TAX LAW

The New Income Tax - Chapter 1 : DEFINITIONS

Article 1: Definitions

Wherever they appear in this Law, each of the following words or terms will carry the meaning beside it unless the context indicates otherwise.
The Minister : The Minister of Finance.
The Department : The Department of Zakat and Income Tax.
Tax : Income tax imposed in accordance with this Law.
Person : Any natural or legal person.
Taxpayer : Any person who is subject to tax in accordance with this Law.
Activity : Any commercial, professional, trade or any other similar activity carried out to make profit. This includes the use of movable or immovable property.
Royalties : Payments received for the use or the right to use intellectual rights, including, but not limited to, copyright, patents, industrial designs and secrets, trade marks and names, knowledge, trade and business secrets or goodwill; or for the use of information related to industrial, trade or scientific expertise, or for the rights to exploitation of natural and mineral resources.
The Kingdom : The territorial lands and waters of the Kingdom of Saudi Arabia, the air space under its control, and its rights in the zone divided between the Kingdom and the State of Kuwait. This also includes marine or semi-marine areas that are under the sovereignty, sovereignty rights or jurisdiction of the Kingdom in accordance with International Law.
Capital company : A corporation, a limited liability company, or a company limited by shares. For the purpose of this Law, investment funds are considered capital companies.
Personal company: A general partnership, a silent partnership, or a limited partnership.
Resident : A natural person, a company that fulfills the conditions of Article (3) of this Law, any Saudi government agency, ministry, or other public organization, and any other legal person or organization formed in the Kingdom.
Nonresident : Any person other than a resident.
Saudi Citizen : A person who holds the nationality of the Kingdom of Saudi Arabia or who is treated as a Saudi citizen.
Commercial books : The set of books the taxpayer keeps in which all his transactions are to be recorded and as described in Royal Decree M61 dated 17/12/1409 [20 July 1989] and its by-laws issued in Ministerial Resolution 699 dated 29/7/1410 [24 Feb. 1990], as amended by Ministerial Resolution 1110 dated 24/12/1410 [16 July 1990], or as amended subsequently.
The By-law : The by-law of this Law.

Any word or term not defined in this Law will have the same definition it has in other Laws applicable in the Kingdom provided such definition does not conflict with this Law.

Chapter 2 : TAXPAYERS

Article 2: Persons subject to taxation

(a) a resident capital company on non-Saudi shares.
(b) a resident non-Saudi natural person who does business in the Kingdom.
(c) a nonresident who does business in the Kingdom through a permanent establishment.
(d) a nonresident on other income subject to tax from sources within the Kingdom.
(e) a person engaged in natural gas investment activities.
(f) a person engaged in oil and hydrocarbons production activities.

Article 3: Concept of Residency

(a) A natural person is resident in the Kingdom for a taxable year if he meets any of the following conditions:
   (1) he has a permanent place of abode in the Kingdom and is physically present in the Kingdom during not less than 30 days in aggregate during the taxable year;
   (2) he is physically present in the Kingdom during not less than 183 days in the tax year.

For the purpose of this paragraph, presence in the Kingdom for part of a day is considered presence for the whole day. Presence in case of transit between two points outside the Kingdom is not considered.

(b) A company is a resident company if it meets any of the following conditions:
   (1) it is formed under the Companies Regulations;
   (2) its place of central control and management is situated within the Kingdom.

Article 4: Permanent Establishment

(a) A permanent establishment of a nonresident in the Kingdom, unless otherwise provided by this article, consists of the permanent place of activity of the nonresident through which it carries out business, in full or in part, including business carried out through an agent.
(b) The following are considered a permanent establishment:
   (1) construction sites, assembly facilities, and the exercise of supervisory activities connected with them;
   (2) installations or sites used for surveying for natural resources, drilling equipment, or ships used for surveying for natural resources, as well as the exercise of supervisory activities connected with them;
   (3) a fixed base where a nonresident natural person carries out business;
   (4) a branch of a nonresident company which is licensed to carry on business in the Kingdom.
(c) A place is not considered a permanent establishment of a nonresident in the Kingdom if it is used in the Kingdom only to do the following:
   (1) store, display, or deliver goods or products belonging to the nonresident;
   (2) keep a stock of goods or products belonging to the nonresident for the purpose of processing by another person;
   (3) purchase goods or products only for the purpose of collection of information for the nonresident;
   (4) perform any other activities that are preparatory or auxiliary in nature in the interests of the nonresident;
   (5) draw- up contracts for signature with regard to credits (loans), delivery of goods, or provision of technical services;
   (6) execute any combination of the activities indicated in subparagraphs 1–5 of this paragraph.
(d) A nonresident partner in a resident personal company is considered to have a permanent establishment in the Kingdom in the form of a partnership interest.

Article 5: Source of Income

(a) Income is from a source in the Kingdom if it is
   (1) derived from an activity which occurs in the Kingdom;
   (2) derived from immovable property located in the Kingdom, including gains from the disposal of an interest in such immovable property and from the disposal of shares, stocks or partnership interests in a company the property of which consists directly or indirectly principally of interests in such property;
   (3) derived from the disposal of shares or a partnership interest in a resident company;
   (4) derived from the rental of movable property used in the Kingdom;
   (5) derived from the sale or license of industrial or intellectual property used in the Kingdom;
   (6) a dividend, management fee, or director's fee paid by a resident company;
   (7) a payment for services made by a resident company to the company’s head office or to an affiliated company;
   (8) a payment made by a resident for services performed in whole or in part in the Kingdom;
   (9) amounts for exploitation of a natural resource in the Kingdom; or
   (10) attributable to a permanent establishment of a nonresident located in the Kingdom, including income attributable to sales in the Kingdom of goods of the same or similar kind as those sold through such a permanent establishment, and income arising from the rendering of services or the performance of other activity in the Kingdom of the same or similar nature as activity performed via such a permanent establishment.
(b) In determining the source of income, the place of payment of the income is not taken into account.
(c) For purposes of this article, a payment made by a permanent establishment of a nonresident in the Kingdom is considered to be made by a resident company.

Chapter 3 : TAX BASE and TAX RATES

Article 6: Tax Base

(a) The tax base of a resident capital company is the total of non-Saudi shares in its income subject to tax from any activity within the Kingdom less any deduction allowed under this Law.
(b) The tax base of a resident non-Saudi natural person is his income subject to tax from any activity within the Kingdom less any deduction allowed under this Law.
(c) The tax base of a non-resident who exercises activity within the Kingdom through a permanent establishment is his income subject to tax arising from or related to the activity of such establishment less any deduction allowed under this Law.
(d) The taxable income of each natural person is determined separately.
(e) A capital company is taxable on its tax base separately from its shareholders or partners.


Article 7: Tax Rates

(a) The tax rate is 20% of the tax base of the following:
   (1) a resident capital company.
   (2) a non-Saudi resident natural person who does business.
   (3) a nonresident person who does business in the Kingdom through a permanent establishment.
(b) The tax base of a taxpayer engaged in natural gas investment activities is subject to a tax rate of 30%.
(c) The tax base of a taxpayer engaged in oil and hydrocarbon production is subject to a tax rate of 85%.
(d) The withholding tax rates are stipulated under Article 68 of this Law.

Article 8: Income Subject To Tax

Income subject to tax is gross income that includes all income, profits, gains of any type and of any form of payment resulted from carrying out activity, including capital gains and any incidental income and other than exempt income.

Article 9: Gains and Losses on Disposal of Assets

(a) The gain or loss from the disposal of an asset is the difference between the consideration received and the cost base of the asset.
(b) No gain or loss on disposal of a depreciable asset is taken into account other than what is stipulated by Article 17 of this Law.
(c) The gain or loss on disposal by a natural person of an asset that is not used in the activity is not taken into account in determining income subject to tax.
(d) The cost base of an asset purchased, produced, manufactured, or constructed by the taxpayer is the amount paid or incurred by the taxpayer in cash or in kind in respect of the acquisition of the asset.
(e) Where a part of an asset is disposed of, the cost base of the asset is apportioned between the part of the asset retained and the part disposed of in accordance with their market values at the time of purchase.
(f) Expenses incurred to alter or improve an asset that is still being depreciated are added to the cost base of the asset.
(g) The consideration received on disposal of an asset includes the market value of consideration in kind including relief from debt encumbering the property.
(h) Where an asset is disposed of by way of gift or inheritance, the disposer is treated as having received consideration equal to the fair market value of the asset at the date of disposal, unless paragraph (i) of this Article applies.
(i) If an asset is encumbered by debt exceeding its fair market value, the disposer is treated as having received consideration equal to the amount of the debt.
(j) No gain or loss is taken into account in determining the tax base on an involuntary disposal of an asset, to the extent that the proceeds are reinvested in an asset of a like kind within one year of the involuntary disposal.
(k) The cost base of a replacement asset described in paragraph (j) is determined with reference to the cost base of the replaced asset.
(l) Where an asset owned by a taxpayer is converted to personal use or otherwise ceases to be used in the production of income, the taxpayer is deemed to have disposed of the asset for its fair market value, and shall recognize the resulting gain (but not loss).

Article 10: Exempt income

The following incomes are exempt from income tax:
(a) Capital gains realized from disposal of securities traded in the Stock Market in the Kingdom in accordance with controls specified in the By-law.
(b) gains on the disposal of property other than assets used in the activity.


Article 11: Deduction for Contributions

A deduction is allowed in determining the tax base of each taxpayer for contributions paid during the tax year to public agencies or philanthropic societies licensed in the Kingdom which are nonprofit organizations and are allowed to receive these contributions.

Article 12: Outlays Connected with the Receipt of Income

All the ordinary and necessary expenses of earning income subject to tax paid or accrued by the taxpayer during the taxable year are deductible in determining the tax base, with the exception of outlays of a capital nature and expenses that are nondeductible according to Article 13 of this Law and other provisions of this Chapter.

Article 13: Nondeductible Expenses

No deduction is allowed for the following:

 (a) expenses not connected with the earning of income subject to tax;

(b) payments or benefits to a shareholder, a partner or their relatives which constitute wages, salaries, awards or the like or which do not represent arm’s length payments for property or services.

(c) entertainment expenses;

 (d) expenses of a natural person for personal consumption.

(e) income tax paid in the Kingdom or in another state;

(f) fines and penalties paid or payable to any party in the Kingdom (excluding those paid for breach of a

contractual obligation);

(g) any bribe or similar payment the making of which is a criminal offence under the laws of the

 Kingdom, even if made abroad.

Article 14: Bad Debts

(a) Taxpayers are entitled to a deduction for bad debts connected with goods or services that have been sold where income from such sale was previously included in income subject to tax.
(b) The deduction is allowed at the time the debt is written off in the taxpayer’s books as worthless upon due proof of its worthlessness and as specified in the By-law.

Article 15: Deductions for Allocations to Reserve Funds

No deductions for allocations to reserve funds shall be allowed other than doubtful debts reserve funds to banks. The By-law establishes rules and controls for these reserve funds.

Article 16: Deductions for Research and Development Expenditures

A deduction is allowed for expenditures on research and development connected with the earning of income subject to tax. This Article does not allow a deduction for expenditures on the acquisition of land or equipment to be used for research, such equipment being subject to depreciation under Article 17 of this Law.

Article 17: Depreciation

(a) A depreciation deduction is allowed for depreciation of a taxpayer's depreciable tangible or intangible assets, other than land, which are wholly or partly used in the production of income subject to tax, which has a value extending beyond the end of the taxable year, and which loses value because of wear and tear or obsolescence.

 

 

 (b) Depreciable assets are classified into groups and rates as follows:

(c) The depreciation deduction for each group is determined under paragraphs (d) to (l) of this Article.
(d) The depreciation deduction for each group is calculated by applying its depreciation rate determined under paragraph (b) of this Article against the balance of the group at the end of the taxable year.
(e) The balance of the group at the end of the taxable year is the total of the balance of the group at the end of the preceding taxable year after allowing for the deductions under this article for the preceding taxable year and 50 % of the cost base of assets added to the group in the taxable year and the preceding taxable year, reduced by 50% of the consideration received from the disposal of assets in the group during the taxable year and the preceding taxable year, provided that the balance may not be reduced to a negative amount.
(f) Where an asset owned by a taxpayer is converted to personal use or otherwise ceases to be used in the production of income subject to tax, the taxpayer is deemed to have disposed of the asset for its fair market value.
(g) Where 50% of the consideration received from the disposal during a taxable year and the preceding taxable year of assets in a group exceeds the balance of the group at the end of the taxable year disregarding the amount of such consideration, the balance of the group is reduced to zero and the excess is included in the taxpayer's income subject to tax.
(h) If the balance of the group at the end of the year, after allowing for the deduction under paragraph (d), is less than SR 1,000, a deduction is allowed for the amount of the balance.
(i) Where all the assets in a group are disposed of, a deduction is allowed for the balance of the group at the end of the year of assessment.
(j) Where a construction is bought or sold together with land, the total consideration shall be reasonably apportioned to arrive at a separate value of the construction.
(k) Where assets are used only in part for the production of income subject to tax, a corresponding portion of the depreciation shall be allowed as a deduction in computing the tax base.
(l) Notwithstanding the previous paragraphs, assets under BOT or BOOT contracts are depreciated over the contract period or over the contract remaining period if acquired or renewed during that period.

Article 18: Repair Expenses Deduction

(a) Deductions are permitted in respect of each group for expenses of the repair or improvement of depreciable assets belonging to that group.
(b) The amount of expenses deductible in accordance with paragraph (a) of this Article for each year is limited to 4 percent of the balance of the group value at the end of the year.
(c) An amount exceeding the restriction established in paragraph (b) of this Article shall go to increase the value of the balance of the group.

Article 19: Expenditures on Geological Surveying and Work to Prepare for the Extraction of Natural Resources

(a) Expenditures on geological surveying and work to prepare for the extraction of natural resources are deductible in the form of amortization charges at the depreciation rate as determined in paragraph (b) of Article 17 of this Law; these expenditures constitute a separate group.
(b) This article also applies to expenditures on intangible assets borne by the taxpayer in acquisition of rights to geological surveying and the processing or exploitation of natural resources.

Article 20: Contributions to an Authorized Retirement Fund

(a) A deduction is allowed for contributions by an employer to an authorized retirement fund established in accordance with the laws of the Kingdom for the benefit of an employee of the taxpayer.
(b) The deduction allowed under paragraph (a) of this Article in respect of each employee for whose benefit the contribution is made is limited to 25 percent of the employee’s income, calculated without regard to contributions made by the employer.
(c) No deduction is allowed in respect of contributions by an employee to an authorized retirement fund.

Article 21: Loss Carry-Forward

(a) A net operating loss may be carried forward to the taxable year following the year in which the loss is incurred, to be deducted in determining the tax base of future taxable years until the cumulative loss is fully offset. The By-law specifies the maximum percentage of carried forward loss allowed to be annually deducted.
(b) A net operating loss is equal to the excess of the deductions allowed under this Chapter over the income subject to tax for the taxable year.
(c) In the case of a natural person, only the deductions and income from activity are taken into account in determining the amount of the net operating loss.

 

 

Article 22: Taxable year

(a) The taxable year is the same as the State’s financial year.
(b) A taxpayer may use a 12-month period other than the one specified in paragraph (a) of this Article in accordance with controls specified in the By-Law.
(c) Where the taxable year for a taxpayer changes, the period between the last full taxable year prior to the change and the date on which the changed taxable year commences shall be treated as a separate short taxable year. The first year of a newly established taxpayer or the last year of a taxpayer that ceases activity or liquidates shall also be a short taxable year if not coinciding with a full year, unless it is a long taxable year in conformity with the Company Law.
(d) Groups of related companies, as defined in Article 64 of this Law, must utilize the same taxable year.

Article 23: Method of Accounting

(a) A taxpayer's method of accounting must clearly reflect the taxpayer's income.
(b) The gross income and deductions of a resident company, and any other taxpayer who keeps or is required to keep commercial books according to accounting principles generally accepted in the Kingdom, are determined according to such books after adjustments made to conform to the rules of this Law.
(c) A natural person may account for tax purposes on a cash or accrual basis, but if his gross income from business for a taxable year exceeds the amount specified in the By-law, he must account for business income on an accrual basis in all succeeding taxable years.
(d) A company which keeps or is required to keep commercial books must account for income and deductions on an accrual basis. Otherwise, it may account for tax purposes on a cash or accrual basis.
(e) Except for a change from the cash basis to the accrual basis required under paragraph (c) or (d) of this Article, a taxpayer may change its method of accounting only with the prior written permission of the Department.
(f) If the taxpayer's method of accounting is changed, adjustments to items of income, deduction, or credit, or to other items must be made in the taxable year following the change, so that no item is omitted and no item is included more than once.

Article 24: Cash-Basis Accounting

A cash-basis taxpayer must take income into account when received or made available and must take deductions into account when paid.

Article 25: Accrual-Basis Accounting

(a) An accrual-basis taxpayer must take income and deductions into account when payable.
(b) An amount is payable to the taxpayer when the taxpayer becomes entitled to receive it, even if the time for discharge of the entitlement is postponed or the entitlement is payable in installments.
(c) An amount is treated as payable by the taxpayer when all the events that determine liability have occurred.

Article 26: Long-Term Contracts

(a) In the case of an accrual-method taxpayer, income and deductions relating to a long-term contract are taken into account on the basis of the percentage of the contract completed during the taxable year.
(b) The percentage of completion is determined by comparing costs allocated to the contract and incurred during the taxable year with the estimated total contract costs.
(c) In this Article, the term "long-term contract" means a contract for manufacture, installation, or construction, or the performance of related services, which is not completed within the taxable year in which work under the contract commenced, other than a contract estimated to be completed within 6 months of the date on which work under the contract commenced.

Article 27: Trading Stock

(a) A taxpayer who maintains trading stock must establish and maintain inventories of such stock.
(b) A deduction is allowed for the cost of trading stock sold during the taxable year.
(c) The cost of trading stock sold in a taxable year is determined by adding to the opening trading stock the cost of goods acquired during the year, and subtracting the closing trading stock.
(d) A cash-basis taxpayer may calculate the cost of trading stock on the prime-cost or absorption-cost method, and an accrual-basis taxpayer must calculate the cost of trading stock on the absorption-cost method.
(e) The value of trading stock on hand at the end of the taxable year is the lower of its cost or market value at that date. A taxpayer should account for the trading stock on the weighted average-cost method, or any other method after a written permission of the Department is obtained. Once chosen, a stock valuation method may only be changed with the permission of the Department.

Chapter 7 : ADDITIONAL (MISCELLANEOUS) RULES FOR DETERMINING TAX BASE

Article 28: Joint Property

Income or deductions relating to jointly owned property are apportioned among the joint owners in proportion to their respective interests in the property.

Article 29: Valuation

(a) Where the calculation of the tax base or gross income involves a non-cash property, services, or other benefit, its fair market value on the date taken into account for tax purposes is used in determining the income.
(b) The fair market value of non-cash property transferred to an employee or other provider of services is determined without regard to any restriction on transfer.

 

Article 30: Currency Conversion

(a) Gross income and tax base are calculated in the Saudi Riyal.
(b) Where the calculation of income involves an amount in a currency other than the Saudi Riyal, the amount is converted at the exchange rate as notified by the Saudi Arabian Monetary Agency applying between the currency and the SR on the date of the transaction.

Article 31: Indirect Payments and Benefits

The gross income of a taxpayer includes a payment that directly or indirectly benefits the taxpayer and a payment dealt with as the taxpayer directs, which would have been income of the taxpayer if the payment had been made directly to the taxpayer.

Article 32: Compensation Receipts

Compensation payments received take the character of the thing that is compensated.

Article 33: Recouped Deductions

(a) Where a previously deducted expenditure, loss, or bad debt claim is recovered, the amount recovered is included in gross income for the year in which it is recovered and takes the character of the income to which the deduction related.
(b) For the purposes of this article, a deduction is considered recovered in the absence of the basis for the deduction.

Article 34: Presumptive Taxation

(a) If branches or subsidiaries of foreign airline, sea or land shipping and transportation companies operating in the Kingdom fail to file a proof of their tax base in accordance with this Law, the tax base will be determined as follows:
   1. The tax base from the airline business for branches or subsidiaries of foreign airline companies operating in the Kingdom will be 5 percent of gross income realized in the Kingdom from tickets, shipping freight, mail or any other income. Such branches are required to file returns showing their gross income in the Kingdom in the prescribed terms under this Law.
   2. The tax base for shipping and transportation business of branches or subsidiaries of foreign shipping, land and sea transportation companies operating in the Kingdom will be 5 percent of gross income realized in the Kingdom from charges for freight or any other income. Such branches are required to file returns showing their gross income in the Kingdom in the prescribed terms under this Law.
(b) The Minister may authorize certain other sectors to be subject to presumptive taxation according to bases and rates specified in the By-law.

Article 35: International Agreements

To the extent that the terms of a treaty or other international agreement to which the Kingdom of Saudi Arabia is a party are inconsistent with the provisions of this Law (apart from the anti-avoidance provisions of Article 63 of this Law) the terms of the treaty or international agreement prevail over the provisions of this Law.

Chapter 8 : PRINCIPLES OF TAXATION FOR PERSONAL COMPANIES

Article 36: General Provisions

(a) The partners rather than the personal company are taxed, but the personal company is required to file an information declaration. The information declaration is to show the income, gain, loss, deductions, credits, and other items or tax attributes of the personal company for the taxable year, and is subject to procedural rules, including penalties, applicable to tax returns under this Law.
(b) The personal company, rather than its partners, shall be responsible for making any applicable elections under this Law, such as choice of taxable year, accounting method and inventory method, and for filing notices and statements required in relation to its activities.
(c) The provisions of this Law applicable to capital companies shall apply to limited partners in limited partnerships.

Article 37: Taxation of Partners

(a) In determining the tax base of a partner, the income, expenses, losses, or credits derived or accrued by the personal company retain their character as to geographic source and type of income, gain, deduction, loss, or credit.
(b) A partner’s share of personal company income, loss, deduction, or credit is taken into account for the partner’s taxable year in which the personal company’s taxable year ends. A loss in excess of the partner’s cost base is suspended until the partner acquires sufficient cost base to offset the loss or until the partner’s interest is terminated.
(c) Personal company losses and deductions allocated to a partner in accordance with paragraph (b) of this Law are not subject to the related party loss disallowance rule of Article 63(d) of this Law. A personal company’s loss that is suspended under Article 63 (d) is not allocable to the partners until the conditions of Article 63 (d) are met. If a loss is incurred on a distribution in complete termination of a partner’s interest, the conditions of Article 63 (d) are considered met.

Article 38: Cost Base of Partner's Interest

(a) The cost base of a partner's interest in a personal company is the amount the partner pays for the interest plus the cost base of property contributed by the partner.
(b) The cost base is increased by the partner’s share of personal company income (including exempt income) included in the partner's gross income.
(c) The cost base is decreased (but not below zero) by distributions by the personal company to the partner and by the partner’s share of partnership losses, deductions and nondeductible expenditures of the partnership (other than capital items).
(d) Debt incurred by the personal company, including debt to which the property of the personal company is subject, increases each partner’s cost base in accordance with the partner’s interest in the personal company. Debt born by certain partners who have personal liability for it will cause the increase of the cost base of these partners only.

Article 39: Cost Base of a Personal Company’s Assets

(a) A personal company will have a starting cost base in contributed property equal to the cost base of the contributing partner.
(b) If a partner is retiring from membership in a personal company and receives a distribution that causes the retiring partner to recognize gain on the disposal of the partner’s interest in the personal company, the cost base of the personal company’s gain assets is increased (but not above fair market value) by the amount of disposal gain recognized. Cost base adjustments are allocated among assets according to the proportionate difference between cost base and fair market value.
(c) If a partner is retiring from membership in a personal company and receives a distribution that causes the retiring partner to recognize loss on the disposal of the partner’s interest in the personal company, the cost base of the personal company’s loss assets is reduced (but not below zero) by the amount of disposal loss recognized. Cost base adjustments are allocated among assets according to the proportionate difference between cost base and fair market value.
(d) For purposes of paragraphs (b) and (c) of this Article, a gain asset is one that has a cost base lower than its fair market value and a loss asset is one that has a cost base higher than its fair market value.

Article 40: Transfer of Property to a Personal Company

(a) No gain or loss calculation for a transfer to a personal company by a partner of an asset owned by the partner in return for an interest in the company.
(b) The partner is deemed to take an interest in the personal company equal to the difference between the fair market value of the property contributed by him to the company and the amount paid to him by the company . If a personal company pays to the partner more than the fair market value for the property transferred by the partner, the partner is deemed to have received from the company a distribution of profit equal to the excess amount.

Article 41: Transfer of Property to a Partner by a Personal Company

(a) A personal company’s transfer of a non-cash asset to a partner, including a transfer in termination of the partner’s interest, is treated as a disposal of the asset by the personal company, with gain or loss recognition on the transfer date.
(b) The partner takes a cost base in the asset equal to the fair market value of the asset.
(c) The partner is deemed to have received a distribution of income from the personal company if he does not pay fair market value for property transferred by the personal company. If the amount of deemed distribution exceeds the partner’s cost base in the partner’s personal company interest, the partner is treated as having disposed of part (or all) of the partner’s personal company interest. If a distribution is in complete termination of a partner’s interest, and the amount of the distribution is less than the partner’s cost base, the excess cost base is deductible as a loss from disposal of the partner’s interest.

 

Article 42: Change in Membership of a Personal Company

(a) If the departure or the entry of a partner or partners causes a reconstitution of a personal company, all the personal company’s assets are deemed to be transferred to a new personal company in return for shares.
(b) A reconstitution occurs when the entry or departure of a partner or partners causes more than a 50 percent change in the membership of the personal company as constituted for the year preceding the entry or departure.

Article 43: General Provisions

(a) In the case of a company limited by shares, the shares of the general partners are taxed to them in the same manner as for a personal company, and the general partners’ shares are deducted in determining the tax base of the company. The provisions of this Law applicable to personal companies shall apply to general partners in companies limited by shares.
(b) Where there has been a change of 50 percent or more in the underlying ownership or control of a capital company, no deduction for non-Saudi share is allowed under Article 21 of this Law in taxable years following the change.

Chapter 10 : NATURAL GAS INVESTMENT TAX

Article44

A natural gas investment tax shall be imposed on every natural on legal person, hereinafter refereed to as the “taxpayer”, engaged in natural gas, natural gas liquids, and gas condensates investment activities within the Kingdom of Saudi Arabia, its dedicated economic area or its continental shelf.

Article45

 (a) The natural gas investment activities shall mean the exploration, production, collection, treatment, transportation, processing, and fractionation of natural gas, natural gas liquids, and gas condensates.
(b) Transportation shall mean transporting natural gas from treatment plants to processing and fractionation plants or from any such plants to end user facilities, as well as, transporting condensates.
(c) Gas condensates that naturally exist are defined as “those hydrocarbons that exist in a single gaseous phase in reservoirs, whose original temperature falls in the range from the critical temperature to the cricondentherm and which are produced from wells completed in gas condensate reservoirs and become liquid at standard conditions of temperature and pressure.”

Article46

The natural gas investment activities income is the gross income derived from the sale, exchange or transfer of natural gas, natural gas liquids, gas condensates, and other products including sulfur, as well as any other non-operational or incidental income derived within the taxpayer’s primary activity, regardless of its type or source, including income derived from the utilization of available excess capacity in any facility that is subject to the natural gas investment tax.

Article47

The natural gas investment tax basis is the gross revenues mentioned in Article 46 of this Law, less the expenses deductible under this Law. The amount of royalties and surface rentals shall be considered as deductible expenses.

Article48

The natural gas investment tax rate for any taxable year shall be determined on the basis of the internal rate of return on the cumulative annual cash flows of the taxpayer derived from natural gas investment activities. The tax rate applicable to the taxpayer’s natural gas investment tax basis will be in accordance with the following table: