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  income tax frequently questions  
 
Is trading in rea state taxable

1.             

Yes, based on income tax law 34 of 2014, trading in real state is taxable for both natural persons and legal entities.  

What is a capital asset?

2.             

A capital asset is an asset that meets the following criteria:

1-  Ownership: The asset is owned by the taxpayer through purchase, leasing, or to be owned by the taxpayer immediately or eventually;

2-  Holding period: It should be intended to be held for more than a year; and

3-  Is not part of the regular business transactions.

 

 

Is agricultural income taxable? And what does it include?

3.             

Agricultural income is tax-exempt for both natural persons and legal entities. Agricultural income includes the following:

1-    Production of crops, cereals, vegetables, fruit, plants, flowers and trees; and

2-    Raising livestock, fish, birds and bees, including the production of eggs and honey.

 

 

Are the provisions for doubtful debts deductible from gross income for taxpayers other than banks?

4.             

The provisions for doubtful debts became deductible for all persons complying with keeping books, records and financial statements according to the CPA and audited by a certified auditor as stipulated in bylaw No. 55 of 2015 pertaining to expenses, provisions, depreciation and exemptions.

 

What is new about loss deduction and carry forward?

5.             

1-    Allowable loss is deductible from profits of other income in the same tax period.

2-    Loss is carried forward to the tax periods following the tax period in question up to 5 years after taking the final status as an allowable loss.

 

What are the personal exemptions granted to individuals and how are they applied?

6.             

1-  A resident individual is granted an exemption of JD12,000. If married or has a dependant/s (relatives to the second degree), he/she is granted another JD12,000.

2-  An additional exemption up to JD4,000 is granted under Article 9/a of the law against personal expenses such as medication, education, rent, interest and Murabaha for housing loans, and technical and legal services on condition that supporting documents and bills be presented along with the full name and address of the person providing the services.

3-  The total personal exemptions should not exceed JD28,000.

4-  Exemptions may be distributed among spouses to maximize the benefits provided that the total exemption should not exceed JD28,000.

 

Is stock exchange and shares income generated from inside the country taxable?

7.             

Stock exchange and shares income generated from inside the country is exempted from income tax for all persons except for income generated for: a- banks; b- primary telecommunication firms; c- mining of basic resources; d- insurance companies; e- reinsurance companies and financial mediation; f- legal persons making financial leasing activities.

 

To account for taxable income, are Murabaha and interest expenses, whether paid or payable, deductible from the gross income?

8.             

Murabaha and interest expenses, whether paid or payable, became deductible from the gross income for all taxpayers provided that it should be used for producing taxable income and be substantiated.

 

In case a taxpayer is required to keep books and records but failed to do so, will all production and substantiated expenses be allowable?

9.             

In case a taxpayer is required to keep books and records but failed to do so, production and substantiated expenses will be allowable provided it should not exceed 50% of the gross income as stated in Article 3/b of bylaw 55 of 2015 on expenses, provisions, depreciation and exemptions.

 

Can a taxpayer reduce the depreciation rate set in bylaw 55 of 2015 pertaining to expenses, provisions, depreciation and exemptions?

10.           

Taxpayers can reduce the depreciation rate set in bylaw 55 of 2015 pertaining to expenses, provisions, depreciation and exemptions or may not depreciate the capital assets as stated in that bylaw.

 

The term “mutual investment funds” occurred in Article 4/a/5,7; what does it mean?

11.           

According to Article 2 of the financial securities law 76 0f 2002, a mutual investment fund is that established and operating in accordance with the financial securities regulations with the purpose of investing in securities portfolio or other financial assets to secure professional management for group investments on behalf of the shareholders or the investment units in the fund. According to Article 91 of this law a mutual investment fund can be established with legal status and financial and administrative autonomy.

 

What is the tax rate to be withheld by the tenant from the rental payments and remitted to ISTD?

12.           

As of January 1, 2015, the law does not require the lessor to withhold tax from rental payments. However, the law requires persons to provide third-party information about purchases, sales, expenses and service providers.

 

 

Can a taxpayer offset the property tax paid on rented property against the income tax due on them?

13.           

Yes, a taxpayer may offset the property tax in any year provided that:

1-  The property tax should be paid on rented property from which the taxpayer generated an income;

2-  The amount offset should not exceed the tax due on the taxpayer; and

3-  The amount offset should not exceed the rental income contribution to the income tax due based on the following equation: (gross rental income ÷ gross income) × income tax due.

 

 

Can a taxpayer amend his tax return after filing? What are the implications in this case?

14.           

Yes, a taxpayer can amend his tax return if there is an error therein, whether positive or negative, prior to any of the following:

1-  Detecting the error by ISTD;

2-  Issuance of audit notice by the auditor; or

3-  Accepting the tax return as filed.

In case the amended return is approved: 1- The taxpayer is required to pay the additional tax along with the late payment penalty; 2- For the purposes of audit, appeal, and audit procedures under Article 34 of the law, the date of filing is the date of filing the amended return.

 

 

Is there a withholding tax on income paid by a resident legal entity to a resident person for services supplied?

15.           

Yes, the withholding tax rate is 5% on the amounts paid by a resident legal entity in the form of fees, stipend or likewise to any person defined under Article 12/a/1 of the income tax law 34 of 2014 and Article 8 of instructions 1 of 2015 on withholding taxes.

 

Is income earned from lottery and prizes taxable? And at what rate?

16.           

Yes, income earned from lottery and prizes exceeding JD1,000 each is subject to 15% as final withholding tax.

 

What is the responsibility of the heirs in respect of the deceased person?

17.           

1-  Filing a tax return in respect of the deceased person within 90 days of him passing away; and

2-  Payment of the due amounts on the deceased before distributing the heritage.

 

What is the responsibility of the liquidator?

18.           

1-  Filing a tax return in respect of the legal entities, under liquidation, represented by the liquidator; and

2-  Inform the Director-General of the ISTD of initiating the liquidation process to identify and confirm the amounts due to ISTD. Failure to do so would hold the liquidator directly and personally accountable for the payment of these amounts according to the income tax law.

 

 

How long is the taxpayer supposed to keep the books and records and financial statement required by law?

19.           

The taxpayer is required to keep the books and records and financial statement for four years from the following dates whichever comes later:

1-  The tax period in which the books and records were kept;

2-  Date of filing the tax return; or

3-  Date of serving the taxpayer a notice of the officer’s assessment.

In all cases, the taxpayer is required to keep the books and records until a dispute is resolved or a final court decision is made in the event of having a dispute between the taxpayer and ISTD.

 

 

Can a taxpayer use a computer to keep books, records and financial statements?

20.           

Taxpayers may use computers to keep books, records and financial statements. These are considered proper accounts from accounting perspective if the taxpayer:

1-  Keeps the original copies and the supporting documents for the prescribed legal period;

2-  Complies with the following requirements: a- not allowing any amendment, change or omission of the keyed in data, b- the keyed in data should include the e-signature of the data entry person, c- documenting the data to reflect the actual financial position of the taxpayer; and

3-  Receives a certification from the body who developed the system and the software used certifying that these are consistent with the above requirements, as well as a pledge to comply with these requirements.

 

According to Article 3/a of the municipality law 13 of 2011, a municipality is a civil institution with financial and administrative autonomy. It creates and cancel jobs and defines its jurisdiction, functions and powers by law. Based on Article 6 of that law Great Amman Municipality (GAM) is considered a municipality is all respects and it is subject to the legislations applicable to municipalities unless otherwise provided in this law or any other legislation.

 
   
What is a practitioner certified accountant responsible for 21

1- He is required to provide ISTD with a list of his clients’ names, along with their addresses, within a period not exceeding the end of the third month of the following year. Failure to do so would make him liable to an additional tax of JD200 to JD500;

2- He must not certify financial statements if not matching the actual situation. Doing so would hold him accountable if there are material mismatches, violation to the law or the international accounting standards whether due to intentional mistake, criminal act or substantial negligence. In such cases, the accountant would be considered as committing a crime punishable by the fraud sanctions stated in the income tax law; and

3- He is required to report income and income tax provisions along with the respective disclosure note.

 
   
A person, qualified as a tax agent, would like to apply for registration as a tax agent and obtain a practitioner certificate; is he supposed to file the application to the respective tax office where his file is kept?
. A person can file the application to any ISTD operational office or service center and get the certificate needed from the same office.
22
   
Is bonds’ interest, Murabaha, or Islamic Sukuk taxable 23
Yes, bonds’ interest, Murabaha, and Islamic Sukuk is taxable for all natural and legal beneficiaries. It should be accounted for by the person who pays the interest.
Importers are required to pay 2% of the value of imports as withholding tax to Customs, and Customs, in turn, should transfer this tax to ISTD. The Cabinet may, upon
 
   
recommendation by the minister, exclude certain types of imports or some taxpayers from paying this withholding tax. Has the Cabinet decision in this regard been issued and which imports and taxpayers have been excluded . 24
The respective Cabinet decision 9779 dated May 13, 2014 was issued and provided the following exceptions:
1- The following commodities, goods and bodies:
 a- Commodities exempted under Chapter 8 of the Customs law 20 of 1998 and the respective regulations;
 b- Foodstuffs of sugar, rice, medicines, powder milk;
c- Personal belongings of passengers coming from abroad;
d- Equipment, machinery, apparatus, and production supplies used by importers in their project, with the exception of those items imported for a commercial project, including franchises, brokers, clearance and similar projects;
 e- Raw materials used as production inputs by importers in industrial projects duly registered and licenced;
f- Items imported for business use by ministries, government departments, public institutions and other bodies or entities which income is fully tax exempt by official letters issued by ISTD upon request;
g- 1- importers complying with filing the tax returns and payment of due taxes provided that they: a- filed the tax returns individually for the last three years and paid the declared tax on the due dates; and b- presented the financial statements showing the income results and the financial position duly audited by a certified accountant and attached to the tax returns filed,
2- ISTD provide Customs at the beginning of every year with a list of the importers names who qualify for this paragraph to observe that upon clearance. 2- Customs will collect the withholding tax and transfer it to ISTD based on a memorandum of understanding to regulate the application of this article and the Cabinet decision; and
3- Upon request by the importer, the minister is authorized to resolve any dispute regarding the application of this article and the Cabinet decision, including any dispute regarding identification of the excluded imports.
 
   
How can a tax return be filed? 25
According to Article 26/a of the law, a tax return may be filed by any of the following means: 1- In person to ISTD offices; or 2- By any means approved by ISTD such as 1- express mail, 2- banks accredited by ISTD, 3- any public or private mail delivery service approved by the Cabinet upon recommendation by the minister, 4- electronic means.  
   
Is there a late payment penalty on the due income tax and how is it calculated 26
1- A person with taxable incomes is required to file the tax return by the due date (the end of the fourth month after the end of tax period). If, for instance, the tax period ends on December 31, 2015, the taxpayer is required to file the 2015 tax return before the end of April 30, 2016 and pay the tax due by the same date.
 2- In case the tax is not paid by the due date, a late payment penalty of 0.4% shall be charged for every week of delay or part thereof.
3- If the taxpayer filed the tax return and paid the declared tax by the due date and had to pay an assessment not exceeding JD5,000 afterwards, he would be liable to the late payment penalty on the tax assessment counted as of the date of serving him a notice of the audit decision. If the assessment is higher, the late payment penalty starts counting as of the due date for filing and payment.
 4- The penalties should not exceed the amount of tax.
 
   
What are the provisions related to the advanced payments 27
According to Article 19/a of the law, a taxpayer with a business gross income in trade, industry, agriculture, profession, service or vocations exceeding a million JDs in the previous tax period is required to make semi-annual advanced payments within 30 days of the end of the semi-annual tax period. The advanced payment is 40% of the tax calculated on the basis of:
1- The financial statements provided to ISTD for the semi-annual period,
2- If no financial statements are available, the payment should be calculated by reference to the tax declared in the tax return of the preceding tax period. In case the advance payment is not paid by the due date, a late payment penalty of 0.4% is charged for every week of delay or part thereof based on Article 36 of the law.
 
   
Can income tax be paid in instalments 28
Yes, it can be paid in instalments if there are justifications as stated under Article 37 of the law and instructions 2 of 2015 on methods of tax payments.  
   
What is the legal action by ISTD in case of failure to pay the tax or dues by the due dates 29
According to Article 39 of the law, 1- ISTD request the taxpayer to pay the due amounts within 30 days of serving him the notice, 2- If the taxpayer showed no response, the tax will be enforced according to the State Funds Collection Law.  
   
Does income tax law require attaching a lien to all property belonging to the delinquent taxpaye 30
According to Article 40 of the law, ISTD is required to:
 1- If the lien is attached to a cash money, it should not exceed the amount of tax, penalties and other amounts due.
2- If the lien is attached to a property, ISTD will, based on the taxpayer’s request, take whatever action needed to assess the property and limit the lien to twice the tax, penalties and other amounts due. The taxpayer bears the assessment cost.
   
Other than income tax law, are there other laws imposing income tax or granting income tax exemptions in the country 31
Yes, according to Article 78/b of the income tax law,
 1- ASEZA law provisions apply to ASEZA,
 2- Investment law provisions apply to all areas of the country other than ASEZA.
 
   
Can a taxpayer delegate a person to represent him before ISTD 32
Yes, a taxpayer may delegate a person to represent him before ISTD according to Article 70/c of the income tax law and related instructions.  
   
Can a taxpayer increase the depreciation rate set in bylaw 55 of 2015 on expenses, provisions, depreciation and exemptions 33
Yes, a taxpayer may increase the depreciation rate based on bylaw 55 of 2015 on expenses, provisions, depreciation and exemptions?  
   
Can an auditor issue an audit report after 4 years of filing the tax return 34
No, according to Article 29/d of the law, an auditor cannot issue an audit report after 4 years of filing the tax return.  
What action ISTD should take in case of failure to file the tax return by the due date 35
According to Article 30 of the law and the relevant instructions issued by the director, in case of failure to file the tax return by the due date, ISTD issue a presumptive tax assessment of the estimated tax and penalties. A taxpayer is served a notice of the estimated assessment.  
   
Can the estimated assessment be appealed 36
No, according to Article 30/b of the law, the estimated assessment cannot be appealed as it is not considered a final decision.  
   
How can the estimated assessment be cancelled 37
The estimated assessment is considered automatically cancelled in any of the following cases whichever comes first:
 1- In case the taxpayer filed the default tax return/s and paid the tax and other amounts due, or
2- If an officer’s assessment (administrative assessment) is issued after 30 days of serving the taxpayer a notice of the estimated assessment.
 
   
How is the officer’s assessment being issued 38
If the taxpayer failed to file the default tax return within 30 days of serving him a notice of the estimated assessment, the auditor may generate an officer’s assessment based on any of the information sources stated in instructions 6 of 2015. The taxpayer is served a notice of the officer’s assessment, which is subject to appeal to the appeals panel.  
   
Who resolves the appeals filed according to the income tax law 39
According to Article 33 of the income tax law, appeals filed are resolved by the appeals panel which is composed by the director of the following: 1- 3 senior auditors, 2- If the tax amount appealed is not exceeding JD5,000 or the loss appealed is not exceeding JD50,000, the panel may include only one auditor. The scope of work for the appeal panel is determined under bylaw 56 of 2015 on income tax appeal panel.  
   
What is gross income 40
According to Article 2 of the law, gross income includes all taxable incomes generated by the taxpayer. In accounting terms, it equals sales minus cost of sales or revenues minus cost of revenues.  
   
What are the allowable expenses?
. As defined in Article (2) of the law, allowable expenses should meet the following criteria:
1- They should have been spent or incurred in the tax period;
 2- They should have been totally and exclusively spent for generating a taxable income; and 3- They should be deducted from the gross income.
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What is a taxable income?
. As defined in Article (2) of the law, a taxable income is calculated by deducting the following items from the gross income, respectively:
 1- Allowable expenses;
2- Loss brought forward from previous tax periods;
3- Personal exemptions; and 4- donations.
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Is income earned inside the country by government institutions, public institutions and municipalities taxable?
. According to Article (4)/a/2 of the law, income earned inside the country by government institutions, public institutions and municipalities is exempted from income tax. A business profit or annual surplus is excluded from exemption by Cabinet decision upon recommendation by the minister.
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What are the government institutions and the public institutions?
. 1- There are two kinds of public institutions: a- governmental public institutions and non-governmental public institutions, b- A non-governmental public institution is the same as public institution.
2- There is no legal definition for governmental public institutions and non-governmental public institutions. They were generally defined based on Law Interpretation Bureau Decisions No. (2) of 1985, (1) of 2012, (19) of 1965, (17) of 1975, (10) of 1961, and (7) of 1979. Accordingly, these institutions can be generally identified based of the following characteristics:
44
 
   
Bearing in mind that government owned companies are not governmental public institutions or public institutions but rather business corporations treated as any other business for income tax purposes. What is a business profit or surplus of annual revenue for government institutions, public institutions and municipalities?
. 1- It is a profit of an investment activity: positive difference between revenue and expenses for one fiscal year,
2- Surplus of annual revenue for government institutions and public institutions is the difference between its own revenue and expenses for one fiscal year (definition of financial surplus) under law (30) of 2007 on financial surpluses.
45
   
   
Has the Cabinet excluded income of government institutions, public institutions and municipalities from income tax exemption provided in Article (4)/a/2 of the law?
. The Cabinet has excluded income of government institutions, public institutions and municipalities, generated from rented property, vacating money and key money, from income tax exemption by Cabinet decision (9850) of 2015. This income was subjected to income tax as of 1/1/2015.
46
   
   
What is the definition of a municipality?
. According to Article (3)/a of the municipality law (13) of 2011, a municipality is a civil institution with financial and administrative autonomy. It creates and cancels jobs and defines its jurisdiction, functions and powers by law. Based on Article (6) of the same law, Great Amman Municipality (GAM) is considered a municipality in all respects and is subject to the legislations applicable to municipalities unless otherwise provided in this law or any other legislation.
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Is income of government institutions, public institutions and municipalities generated outside the country subject to income tax?
. According to Article (3)/c/1 of the income tax law (34) of 2014, net income earned by a resident person from any source of income outside the kingdom is taxable provided that it should be originated from funds or deposits inside the kingdom. Therefore, if a government institution, public institution or municipality generated an income from outside the country but originated from funds or deposits inside the country, it should be taxable inside the country unless there is a bilateral double taxation avoidance treaty with other countries where the income was earned. The tax treaty should be applicable in this case.
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There are two methods for contractors’ financial accounting; percentage of completion and completed contract. If the percentage of completion method is used for financial accounting, which one is used for purposes of tax accounting under income tax law?
. According to Article (15) of the law, percentage of completion is used for manufacturing or installation contracts with a period of performance exceeding 6 months from the starting date to account for income tax based on the progress made to the contract. Accounting for income tax in such cases is based on instructions (9) of 2015 pertaining to accounting for income and allowable expenses regarding long term contracts.
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To which territories of the country does the investment law (30) of 2014 apply?
. 1- Investment law (30) of 2014 apply to all territories of the country except ASEZA. These territories are: a- free zones, b- investment zones, c- the rest of the country excluding ASEZA. 2- ASEZA law (32) of 2000 apply to ASEZA zone. 3- Investment law (30) of 2014 was published in the Official Gazette (5308) dated October 10, 2014.
50
   
   
If the provisions of the investment law conflict with any other legislation, which one takes precedence?
. According to Article (44) of the investment law, the provisions of the investment law are applicable in case there is a conflict with any other legislation.
51
   
   
Is income earned outside the country taxable?
 1- According to Article (3)/c/1 of the income tax law (34) of 2014, net income earned by a resident person from any source of income outside the country is taxable provided it should be originated from funds or deposits inside the kingdom.
2- According to Article (3)/c/2 of the law, total net incomes earned to a branch of a Jordanian firm operating outside the kingdom and declared in its financial statements that are certified by an external auditor are taxable.
3- The tax rate on the net income earned under items (1) and (2) above is 10%.
52
   
   
Who represents the legal person before ISTD?
. According to instructions (14) of 2015 pertaining to delegation, representation and authorization before ISTD, a person delegated by a legal person is the tax agent representing the legal person in administrative issues before ISTD based on the registration certificate issued by the concerned party or a delegated person who qualify for the delegation terms and conditions stipulated in the said instructions.
53
   
   
Based on the income tax law, are there incomes excluded from the accrual accounting basis treatment?
 Yes, according to Article (14)/b and c of the law, the following persons are allowed to use the cash accounting:
1- A natural person whose income is generated from profession or handicraft.
 2- A bank may, by Executive Instructions, account for the tax on outstanding interest, profits and commissions in the year of receipt.
54
   
   
What are the taxable incomes?
 According to Article (3)/a of the income tax law, any income earned in or from the Kingdom for any person is taxable unless exempted by law.
55
   
   
How much is the tax-exempt portion of the pension income?
. According to Article (13)/a/4 of the law, the first JD 3,500 of total monthly pension payment, including illness benefits, is exempted from income tax.
56
   
   
As far as income tax is concerned, what is the benefit of the tax treaties?
 According to Article (4)/a/17, income included in the double-taxation avoidance treaties concluded by the Government is exempted to the extent covered under these treaties.
57
   
   
Is end-of-service compensation taxable?
. According to Article (4)/a/12 of the law, end-of-service compensation due to employees according to the effective legislations or any concluded collective arrangements approved by the Minister is totally exempted for amounts payable before December 31, 2009. However, any amount exceeding JD5,000 that is payable as of January 1, 2010 is taxable.
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If bank Y, operating in the country, paid JD10,000 to bank X not operating in the country. Is this income taxable for bank X according to Article (4)/a/15 of the law and what is the obligation on bank Y according to Article (12) of the law?
 1- According to Article (4)/a/15 of the law, if the interest results from a deposit, it is exempted for bank X. And according to Article (12)/a/2 of the law, bank Y is not required to withhold tax from this payment.
2- According to Article (3)/a of the law, if the interest results from a loan, it is taxable for bank X. And according to Article (12)/b of the law, bank Y is required to withhold 10% of this payment because bank X is non-resident. The tax withheld by bank Y is 10,000 × 0.10 = JD1,000 which should, according to Article (12)/e of the law, be paid to ISTD within 30 days from payment of the interest to bank X.
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Where and when can a tax auditor conduct an audit?
 1- According to Article (28)/c of the law, a tax auditor may conduct an audit in 1- taxpayer premises; or 2- any other place related to the taxpayer’s business.
 2- An audit may take place 1- during business hours,
2- outside business hours provided a written approval be obtained from the DG.
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