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  Determination
of Tax Base : Allowed DeductionsAll expenses that are necessary and normal to the business are allowed deductions, provided they meet the following: (a) It is an actual expense, supported by document, not a reserve. (b) It is an operational expense. (c) It produces income or maintains it. (d) It is related to the business that is subject to tax. Expenses that are unnecessary or unrelated to the activity, such as personal expenses, administrative expenses for the head-office abroad, or contributions to unrecognized organizations, are disallowed. (e) It is incurred during the year of audit. The following are some deductible expenses: Wages and Salaries Wages, salaries and similar benefits incurred by the entity are allowed deductions if they meet the above conditions. The taxpayer should attach a certificate by the General Organization for Social Insurance (GOSI) stating wages that are subject to social insurance system and a certificate by the taxpayer’s chartered accountant certifying wages that are not subject to social insurance system. Depreciation The Law has allowed a deduction of reasonable amount as depreciation of assets using rates as set by the Department under the straight-line method and provided the following conditions are met: a. Fixed asset was acquired for the business and used in the business. b. The asset is owned by the business. c. The asset is of depreciable nature. Goodwill is not depreciable unless it is acquired for a value; and then it is considered on case-by-case basis. Lessees are treated the same as owners for purposes of amortizing improvements they make to leaseholds. Leasehold improvements are amortized using the prescribed rates over the rental period. Pre-incorporation and pre-setting up expense Pre-incorporation and pre-setting up expenses are amortized over a period from 3-5 years. Royalties Royalties are an acceptable business deduction. Insurance premiums Insurance premiums are deductible. Charitable Contributions Charitable contributions to government-approved charities are deductible. Bad Debts Bade debts are deductible provided the following conditions are met: - Serious efforts have been exerted by the taxpayer to collect the debt with no success. - Bankruptcy or inability of debtor to pay is proved. - A decision was made by the taxpayer’s Board of Directors approving the write off of the debt confirmed by deleting it from the taxpayer’s records. - A certificate by the taxpayer’s chartered accountant certifying the writing off of the debt from the taxpayer’s books and records. - Undertaking by the taxpayer to reinstate as income any written off debts if ever collected in the year of collection. End of Service awards Actual payments of end-of-service benefits according to the Kingdom’s labor regulations are allowed as a business deduction. Other Expenses Payments for services provided from outside Saudi Arabia but which are directly attributable to the operations within the Kingdom (e.g., rental of equipment employed, royalties, management fees, and insurance premiums) are deductible. School Fees School fees paid by taxpayers to their employees’ children are deductible expenses provided that they do not exceed four children per employee and five thousand Saudi riyals per child. Loss Carry-Forward Operational losses incurred in past years may be carried forward to up-coming years until fully recovered under the following: - Operational loss is an allowed deduction under article 14 of Income Tax Law in excess of taxable income during the year. - Loss carry forward provision may be used only by taxpayers who keep legal accounts and who are subject to tax. - Loss carry forward provision may be applied only after the expiry of the tax holiday. No loss incurred during a tax holiday is allowed to be carried forward. - Loss carry forward provision is applicable to financial years ending after 5/1/1421 H. ( corresponding to April 10, 2000) the issuance date of the resolution that stipulated the loss carry forward provision.     |
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Brief Information on DZIT
