The taxpayer has the right to carry forward adjusted operational losses, in accordance with the provisions of the Income Tax Law and these Regulations, for tax purposes to the tax years following the loss year, by reducing the profits in subsequent years until the full recovery of accumulated operating losses, without being bound by a specific time period, provided that the maximum deductible in any tax year does not exceed 25 percent of the annual profit as reported in the taxpayer's return.

The provision of paragraph (1) above does not apply to operating losses incurred by the taxpayer prior to the effective date of the Council of Minister's Resolution No. 3 dated 5/01/1421 H, corresponding to 10/04/2000, or operational losses incurred during a tax holiday, or operational losses incurred from an exempt activity under the Income Tax Law in case where the taxpayer has both taxable and exempt activities.

Losses that are not determined through properly audited accounts by a certified public accountant licensed in the Kingdom cannot be carried forward.

A capital company may not carry forward losses if there is a change in ownership or control of 50% or more, except for losses incurred after the change, and subject to applicable carry forward rules.

In the case of a natural person, operational loss shall be the difference between business income and related expenses only.