During the previous decade, Jordan witnessed 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 Jordan as a stable environment in which companies can operate, had transformed the country into an attractive investment area in the region. Such policies include domestic investment laws that grant incentives to a number of sectors, including industry, agriculture, tourism, health care, transportation, energy and water distribution. The laws also allow the cabinet flexibility in offering investment incentives to other sectors.

REGIONAL STANDING: In 2013 Jordan was ranked 106th out of 185 ranked economies for ease of doing business by the World Bank’s 2013 Doing Business report, down one place from its 2012 ranking. The country ranked 10th out of the 19 MENA economies included in the report, behind Saudi Arabia, the UAE, Qatar, Bahrain, Oman, Tunisia, Kuwait, Morocco and Malta. Even so, Jordan received high scores in several indices within the rankings, including paying taxes, providing electricity and cross-border trading.

Prior to the financial crisis, the kingdom 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 the country was adversely affected by the global financial crisis as real growth declined from 8.2% in 2007 to 7.2% in 2008 and 5.5% in 2009. Real GDP growth further slowed to an average of 2.6% during the next two-year period from 2010 to 2012.

CHALLENGES: In addition to the financial crisis of 2008-09, Jordan was affected by the social unrest that has gripped the region 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 rose 18.6% year-on-year (y-o-y) by year-end 2012. Furthermore, unrest in neighbouring Syria has negatively affected the economy in Jordan, as trade between the two countries slowed down, with imports from Syria falling 58.4% y-o-y by the end of 2012, compared to a drop of 28.8% in exports to Syria during the same period. Indeed, declining exports to Syria and Lebanon due to the current unrest has placed additional pressure on Jordan’s trade deficit, which is already suffering as a result of the combination of rising energy imports and high oil prices.

Nonetheless, with Jordan relatively stable compared to other neighbouring countries, the kingdom is currently a more attractive tourist and investment destination. While the regional turmoil has affected tourism activity among a number of MENA countries, the stability in Jordan has seen the kingdom’s tourism sector revenue, which is an important source of foreign currency in the economy, increase by some 15.3% from $3bn in 2011 to $3.5bn in 2012.

All told, the unrest has changed the shape and size of the country’s fiscal accounts. The government continues to respond to public demands by raising spending related to social programmes. Such increases are believed to come at the expense of capital expenditure, which is the main driver of short- and long-term growth. According to statistics published by the Central Bank of Jordan (CBJ), current expenditure went up by 7.8% in 2012 while capital expenditure fell by 36.1% over the same period. Meanwhile, the budget deficit rose from 6.8% of GDP in 2011 to 8.2% in 2012.

EMPLOYMENT: Employment levels were also affected by the slowdown in economic activity. The unemployment rate came in at 12.5% in the fourth quarter of 2012, down from 13.1% in the previous quarter, but higher than the 12.1% unemployment level observed in the same quarter of 2011. Meanwhile, workers’ remittances jumped by 3.6% y-o-y by the end of 2012. The increase reflects a slight improvement with job markets in the Middle East, which is considered to be the main employer and destination among Jordanians living abroad.

Given the effects of the regional unrest, the country’s real GDP is estimated to have risen by 2.8% in 2012, compared to real GDP growth of 2.6% in 2011. Going forward, the social unrest in the region will continue to pose a threat to Jordan’s economy. According to the IMF Regional Economic Outlook, weakening global activity and increasing political uncertainty are considered to be the largest risk factors currently facing the Middle East and Africa region.

INVESTMENT PROMOTION LAW: Investment incentives take the form of exemptions from income tax and Customs fees that can be granted to either domestic or foreign investors. The Jordanian Investment Promotion Law (JIPL) no. 16 of 1995, including its amendments for 2000, divides the country into three development areas A, B and C, based on the level of economic development located there. As per JIPL, exemptions offered to investors vary depending on the classification of the development area in which the project is established. According to the law, a project in the following sectors or sub-sectors 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, as well as the exploitation of these resources. Overall, the total value of investments benefitting from the JIPL is estimated to have shrunk by 38.4% in 2011, after having declined by 8.8% in 2010.In 2012, however, the total value of investment rose by 38.4%, nearly double that of 2011. Jordan Investment Board (JIB), which promotes investments in the kingdom based on JIPL, approved 489 projects in 2012, with a total investment value of around $2.28bn. The industrial sector accounted for the largest share of investments brought in by JIB, with a total value of $1.83bn.

As per CBJ figures, FDI in Jordan reached $1.15bn in 2012, an increase of around 38.7% relative to the previous year. FDI accounted for around 50.6% of the total value of investments that sought JIB approval in 2012, compared to 28.8% in 2011. This increase in FDI can be attributed to Jordan’s ability to maintain and preserve a stable investment environment in the region, especially over the past couple of years.

The new Jordan Investment Law, which was drafted in 2010 by the Ministry of Industry and Trade, and which was scheduled to be passed to the parliament for approval during 2011, is still pending. Up until recently, the latest version of the law (the Investment Law of 2013) was placed on the new parliament’s agenda for discussion. Once approved, the new law will supersede the JIPL no. 16 of 1995. The proposed legislation includes the following components:

• All imported goods, regardless of the importing party or reason for import, are exempt of Customs fees, with the exception of goods specified by the cabinet. The cabinet has 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. A list of has yet to be issued; and

• 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:

• 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;

• Overwriting all previous constraints on foreign investment capital, this law places no constraints subject to exceptions stated by the cabinet;

• An investment window is to be created 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;

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

• In the case that a certain project/company enjoys special exemptions or privileges and 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; and

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

EXEMPTIONS & EXTENSIONS: 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. Further exemptions may be granted subject to the approval of the Investment Promotional Committee (IPC) and provided that the project capacity is raised. 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’s 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 Customs fees and taxes provided that the fixed assets are required for the expansion 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 Jordan within 10 years from the commencement of production.

REGULATION OF NON-JORDANIAN INVESTMENTS: undefined As further enticement for foreign investors looking to develop business in the kingdom, JIPL no. 16 of 1995 and its amendments for the year 2000 entitles foreign investors to the following incentives:

• 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 the Jordanian 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 nonJordanian 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 foreign 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, however, may approve greater levels of foreign ownership of projects in these sectors upon the recommendation of the IPC.

In order to qualify for this exemption, projects must be deemed highly valuable to the national economy and must plan to employ large numbers of Jordanian citizens. Except for the participation in public companies and with due observance to the above provisions, investment made by non-Jordanians may not be less than JD50,000 ($70,325).

MONEY TRANSFERS: The following apply to transfers: • 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 other remuneration abroad;

• With approval of the Incentives Committee, 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, 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 forward 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. OPIC & OTHER INVESTMENT INSURANCE PROGRAMMES:Investments in Jordan are eligible for Overseas Private Investment Corporation (OPIC) 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 that 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: Jordan has six public industrial zones and five private industrial zones. The industrial zones offer infrastructure, cost-effective land and buildings with reasonable utilities costs. In the past, the public industrial estates were owned and managed by a governmental entity called the Jordan Industrial Estates Corporation (JIEC). In 2010 the government decided to convert JIEC to fall under the new Development and Free Zones Law instead of the older industrial estates law. JIEC was transformed to act as a master developer for the public industrial zones. The following lists the main considerations that must be accounted for when establishing a facility within industrial zones:

• The services offered by the Development and Free Zones Commission to facilitate the registration and procedures to establish a new company are only offered when investing in an industrial zone;

• The investment incentives offered within the industrial zones when compared to other areas in the country, and

• The lower cost of land purchased or leased within the industrial zone compared to other areas in the country. The master developer builds and prepares the infrastructure of the industrial estate zones with the required services such as infrastructure – mainly water, electricity and roads networks – in addition to other services such as liaison offices for main governmental entities, banks and vocational trading centres. Investors will have to deal with the master developers to acquire or rent the lands and buildings. They are also entitled to the package incentives and sales and Customs tax exemption granted by the law.

The majority of the industries operating within the industrial zones are textiles companies, which account for 27% of the total. Food and engineering groups both make up 18%, while the packaging industries found in the industrial areas account for 9% of the total.

It is worth noting that public industrial zones are developed by governmental entities (master developer), while private industrial zones are developed by private entities (also called master developers). Both private and public industrial zones enjoy the same incentives, but they differ in price; public industrial zones are cheaper than private industrial zones.

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). Over 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, the Ma’an Development Area, the Irbid Development Area (IDA), the Dead Sea Development Zone and the 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 and 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 for registered companies:

• Goods and services purchased or imported by a registered company for the purpose of exercising economic activities within the 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 duties 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 general income. Inaugurated in 2001, the Aqaba Special Economic Zone (ASEZ) is an independent economic zone and is not governed by the DZC. It 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 over $8bn.

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

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

• Daily working hours shall not exceed eight, and shall not exceed a total of 48 hours a week, distributed over 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 annual leave entitled to the employee shall be 21 days per each year of service;

• Non-Jordanian workers can only be employed if approved by the minister of labour or a representative he authorises. Approval shall only be granted provided 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. Where this is the case, the priority in hiring foreign workers shall be given to Arab experts, technicians and workers; and

• 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 2012 the Ministry of Labour launched a campaign against illegal labour in Jordan. The ministry estimates the foreign labour force in Jordan to be around 500,000 workers, of which some 263,595 are registered legally. The legally registered labour force represents 21.1% of the Jordanian workforce. Moreover, statistics are showing that 90.8% of the foreign labour force is illiterate and mainly dominated by Egyptian and Sri Lankan workers, who represent 67.3% and 10.6% of the registered foreign labour force, respectively.

TAX ENVIRONMENT: Income Tax Law no. 28 of 2009, which became effective in 2010, is the current legislation governing income tax in the kingdom. However, a new law is currently being drafted which would affect corporate and personal income tax rates. If enacted, the law would come into effect as of January 1, 2014.

CORPORATE INCOME TAX: 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 current income tax rate applicable to corporate taxable income ranges from 14% to 30% depending on the sector as follows:

• Banks: 30%;

• Insurance, stockbrokers, telecoms, finance, leasing and currency exchange companies: 24%; and

• Mining, industry, trade and other services: 14%. It is important to note that the rates presented above are not applicable in free zones, the ASEZ, or development areas where the applicable tax rates are 0%, 5% and 5% under certain conditions, respectively.

A draft income tax law has been raised by the government to the Legislation and Opinion Bureau for review after which it may be sent to the parliament, if accepted, the new law will become active starting from January 1, 2014.

PERSONAL INCOME TAX: This applies to both resident and non-resident individuals working in Jordan. Tax rates are imposed on earned income after exemptions, tax exemptions are summarised below:

• A tax deduction of JD12,000 ($16,878) is available for each individual;

• An additional tax deduction of JD12,000 ($16,878) is available for individuals with dependents. The allowance is fixed at JD12,000 ($16,878), regardless of the number of dependents;

• 7% tax rate on the first JD12,000 ($16,878) earned after exemptions; and

• 14% tax rate on income earned over and above the exemption and the first JD12,000 ($16,878). A draft income tax law has been raised by the government to the Legislation and Opinion Bureau for review after which it may be sent to the parliament, if accepted, the new law will become active starting from January 1, 2014. According to the new law on individual income tax, individuals who earn JD9000 ($12,659) annually or less, or individuals with dependants who are unemployed that earn JD18,000 ($25,317) or less annually will be tax exempt. This replaces current income exemption thresholds of JD12,000 ($16,878) and JD24,000 ($33,756), respectively, in the current law.

The following summarises the main changes in the draft income tax law for the personal income tax:

• 5% tax rate on the first JD10,000 ($14,065) of income earned over and above tax exemptions;

• 10% tax rate on income earned between JD10,000 ($14,065) and JD20,000 ($28,130) over and above tax exemptions;

• 15% tax rate on income earned between JD20,001 ($28,131) and JD30,000 ($42,195)over and above tax exemptions;

• 20% tax rate on income earned between JD30,001 ($42,196) and JD40,000 ($56,260) over and above tax exemptions;

• 25% tax rate on income earned between JD40,001 ($56,261) and JD50,000 ($70,325) over and above tax exemptions; and

• 30% on all income earned that exceeds JD50,001 ($70,326) over and above tax exemptions. The following are some of the major changes affecting businesses proposed by the new law:

• The payment on account is an advance payment on the income tax payable by entities with a taxable income over JD500,000 ($703,325) these payments are due on a semi-annual basis and are based on the income generated through the period (six months);

• For entities that do not produce a biannual statement, the payment on account is computed on the prior year income. The new law has increased the payment on account on the income tax payable for the period from 37.5% to 40% of the supposed income tax payable;

• The total net income of foreign branches is subject to tax at a rate of 20% once the foreign income tax has been deducted. The foreign income tax rate has been raised from 30% to 35%; and

• Tax evasion penalties include imprisonment and payment of a fine instead of the previous penalty of imprisonment or payment of a fine.

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 Income and Sales Tax Department. 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. 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 Palestinian Territories, Bulgaria, Yemen, Iran, Ukraine, Azerbaijan, Morocco, Malta and the UK. In addition, the newly proposed law proposes increasing the withholding tax for non-resident companies to 10%.

TAX EXEMPTIONS: The following are exempted 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 includes interest on deposits, commissions, and deposit profits generated by investing in interest-free banks and financial companies;

• Profits made by reinsurance companies from insurance contracts concluded with other insurance companies operating in the kingdom; and

• 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 the services whose export profits are fully exempt from taxes:

• Computer services;

• Feasibility study services;

• Legal, engineering and accounting services;

• Auditing services;

• Managerial, financial and human resource consulting services;

• Operations consulting services;

• Pharmaceuticals studies;

• Information technology; and

• Services offered over the internet. Banks, financial institutions, financial brokerage firms, 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 earned within the kingdom are exempt from tax, but a percentage of cost is disallowed. This percentage is set as the ratio of exempt income to total income, multiplied by total allowable cost.

Dividends received are exempt from tax, with the exception of dividends from mutual investment funds offered by banks and financial institutions. A proportion of dividend income (25%) 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.

LOSS CARRIED FORWARD: Losses incurred may be carried forward indefinitely provided that losses arose 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 Income and Sales Tax Department. 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 tax department. These penalties are as follows:

• 15% of tax difference if the difference is between 20%-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 Income and Sales Tax Department GENERAL SALES TAX: This applies to a wide range of products and services. As of April 1, 2004, the government increased the general sales tax rate from 13% to 16%. General sales tax had also been raised from 2% to 4% on essential items including several common food products, 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 general sales tax, including bread, flour and olive oil. Furthermore, a number of services also remain exempt from general sales tax under the law.

OBG would like to thank Ernst & Young for their contribution to THE REPORT Jordan 2013