Article 37 of the Saudi Income Tax Law
المادة 37 من نظام ضريبة الدخل · الفصل الثامن: قواعد الضرائب على شركات الأشخاص
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.
Official text (Arabic)
This article has not been amended since the law was issued.
أ - لتحديد الوعاء الضريبي للشريك ، يحتفظ الدخل والحسومات والخسائر والدين الناشئ أو المستحق على شركة الأشخاص كل بصفته من ناحية المصدر الجغرافي ونوع الدخل والمكاسب والحسومات والخسائر والدين.
ب - يؤخذ في الاعتبار حصة الشريك في شركة الأشخاص من الدخل والخسارة والمصروفات والدين لغرض تحديد الوعاء الضريبي للشريك عن سنته الضريبية التي تنتهي فيها السنة الضريبية للشركة ، وتعلق خسارة الشريك التي تزيد عن أساس تكلفته إلى أن يؤمن الشريك أساس تكلفة يغطي الخسارة ، أو إلى أن يتم التخلص من حصته .
ج - لا تنطبق قاعدة عدم إجازة خسارة الطرف المرتبط الواردة في الفقرة (د) من المادة الثالثة والستين من هذا النظام على حصة الشريك من الخسائر والمصاريف في شركة الأشخاص بمقتضى الفقرة (ب) من هذه المادة ، كما لا يجوز توزيع خسارة شركة الأشخاص المعلقة بمقتضى الفقرة (د) من المادة الثالثة والستين من هذا النظام على الشركاء ما لم تتحقق شروطها ، وتعد الشروط متحققة في حالة تكبد خسارة في التوزيع عند التخلص الكامل من حصة الشريك .
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 37 explained in plain English
After Article 36 provided that tax falls on the partners and not on the partnership, this article explains how each partner's share is calculated.
(a) Items keep their character: in determining the partner's tax base, each of the partnership's income, deductions, losses and debt keeps its character as to geographic source and the type of the income, gain, deduction, loss or debt. Items are therefore not mixed together when passed to the partner.
(b) Timing of inclusion and suspension of loss:
- The partner's share of income, loss, expenses and debt is included in his base for his tax year in which the partnership's tax year ends.
- If the partner's loss exceeds his cost basis in the partnership, the excess is suspended until the partner secures a cost basis that covers it, or until he disposes of his share. Article 38 explains how the cost basis is determined.
(c) Relation to the related-party rule: paragraph (d) of Article 63 prevents a taxpayer from deducting a loss arising from a transfer of property between him and a related party, and suspends it. This article provides two things:
- That rule does not apply to the partner's share of the partnership's losses and expenses included under paragraph (b).
- If the partnership has a loss suspended under paragraph (d) of Article 63, it is not distributed to the partners unless its conditions are met, and the conditions are considered met if the partner incurs a loss in the distribution on fully disposing of his share.
These are technical provisions, and to apply them to a specific case it is advisable to consult a lawyer specialized in tax and zakat.
Practical example
Saad is a general partner in a simple limited partnership in Dammam, and his cost basis in his share is SAR 100,000. If his share of the partnership's loss for the year is SAR 150,000, he deducts from the loss what his cost basis covers, and the excess SAR 50,000 is suspended until his cost basis increases to cover it or he disposes of his share.
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 37 of the Saudi Income Tax Law
When is a partner's share of a partnership's profits included in his tax base?
For his tax year in which the partnership's tax year ends.
What happens if a partner's loss exceeds his cost basis?
The excess loss is suspended until the partner secures a cost basis that covers it or until he disposes of his share.
Does the related-party loss rule apply to a partner's share of the partnership's losses?
No. The article excludes the partner's share of losses and expenses included under paragraph (b) from the application of paragraph (d) of Article 63.
Articles this article refers to
More articles on Tax on Partners in Companies
- Article 36
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.
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 والخسا
- 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.