KPMG in Jordan provides an update on the salient features of the Amended Income Tax Law No. 38 for the year 2018.
Amended Income Tax Law No. 38 for the year 2018
The amended Income Tax Law No. 38 for the year 2018 which entered into force on January 1st 2019.
Below is a brief of the major amendments in the New Income Tax Law:
Corporate income tax rates remained the same and as follows:
||New Tax Rate
Primary telecommunication companies,
electricity generation and
insurance and reinsurance companies,
financial brokerage companies,
institutions including money
exchange companies and
financial lease companies
|24% of taxable income
||35% of taxable income
15% of the taxable income
for the year 2019 noting
that such rate will be
increased by 1% annually to
reach 20% in the year 2024.
|Textile and Pharmaceutical Industries
10% of the taxable
income for the year
2019 noting that such
rate will be increased
annually to reach
19% in the year 2023.
||20% of taxable income.
However, in addition to above, a National Contribution is introduced for the purpose of repaying the National Debt and to be imposed on companies in Jordan as follows:
|National Contribution Rate
Electricity generation and distribution
companies and Bank
|3% of taxable income.
||7% of taxable income.
Financial brokerage companies,
Financial Companies and financial lease companies.
|4% of taxable income.
companies, insurance and reinsurance companies.
|2% of taxable income.
||1% of taxable income.
- Companies which wholly or partly own not less than 10% of the total capital of another company shall not be taxed at more than 10% in relation to the profit sourced from the other company.
Payroll / Personal Income Tax Rates:
On each Dinar in excess of
JOD 20,000 up to 1,000,000
For natural person whose
taxable income in excess of JOD 1,000,000
Natural persons (individuals / employee) personal exemptions as follows:
- Personal deduction is reduced to of JOD 10,000 for the year 2019. (Provided that he/she stays in Jordan for more than 183 days during the calendar year whether continuous or interrupted) and personal exemption of JOD 9,000 for the year 2020 (Provided that he/she stays in Jordan for more than 183 days during the calendar year whether continuous or interrupted).
- Family Deduction was reduced to of JOD 10,000 for the year 2019. (Provided that his family stays in Jordan for more than 183 days during the calendar year whether continuous or interrupted) and family exemption of JOD 9,000 for the year 2020 (Provided that he/she stays in Jordan for more than 183 days during the calendar year whether continuous or interrupted).
- An additional Personal and family deduction on Medical Expenses, University and schooling Education Expenses and Interests paid on Housing Loans and Murabaha provided that supporting documents and invoices are available. Related deduction shall be as follows:
|Type of Exemption
|| JOD 3,000
JOD 4,000 ( JOD 1,000 for spouse and
JOD 3,000 which is allocated
per child i.e., JOD 1,000 Per kids
|Total personal & Family Exemptions
|| JOD 3,000
- In all cases, the personal and family deduction shall not exceed JOD 23,000 per year.
- An additional 1% National Contribution shall be added for Natural person whose annual taxable income in excess of JOD 200,000.
- Monthly Pension amount in excess of JOD 2,500 shall become taxable (used to be JOD 3,500 monthly).
Withholding Tax as follows:
Withholding tax on interest earned from bank deposits deposited by companies has increased to 7% (used to be 5%).
Development Zones and Free Zones
- Income tax at rate of 5% is applied on manufacturing companies registered in Development Zone that has an in country added Value for not less than 30%.
- Other companies registered in Development Zones shall be taxed at 10%.
- Companies registered inside Free zones became taxable in Jordan in relation to its activities inside the free zone and taxed using the same tax rates applies to other similar Jurisdiction persons (entities) in Jordan.
Thin Capital Rules:
- A thin Capitalisation rule has set a 3 to 1 debt to equity ratio limiting the deductibility of interest expense when calculating the income tax liability in relation to related party debt.
- It is worth noting that related party is defined as the Jurisdiction person who owns more than 50% of the other Jurisdiction person, or has control over decisions making in the other Jurisdiction person. Or Natural person who owns more than 50% of the other jurisdiction person.
Partnership and limited partnership companies:
- According to the new amendments, partnership and limited partnership companies which exercise activities or investments inside Jordan that are taxable in Jordan that are liable to prepare a financial statements and accounting records in accordance the provision of Companies Law are liable to submit those financial statements to the Tax Authority. Where no financial statements is prepared, then the tax liability imposed, shall be not less than of JOD 500.
Additional Changes are as follows:
- Shall be, exempt, dividends and shares distributed by limited liability companies, Limited Partnership , General Partnership Company, private and public shareholding companies resident in the Kingdom except for dividends distributed to banks, telecommunication companies, mining companies, insurance companies, reinsurance companies, brokerage firms, financial companies and jurisdiction persons ( Legal Entities ) working on financial lease activities.
- Based on the above, dividends distributed to banks, telecommunication companies, mining companies, insurance companies, reinsurance companies, brokerage firms, financial companies and jurisdiction persons ( Legal Entities ) working on financial lease activities became taxable in the hands of those entities.
- Shall be exempt, capital gains from the Kingdom except the profits realized on assets subject to the provisions of depreciation and the profits of the sale of shares for the jurisdiction persons (Legal entity) as well as the profit of the Information and Technology Companies. Accordingly gain realized from sales of shares by legal entities became taxable in Jordan.
- Shall be exempt, capital gains arising from the sale of shares for information technology companies that are responsible for setting up, processing and storing information using electronic elements, for a period not exceeding 15 years from the date of registration and such period shall be extended for additional period by obtaining an official decision from the Prime Minister.
- First JOD 1,000,000 of the natural person’s sales sourced from agricultural activities inside the Kingdom shall be exempt.
- First JOD 50,000 of the jurisdiction person’s net income sourced from agricultural activities inside the Kingdom shall be exempt. As such, companies whose activities are categorized as agricultural activities became taxable.
- Taxpayer has the right to amend the income tax return within two years from the date of submission to the Tax Authority by increasing or reducing the income and the tax noting that the taxpayer is liable to pay the income tax along with the penalties. If any (four years under the current Law).
- Late tax return filing penalties has increased for the private shareholding companies and public listed companies to be JOD 1000. Late filing penalties for other type of legal entities is increased to JOD 300.