Under a new regulation adopted in 2016 regarding investments by “non-Jordanians”, a “non-Jordanian” company that is registered outside Jordan and is majority-owned by Jordanians (i.e., not less than 50 per cent) has the right to incorporate a Jordanian company to own a project in Jordan, either wholly or partially.
There is no doubt that this notion will encourage Jordanian investors with businesses abroad to invest in their country indirectly and through their “non-Jordanian” investment vehicles.
Under this regulation, “non-Jordanian” companies that are owned by Jordanians will be treated as Jordanian and, accordingly, can own all or any part of the shares of a Jordanian company.
This might look attractive to some businessmen, but others believe that this is an attempt to set up a “legitimate” trap because in principle, the income generated by Jordanians from sources outside the geographic boundaries of Jordan are not subject to tax; if this income originates from money and/or deposits from inside Jordan, however, this income will be subject to tax.
Hence, these types of income will be considered legally taxable income and shall be taxed at the rate of 10 per cent.
One way or another, the regulation will enable the Tax Department to track income generated by Jordanians from their investments abroad.
By allowing “non-Jordanian” companies owned by Jordanians to invest directly in Jordan without any barriers, they might fall into a “trap”.
The Tax Department may argue that the seed for creating the “non-Jordanian” company by a Jordanian and/or his/her contribution in this company originally came from Jordan.
Accordingly, the Tax Department would, most likely, consider the income made by a Jordanian from his/her “non-Jordanian” company subject to tax since the source of this investment, logically speaking, came from Jordan.
In such event, the Jordanian investor will have no way but to go to the courts to prove that his/her income that was generated by the “non-Jordanian” company did not originate from Jordan.
In other words, the Jordanian investor has to establish that the seeds of his/her investment abroad are not Jordanian.
But if that happens, it may be too late to recoup the investments made in Jordan.
Ultimately, it is important to create trust between the Tax Department and investors, whether Jordanians or “non-Jordanians”.
It is essential to develop taxation laws in a clearer manner and in compliance with investment laws.
In light of the dire economic situation in Jordan, and of the growing poverty and unemployment, the country needs to be able to attract investments.
But to achieve that goal, it is imperative that the government understand that taxation laws need to be refined to make them compliant with the investments laws, and not the other way round.