Tax liabilities are assessed by the DZIT on the basis of the audited financial statements, as adjusted for tax purposes. In certain cases (for example, foreign airlines and foreign freight and land and sea transport companies operating in Saudi Arabia), tax may be assessed under the "presumptive basis." Under the presumptive basis, no financial statements are presented, and the tax liability is assessed on deemed revenues calculated at rates specified in the tax regulations.

Business expenses are deductible provided they meet the following general conditions: (a) reflect an actual expenditure and be supported by documentary proof; (b) related to taxable income; (c) related to the relevant tax year; and (d) are not of a capital expenditure nature.

Moreover, the law disallows or restricts the deduction of specified business expenses, including the following:

Interest on indebtedness is deductible provided the indebtedness is related to the production of taxable income. Moreover, qualifying interest is deductible only up to the lower of (a) interest paid; or (b) the sum of the taxpayer’s interest income as increased by 50% of A minus B, where A represents taxable income excluding interest income, and B represents deductible expenses excluding interest expenses. The restriction does not apply to banks.
Rents, royalties or interest paid by a permanent establishment to its head office are not deductible.
General and administrative expenses paid by a permanent establishment to its head office are not deductible if determined by reference to an estimative allocation key. In situations where expenses cannot be directly allocated, the tax administration may nevertheless permit an indirect allocation.
Commission paid on insurance premiums is not deductible if in excess of 3% of insurance premiums collected in Saudi Arabia through the agent or otherwise, regardless of whether or not the agent and the insurance company are related persons.
The value of goods imported from, or services supplied by related persons is not deductible to the extent in excess of the values that would have been contracted by independent parties.
Salaries and similar remunerations paid to owners, partners or participants and their family members (except for shareholders in capital companies) are not deductible;
Bribes and similar unlawful payments, including when paid abroad, are not deductible to the extent they constitute a criminal offence under Saudi law.
The income tax due in Saudi Arabia or elsewhere, including any related sanctions or penalties, is not deductible.
Sanctions and penalties due to any Saudi authority are not deductible. In contrast penalties due to contract breach, such as late or failed execution of contractual obligations, are deductible on condition that the penalty is documented and is added back to taxable income whenever recaptured.
Entertainment expenses.
From 1 January 2018, contributions made by a resident capital company to a retirement fund, a social insurance fund, or any other fund, established for the purpose of settling employees’ end-of-service benefits or for meeting staff medical expenses are deductible subject to fulfillment of certain conditions.

Capital gains are normally included in taxable income. However, gains on listed stock are exempt from tax if acquired after 2004. Also, with respect to companies involved in the exploitation and production of natural gas, the regulations provide that gains on the disposal of permits and licenses are taxable as ordinary capital gains at the standard profit tax rate (20%) rather than aggregated with taxable income assessed at the higher rate applicable to natural gaz activities.

Unless they maintain regular accounting records, Saudi branches of air, land and maritime transportation and freight companies are taxable on a presumptive basis equal to 5% of revenues derived in Saudi Arabia.

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