3. Taxable income

This section discusses what constitutes taxable income in the KSA.

The net profit is the difference between gross income, i.e. the sum of all income, earnings or compensations received in relation to the business activity, including capital gains on fixed assets and occasional profits, but excluding exempt income and deductible expenses, including losses carried forward.

Tax losses may be carried forward indefinitely, provided the maximum amount deducted in each tax year does not exceed 25% of the annual taxable profits, as reported on the tax return.

Corporations are able to carry forward losses, irrespective of whether there has been a change in ownership or control, provided they continue to perform the same activity.

Exempt income

Capital gains arising on the disposal of securities traded in the Saudi stock market as well as on a stock exchange outside the Kingdom are exempt from capital gains tax provided the securities are traded also on the Saudi stock exchange, irrespective of whether the disposal was made via a stock exchange or through other means.

Similarly, no gain or loss arises on the sale of properties which are not part of business assets or on the transfer of assets between group companies provided that the companies are wholly owned directly or indirectly within the group and the assets are not disposed of outside the group for two years from the date of transfer.

A participation exemption is also available for cash or in-kind dividends received by an investor company resident in the KSA from a Saudi resident or from a non-Saudi resident capital company if the Saudi investing company owns at least 10% in the capital company’s share capital for at least one year. Such exemption is unavailable in an international context.

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