Accounting for Saudi Taxation
Accounting Rules for Taxable year
- The taxable year of a taxpayer for all activities is the state’s fiscal year.
- A taxpayer’s fiscal year shall start as of the date of its commercial register or license unless evidences prove otherwise.
- A taxpayer may use a different fiscal year under the following conditions:
- The taxpayer has been using a different fiscal year approved by the Department prior to enacting of the Law;
- The taxpayer is using a Gregorian fiscal year;
- A company is a member in a group of companies or is a subsidiary of a foreign company using a different fiscal year.
Accounting Rules for Longer/Shorter Tax year
Longer Fiscal Period
A taxpayer whose first year is a long fiscal year under the company’s articles of association shall file two tax return follows:
1.A tax return for the first 12 months within 120 days of the end of the first 12 months.
2.A consolidated tax return at the end of the Longer Fiscal period and pay tax accordingly (tax amount paid for the first period will be credited).
Shorter Fiscal Period
In case of a short fiscal period, shorter than 12 months, the due date for payment of tax and filing of return is within 120 days of closure of accounts.
Accounting Rules for Changing Taxable year
When using a different fiscal year, the following should be met:
The Taxpayer shall comply with effects by submitting a separate tax return for the short period separating the last tax year before the change and the beginning of the new tax year and shall pay tax according to the return within the legally prescribed time.
The first year of a new taxpayer or the last year in case of cessation or liquidation may be a short fiscal year unless the company’s articles of association require a long fiscal year.
Accounting Rules for Accounting Methods
A taxpayer’s method of accounting must clearly reflect the taxpayer’s income.
The gross income and expenses of a resident company, and any other taxpayer who keeps or is required by Law to keep commercial books according to the accounting principles generally accepted in the Kingdom, are determined according to such books after adjustment of the accounts so as to conform to the rules of this Law.
For taxation purposes, a natural person may record his transactions on a cash or accrual basis. However, if his gross income from business during a taxable year exceeds the amount specified in the Regulations, he must use the accrual method in all succeeding taxable years.
A company which keeps or is required by Law to keep commercial books must record income and expenses on an accrual basis. Otherwise, it may, for taxation purposes, use either the cash or accrual method.
Unless required to change the accounting method because of the revenue limit, a taxpayer may change its accounting method after getting the Department’s consent.
In case f the changes in Accounting Methods, it must adjust income and deduction in the taxable year following the change, so that no item is omitted nor included more than once.
Accounting Rules for Long-Term Contracts
If taxpayer is using the accrual accounting, income and expenses relating to a long-term contract shall be calculated on the basis of the percentage of the work completed during the taxable year.
The percentage of work completed is determined by comparing the costs of the contract incurred during the taxable year with the total estimated cost of the contract.
Contracts which are related to manufacturing, installation, construction or performing services and which are not completed within the year in which those are started.
Accounting Rules for STOCK
A taxpayer who maintains a stock shall establish and maintain inventories for such a stock.
The cost of goods sold during the taxable year shall be deducted.
COGS = Opening Stock value + Goods Purchased during the tax year – Closing Stock value
A taxpayer who uses the cash accounting can calculate COGS by use of the prime (direct) cost method or the absorption costing method.
A taxpayer using the accrual method must calculate COGS by using of the absorption costing method only.
Value of Closing Stock = Lower of the book or market value
The book value of the stock must be calculated by using weighted average method. Authority approval is required to use any other costing method.