Article 36 of the Saudi Income Tax Law
المادة 36 من نظام ضريبة الدخل · الفصل الثامن: قواعد الضرائب على شركات الأشخاص
The article imposes tax on the partners in partnerships, not on the partnership, requires the partnership to file an information return and choose its accounting policies, and treats limited partners' shares like capital companies.
Official text (Arabic)
This article has not been amended since the law was issued.
أ - تفرض الضريبة على الشركاء في شركات الأشخاص وليس على الشركة ذاتها ، إلا أنه يجب على الشركة تقديم إقرار ضريبي لغرض المعلومات يوضح فيه مقدار الدخل والربح والخسارة والمصاريف والديون وأي بنود أخرى أو أمور مرتبطة بالضرائب على شركة الأشخاص عن السنة الضريبية ، ويخضع الإقرار للقواعد الإجرائية بما فيها الجزاءات المطبقة على الإقرارات الضريبية بمقتضى هذا النظام .
ب - تقع على شركة الأشخاص وليس على الشركاء مسئولية اختيار سنة الضريبة وأسلوب المحاسبة وأسلوب جرد المخزون وغيرها من السياسات المحاسبية بما يتفق مع هذا النظام ، وتقع عليها أيضا مسئولية تقديم الإشعارات والبيانات المطلوبة عن أنواع نشاطها.
ج - تنطبق الأحكام الواردة في هذا النظام الخاصة بشركات الأموال على حصص الشركاء الموصين في شركات التوصية البسيطة .
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 36 explained in plain English
This article sets out how partnerships are treated in income tax, which under the definitions in Article 1 are the general partnership, the joint venture and the simple limited partnership.
1. Who pays the tax? Tax is imposed on the partners and not on the partnership itself. Even so, the partnership must file an information tax return for the tax year, showing the amount of income, profit, loss, expenses, debts and any other items or matters connected with taxes on the partnership. This return is subject to the procedural rules applying to tax returns, including penalties; the fact that the partnership is not the party liable to pay does not relieve it of the obligation to file.
2. Responsibilities of the partnership, not the partners: the partnership, not the partners, bears responsibility for:
- choosing the tax year;
- choosing the accounting method and the method of inventory stocktaking and other accounting policies consistently with the Law;
- submitting the required notices and data on the types of its activity.
3. Limited partners: in a simple limited partnership, the provisions on capital companies set out in the Law apply to the shares of the limited partners, unlike the general rule for partnerships.
Article 37 then details how each partner's share of income and loss is calculated. Anyone who establishes a partnership or enters it as a partner may consult a lawyer specialized in tax and zakat to learn the effect on his obligations.
Practical example
Ahmed and Khalid are partners in a general partnership in Jeddah. The partnership itself does not pay income tax, but each partner's share is counted in his tax base. But the partnership must file an information return showing its income, expenses and debts, and it is the one that chooses its tax year and its method of stocktaking, and it may be exposed to penalties if it breaches the procedural rules for the return.
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 36 of the Saudi Income Tax Law
Does a general partnership pay income tax itself?
No. Tax is imposed on the partners in partnerships and not on the partnership itself, but the partnership must file a return for information purposes.
Is failure to file the information return penalized for a partnership?
Yes. The information return is subject to the procedural rules applying to tax returns, including penalties.
Who chooses the tax year in a partnership?
The partnership and not the partners, and it is also responsible for the accounting method, inventory stocktaking and other accounting policies.
How are limited partners' shares treated in a simple limited partnership?
The provisions on capital companies set out in the Law apply to them.
More articles on Tax on Partners in Companies
- Article 37
The article explains how a partner's share of a partnership's income and loss is included in his tax base, when his loss is suspended, and how this relates to the related-party loss rule in Article 63.
أ - لتحديد الوعاء الضريبي للشريك ، يحتفظ الدخل والحسومات والخسائر والدين الناشئ أو المستحق على شركة الأشخاص كل بصفته من ناحية المصدر الجغرافي ونوع الدخل والمكاس
- Article 38
The article sets the cost basis of a partner's share in a partnership, what increases it from his share of income and debt, and what reduces it from distributions, losses and expenses.
أ - يحدد أساس التكلفة لحصة الشريك في شركة الأشخاص بالمبلغ الذي دفعه الشريك مقابل حصته إضافة إلى أساس تكلفة الممتلكات التي قدمها للشركة . ب - يزداد أساس التكلفة
- Article 39
The article sets the cost basis of property contributed to a partnership, and adjusts the cost basis of its assets up or down when a partner leaves with a gain or loss on disposing of his share.
أ - أساس التكلفة الأولية للممتلكات المقدمة لشركة الأشخاص تساوي أساس التكلفة للشريك الذي قدمها . ب - إذا خرج شريك من شركة أشخاص واستلم توزيعا يجعله يحقق ربحا من
- Article 40
The article provides that no gain or loss is calculated when a partner transfers an asset to a partnership in exchange for a share, sets the value of his share, and treats any amount paid to him above market price as a distribution.
أ - لا يحتسب ربح أو خسارة عن نقل شريك ملكية أصل له إلى شركة أشخاص مقابل تملكه حصة في تلك الشركة . ب - يعد الشريك مالكا لحصة في شركة الأشخاص مساوية للفرق بين قيم
- Article 41
The article treats a transfer of a non-cash asset from a partnership to a partner, even on liquidation of the partner's share, as a disposal by the partnership with a gain or loss, and sets the partner's cost basis and the effect on the partner's share.
أ - يعامل نقل ملكية أصل غير نقدي من شركة أشخاص إلى شريك ، بما في ذلك حالة تصفية حصة الشريك ، على أنه تصرف بالأصل من قبل الشركة مع إقرار بالربح أو الخسارة في تار
- Article 42
The article treats a partnership reconstituted by partners joining or leaving, with a change of more than 50% of its membership, as having transferred all its assets to a new partnership in exchange for shares in it.
أ - عند دخول أو خروج شريك أو شركاء في شركة الأشخاص ونتج عن ذلك إعادة تشكيلها ، تعد جميع أصولها منقولة إلى شركة الأشخاص الجديدة مقابل حصص في هذه الشركة . ب - يقع
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.