GTL Summary:

Article 42 of the KSA Income Tax Law outlines the tax implications of significant changes in a partnership's composition. It specifies that if partners enter or retire, leading to a 'reconstitution,' all partnership assets are considered transferred to the new entity in exchange for shares. A reconstitution is legally defined as a change in the partnership's membership exceeding 50% of its formation in the year preceding the change. This rule treats a substantial ownership shift as a deemed disposal of assets to the newly constituted partnership, establishing a clear tax event for such transactions.

Document Type: Tax Law Article
Law: Income Tax Law (Royal Decree No M/1 - 21 Feb 2004)
Article Number: 42
Country: 🇸🇦 KSA
Location: Chapter 8 - Taxation Rules of Partnerships
Order: 42
Last updated at: 2025-12-19 09:23:03 UTC

Chapter 8 - Taxation Rules of Partnerships

Article 42 - Change of Partners in a Partnership

If a partner or partners enter into or retire from a partnership which results in its reconstitution, all its assets shall be considered transferred to the new partnership against shares in this partnership.
Reconstitution of a partnership occurs when the entry or retirement of a partner or partners results in a change in the partnership's membership exceeding 50% of its formation in the year preceding the change.

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