Jordan Amended Income Tax Law: Heavier Income Tax Rate And Wider Coverage On Transfer Pricing

; posted on
December 6th, 2018

Jordan has published a new tax law  (Law 38 of 2018) in the official gazette. The amended law will supersede Law 34 of 2014, effective January 1, 2019.

Heavier income tax rate

The amended income tax law provides various income tax rate for difference industrial sector. Compared to the previous law, most of the rates offered are increased. For instance, the rate for manufacturing companies increases from 14 percent to the standard rate of 20 percent, but with a five-year tax relief period. A higher rate of 24 percent also imposed for the country’s main telecommunications companies and electricity distribution and generation companies, as well as for mining companies, insurance, and reinsurance companies, financial companies, financial intermediaries, and legal persons carrying out financial leasing activities. Meanwhile, Banks will be subject to corporate income tax at the rate of 35 percent.

Despite the increased tax rate, Jordanian government also offered a reduced corporate income tax rate of 10 percent will apply to companies undertaking manufacturing activities in developing areas. If the local value added from their activities exceeds 30 percent, those companies will be eligible for a rate of 5 percent.

Apart from the amended income tax rate, the new law also broadens the scope of the income tax to specifically include income derived from electronic sales of goods and services.

Wider coverage on transfer pricing

The amended income tax law also amends the term “related person” become wider by including the following situations to broaden the coverage on transfer pricing:

  • any natural person who owns — directly or jointly with a family member (up to the second level) — more than 50 percent of the capital of a legal entity;
  • a legal entity that owns more than 50 percent of the capital or voting rights of another legal entity; and
  • a spouse or immediate family member of a “related person.”

To the extent the related person or related party transactions are not compliant with the arms-length principle tax authorities will be empowered to make transfer pricing adjustments. Artificial and fictive transactions between such person that were not undertaken for business purposes, but rather to reduce tax or shifting the tax burden in violation of local rules or income tax treaties and other international agreements, will be fully disregarded.

Moreover, the new law inserts a definition of tax evasion as the use of fraudulent methods, including falsification, cheating, and deceit, misrepresentation of data, providing fictive data, or participation in any of those methods to knowingly avoid paying or disclosing taxes, wholly or partly, or to reduce them. As such, the transaction that falls under the category of tax evasion will be punished accordingly following the applicable law.

Source: Jordanian Ministry of Finance

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