Jordan

Corporate - Group taxation

Last reviewed - 28 December 2020

Group taxation is not permitted in Jordan.

Transfer pricing

Pricing should be as per the market value to avoid any disposition transaction.

There are no specific transfer pricing rules in Jordan; however, the law states the following:

  • A related party is: (i) an individual or any of his/her relatives (up to the second degree) who hold more than 50% of the capital in a legal person, (ii) a legal person that owns more than 50% of the capital in another legal person or holds the controlling interest for making the decisions, or (iii) an individual who is related to another individual by means of marriage or of first degree relationship.
  • For the purposes of ongoing transactions between the related parties, the tax department verifies whether any term or condition contained in any transaction, agreement, or arrangement is different from the terms and conditions that could have been agreed as if the parties of the transaction were independent, and adjusts the income and the tax for the related parties to reflect any difference in the price between what is collected between the related parties and what is collected between independent parties and any additional tax in accordance with international standards.
  • Notwithstanding the provisions of the previous paragraph, transactions shall be disregarded if artificial or fictitious and have not been performed for the purposes of the business, but rather for the purpose of reducing the tax payable or of shifting the tax burden in contravention of the provisions of this law or agreements of avoidance of double taxation and the prevention of fiscal evasion or international agreements. The tax is then estimated as if these transactions were not performed.
  • No artificial or fictitious transaction shall be considered, and tax will be imposed on the related taxpayer as if this transaction did not take place.

Thin capitalisation

A 3:1 debt-to-equity ratio would apply in respect of related party debt (e.g. shareholder debt). No restriction should apply on unrelated party financing.

Interest (including capitalised interest) on the related party debt exceeding the 3:1 debt-to-equity ratio would not be deductible for CIT purposes.

For the purposes of the debt-to-equity ratio, equity is the higher of: (i) paid in share capital or (ii) average equity.

Controlled foreign companies (CFCs)

In the Jordanian tax laws, there is no definition of a CFC.