Article 20 of the Saudi Income Tax Law
المادة 20 من نظام ضريبة الدخل · الفصل الخامس: مصاريف تحقيق الدخل
The article allows deducting an employer's contributions for an employee to a statutory pension fund up to 25% of the employee's income, and does not allow deducting the employee's own contributions.
Official text (Arabic)
This article has not been amended since the law was issued.
أ - يجوز حسم مساهمات صاحب العمل لصالح المستخدم في صندوق تقاعد نظامي مؤسس وفقا لأنظمة المملكة.
ب - لا يتجاوز الحسم المسموح به بمقتضى الفقرة ( أ ) من هذه المادة عن كل مستخدم نسبة الخمس والعشرين بالمائة (25%) من دخله قبل احتساب مساهمات صاحب العمل.
ج - لا يجوز حسم مساهمات المستخدم في صندوق تقاعد نظامي .
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 20 explained in plain English
This article regulates deducting contributions to pension funds when calculating the tax base, and distinguishes between what the employer pays and what the employee pays:
- Employer contributions (paragraph a): they may be deducted if they are for the benefit of the employee and in a statutory pension fund established under the laws of the Kingdom. A contribution to a fund that does not meet this description does not fall within this deduction under the article's text.
- The ceiling (paragraph b): the permitted deduction for each employee may not exceed 25% of his income before calculating the employer's contributions. The ceiling is calculated for each employee separately, and on the basis of his income before the contribution is added.
- Employee contributions (paragraph c): the employee's contributions to a statutory pension fund may not be deducted.
So the Law did not merely allow deducting these contributions, but set a ceiling for each employee.
What exceeds the 25% limit of employer contributions is not deducted under this article, and the article does not mention carrying it forward. To apply the limit to your employees' salaries, it is advisable to consult a lawyer specialized in tax and commercial matters.
Practical example
A company in Jeddah has an employee whose income is SAR 120,000 a year before calculating the employer's contributions, and the company pays SAR 20,000 for him into a statutory pension fund. The maximum permitted to be deducted for this employee is 25%, that is, SAR 30,000, so the amount is deducted in full because it is below the limit.
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 20 of the Saudi Income Tax Law
Are pension contributions paid by the company deducted from income tax?
Yes. The employer's contributions for the employee into a statutory pension fund established under the laws of the Kingdom may be deducted.
What is the maximum deduction for pension contributions?
25% of each employee's income before calculating the employer's contributions.
Does the employee deduct his own pension contribution?
No. Paragraph (c) provides that the employee's contributions to a statutory pension fund may not be deducted.
More articles on Deductible Expenses and Losses
- Article 11
The article allows donations paid during the tax year to public bodies or licensed non-profit charities permitted to receive donations to be deducted when determining the tax base.
يجوز لتحديد الوعاء الضريبي لكل مكلف حسم التبرعات المدفوعة خلال السنة الضريبية إلى هيئات عامة ، أو جمعيات خيرية مرخص لها بالمملكة لا تهدف إلى الربح، ويجوز لها تل
- Article 12
The article allows deducting all ordinary and necessary expenses of earning taxable income, paid or accrued during the tax year, except capital expenses and what the Law prohibits.
جميع المصاريف العادية والضرورية لتحقيق الدخل الخاضع للضريبة ، سواء كانت مسددة أو مستحقة ، والمتكبدة خلال السنة الضريبية هي مصاريف جائزة الحسم عند احتساب الوعاء
- Article 13
The article lists the expenses that may not be deducted from the tax base, such as expenses unrelated to income, amounts to partners and their relatives, entertainment, fines, bribes and income tax.
لا يجوز حسم المصاريف التالية : أ - المصاريف غير المرتبطة بتحقيق الدخل الخاضع للضريبة . ب - أي مبالغ مدفوعة أو مزايا مقدمة للمساهم أو الشريك أو لأي قريب لهما إذا
- Article 14
The article allows deducting bad debts arising from sales of goods or services previously declared as revenue, once written off the books with suitable evidence that collection is impossible under the Regulations.
أ - يجوز للمكلف حسم الديون المعدومة الناتجة عن بيع بضاعة أو خدمات سبق التصريح بها إيرادا في دخل المكلف الخاضع للضريبة . ب - يجوز حسم الدين المعدوم عند شطبه من د
- Article 15
The article prohibits deducting any reserves or provisions, except provisions for doubtful debts in banks, and leaves it to the Regulations to set the rules and controls for these provisions.
لا يجوز حسم أي احتياطيات أو مخصصات خلاف مخصصات الديون المشكوك في تحصيلها في البنوك ، وتحدد اللائحة قواعد وضوابط تحديد هذه المخصصات .
- 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
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.