Question

Resident Capital Company works in sales business has the following selected financial information:

Account Amount Allowance for doubtful account 80,000 SR

Reserve for obsolete inventory 50,000 SR

Bad debt (written off) 6,500 SR

Donations to the Help the Poor Organization (non-licensed in Saudi) 11,350 SR

Old employees’ reunion party expenses 15,000 SR

Loss on disposal a delivery truck 8,000 SR

How much of these accounts are deductible under Saudi Low? Explain your answer.

Answer 1

Hi,

I am assuming that the question is for deductions as per Income tax laws of Saudi Arabia.

The tax base for a resident corporation is the non-Saudi’s share of income subject to tax from any activity in Saudi Arabia, less allowable expenses. The tax base for a nonresident carrying out activities in Saudi Arabia through a PE is the income arising from the activities of the PE, less allowable expenses.

Thus as per Income Tax laws:

1. Donation to the Help the Poor Organization (non-licensed in Saudi) 11,350 SR is not allowed (as per tax laws a deduction is allowed for donations paid during the taxable year to public agencies or philanthropic societies licensed in Saudi Arabia, which are non-profit organisations and are allowed to receive donations)

2.Old employees’ reunion party expenses 15,000 SR shall not be allowed as Entertainment expenses incurred for events such as parties, sports competitions, entertainment trips and activities, etc. Are not tax deductible

Other expenses and provisions would be allowed however it may be noted that bad debts shall be allowed only when it was earlier recognised as income of appropriate year.

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