Article 18 of the Saudi Income Tax Law
المادة 18 من نظام ضريبة الدخل · الفصل الخامس: مصاريف تحقيق الدخل
The article allows deducting repair and improvement expenses on depreciated assets in each group up to 4% a year of the group's remaining value, and the excess is added to the group's remaining value.
Official text (Arabic)
This article has not been amended since the law was issued.
أ - يجوز حسم المصاريف المتكبدة في كل مجموعة عن الإصلاحات أو التحسينات التي أجراها المكلف على الأصول المستهلكة الواقعة في تلك المجموعة .
ب - لا تزيد قيمة المصاريف المسموح بها وفقا للفقرة (أ) من هذه المادة لكل سنة عن نسبة أربعة بالمائة (4%) من باقي قيمة المجموعة في نهاية تلك السنة.
ج - يضاف المبلغ الزائد عن الحد المبين بالفقرة (ب) من هذه المادة إلى باقي قيمة المجموعة.
This is the official Arabic wording, the only legally binding version. We do not translate the law itself; the explanation below is ours. Official source: Bureau of Experts at the Council of Ministers
Article 18 explained in plain English
This article regulates repair and improvement expenses the taxpayer incurs on his depreciated assets, and it is directly linked to the depreciation groups system in Article 17.
- The rule (paragraph a): expenses incurred in each group for repairs or improvements on depreciated assets falling within that group may be deducted.
- The ceiling (paragraph b): the amount allowed to be deducted for each year may not exceed 4% of the group's remaining value at the end of that year. The ceiling is calculated for each group separately.
- The excess amount (paragraph c): what exceeds the 4% limit is not lost but is added to the group's remaining value, and is later depreciated at that group's depreciation rate.
The group's remaining value is calculated under paragraph (e) of Article 17: the remaining value of the previous year after deducting its installment, plus 50% of the cost basis of assets placed in service during the current and previous years, less 50% of the consideration for assets disposed of during the two years.
So if repair expenses are within 4%, they are deducted in full in the same year, and if they exceed it, 4% of them is deducted and the rest is carried over to the group's value. To apply this to your accounts, it is advisable to consult a lawyer specialized in tax and commercial matters.
Practical example
A factory in Dammam has a remaining value for its machinery group at the end of the year of SAR 1,000,000, and it spent SAR 60,000 on maintaining it. The permitted limit is 4%, that is, SAR 40,000, which is deducted directly, and the rest (SAR 20,000) is added to the group's remaining value.
Translated from our Arabic explanation with machine assistance. For guidance only; it does not replace advice from a lawyer on your situation.
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Frequently asked questions about Article 18 of the Saudi Income Tax Law
Are equipment maintenance expenses deducted from income tax?
Yes. Expenses of repairs and improvements on depreciated assets may be deducted up to 4% a year of the group's remaining value at the end of the year.
What happens to the amount above 4%?
It is added to the group's remaining value.
Is the 4% limit calculated for all assets together?
The text calculates the limit for each group separately, from its remaining value at the end of the year.
More articles on Depreciation of Assets for Tax
- Article 16
The article allows deducting research and development expenses connected with earning taxable income, and bars deducting the purchase of land or research equipment, as equipment is depreciated under Article 17.
يجوز حسم مصاريف البحوث والتطوير المرتبطة بتحقيق الدخل الخاضع للضريبة ، ولا يجوز حسم مصاريف شراء الأرض أو المعدات التي تستخدم في أغراض البحث حيث تستهلك المعدات و
- Article 17
The article allows deducting depreciation of assets other than land, divides them into groups at 5%, 10%, 25%, 20% and 10%, and sets how the remaining value of each group is calculated.
أ - باستثناء الأرض يجوز حسم الاستهلاك عن أصول المكلف ذات الطبيعة المستهلكة الملموسة وغير الملموسة التي تنقص قيمتها ، بسبب الاستعمال أو التلف أو التقادم ، وتستخد
- Article 19
The article provides for deducting geological survey expenses and preliminary work for extracting natural resources as amortization at the Article 17 rate as a separate group, and applies it to buying survey and exploitation rights.
أ - تحسم مصاريف المسح الجيولوجي والأعمال التمهيدية لاستخراج الموارد الطبيعية على شكل مصاريف إطفاء ، وبمعدل الاستهلاك المحدد في الفقرة (ب) من المادة السابعة عشرة
- Article 79
The article sets out the Minister of Finance's powers to issue the Regulations and instructions, amend depreciation groups and rates, waive tax debt and fines where collection is impossible, and award bonuses to outstanding employees.
للوزير الصلاحيات الآتية : أ - إصدار اللائحة التنفيذية لهذا النظام. ب - إصدار التعليمات واتخاذ الإجراءات التي يراها ضرورية لوضع هذا النظام موضع التنفيذ . ج - تعد
- Article 81
The article sets transitional provisions for the value of assets purchased before the Law took effect, and bars carrying forward operating losses incurred before Council of Ministers Resolution No. 3 of 1421 AH or during a tax exemption period.
أ - في حالة شراء أصل في سنة ضريبية سابقة على دخول هذا النظام حيز التنفيذ ، فإن القيمة التي تضاف إلى المجموعة الملائمة هي تكلفة الأصل ناقصا أي قسط استهلاك حصل عل
The texts are reproduced from the official website of the Bureau of Experts at the Council of Ministers for reference; where they differ, the officially published Arabic text prevails. This content is not legal advice.