Article 4

The taxpayer must determine their income based on the accrual accounting principle used in commercial accounting, in accordance with the accounting standards applied in the state, considering the provisions of the Law and these Regulations. Income is recorded on an accrual basis when the taxpayer is entitled to receive it, even if it is paid later or in installments, and expenses are recorded when the related obligation arises, regardless of the payment date.

A taxpayer whose gross income does not exceed one million (1,000,000) riyals during the previous accounting period may apply to the Authority to determine their taxable income on a cash basis. In this case, income is calculated upon receipt or when it is ready for receipt, and expenses are calculated upon payment. The Authority must respond to the request within sixty (60) days. Failure to respond within this period is considered an implicit rejection. If the gross income exceeds this amount, the taxpayer must adopt accrual accounting.

Annual gross income from long-term contracts is determined using the completed work method according to the accrual principle. Long-term contracts are those executed by the taxpayer for others based on a specified value and exceed eighteen (18) months.

Subject to the exemptions specified in the Law, capital gains from the disposal of shares or stakes in resident companies in the state as part of a company merger or total division process are included in the taxable income of the merged company or the company subject to division for the tax year in which the merger or division took place, as applicable.