Jordan: Business Structures, Forms, Banking & Taxes
Business Structures and Forms
A new Companies Law, aimed at encouraging investment, became effective in June 1997. Companies Law No. 22 of 1997 limits routine procedures and facilitates the process of company registration.
The Law introduced the not-for-profit company form as well as the civil company form, which provides for the establishment of companies by professional persons, such as lawyers, doctors or engineers.
Under the new Law, companies are no longer required to pay a 15 percent capitalizing charge, which had previously acted as a barrier to capital reserves. In addition, amendments to the Law allow company founders to adopt the prices they deem appropriate to estimate the value of their fixed assets.
The Law provides for several entity forms under which business may be conducted in Jordan. These are: (1) general partnership; (2) limited partnership; (3) limited liability company; (4) limited partnership in shares; (5) public shareholding company; (6) mutual fund company; (7) offshore company (exempt company); and (8) foreign company (operating and non-operating).
Public Shareholding Company
A public shareholding company may be formed by two or more shareholders whose liability is limited to their respective share of the company’s equity. The minimum authorized capital is set at a JD 500,000 minimum. The subscribed capital must exceed JD 100,000 or 20 percent of the authorized capital, whichever is greater.
Banks, financial institutions and insurance companies may only be incorporated as public shareholding companies. Companies operating franchises must also be incorporated in this form.
An offshore company (or exempt company) is a public company, private company or a partnership limited in shares, which is registered in Jordan, but conducts its business outside the Kingdom. It is an entity that was introduced in order to attract foreign investments.
This entity may not offer its shares for public subscription in Jordan, and it is prohibited for Jordanians to subscribe to its capital. At least 5 percent of the capital of the offshore company must be invested in Jordanian securities. Where the offshore company is engaged in insurance, banking, finance or joint investments, its capital must be at least JD 1,000,000.
Mutual Fund Company
A mutual fund (joint investment) company may be organized as a public shareholding company. Its objectives are restricted to investing funds on behalf of others by way of dealing in securities.
This entity may take the form of an open-ended fund with variable capital, which issues redeemable shares, the value of which is determined by the value of the company’s assets. It may also take the form of a closed-ended fund, whose shares are not redeemable and are traded on the stock exchange.
Foreign Operating Companies - Branch Offices
This business structure is open to foreigners wishing to engage in business ventures in Jordan. A foreign company that has been awarded a contract in Jordan requiring execution of work therein must register a branch office with the Controller of Companies in the Ministry of Industry and Trade. Such a company is registered as a foreign operating company for purposes of the contract and for the duration thereof. If the company obtains other contracts in Jordan, then the same registration will be extended so as to cover such new contracts. If the company does not obtain any new contracts, then the branch office should be closed and liquidated upon the completion of the contract in respect of which the registration was effected.
Registration fees payable for a Branch Office are JD 250 if the share capital of the foreign company at its home office does not exceed the equivalent of JD 1 million, and JD 500 if the share capital of the foreign company exceeds the equivalent of JD 1 million.
Foreign Non-Operating Companies - Regional Offices
Foreign companies are encouraged to set up regional offices in Jordan through tax and customs duty exemptions and provisions for the free movement of foreign currency. A regional office can operate from Jordan and conduct business anywhere in the world, except in Jordan, and may not generate income in Jordan. It may, however, collect information concerning general business opportunities in Jordan or in respect to a particular project. The duration of the regional office is not limited to any period of time or to the completion of a specific project.
The Companies Law does not elaborate on the size or type of foreign company that may register as a regional office in conformity therewith. It is now the policy of the Ministry of Industry and Trade, however, to restrict this facility only to substantial and large companies of international standing in their fields.
A Regional Office enjoys certain exemptions and facilities including the following:
- Neither the foreign company nor its regional office established in Jordan will pay any local taxes, including Income Tax and Social Services Tax;
- The non-Jordanian employees of the regional office are exempted from payment of income tax and Social Services Tax on their salaries;
- A regional office may import its office equipment, furniture and business samples free of customs duties, import fees and all other related charges;
- The non-Jordanian employees of the regional office may import a car every five years free of customs duties upon depositing a bank guarantee for the amount of the duty with the Ministry of Finance and Customs as a guarantee that will be discharged upon exporting the car out of Jordan or selling the car locally after paying the duty thereon;
- A regional office can maintain an account in Jordan in foreign currency or in Jordanian Dinars, provided that deposits of money to such accounts are from foreign sources; such funds may be deposited in the account and withdrawn in order to be repatriated to the foreign parent company without exchange control restrictions;
- No fees are payable upon the registration of, or in connection with the operation of a regional office;
- A regional office is exempted from the requirement of registering with the Chamber of Commerce and all other professional associations, as well as from the payment of any fees in this regard; and
- The non-Jordanian employees of the regional office are granted residence and work permits; however, the number of non-Jordanian employees at the regional office may not exceed that of its Jordanian employees.
Dissolution of a Company
A company may go into voluntary liquidation in the event that: The period fixed for its duration has expired, the objective for which it was formed has been achieved or proves to be impossible to achieve. Voluntary liquidation may also take place in the occurrence of an event stipulated in the company’s Articles of Association or by the adoption of a resolution of the Company’s general meeting of shareholders.
A compulsory liquidation may be ordered by the court if the company so resolves, if the company commits a serious breach of law or of its articles of association, if it suspends its business activities for a period exceeding one year, if the number of its shareholders decreases below the legal minimum or if the company is unable to pay its debts.
The company, its creditors, the Controller of Companies or the Attorney General may make an application for the compulsory liquidation of the company.
A general partnership is formed by at least two and not more than twenty partners who are jointly and severally liable for the partnership’s debts. Only the names of the actual partners may be included in the partnership’s name.
A partnership’s interest may be transferred with the approval of all partners or in accordance with conditions established in the partnership agreement. The management of the partnership is vested with one or more managers who are individuals and who may or may not be partners in the partnership.
According to the new Law, if the partnership consists of two partners, the withdrawal of one of the partners will not lead to the dissolution of the partnership. Instead, the remaining partner may seek to replace the absent partner with another. Failure to do so within three months of the partner’s withdrawal will result in the partnership’s dissolution by virtue of law.
A limited partnership consists of two or more partners who are jointly and severally liable for its debts and one or more partners whose liability for the partnership’s debts is limited to their contribution to the partnership’s capital. The limited partners of the limited partnership may not participate in the management of the partnership or act in its name.
Limited Partnership in Shares
This form of business entity consists of two or more general partners who are jointly and severally liable for its debts and three or more partners whose liability for the partnership’s debts is limited to their respective share of the partnership’s equity. Partners are not required to be individuals, and the name of the partnership should include the name of one or more of the general partners and the words, “Limited Partnership in Shares.”
The minimum capital permitted in this form of partnership is JD 100,000, which must be divided into negotiable shares of equal value of JD 1 each. Shares may be issued to the public for subscription but must not exceed twice the general partner’s capital in the partnership.
The limited partnership in shares shall be dissolved or liquidated in the manner provided for by the company’s articles of association. If not provided for, the provisions regarding liquidation of the public shareholding company shall apply.
A joint venture need not be registered in Jordan and, hence, is not governed by the Companies Law. A joint venture is typically regulated by the contractual agreement between the joint venture parties. This does not apply in the event that the parties envisage the establishment of a corporate entity.
Banking and Currency
Foreign Currency Control
In accordance with the Foreign Exchange Control Law No. 95, of 1966 and the Foreign Exchange Control Regulations of 1978, as amended in 1979, the Central Bank of Jordan (CBJ) is the ultimate authority for enforcing foreign exchange controls in Jordan. Its foreign exchange controls cover all fields of transactions in the Kingdom including: inflow and outflow of Jordanian and foreign means of payment; dealing in foreign currencies; resident and non-resident accounts in Jordanian Dinars and foreign currencies; lending in foreign currencies; commercial payments; free trade zone payments; invisible payments and capital transfers; guarantees; export earnings' repatriation; commissions on foreign exchange permits; reporting requirements; and auditing and statement of account regulations.
Law No. 95 allows for the free exchange of bank-notes, coins and gold. It allows licensed banks, with the approval of the CBJ, to manage foreign currency accounts, as well as to purchase and to sell foreign currencies. According to Article 6 of the Law, foreign residents may open accounts in local and foreign currency and may transfer funds without restrictions.
Conversion and Transfer Policies
In March 1995, the CBJ announced that the Jordanian Dinar is fully convertible for commercial transaction purposes.
There are no restrictions on transferring funds associated with investments. CBJ Regulations permit non-residents and foreign investors who transferred funds into Jordan to remit their funds abroad in the same or in any other transferable currency.
To transfer funds outside Jordan, a local bank must obtain a permit from the CBJ. Furthermore, before an investment is made, the CBJ must be informed when an investor transfers funds into Jordan, opens a non-resident account at a local bank or seeks to transfer foreign currency funds outside Jordan. CBJ’s approval for these transactions is generally granted liberally.
Prior to investing in Jordan, non-residents may obtain explicit regulations governing their specific needs from the CBJ. There are no limitations on the inflow or outflow of funds for remittance of profits, capital gains and royalties regarding intellectual property, as long as a prior authorization from the CBJ has been obtained.
The CBJ is in favor of liberalizing the country's check clearing and current account system. An initiative to automate and modernize the system is currently underway, and will likely be instituted in the near future.
The CBJ is the monetary authority of the country. Other financial institutions include approximately 15 foreign and Jordanian commercial banks and specialized credit institutions, such as the Industrial Development Bank. The specialized credit institutions offer equity capital. Banks, both foreign and Jordanian, may be established in a free zone; must deal exclusively in foreign currency and must operate independently of other banking activities in the country.
The Kingdom of Jordan is a signatory to the Paris Convention for the Protection of Industrial Property and a member of the World Intellectual Property Organization.
Although Jordan is a member of the Paris Convention for the Protection of Intellectual Property, the international classification of patents is not observed in Jordan. Applications for the grant of a patent are filed with the Patent Office, which examines the applications for compliance with formalities and patentability under the Jordanian Patents and Design Law and may require amendments to applications to achieve conformity.
Appeals by applicants against the requirements of the Patent Office as decided by the Registrar of Patents are made by petition to the High Court of Justice within 30 days of the Registrar of Patents' decision.
Approved applications are published in the Official Gazette. The period during which any interested party may file an opposition is two months from the date of publication. If no opposition has been filed or if the Registrar or court rejects the filed oppositions, a decision granting the patent is issued.
Patents are valid for a period of 16 years from the date of filing the application, provided that registration fees are paid along with the decision to grant the patent and that renewal fees are paid every four years during the patent term.
Patent rights are freely transferable; however, notice of the transfer must be published in the Official Gazette and properly registered with the Patent Office so that they may become valid vis a vis third parties.
Under the Patents and Design Law, patents are not granted for chemical products relating to medical drugs, pharmaceutical compositions and food. The methods and processes used in the preparations of such products, however, may be the subject of a patent.
The Patents and Design Law requires that the owner of a patent use the patented product or process in Jordan within three years of the date the patent was granted; if this requirement is not satisfied, the law provides for compulsory licensing of the patent.
The Patents and Design Law provides penalties for infringement of patents.
In August 1999, Jordan's Lower House of Parliament approved a draft to amend its Trademark Law, in an effort to facilitate its accession to the World Trade Organization. In some aspects, Jordanian legislators went beyond the minimum obligations set forth by the Trade Related Aspects for the Protection of Intellectual Property Rights and the Madrid Convention to provide further protection for trademark owners.
The new law protects registered trademarks for a ten-year period, even though TRIPS only stipulates a minimum of seven years. The draft also widened the range of marks that can be protected by the law to include "famous" marks and "group" marks. "Famous" marks are trademarks that become known in the Kingdom through advertising and publicity, even if they are not yet marketable. "Group" marks are used to identify groups regardless of the nature of their work, even if they are not used for commercial purposes.
The new draft annulled the link between the trademark and the trade outlet, so the owner can waive a right to the trademark or rent it without relinquishing the right to the outlet. The draft also increased the period before the owner loses his right to the trademark if it is not used from two to three years.
The international classification of goods regarding trademarks is observed in Jordan, although the Trademarks Law does not adopt the classification for service marks that are recognized worldwide. Applications for registration of a trademark are filed with the Registrar of Trademarks. The Registrar conducts an examination of the application, and, if accepted, the trademark application is published in the Official Gazette. Any interested party may file an opposition within three months of publication.
Oppositions that are not settled by the Registrar or appeals based on the Registrar's decision are brought to the High Court of Justice. If no opposition has been filed or if the Registrar or court rejects the filed oppositions, a decision regarding the trademark is granted and the appropriate certificate is issued.
Based on recent amendments, trademark registration is now valid for a period of ten years beginning on the date the application was filed and is renewable for additional periods of 14 years each.
Trademarks are freely transferable, but in order for them to be valid vis a vis third parties, notice of the transfer must be published in the Official Gazette and properly registered with the Registrar of Trademarks.
The Trademarks Law requires actual use of the trademarks registered. Trademarks of which there was no bona fide use or which have not been actually used for a period of three years immediately prior to the submission of an application for cancellation may be annulled.
Unauthorized use or imitation of a trademark registered in Jordan is punishable by law.
In 1992, the Copyright Protection Law No. 22 was enacted. The Copyright Law grants copyright protection to original works of literature, art and science of any type, purpose or importance. It covers works of art as may be expressed in writing, sound, drawing, photography and motion pictures, including books, speeches, plays, musical compositions, films, applied art, three-dimensional works and computer software.
A copyright is filed at the Ministry of Culture. The work protected must be original and involve personal innovation and arrangement. The protection period, for both Jordanians and foreigners, is 30 years after the death of the author. The Ministry of Culture may publish or republish a work subject to copyright protection if the author or the author's heirs have not published or republished the work within six months of the date the Ministry has given notice that the work is to be so published or republished. In the event of publication or republication by the Ministry of Culture, the author or author's heirs are entitled to fair remuneration.
The Copyright Law provides penalties for infringement. Enforcement of the Copyright Law is in the jurisdiction of the civil courts; however, the implementing regulations relating to the law have not yet been promulgated.
In late 1998, an updated Copyright Law was passed, and Jordan acceded to the Berne Convention in April 1999. However, enforcement mechanisms have yet to be established. Jordan is currently on the United States Trade Representative's Special 301 watch list for inadequate intellectual property protection. In negotiations with the U.S. Government, Jordan has agreed to a plan that calls for significant improvement in intellectual property protection over the next several years.
There remains, however, strong resistance to rapid implementation of a modern intellectual property regime in Jordan. Much of this resistance stems from the influential pharmaceutical industry, which profits from unlicensed copying of patented drugs. The majority of videos and software sold in the Jordanian market are also pirated. Jordan's accession to the World Trade Organization will eventually require that the government of Jordan establish a TRIPS-comparable intellectual property regime.
The Jordanian tax law is the Income Tax Law No. 57 of 1985. Several amendments have been issued since then by the tax authorities. The latest amendment adopted is Amending Law No. 14 of 1995, and new tax adjustments contained therein came into effect in 1996.
Taxpayers may determine their own fiscal year. Tax returns are to be filed with the Tax Department within four months after the end of the fiscal year. Taxpayers who pay their tax liability within the first month following the close of their fiscal year are entitled to a 6 percent discount on their taxes due. Similarly, a 4 percent discount and 2 percent discount are available to taxpayers who pay their taxes during the second or third month, respectively, after the close of their fiscal year. In case of late filing of a tax return, a fine of 2 percent per month, but not exceeding 24 percent overall, will be imposed. A fine of 1.5 percent per month is imposed on taxpayers who fail to pay their taxes.
The primary types of income taxes levied are corporate income tax, individual income tax, withholding tax and distribution tax. The Income Tax Law of 1985 was recently amended to include provisions of particular benefit for investors. This amendment, which came into effect in 1996, allows higher allowances for individual taxpayers and lower tax rates for individuals.
Taxation of Companies and Businesses
All companies, local and foreign, operating in Jordan are subject to corporate income tax at the following rates:
Types & Corresponding Rates
Mining, industry, hotels, hospitals, transportation, contracting and other sectors approved by the Council of Ministers = 15%
Banks, financial and finance companies, exchange companies and brokerage companies (in case of banks, financial and insurance companies, the tax payable each year should not be less than 25% of their net income before any distributions are made) = 35%
All other companies = 25%
Taxation of Individuals
Salaries, wages and other income paid to Jordanian and foreign employees are taxable. The Income Tax Law gives a 50 percent exemption from tax on private sector employees' annual salaries up to JD 12,000 and a 25 percent exemption on amounts above JD 12,000. Foreign employees working for non-Jordanian companies are exempt from paying all income tax. In addition, there are personal and family exemptions given by the Income Tax Law. In the public sector, 50 percent of the salaries and wages of employees are tax exempt.
The taxable income of an individual, not exempted as stated above, is subject to the following tax rates:
Annual Taxable Income/ Rate
First JD 2,000 5%
Next JD 2,000 10%
Next JD 4,000 15%
Next JD 4,000 25%
Next JD 4,000 30%
Ten percent of any payment made by a Jordanian resident to a non-resident should be withheld as payment on account of the tax due and should be forwarded by the Jordanian resident payer to the tax authorities within thirty days from the date it was withheld.
Every employer who pays salaries, wages, allowances or bonuses to employees must deduct from such payments the tax due and forward it to the tax authorities on a monthly basis.
This tax is levied on the distribution of company profits (i.e., dividends) and amounts to 10 percent of the dividends paid out. This tax must be deducted and forwarded by the entity distributing the dividends to the Tax Department within 30 days from the date of such distribution. For purposes of this tax, profits transferred abroad by a foreign company operating in Jordan shall be considered as distributed profits.
According to law, income arising or deemed to be arising in Jordan shall be subject to tax. In order to determine a taxpayer's taxable income, all expenses wholly and exclusively made or incurred in the production of income during the year shall be deducted.
Company expenditures on training, marketing, research and development are tax exempt. Profits from the export of goods and services are totally exempted, with the exception of exports of phosphate, potash, fertilizers and other exports that are governed by trade protocols.
The following items are not deductible under Jordanian tax law:
Revenues and provisions;
Capital losses (for non-depreciable assets);
Head Office expenses for foreign branches in excess of 5 percent of the taxable income of the branch in Jordan;
Losses or expenses recoverable under an insurance policy or a compensation contract;
Amounts paid as income tax and social services tax;
Depreciation expenses in excess of the permissible rates.
Loss Carry Forward
Losses realized in a particular tax year may be carried forward in order to be deducted from taxable income during the next six consecutive tax years. Losses may be not carried backward and applied to a previous tax year's taxable income.
Fixed assets can be depreciated following an accelerated depreciation method.
Other Tax Exemptions
According to the Investment Law of 1995, projects approved under that law and established in the Hashemite Kingdom of Jordan are entitled to tax exemptions. The new law offers incentives to investors in the form of tax exemptions that are weighted in favor of less developed areas. Projects in Zone A receive a 25 percent deduction; projects in Zone B receive a 50 percent deduction; and projects in Zone C receive a 75 percent deduction in accordance with the following stipulations:
-For hotels to benefit from the incentives granted by this law, they must be classified as more than three stars in Zone A;
-The shores of the Dead Sea, within a five kilometers depth from the coastline, are classified as Zone A for hotel projects.
-All areas of Jordan are classified as Zone C for the sectors of agriculture, animal resources and maritime transport and railways;
Social Service Tax
A social service tax is due from each individual and equals 10 percent of the taxpayer's income.
This tax is payable by shareholding and foreign companies
at a rate of 1 percent of net income before taxes and distributions.
The taxpayers as defined by the Sales Tax Law are the manufacturers, merchants or service providers whose sales amount to JD 100,000 per annum and importers of any goods or services irrespective of the volume of their imports. The sales tax rate ranges from 0 percent up to 20 percent of the value of goods, and for services, the sales tax is fixed at a rate of 10 percent.
This tax is payable when the sale is completed or the service is rendered. In the case of imported goods, the sales tax is payable at the customs clearance stage, prior to the release of such goods.
Treaties for the Prevention of Double Taxation
Jordan has signed agreements for the prevention of double taxation with Austria, Bahrain, Belgium, Canada, Cyprus, Denmark, Egypt, France, Iraq, Kuwait, Libya, Malaysia, Oman, Pakistan, Qatar, Romania, Saudi Arabia, Spain, Syria, Tunisia, Turkey, the United Arab Emirates, United Kingdom, the United States and Yemen.
Trade and Investment Issues
Encouragement of Investment Law
The Investment Promotion Law No. 16 of 1995 repealed the Encouragement of Investment Law No. 11 of 1987 and Law No. 27 of 1992 Regulating Arab & Foreign Investments. The new law opens the financial markets to all investors and provides for the equal treatment of investors regardless of nationality.
The new law abolishes the distinction between economic and approved economic projects. Therefore, projects in the following sectors enjoy the special exemptions specified under the law: (1) Industry; (2) Agriculture; (3) Hotels; (4) Hospitals; (5) Maritime Transport and Railways; (6) Leisure and Recreation Compounds; (7) Convention and Exhibition Centers; and (8) any other sectors or its branches that the Council of Ministers decides to add based on the recommendation of the Higher Council for Encouragement of Investment. These sectors are also subject to a revised tax rate of 15 percent under latest amendments to the Income Tax Law.
In addition, exemptions from taxes and fees extend to all imported fixed assets, imported fixed assets of the expansion of productive capacity over 25 percent, and imported spare parts.
Exemptions from income and social service taxes for a ten-year period starting from the date of production is granted in ranging amounts according to the level of development of particular locales.
The Committee for Encouragement of Investment considers investors' applications from other sectors for inclusion under the Encouragement of Investment Law and makes the appropriate decisions within 30 days from receiving such applications. A rejected application that is returned must include the reasons for the rejection. A new government office is to be established to encourage investment and to speed procedures for registering and licensing new investments. The law also contains a commitment that all investment proposals will receive a response from the Higher Council for the Encouragement of Investment, a body made up of ministers and business representatives, within 30 days of application.
The new law also allows direct entry into the Jordan stock market in order to help attract foreign capital. Furthermore, the law permits foreign investors to buy shares directly, provided that the total foreign ownership in the publicly traded company does not exceed 50 percent at the end of the close of trade on the official market.
Restrictions on Foreign Investment
Special rules were issued specifying the sectors in which foreign investors are allowed to invest and the proportion of ownership foreign investors may maintain in addition to the minimum capital requirement for foreign investors. Until recently, such minimum capital requirements were set at a minimum of JD 100,000 with the exception of investments in the stock market, where such minimum was set at JD 1,000. On February 22, 1997 the Council of Ministers resolved to remove the minimum investment requirement of JD 100,000. Pursuant to said resolution, Jordanian and non-Jordanian investors are now afforded equal treatment with regard to their investment in Jordanian companies.
Encouragement of Foreign Investment
The Encouragement of Foreign Investment Regulation of 1995 allows wider foreign ownership and direct entry of foreign nationals and companies into the Jordan stock market. This regulation is intended to enhance the opportunity for substantial foreign investment and, in conjunction with a reduced tax structure, to enhance returns on stock. The Regulation is intended to boost confidence in Jordan as an attractive emerging market and to help attract foreign capital.
The Regulation eliminates the cumbersome requirements requiring prior approvals by the Cabinet and the purchasing of permits through licensed brokers as well as the set limitations on ownership. It also provides tax exemptions for investment in less developed regions in Jordan.
The Regulations for the Promotion of Foreign Investment Law No. 39 of 1997 eliminated the 50 percent ceiling on foreign equity ownership in the Amman Financial Market, transportation, insurance, banking, telecommunications and agricultural sectors. The 50 percent ownership ceiling remains in the construction, trading, trade services and mining sectors. These Regulations also reduced the minimum amount of foreign investment from JD 100,000 to JD 50,000.
During 1997 and 1998, roughly one-third of foreign investment projects benefited from the investment promotion law, compared with one-fifth of projects in 1996.
Investment Tax Incentives
Exemptions from income tax and customs duties for projects are provided for under the Encouragement of Investment Law. All fixed assets for the project are exempt from customs duties and taxes. Fixed assets include the equipment, machinery apparatus and tools needed for the project. For hotels and hospitals, the definition includes furniture and other material specific to these industries. Imported spare parts for the project will be exempt from customs duties and taxes provided the value of these parts does not exceed 15 percent of the value of their related fixed assets.
Net profits of the projects are exempt from income tax for up to ten years starting from the commencement of commercial production or providing services in accordance with the rates set forth, in the Other Tax Exemptions section above.
Furthermore, additional incentives are granted if the project undergoes expansion, development or modernization resulting in an increase of its productive capacity. Hotels and hospitals may enjoy exemption from customs duties and taxes every seven years for the purchase of new furniture and other materials specific to these industries.
According to Law No. 16, foreign investors have the rights to seek third party arbitration or an internationally recognized dispute settlement mechanism. The Government recognizes decisions reached by the International Center for the Settlement of Disputes. Jordan's legal system permits the implementation of internationally acknowledged dispute settlement measures.
Free Trade Zones
In order to encourage export-oriented industry, Jordan has set up a number of Free Zones. The first Free Zone was established at the Aqaba port along the Red Sea. Other free trade zones are located at Zarqa, the Sahab industrial estate and Irbid.
Free Zones come under the supervision of an autonomous body, the Free Zone Corporation and are governed by the Free Zone Corporation Law No. 32 of 1984.
Projects must meet the following criteria in order to qualify for licenses to operate within a free zone area:
(1) applying new technology and introducing new industries
to the country; (2) using local raw materials or components; (3) raising the level of domestic labor skills; and (4) reducing Jordan's imports. Applications for a Free Zone license are filed with the Free Zone Corporation.
Projects granted a license in a Free Zone enjoy the following privileges: (1) exemption of profits from income tax for a period of twelve years; (2) exemption of non-Jordanian employees from income tax on their remuneration and from the social service tax; (3) exemption for goods imported into or exported from Free Zones from customs duties, import fees and any other fees and taxes; (4) exemption of lands, buildings and properties in free zones from licensing fees and taxes; and (5) freedom to repatriate capital investment and profits earned, subject to prevailing laws and regulation.
Furthermore, importers using the Free Zones to supply the local market avoid import license fees amounting to 5 percent of cargo value, until the goods are actually cleared for release from the Zone.
Qualifying Industrial Zone
Pursuant to the United States - Israel Free Trade Area Implementation Act of 1995, the governments of Israel and Jordan agreed to the creation of the Irbid Qualifying Industrial Zone (QIZ). This zone is located in the Irbid duty-free zone in Jordan in conjunction with the Israeli side of the border-crossing at the Sheikh Hussein - Nahar Hayarden Bridge. On March 13, 1998, the Office of the United States’ Trade Representative designated the first Jordan-Israel “qualified industrial zone” at the Al-Hassan Industrial Park in Irbid, Jordan. According to this special status, goods from the zone that are produced through Jordanian-Israeli commercial cooperation, and which meet certain minimal criteria, are eligible for duty-free entry into the United States. This initiative has already significantly increased Jordanian-Israeli dialogue on commercial issues and has generated notable private sector interest from both countries. More than $140 million worth of new projects have been set up at the Irbid QIZ in 1999. These new investments will bring to $350 million the aggregate value of projects in the zone, whereby most of these factories produce textiles and apparel. In 1998, the United States imported from the QIZ goods valued at approximately $17 million.
The Governments of Israel and Jordan agreed to establish a joint committee with the responsibility of identifying those businesses located within the Irbid Qualifying Zone that involve substantial economic cooperation between the two countries. The parties involved have indicated that they regard this agreement as an important step toward cementing industrial cooperation between Israel and Jordan. This American initiative demonstrates that the future of regional economic cooperation will be determined not just by increases in bilateral trade, but more significantly, by cooperation between entrepreneurs and industries in joint manufacturing and the export of their products to third markets.
Based on the initial success of the Irbid QIZ, the United States announced in March 1999 the creation of a new Israel-Jordanian QIZ, to be located on the Israeli-Jordanian border south of the Beit She’an Valley. Plans for the creation of the new QIZ are moving forward under the direction of the Jordan Gateway Project Corporation, which has reported that a number of Israeli and Jordanian companies have already expressed an interest in joint QIZ ventures.
Taxes on imports are the chief source of domestic revenue. All imported goods are subject to custom duty, except those specifically exempted. Rates of duty vary according to the importance of the item to the national economy. Essential commodities and various raw materials attract relatively low rates of duty, while luxury goods attract high rates. As part of its efforts to accede to the World Trade Organization by the beginning of 2000, Jordan has accelerated economic reforms and continued to slash duties on imports. Nevertheless, this bold liberalization program threatens local business monopolies that prospered from the state protection they received during King Hussein’s reign.
Customs procedures in Jordan have historically been a major impediment to free trade. Overlapping areas of authority and excessive signature clearances on paperwork of shipments remain unchanged. Actual commodity appraisal and tariff assessment practices often differ from the written regulations. Discretionary decisions are sometimes made about certain cases that are subject to conflicting instructions and regulations.
It is anticipated that Jordanian customs legislation will be amended in the near future. The amendments provide the Customs Department with more powers regarding violations and confiscation and delegates part of the Minister of Finance's powers to the Director General of the Customs Department.
Under the prevailing Import Tariff Schedules, valid since 1989, a high tariff rate is imposed on luxury goods and on major categories of consumer goods. On automobiles, the tariff rate ranges from 110 percent to 310 percent. To stimulate export production, import tariffs are low on many raw materials, machinery and semi-finished goods. To secure tariff exemptions, businesses must document that the raw materials to be imported will be used in export production, maintaining at least 40 percent Jordanian value-added content.
The Director General of Customs may grant temporary admission status to certain goods, such as heavy machinery and equipment used to implement Government projects, or important projects that have obtained Government approval. Foreign construction companies operating alone or with a Jordanian partner can apply for this temporary admission status.
The new Labor Law No. 8 of 1996 governs Labor affairs in Jordan. The provisions of the law apply to all employees and employers as defined by Article 2 of the Law.
Maximum working hours are 48 during a six-day week. The seventh day is a paid weekly holiday. Additional hours will be considered as overtime and qualify for compensation of 25 percent over the regular wage. Except in the event of an emergency, an increase in daily work hours is subject to approval by the Minister of Labor.
Employees are entitled to an annual 14-day, fully paid sick leave that may be extended by an additional 14 days if the employee was hospitalized. The Law makes provisions for compensation regarding on-the-job injuries. A worker is also entitled to a one-time 14-day leave to make the pilgrimage to the Islamic holy shrines in Mecca, provided he has worked for the same company for at least five years.
Female employees are allowed ten weeks maternity leave with pay. Employers who employ 20 or more women must provide daycare for all children under four years of age.
The minimum age for child employment under controlled conditions has been raised to 16 years. The new Law places restrictions on the types of jobs minors may hold, as well as on the number of hours they are allowed to work.
The new Law regulates labor unions and employer alliances. Workers are free to join unions without objection from their employers. Strikes and close-downs are also regulated by the new Law. Approximately 30 percent of the total labor force, including government service, is unionized. Labor unions exist in some large industrial firms, in the banking sector, and among engineers, physicians, pharmacists and lawyers.
The current labor Law allows employers to terminate the services of employees if they are forced to undergo reorganization. Article 31 of the Law gives employers the right to reduce the wages of workers or dismiss them for any reason. The Law does not obligate employers to include end-of-service retirements in their employment packages. If the employer has, however, agreed to the end-of-service retirement either through a contractual basis or personnel agreement, this right cannot be dismissed.
A serious shortcoming of the Jordanian Labor Law is Article 20, which grants employees the right to own the intellectual property right of works developed on the job. If their position requires that they research and develop for their employers, the Article provides the employee with a right to 50 percent ownership of the developed work. This provision contravenes all major international laws and discourages investments in industries such as software development, audio and video recording, and pharmaceutical development.
Jordan is a signatory to several environmental treaties, among which are the following:
The 1973 Washington Convention on International Trade in Endangered Species of Wild Fauna and Flora. The objective of this convention is to protect certain endangered species from over exploitation via a system of import/export permits. Jordan became a signatory on November 4, 1980.
The 1973 International Convention for the Prevention of Pollution from Ships. The objectives of this convention is to preserve the marine environment by achieving the complete elimination of intentional pollution by oil and other harmful substances and the minimization of accidental discharge of such substances. Jordan became a signatory on March 17, 1975.
The 1951 International Plant Protection Convention. The objective is to maintain and increase cooperation in controlling pests and diseases of plants and plant products, and in preventing their introduction and spread across national boundaries. Jordan became a signatory on April 24, 1970.
The 1972 Convention on the Prohibition of the Development, Production, and Stockpiling of Bacteriological (Biological) and Toxic Weapons, and on Their Destruction. The objective of this convention is to eliminate and to prohibit the development of biological weapons, as a step towards general disarmament for the sake of all mankind. Jordan became a signatory on June 27, 1975.
© 2000 Mena Report (www.menareport.com)
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