Jordan's Income Tax Law allows a business-activity loss to be deducted from the profits of a taxpayer's other income sources in the same tax period, and where the loss cannot be fully deducted, its remaining balance is carried forward to later tax periods for a maximum of five years before it becomes final.
The General Rule for Deducting and Carrying Forward Losses
Article 8 of the Law provides that if a person incurs a loss in any taxable business activity within the Kingdom, it is deducted from the profits of the person's other income sources in the same tax period. If the loss is of an amount that cannot be fully deducted, its balance is carried forward to the tax periods following the period in which it occurred, for a maximum of five years before it becomes final.
Losses Realized Outside the Kingdom
The same article provides that losses of a business activity realized outside the Kingdom are carried forward to be deducted from the profits of that same activity realized outside the Kingdom, meaning they may not be deducted from profits of activity realized within the Kingdom.
What May Not Be Carried Forward as Losses
The Law bars including any amounts related to donations or personal exemptions within the carried-forward loss balance, and also bars deducting or carrying forward a loss that, had it been a profit, would not have been subject to tax under the Law. A specific example of this restriction appears in the Regulation on the Exemption of Export Profits of Goods and Services, which provides that a taxpayer's loss realized from exporting goods and services may not be deducted or carried forward, since the profits of that activity are exempt from tax.
The Condition of Proper Records and Accounts
The Law requires, in order to deduct or carry forward a loss, that the taxpayer produce proper and accurate accounts in accordance with the Law and the regulations and executive instructions issued under it; a taxpayer who does not present organized accounts supporting the claimed loss is denied this right.
Illustrative Example of Carrying a Loss Forward
Illustrative example: if a company incurs a loss from its taxable activity within Jordan in a given year, and the profits of its other income sources are not sufficient to fully cover it in that same year, the remaining part of the loss is carried forward to the following tax periods to be exhausted within a maximum of five years, provided the company continues to keep proper and accurate accounts.
How Exempting Some Activities Affects the Right to Carry Their Losses
The rule barring the deduction of a loss from an activity whose profit would not be taxable also plays out in agricultural activity: the Law exempts the first one million dinars of an individual's sales arising from agricultural activity within the Kingdom, and the first fifty thousand dinars of a legal person's net income from agricultural activity. If a loss arises within the exempt portion of that activity, it may not be deducted or carried forward to the same extent that a matching profit would not have been taxable.
Legal References
- Income Tax Law No. 34 of 2014 — Article 8 (deducting and carrying forward losses and the conditions for doing so).
- Income Tax Law No. 34 of 2014 — Article 5 (the exemption of part of agricultural activity and its effect on carrying forward its losses).
- Regulation of 2016 on the Exemption of Export Profits of Goods and Services from Income Tax — Article 8 (example of barring the carry-forward of a loss from an exempt activity).
For questions about your specific situation, you can ask the Jordan Tax & Legislation Helper on Helpers, or consult a licensed chartered accountant.