Insight into the Investment Environment in Jordan

The investment environment in Jordan has faced several internal and external challenges that adversely impacted the flow of foreign investments and the stability of existing projects. The drop in the investment level reflects precisely the magnitude of such challenges.

Therefore, the primary focus of the government’s strategy is to attract and retain foreign and local investments. The Jordanian government has undertaken major regulatory reforms in order to establish a sound and conductive legal investment environment to revive investment and to avoid the economic and political risks for investors.

Jordan passed the Investment Environment Law No 21 of 2022 (the “New Investment Law”), which was published in the Official Gazette on 16 October 2022 and should come into effect after the lapse of 90 days following its publication in the Official Gazette. The New Investment Law repeals Investment Law No 30 of 2014.

The New Investment Law defines the tasks and powers of the Ministry of Investment and established the Investment Council and the Incentives Committee, and regulate the establishment, supervision and management of development and free zones in Jordan, as well as develop and simplify commercial and economic activity.

The policy of the New Investment Law

The policy of the New Investment Law is directed towards achieving economic and developmental goals to create job opportunities, increase the economic growth and improve the business environment according to the following principles:

• equal and transparent treatment to both local and foreign investors;
• guarantee of free money transfers overseas according to universal best practices;
• protection of investments and preventing intervention in the investor’s activities, rights and interests as granted by the applicable laws;
• digitising and automating procedures and services to overcome administrative and procedural bureaucracy;
• creation of an appropriate environment for the development of small and medium-sized enterprises;
• promoting the investment in strategic and entrepreneurial undertakings, innovation, research and development;
• reinforcement of competitiveness, consumer protection and banning monopoly;
• adoption of subsequent control and monitoring; and
• protecting public health and safety, the green economy and social standards.

Foreign ownership

The general principle in Jordan is that foreign investment and ownership is accepted without limitations although some restrictions are applicable to specific sectors outside the free zones and development zones. The New Investment Law has not repealed the Non-Jordanian Investments Regulation No 77 of 2016, which provided as follows.

• Foreigners are prohibited from wholly or partially owning investigation and security services, stone quarrying operations for construction purposes, customs clearance services, and bakeries of all kinds; and are prohibited from trading in weapons and fireworks.
• Foreigners are limited to less than 50% ownership in certain businesses and services, including retail and wholesale trading, engineering consultancy services, exchange houses apart from banks and financial services companies, maritime, air, and land transportation services, and related services. However, the Council of Ministers may waive such limitations (i) if a foreign investor wishes to own any percentage in an existing Jordanian entity, (ii) if a project carried out by a foreign investor is located outside Amman, (iii) if such project is of special economic importance as per special instructions issued pursuant to the Non-Jordanian Investments Regulation No 77 of 2016.

Incentives granted for projects outside free zones and development zones

Basically, the New Investment Law has exempted the fixed assets, production input and spare parts from customs duties irrespective of what is provided for under the applicable Customs Law. The Council of Ministers shall have the right to issue and amend, upon the recommendation of the Incentives Committee, a schedule that includes the fixed assets, production input and spare parts required for the business operation and which are subject to zero tax.

As for income tax, the Income Tax Law of 2014 as amended from time to time (the “Income Tax Law “) has halted any new income tax exemptions to be issued by the Council of Ministers. However, according to the New Investment Law, if the project hires more than 250 Jordanian workers or it was established in one of the undeveloped areas, and irrespective of the Income Tax Law, the project shall enjoy an exemption or a reduction of minimum 30% for a maximum of five years commencing from the commercial operation date.

A regulation shall be issued to set out the sectors that are exempted from income tax, the sectors that will enjoy reduced income tax and the rates thereof, excluded sectors from the tax exemption or reduction, criteria and duration of reduction or exemption, and a list of the undeveloped areas.

The Council of Ministers, upon the recommendation of the Incentives Committee, is entitled to grant additional incentives relating to the rent or purchase price of the governmental lands owned by the Treasury, the tariff of water and electricity, support renewable energy projects, grant deductions of the cost of the infrastructure from any due payables if the project operates within a certain period of time, and other customs or tax deductions in return for hiring a Jordanian workforce. 

The following needs to be considered upon considering the grant of the additional incentives:

• hiring a minimum of 350 Jordanians;
• hiring females amounting to not less than 50% of the total workforce, with a minimum of 50 working females;
• strategic projects;
• projects listed as public-private partnership projects;
• projects that target technology transfer;
• projects with a minimum of 50% of local value addition;
• projects that target the exporting market at a rate not less than 50%; and
• projects that target poor and undeveloped areas.

It is worth mentioning that any previous incentives granted to existing projects based on the Investment Law No 30 of 2014 or any regulations or decisions issued pursuant thereto shall remain in full force until the expiry of the duration of such exemptions as provided under the terms of the grant, or for seven years from the date on which the New Investment Law has entered into force, if such exemptions do not provide for any duration.

Incentives granted for projects in the free zones and development zones

The ownership of governmental lands located inside the free zones or development zones will be transferred to the Ministry of Investment, which in turn is entitled to lease or to sell these lands to the main developer of such zones according to the development agreement. The Council of Ministers should approve the terms of the development agreement and decide on the consideration for the sale or rent of the governmental lands.

The restrictions on the percentage of foreign capital do not apply in free zones and development zones.

As for the tax treatment, a sales tax applies amounting to 7% of the value of the sale of the services when sold for consumption in the development zone. Goods and services bought or imported by the registered entity in the development zones are subject to 0% sales tax when sold for operation of its business within the development zones.

The income tax rates provided for under the Income Tax Law are not applicable on income derived from banks, telecommunications companies that have individual licences, brokerage firms and finance companies, including companies which exercise works of currency exchange, financing, finance loans, investment companies, audit and tax advice companies, transportation in all its forms, insurance and reinsurance companies, extraction industries, the generation and distribution of electricity, transportation and/or distribution of water, gas and petroleum products using pipelines.

The registered entities in the development zones shall enjoy exemption from customs duties in respect of materials, equipment, machinery, supplies and construction materials that are part of the constructing, equipping and furnishing of all types of projects set up by the entity in the development zone, including spare parts necessary for ongoing maintenance and goods imported for the operation or for export outside Jordan from custom fees with the exception of export fees, service allowances, and wages owed pursuant to applicable legislation.

Forklifts and cars which are equipped to transport ten persons or more including the driver, and which are sold to the Registered Entity for the purposes of transporting the employees to and from the work facilities of said entity are exempted from sales tax.

Goods produced or manufactured in development zones and which meets the requirements of Jordanian origin are not subject to custom duties and other duties and taxes when placed in the local market for consumption.

Registered entities in a free zone shall benefit from the following.

• Exemption from Income Tax in respect of the profits generated from the following activities:
1. exporting goods and services outside Jordan;
2. transit trade;
3. selling or assigning goods within the boundaries of the free zone; and
4. providing and supplying services within the free zone.
• Exemption from Income Tax on non-Jordanian employees’ salaries and allowances, who are working on projects in the free zone.
• Exemptions from custom duties, and all other taxes and charges upon goods exported from the free zone to places other than the local market and goods imported to the free zone including materials, equipment, machinery, supplies, construction materials that are part of constructing, erection, preparing and furnishing of all types of projects set up by these entities in the Free Zone, and the spare parts required for its ongoing maintenance. The exemption shall not encompass services consideration and charges relating to the measures to protect the international trade.
• Exemptions of the services provided by a registered entity in the free zone from sales tax when sold for consumption in the free zone.

One-stop-shop service for registration and licensing

Notwithstanding any other law in force, the New Investment Law offers a one-stop-shop service for the registration and licensing of strategic and economic activities that contribute to achieving sustainable development, through a single window, where only one licence is issued by the Council of Ministers upon the recommendation of the Incentive Committee in an expedient manner. The licence issued in such manner replaces all other licences or permits required by any other applicable law, and cannot be assigned to any third party unless approved by the Council of Ministers upon the recommendation of the Incentive Committee.

As for the other business activities, the Investment Ministry has established an electronic portal to which the competent official authorities will be connected in order to facilitate the licensing process.

Before cancelling or withdrawing or suspending any licence, the official authority should notify the investor of the breach of the licence terms and grant the investor a period to remedy such breach or to evidence its compliance with the terms of the licence. 

Protection against change in law events

Legislative instability was one of the most important challenges facing the business and investment environment in Jordan. However, the New Investment Law guaranteed that investors who invest JD5 million or more in a project, or who employ at least 250 Jordanians, will not be affected by any amendment or change in legislative and regulatory provisions that has an adverse effect on the investor.

In such event, the investor has the right to apply for the non-implementation of these provisions for a period of seven years from the date of achieving either of the aforementioned two conditions. The exemption from the application of the new legislation shall be issued by the Council of Ministers.

The non-implementation application should include the change in law event and clarification of the adverse effect thereof on the investor, accompanied by all the supporting documents that evidence satisfaction of the criteria qualifying the investor for such exemption.

Indemnification rights

The investor shall be entitled to be indemnified against any losses incurred as a result of the investor's reliance in good faith upon any decision issued by any incompetent official authority or any obligation that has been undertaken by such an authority towards the investor.

The ownership of any investment cannot be confiscated, whether totally or partially, except as per the applicable laws and for a public, specific and valid purpose and in a non-discriminatory manner and in return for fair compensation.

Any compensation or indemnification should be:

• in Jordanian Dinars or any exchangeable currency; 
• equal to the fair market value of the assets prior to the seizure decision; and
• inclusive of the interest rate of the secured financing as published by the Central Bank of Jordan.

Issuance of Investor Identification Card

The investor, the investor’s family members and the upper management will be issued an “Investor Identification Card” to facilitate the procedures at the relevant authorities and to make the exit and entry of its holder from and to Jordan easier.

Hiring foreign employees

Non-Jordanians can be hired in administrative and technical positions that require specialised skills. The percentage of foreign employees should not exceed 25% of the total workforce and said percentage can be increased to 40% if such specialty is not available in the Jordanian market.

Dispute resolution

Disputes arising out of the investment contract can be settled by arbitration according to the agreed upon terms and conditions. In the absence of an agreement on such terms, the following rules shall be applied:

• the rules under the Jordanian Arbitration Law;
• the rules under United Nations Commission on International Trade Law (UNCITRAL); and
• the Rules of the International Chamber of Commerce.

The arbitration seat will be in Amman unless the investment agreement provides otherwise and the parties can agree on the governing law. Otherwise, the Jordanian laws will be applied excluding the provisions of the private internal law. Arbitral awards issued outside Jordan are enforceable in Jordan according to the applicable local laws and international treaties to which Jordan is a signatory.