Investing in Jordan
Azzam Zalloum
Zalloum & Laswi Law Firm
Amman
Azzam Zalloum (Bio)
Jordan has proven time and time again, in spite of the recent 'Arab Spring' that it is a politically stable country and a safe destination for investors. In the past decade the Jordanian government has actively encouraged foreign investment, most notably by introducing the Investment Promotion Law (No. 68 of 2003).
This law has had a significant impact on the economy bringing in hundreds of millions of dollars annually in foreign investments, contributing to around 20% of Jordanian investments in 2010, and all despite the global economic crisis.
Forming the basis for the equal treatment of Jordanian and non-Jordanian investors, this law allows foreign investors to own projects and engage in economic activity. However foreign ownership is still restricted in some sectors. For example, while the law allows 100% foreign ownership in industry, it restricts any foreign ownership in passenger and freight road transportation services, security and investigation services, sports clubs, and quarries for natural sand and stone. Restrictions are generally not absolute and usually only limit the foreign investment in terms of controlling interest. Up to 49% of ownership is acceptable in passenger, freight and mail transport services, as well as aircraft and operator rental services, while 50% is the standard for most commercial activities including the supply of most goods and services, as well as construction, engineering, advertising, and most transport auxiliary services, among others.
Also foreign investors are required to provide a minimum share capital of JD50,000 ($70,000), except when purchasing shares in a public shareholding company. However, it guarantees that foreign investors can withdraw all of their capital without any restrictions, including dividends, capital gains and any proceeds from the sale or liquidation of the project. It also ensures that foreign workers may transfer their salaries or commissions outside of Jordan. The Jordanian Dinar is conveniently pegged to the United States Dollar at approximately 1:1.41, and the Central Bank of Jordan is not expected to change that in the coming years, making it fully convertible for any transactions.
The Investment Promotion Law has ensured that foreign investors are provided equitable treatment in the judicial system and fully compensated in the rare case of expropriation for public interest purposes. The Courts are transparent and bound by International Standards to ensure the rights of litigants irrespective of nationality, and would oversee any such conduct by the government. Moreover, where any dispute between a foreign investor and a local government agency is not amicably settled within six months, either party may resort to arbitration or refer the case to the International Centre for Settlement of Investment Disputes.
In terms of tax exemptions, foreign investors are exempted from any payment on a project's initial fixed assets if imported for the project's exclusive use, and may be permitted to re-export such assets by the Investment Promotion Committee. However, taxes would have to be paid to resell such assets to Jordanian investors not exempted by law, and the Jordanian Investment Board notified. Exemptions on subsequent assets for the expansion of a project would also be available if there is a corresponding increase in production capacity of no less than 25%. Spare parts imported for the project would also be exempted provided their value does not exceed 15% of the value of the fixed assets.
The Investment Promotion Law, despite its distinctly positive impact is under revision as part of a continuous effort to improve the global competitiveness of the Jordanian economy. In addition to adapting the legislation of the country, over the last ten years Jordan has engaged in extensive privatisation. From the telecom industry to Amman's Queen Alia International Airport and most recently in the energy sector. By 2008, two private distribution companies and one generation company had already been established. The privatisation of a second generation company, Samra Power Plant, remains in progress. This culture of privatisation is significantly contributing to a higher level of productivity, resulting in lower costs to consumers and impacting all member of the society Jordanian and non-Jordanian alike.
Jordan has entered into a number of Investment and Bilateral Trade Agreements. The first of which was with the United States in the form of Qualifying Industrial Zones (QIZ), and has attracted over $1 billion in investments, and generated over six and a half times that in exports, this is expected in time to be mostly replaced by the United States-Jordan Free Trade Agreement which came into full effect in January 2010. A Bilateral Investment Treaty between the two countries also mutually protects individual and corporate investments. Additionally, Jordan entered a twelve year economic association agreement with the European Union in 2002 to establish free trade, signed a Free Trade Area Agreement with the European Free Trade Association (EFTA), and signed Free Trade Agreements with Turkey, Singapore and Canada.
Regionally Jordan has been a member of the Greater Arab Free Trade Area (GAFTA) since 1998, as well as signing a number of bilateral free trade agreements with a number of Arab countries, generally applied in parallel with GAFTA, but most importantly, and the effects of which remain to be seen, Jordan has recently been approved for membership of the Gulf Cooperation Council (GCC).
Jordan also has a number of designated Foreign /Free Trade Zones where investors receive various tax exemptions to promote growth and encourage geographic groupings of interrelated industries.
Global insecurity over regional turbulence might dissuade the unfamiliar investor despite all the increasingly favourable investment conditions, while it does not seem likely that Jordan will be drastically affected by the changes, the country is a member of the World Bank's Multilateral Investment Guarantee Agency (MIGA), which guarantees investments against non-commercial risks such as civil war and policy changes. Ultimately, as a regional centre, Jordan has proven to be relatively stable politically, and provides much lower costs and arguably a higher quality of life for investors and employees than any GCC alternative, while retaining accessibility to the Gulf and the rest of the region.