Shmaisani-Hussaini Complex,
Shmaisani, Amman, Jordan
An offshore company, also known as an "exempt company," refers to a business entity established in one jurisdiction but operating primarily in another. The term "offshore" suggests operations beyond the immediate reach of national boundaries. In Jordan, the concept of an exempt company is formally recognized under the Companies Law No. (22) of 1997, specifically outlined in Article (211), which defines such companies as those registered in Jordan but conducting their business activities outside its borders.
The rationale behind setting up an exempt company stems from various legal, social, economic, or political factors that influence the nature of the business and its stakeholders. These companies benefit from dual advantages: they acquire the legal nationality of the country in which they are registered, while leveraging the benefits and regulations of the country where they operate. This arrangement facilitates easier capital movement and mitigates issues such as double taxation.
Jordanian law imposes specific restrictions on exempt companies. They must operate entirely outside Jordan and are prohibited from offering shares for public subscription within the country. However, they are permitted to conduct negotiations, sign contracts, and establish representative offices in Jordan solely for these purposes, without engaging in actual business activities domestically.
In return for these operational constraints, exempt companies receive tax benefits. According to a ruling by the Jordanian Court of Cassation (Decision No. 1720/2005, dated 20/11/2005), exempt companies are not subject to tax on their foreign income. This exemption is conditional upon the company's activities being conducted outside Jordan. Engaging in domestic business activities could lead to the loss of these tax privileges.
It is important to note that exempt companies do not form a separate category under Jordanian corporate law. They are subject to the general provisions of the Companies Law and must operate within the prescribed frameworks, albeit with special conditions relevant to their nature.
Exempt companies are often confused with other types of foreign entities, such as operating foreign companies and non-operating foreign companies. The key difference is that an exempt company is initially registered in Jordan but operates abroad, while foreign companies are initially registered in other countries and may establish operations in Jordan.
Non-operating Foreign Companies: These entities serve merely as regional offices for parent companies based abroad and are not permitted to engage in business activities within Jordan.
Operating Foreign Companies: These are temporary entities registered in Jordan for specific projects or tenders and cease to exist once their purpose is fulfilled.
In contrast, exempt companies are established in Jordan with the express condition that they do not conduct business within the country.
To establish an exempt company, registration is done with the Ministry of Industry and Trade / Companies Control Department, following the specific provisions of the Companies Law and the Exempt Companies System No. (105) of 2007. The company must provide a bank guarantee from a Jordanian bank, renewed automatically, to ensure compliance with legal obligations. Additionally, the company must submit annual financial statements approved by a certified Jordanian auditor.
Recent legal debates have emerged concerning exempt companies, yet they remain a legitimate application of Jordanian corporate law. They do not negatively impact local investment or the national economy, as they are subject to preventive and subsequent oversight by the Companies Control Department.
Exempt companies offer several benefits that appeal to investors:
Tax Advantages: They often provide a tax haven, being exempt from taxes in their country of registration while operating in jurisdictions with favorable tax systems. They also help avoid double taxation issues.
Confidentiality: These companies can offer anonymity to investors, concealing their identities as per the laws of the investment country.
Asset Protection: The legal framework in the investment country protects the company’s assets under its own jurisdiction, enhancing overall security.
Regulatory Oversight: Jordanian authorities oversee exempt companies, ensuring compliance while providing a regulatory environment that may be less stringent than the investor’s home country.
Cost Efficiency: Establishing and operating in a jurisdiction with lower costs can reduce expenses compared to the investor's home country, making it an attractive option for technological and software investments.
In summary, exempt companies represent a well-established application of Jordanian corporate law, allowing for strategic business operations across borders. They are regulated to ensure compliance and offer substantial benefits for international investors, distinguishing them from other foreign entities operating within Jordan.
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