Article 27 of the Saudi Income Tax Law
المادة 27 من نظام ضريبة الدخل · الفصل السادس: قواعد المحاسبة الضريبية
The article requires anyone holding inventory to keep stocktaking records, allows deducting the cost of goods sold, and sets how it is calculated and how closing stock is valued at the lower of cost or market.
Official text (Arabic)
This article has not been amended since the law was issued.
أ - على المكلف الذي يحتفظ بمخزون ، فتح سجلات جرد له والاحتفاظ بتلك السجلات.
ب - تحسم تكلفة البضاعة المباعة خلال السنة الضريبية .
ج - تتحدد تكلفة البضاعة المباعة خلال السنة الضريبية بإضافة تكلفة البضاعة المشتراة خلال السنة إلى بضاعة أول المدة ، مطروحا منها قيمة بضاعة نهاية المدة .
د - يحسب المكلف الذي يستخدم المبدأ النقدي تكلفة المخزون باستخدام طريقة التكلفة الأولية ( المباشرة ) أو التكاليف الإجمالية ، بينما يحسب المكلف الذي يستخدم مبدأ الاستحقاق تكلفة المخزون على أساس طريقة التكاليف الإجمالية فقط .
هـ - قيمة بضاعة نهاية المدة هي التكلفة الدفترية أو القيمة السوقية أيهما أقل في ذلك التاريخ ، وعلى المكلف احتساب التكلفة الدفترية للبضاعة بطريقة المتوسط المرجح ، إلا أنه يجوز له بعد الحصول على إذن خطي من المصلحة استخدام طريقة أخرى ، ولا يجوز تغيير الطريقة التي يختارها إلا بعد موافقة المصلحة .
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 27 explained in plain English
This article regulates the treatment of inventory for tax purposes, which matters to commercial and industrial establishments:
- Stocktaking records (paragraph a): a taxpayer who holds inventory must open stocktaking records for it and keep them.
- The deduction (paragraph b): the cost of goods sold during the tax year is deducted.
- The calculation (paragraph c): cost of goods sold = opening stock + the cost of purchases during the year − the value of closing stock.
- The cost of inventory (paragraph d): someone using the cash basis calculates it by the prime (direct) cost method or by total costs, and someone using the accrual basis calculates it by the total costs method only.
- Valuing closing stock (paragraph e): at the lower of book cost or market value on that date, with book cost calculated by the weighted average method. Another method may be used after written permission from the Authority, and the chosen method may not be changed except with its approval.
The practical effect is that valuing closing stock affects profit directly: the lower its value, the higher the cost of goods sold and the lower the tax base, which is why the Law set fixed rules for valuing it.
To apply these rules to your establishment, it is advisable to consult a lawyer specialized in tax and commercial matters.
Practical example
An appliance shop in Dammam started the year with goods worth SAR 300,000 and bought goods during it for SAR 700,000, and the value of its goods at the end of the year is SAR 200,000 after valuing them at the lower of cost or market. The cost of goods sold that may be deducted is SAR 800,000.
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 27 of the Saudi Income Tax Law
How is the cost of goods sold calculated for tax?
By adding the cost of goods bought during the year to opening stock, less the value of closing stock.
How is inventory valued at the end of the year?
At the lower of book cost or market value, with book cost calculated by the weighted average method.
May a method other than the weighted average be used?
Yes, after obtaining written permission from the Authority, and the chosen method may not be changed except with its approval.
More articles on Tax Accounting Rules
- Article 22
The article sets the tax year as the State's fiscal year, allows using another twelve-month period under the Regulations, and deals with changing the year and with groups of related companies.
أ - السنة الضريبية هي السنة المالية للدولة . ب - يجوز للمكلف استخدام فترة اثني عشر شهرا مختلفة عما ورد في الفقرة (أ) من هذه المادة كسنة ضريبية وفقا للضوابط التي
- Article 23
The article requires the taxpayer to use an accounting method that shows his income clearly, states when the cash or accrual basis is used, and requires the Authority's approval to change accounting policy.
أ - يجب أن تبين طريقة المحاسبة التي يتبعها المكلف دخله بوضوح . ب - يحدد إجمالي الدخل والمصاريف للشركة المقيمة ولأي مكلف يحتفظ أو ملزم نظاما بالاحتفاظ بالدفاتر ا
- Article 24
The article provides that a person using the cash basis records income when it is received or when it is ready to be received, and expenses when they are paid.
يدون المكلف الذي يستخدم الأساس النقدي في دفاتره وسجلاته الدخل المستلم عند استلامه أو عندما يكون جاهزا للاستلام ، والمصاريف المسددة عند دفعها.
- Article 25
The article provides that a person using the accrual basis records income and expenses when they fall due, and sets when an amount becomes payable to or by the taxpayer.
أ - يدون المكلف الذي يستخدم مبدأ الاستحقاق الدخل والمصاريف عند استحقاقها . ب - يصبح المبلغ واجب الدفع إلى المكلف إذا حق للمكلف استلامه حتى لو تأجل التسديد أو تم
- Article 26
The article provides that, for a person using the accrual basis, income and expenses of long-term contracts are calculated by the proportion of work completed during the year, and defines a long-term contract.
أ - يحتسب الدخل والمصاريف المتعلقة بعقد طويل الأجل للمكلف الذي يستخدم مبدأ الاستحقاق على أساس نسبة العمل المنجز خلال السنة الضريبية . ب - تحدد نسبة العمل المنجز
- Article 28
The article provides that income and expenses relating to jointly owned property are allocated among the partners in accordance with their ownership shares in it.
يوزع الدخل أو المصاريف المتعلقة بممتلكات مشتركة على الشركاء وفقا لحصص الملكية فيها.
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.