% of dividend income is added back to income if it does not exceed total allowable costs; that is, if the cap for disallowed expenses is the lower than 25% of dividends or reported costs.

LOSSES CARRIED FORWARD: Losses incurred may be carried forward indefinitely provided that they arise from taxable activities.

On the other hand, losses arising from tax-exempt activities may not be carried forward. Meanwhile, the carry back of losses is not permitted under the current Income Tax Law.

PENALTIES: The taxpayer may choose any fiscal year-end. Tax returns for all corporate entities must be filed in Arabic within four months after the end of each fiscal year, together with the total amount of tax due shown on the final tax declaration.

If a tax return is not submitted within the statutory deadline, a penalty ranging from JD100 ($141) to JD500 ($703) will be imposed. In addition, a penalty of 0.4% of the tax due will be imposed for each week of delay.

Moreover, a penalty of 0.4% of the tax due will be imposed for each week of delay where a difference arises between the tax return as filed and the tax assessment as determined by the ISTD. The penalty is capped at 35% of the difference.

Additional penalties are incurred where differences arise between the tax return as filed and the tax assessment as determined by the ISTD. These penalties are as follows:

• 15% of tax difference if the difference is between 20% and 50% of the tax due; and

• 80% of tax difference if the difference is in excess of 50% of the tax due. Note that the above rates (15% and 80%) will be reduced to 25% in case an agreement is reached with the ISTD.

GENERAL SALES TAX: This applies to a wide range of products and services. As of April 1, 2004, the government increased the value-added tax (VAT) rate from 13% to 16%.

VAT had also been increased from 2% to 4% on essential items including many common food items, such as meat, fish, grains, dairy products, vegetables and fruits, tea, salt, tomato paste and vegetable oil. A small number of food items remain exempt from VAT, including bread, flour and olive oil. In addition, many services continue to remain exempt from VAT.

OBG would like to thank Ernst & Young Jordan & Iraq for their contribution to THE REPORT Jordan 2012