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13 February 2019 Jordan clarifies withholding rules on employment compensation and local professional services On 31 January 2019, the Jordanian Income and Sales Tax Department (ISTD) released Instructions to supplement the new Income Tax Law No. 38 of 2018 that applies with effect from 1 January 2019. Two of the important clarifications in the Instructions concern the calculation of taxes to be withheld on monthly compensation, and the application of the 5% withholding tax (WHT) on payments to Jordanian professional service providers. Taxpayers should familiarize themselves with the new compliance rules to reduce the risk of penalties for non-compliance. Jordan implemented a new Income Tax Law No. 38 of 2018 with effect from 1 January 2019. For background on the new law, see EY Global Tax Alert, Jordan amends Income Tax Law, dated 27 December 2018. On 31 January 2019, the ISTD released Instructions No. 2 of 2019 (the Instructions). The Instructions apply from 1 January 2019 and provide additional details on administrative considerations relating to provisions in the new Income Tax Law. The new Income Tax Law specified new personal tax rates and exemptions as annual amounts. To assist employers in determining the amount of tax to be withheld from monthly compensation, the Instructions restate the annual thresholds in their monthly equivalent. The following table compares the monthly exemptions under the previous Income Tax Law No. 34 of 2014 to the monthly exemptions reflected in the Instructions relating to the new law.
The following table compares monthly brackets and rates of personal income tax under the previous Income Tax Law to the monthly brackets and rates of personal income tax reflected in the Instructions relating to the new law.
A new national contribution tax at a rate of 1% applies to monthly taxable income of natural persons exceeding JOD16,666. Under the previous Income Tax Law and Instructions No. 1 of 2015, a 5% WHT was applicable to payments made for services provided by civil firms, including law firms and accounting firms, and natural persons, such as customs clearance agents unless those firms were registered with the ISTD. Under the new Income Tax Law, the 5% WHT is no longer applicable to payments made to customs clearance agents. The law also allows other persons to be added to the WHT scheme through instructions. The Instructions indicate that the 5% WHT is now applicable to payments made for services provided by the following Jordanian service providers (both natural and legal persons). Significantly, the Instructions no longer exclude payments to non-civil persons registered with the ISTD from the WHT requirement.
The Instructions also stipulate that after completing any WHT payments, taxpayers are required to enter details related to the payment, including the service provider’s name and tax number and the amount paid, in their online tax account on the ISTD portal. Taxpayers should familiarize themselves with the new compliance rules to reduce the risk of penalties for non-compliance. Ernst & Young (Jordan), Amman
Document ID: 2019-5215 | ||||||||||||||||||||||||
