GTL Summary:

Article 27 establishes the tax accounting rules for taxpayers maintaining stock. It mandates the maintenance of inventories and allows for the deduction of the cost of goods sold (COGS). The COGS is determined by adding the cost of goods purchased to the opening stock and subtracting the closing stock value. Taxpayers on the cash method may use either the prime (direct) cost or absorption costing method, whereas those on the accrual method must use the absorption costing method. Closing stock must be valued at the lower of its book or market value. The default book valuation method is the weighted average method, which can only be changed with prior written permission from the Department.

Document Type: Tax Law Article
Law: Income Tax Law (Royal Decree No M/1 - 21 Feb 2004)
Article Number: 27
Country: 🇸🇦 KSA
Location: Chapter 6 - Tax Accounting Rules
Order: 27
Last updated at: 2025-12-19 09:23:03 UTC

Chapter 6 - Tax Accounting Rules

Article 27 - Stock

  1. A taxpayer who maintains stock shall establish and maintain inventories for such stock.

  2. The cost of goods sold during the taxable year shall be deducted.

  3. The cost of goods sold during a taxable year shall be determined by adding the cost of goods purchased during the year to the opening stock and subtracting the value of the closing stock.

  4. A taxpayer who uses the cash method shall calculate the cost of stock by use of the prime (direct) cost method or the absorption costing method, but a taxpayer using the accrual method shall calculate the cost of stock by use of the absorption costing method only.

  5. The value of the closing stock shall be the book or market value, whichever is lower at that date. A taxpayer shall calculate the book value of the stock by use of the weighted average method. However, it may use another method, after obtaining the Department's written permission, and it may not change the method chosen except with the consent of the Department.

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