Article 39 of the Saudi Income Tax Law
المادة 39 من نظام ضريبة الدخل · الفصل الثامن: قواعد الضرائب على شركات الأشخاص
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.
Official text (Arabic)
This article has not been amended since the law was issued.
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 تخلصه من حصته في شركة الأشخاص ، يعدل أساس تكلفة الأصول الرابحة في شركة الأشخاص بالزيادة بقيمة الربح المتحقق ، على ألا تتجاوز قيمة تلك الأصول قيمة السوق ، وتوزع التعديلات في أساس التكلفة بين الأصول وفقا لنسبة الاختلاف بين أساس التكلفة وقيمة السوق .
ج - إذا خرج شريك من شركة أشخاص واستلم توزيعا يجعله يتكبد خسارة من تخلصه من حصته في شركة الأشخاص ، يعدل أساس تكلفة الأصول الخاسرة في شركة الأشخاص بالتخفيض بقيمة الخسارة المتكبدة ، على ألا يقل أساس التكلفة لتلك الأصول عن الصفر ، وتوزع التعديلات في أساس التكلفة بين الأصول وفقا لنسبة الاختلاف بين أساس التكلفة وقيمة السوق .
د - لأغراض الفقرتين (ب) ، (ج) من هذه المادة ، فإن الأصل الرابح هو الأصل الذي يقل أساس تكلفته عن قيمة السوق ، والأصل الخاسر هو الأصل الذي يزيد أساس تكلفته عن قيمة السوق .
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 39 explained in plain English
This article deals with the cost basis of the partnership's own assets, complementing Article 38, which deals with the cost basis of a partner's share.
(a) Property contributed by a partner: its initial cost basis in the partnership's books equals its cost basis in the hands of the partner who contributed it.
(b) A partner leaving with a gain: if a partner leaves and receives a distribution that makes him realize a gain on disposing of his share, the cost basis of the partnership's gain assets is adjusted upward by the value of this gain, provided that the value of those assets does not exceed market value.
(c) A partner leaving with a loss: if a partner leaves and incurs a loss on disposing of his share, the cost basis of the loss assets is adjusted downward by the value of the loss, provided that their cost basis does not fall below zero.
In both cases the adjustments are allocated among the assets in proportion to the difference between each asset's cost basis and its market value.
(d) Definitions:
- Gain asset: one whose cost basis is less than market value.
- Loss asset: one whose cost basis is more than market value.
These provisions are connected with Article 40 on a partner's transferring property to the partnership. To apply them to an actual partner exit, it is wise to consult a lawyer specialized in tax and zakat.
Practical example
A general partnership in Makkah owns land with a cost basis of SAR 300,000 and a market value of SAR 500,000. One partner left and realized a gain of SAR 60,000 on disposing of his share. The land is a gain asset, so its cost basis in the partnership's books is raised by SAR 60,000 to SAR 360,000, which is less than market value.
Translated from our Arabic explanation with machine assistance. For guidance only; it does not replace advice from a lawyer on your situation.
How we write and review contentCommercial & Corporate Law lawyers: ask a specialist about your case
Describe your situation briefly and we'll suggest a lawyer who specialises in this law
Commercial & Corporate Law lawyers
Lawyers who handle this kind of case
Ibrahim Al Salem Law Firm
Active contributor
Dr. Ali Al-Rubaie Law Office and Ittihad Al-Asr Legal Company
Frequently asked questions about Article 39 of the Saudi Income Tax Law
What is the cost basis of an asset a partner contributes to a partnership?
It equals the asset's cost basis in the hands of the partner who contributed it.
What happens to the partnership's assets if a partner leaves with a gain?
The cost basis of the gain assets is raised by the value of the gain realized, provided that their value does not exceed market value.
What is meant by a loss asset in this article?
It is an asset whose cost basis is more than its market value.
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 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 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.