Jordan operates a progressive income tax system that applies to individuals and corporations. Employers play a crucial role in this system by withholding income tax from employee salaries and contributing to the social security fund on behalf of their workforce. Understanding these obligations is essential for compliant payroll management in the Kingdom.
The General Income Tax Department (GITD) is responsible for administering income tax laws, while the Social Security Corporation (SSC) manages social security contributions. Both employers and employees have specific responsibilities regarding contributions and reporting, which must be adhered to to avoid penalties.
Employer Social Security and Payroll Tax Obligations
Employers in Jordan are required to register with the Social Security Corporation (SSC) and make monthly contributions for their employees. These contributions cover various benefits, including old age, disability, death, work injuries, and maternity. The contribution rates are split between the employer and the employee, calculated based on the employee's gross salary up to a specified ceiling.
The standard social security contribution rates are as follows:
| Contribution Type | Employer Rate | Employee Rate |
|---|---|---|
| Old Age, Disability, Death | 11% | 7% |
| Work Injuries | 2% | 0% |
| Maternity | 0.75% | 0% |
| Total | 13.75% | 7% |
The total contribution is 20.75% of the employee's gross salary, with 13.75% paid by the employer and 7% withheld from the employee's salary. These contributions are subject to a maximum salary ceiling, which is adjusted periodically by the SSC.
Income Tax Withholding Requirements
Employers are legally obligated to withhold income tax from the monthly salaries and wages paid to their employees. This Pay As You Earn (PAYE) system ensures that income tax is collected throughout the year. The amount of tax to be withheld is calculated based on the employee's taxable income, which is their gross salary minus applicable deductions and allowances.
Jordan's income tax system for individuals is progressive, meaning higher income levels are taxed at higher rates. The tax brackets applied to annual taxable income are:
| Annual Taxable Income (JOD) | Tax Rate | |-----------------------------|----------|----------| | Up to 5,000 | 5% | | 5,001 - 10,000 | 10% | | 10,001 - 15,000 | 15% | | 15,001 - 20,000 | 20% | | Over 20,000 | 25% |
Employers must accurately calculate the monthly tax withholding based on the projected annual income and the applicable tax brackets and allowances.
Employee Tax Deductions and Allowances
Employees are entitled to certain personal allowances and deductions that reduce their taxable income. These allowances are deducted from the gross annual income before applying the tax rates. The primary allowances include:
- Personal Allowance: A standard annual allowance for the individual taxpayer.
- Family Allowance: An additional annual allowance available for the taxpayer's dependents (spouse and children), subject to certain conditions and a maximum total amount for the family.
As of recent regulations, the standard annual allowances are:
- Individual Allowance: JOD 9,000
- Family Allowance (for dependents): JOD 9,000 (total for the family)
These allowances are aggregated and deducted from the employee's gross annual income to arrive at the taxable income figure used for calculating income tax.
Tax Compliance and Reporting Deadlines
Employers in Jordan have specific deadlines for remitting withheld taxes and social security contributions, as well as for submitting required reports.
- Monthly Withholding and Payment: Income tax withheld from employee salaries and the employer and employee portions of social security contributions must be paid to the respective authorities (GITD and SSC) by the end of the month following the month in which the salaries were paid.
- Annual Salary Information Submission: Employers are required to submit an annual declaration detailing the salaries paid to each employee and the income tax withheld during the previous calendar year. This declaration is typically due by March 15th of the following year.
- Annual Income Tax Return (Employees): While employers handle monthly withholding, individual employees may still be required to file an annual income tax return by April 30th of the following year, depending on their total income sources and complexity of their tax situation.
Adhering to these deadlines is crucial to avoid penalties and interest charges.
Special Tax Considerations for Foreign Workers and Companies
The tax obligations for foreign workers and companies in Jordan depend largely on their residency status and the nature of their activities in the Kingdom.
- Foreign Workers: Individuals are generally considered tax residents if they are present in Jordan for 183 days or more in a tax year. Tax residents are taxed on their worldwide income, while non-residents are taxed only on income sourced within Jordan. Employers of non-resident foreign workers must still withhold income tax on the Jordan-sourced portion of their salary.
- Foreign Companies: A foreign company is subject to Jordanian corporate income tax and employer obligations if it establishes a permanent establishment (PE) in Jordan. A PE typically includes a branch, office, or other fixed place of business through which the company carries out its activities. If a foreign company hires employees in Jordan, even without a formal PE, it may still be required to register as an employer for social security and income tax withholding purposes.
- Double Taxation Treaties: Jordan has entered into double taxation treaties with numerous countries. These treaties can provide relief from double taxation and may affect the tax obligations of foreign workers and companies, potentially reducing or exempting certain income from Jordanian tax depending on the treaty provisions. It is important to consider the impact of any applicable treaty.
