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May 11, 2021
2021-0949

Jordan clarifies scope of National Contribution Tax

Executive summary

On 2 May 2021, the Jordanian Income and Sales Tax Department (ISTD) issued Instruction No. (1) of 2021 (the Instruction) regarding the National Contribution Tax (NCT). The Instruction amends Instruction No. 2 of 2019 (instructions for the remittance of income tax) and should be read in conjunction with Instruction No. 2.

Specifically, the Instruction clarifies the application of the NCT to payments made to resident and nonresident legal and natural persons and adapts the rules concerning tax audits, assessments, appeals, and the application of late payment penalties to include NCT.

Per Article 1 of the Instruction, the Instruction enters into force as of the date of issuance in the Official Gazette (i.e., 2 May 2021) in line with the Jordanian Constitution. However, the remaining articles of the Instruction state that the scope of application of the NCT should apply retrospectively from 1 January 2019.

It remains unclear whether the ISTD will in practice apply late penalties to the NCT due in respect of payments subject to the NCT for the period from 1 January 2019 through 2 May 2021.

Detailed discussion

The scope of application of the NCT

The Instruction gives taxpayers clarification on the scope of application of the NCT for certain payments made to resident and nonresident legal and natural persons as of 2019 and onwards. Notably, the Instruction requires an NCT deduction, as follows:

Transaction

Party receiving payment

NCT rate

Cash or in-kind lottery and prize payments made by natural and legal persons to resident and nonresident natural and legal persons

Resident legal person

  • 7% for the basic mining sector
  • 4% for the finance, financial intermediaries, and financial leasing sector
  • 3% for the banking and electricity generation sector
  • 2% for the telecommunications and insurance/reinsurance sector
  • 1% for all other sectors
 

Nonresident legal person

1% (provided that the nonresident’s legal person activities do not fall within the sectors listed above and the definitions included in the Income Tax law)

 

Resident/nonresident natural person

1% on every Jordanian dinar (JOD) exceeding JOD200,000

Interest from deposits, commissions, and profits from deposit made by banks and financial companies to resident and nonresident natural and legal persons

Resident legal person

  • 7% for the basic mining sector
  • 4% for the finance, financial intermediaries, and financial leasing sector
  • 3% for the banking and electricity generation sector
  • 2% for the telecommunications and insurance/reinsurance sector
  • 1% for all other sectors
 

Nonresident legal person

1% (provided that the nonresident’s legal person activities do not fall within the sectors listed above and the definitions included in the Income Tax law)

 

Resident/nonresident natural person

1% on every JOD exceeding JOD200,000

Taxable payments made by resident legal and natural persons to nonresident natural and legal persons

Nonresident legal person

1% (provided that the non-resident’s legal person activities do not fall within the sectors listed above the definitions included in the Income Tax law)

 

Nonresident natural person

1% on every JOD exceeding JOD200,000

However, the following are excluded from the NCT’s scope of application under the Instruction:

  • Interest from deposits, commissions, and profit from deposits generated by banks from other banks
  • Interest from deposits, commissions, and profit from deposits generated by non-operating banks and financial companies inside Jordan from operating banks in connection to its shared investments in non-interest dealing banks and financial companies
  • Entities that are income tax exempt as determined by the Income Tax law
  • Others as endorsed by the General Manager of the ISTD and approved by the Jordanian Minister of Finance

Implications

Businesses, particularly banks and financial companies, should be aware that the ISTD has issued a clarification on the requirement to deduct and remit the NCT and that non-compliance with NCT payments for 2019 and onwards may result in a late payment penalty being imposed at 0.4% of the NCT amount for each late week (or part of the week).

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For additional information with respect to this Alert, please contact the following:

Ernst & Young Jordan, Amman

Ernst & Young LLP (United States), Middle East Tax Desk, New York

 

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