Withholding Tax in Jordan 2025: Rates, Scope, and Compliance Guide

Withholding Tax in Jordan: Rates, Scope, and Compliance Guide

Withholding tax in Jordan is based on the Income Tax Law No. 34 of 2014 and its amendment Law No. 38 of 2018. It is managed by the Income and Sales Tax Department. This tax applies to different types of income such as interest on deposits, commissions on transactions, service fees, and royalties. The payer must deduct the tax from the payment before sending the remaining amount to the recipient. Non-resident service providers are taxed at a rate of 10 percent while resident professionals are taxed at 5 percent. This blog provides an overview of the withholding tax system in Jordan including the rates, the scope, compliance requirements and practical examples.

Scope of Withholding Tax in Jordan

In Jordan, withholding tax applies on payments made to resident natural persons, resident legal persons, or non-resident persons for specific income sourced within the country. The Income Tax Law considers any person required to pay, withhold, or remit tax as a taxpayer. The payer deducts a portion of the payment at source and submits it to the Income and Sales Tax Department before transferring the net amount to the recipient. This process ensures tax collection on income as it occurs.

Payments on interest, profits on deposits, commissions, royalties, and fees for services by non-resident entities fall under this obligation. When a company in Jordan pays a non-resident company for services, it must calculate the tax, withhold it, and remit it to the ISTD. The payer functions as the withholding agent and carries full responsibility for compliance with tax rules.

Rates Applicable for Withholding Tax in Jordan

Withholding tax in Jordan applies on income depending on the recipient and the source of the payment. The law sets rates on services, interest, profits on deposits, commissions, dividends and distinguishes between residents and non-residents.

The following are key rates for withholding tax in Jordan:

• Non-resident legal entities providing services incur a 10 percent withholding tax on imported services.

• Resident natural persons providing services face a 5 percent withholding tax.

• Interest, profits on deposits, and commissions paid by banks or financial companies carry a 5 percent rate for individual recipients and a 7 percent rate for legal entities.

• Dividends from a Jordan-incorporated resident company to resident or non-resident companies are exempt under domestic law.

Steps for Payers to Comply with Withholding Tax in Jordan

In Jordan, the responsibility to withhold tax falls on the payer making the payment. The payer must follow specific steps to comply with the law and ensure correct collection of tax on income.

The following steps must be undertaken:

1. Check if the payment falls under withholding tax by confirming if it counts as income under the tax law. Identify the payee’s status as resident or non-resident and verify if a tax treaty applies on the payment.

2. Find the right withholding tax rate by checking the payee’s status and reviewing the terms of any applicable tax treaty on the payment.

3. Withhold the tax amount by subtracting the tax from the gross payment amount before making their payment to the payee.

4. Remit the tax withheld to the Income and Sales Tax Department by the deadline defined by law.

5. Inform payee income tax was withheld (i.e. receipt) and retain records of the deduction.

Interaction with Double Taxation Treaties (DTTs) in Jordan

Jordan has established double tax agreements with over 30 countries to restrict the same income from being taxed twice by different tax authorities. Generally, the treaties reduce the withholding tax rates on dividends, interest or royalties, by the respective treaty countries. The tax rates are based on the income type, the recipient's status and the treaty's withholding tax provisions about the payment.

When a treaty applies, the payer must obtain a valid certificate of residency from the recipient and apply the reduced treaty rate when remitting the tax to the Income and Sales Tax Department. If no treaty applies the standard domestic withholding tax rate applies on the payment - The payer is responsible for ensuring compliance with the treaty conditions and keeping proper documentation of the payment and deduction.  

Implications for Businesses in Jordan

Businesses operating in the Kingdom of Jordan must incorporate the obligations of withholding tax into their contractual terms on payments and the processes of making payments. If a business fails to withhold tax correctly:

• The business may be held liable for the amount of unpaid withholding tax plus any penalties assessed by the authorities.

• The recipient of the payment may be unable to claim a credit for the tax in their home jurisdiction if applicable under their domestic tax rules.

• Late remittances of tax or incorrect submissions can trigger audits or investigations by the Income and Sales Tax Department on the business.

Conclusion

Withholding tax in Jordan forms a core part of the system of income taxation. Payments for services by non-resident entities attract a 10 percent tax, services by resident professionals attract a 5 percent tax, interest paid by banks or financial companies to individual recipients is taxed at 5 percent, and interest to legal entities is taxed at 7 percent. Compliance requires registration as a withholding agent, deduction of the correct tax on each payment, remittance to the Income and Sales Tax Department on time, and records of all payments and deductions.

Businesses that follow the rules of withholding tax avoid liabilities and penalties. Regular review of payments, verification of recipient status, and assessment of applicable treaty benefits are recommended. Engaging a qualified tax advisor provides guidance on obligations of withholding tax in Jordan.

FAQ

1. What is the withholding tax rate on services by a non-resident in Jordan?
    A payment for imported services from a non-resident legal entity in Jordan carries a 10 percent withholding tax on the total amount.

2. What rate applies to a Jordan resident providing services in the country?
    A resident natural person providing services in Jordan, such as an engineer or consultant, is charged a 5 percent withholding tax on the payment received.

3. Are dividends subject to withholding tax in Jordan?
    No. Dividends paid by a company incorporated in Jordan to a resident or non-resident company are exempt under Jordanian law.

4. Can a tax treaty reduce the withholding tax rate in Jordan?
    Yes. If the payee is a resident of a country with a double taxation treaty with Jordan, the treaty allows a lower withholding tax rate on the payment.

5. Who is responsible for paying withholding tax in Jordan?
    The payer acts as the withholding agent, calculates the tax, deducts it from the payment, and submits it to the Income and Sales Tax Department for the recipient.