Encouragement of Investment LawThe Investment Promotion Law No. 16 of 1995 repealed the Encouragement of Investment Law No. 11 of 1987 and Law No. 27 of 1992 Regulating Arab & Foreign Investments.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 InvestmentSpecial 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 InvestmentThe 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 IncentivesExemptions 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.
Dispute SettlementAccording 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 ZonesIn 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 ZonePursuant 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.
CustomsTaxes 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 ProceduresCustoms 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.
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