Corporate taxpayers in Saudi Arabia benefit from the no-gain-no-loss exemption for eligible intra-group asset transfers, as regulated by the Zakat, Tax and Customs Authority (ZATCA). This tax relief provision allows certain group transactions to proceed without triggering immediate tax liabilities, provided strict conditions are met. This guide outlines the eligibility, conditions, and compliance requirements.
📌 Understanding the No-Gain-No-Loss Rule
The no-gain-no-loss exemption ensures that when assets are transferred between qualifying group companies, no immediate taxable gain or deductible loss is recognized. Instead, the transaction is considered neutral for tax purposes, with the asset’s base cost and holding period carried over to the receiving entity.
This provision supports corporate restructuring, mergers, and internal reorganizations without creating unnecessary tax burdens.
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✅ Eligibility Criteria for Intra-Group Exemption
- Common Ownership: The transferring and receiving companies must be part of the same group, with at least 75% direct or indirect ownership.
- Resident Entities: Both companies must be tax residents in Saudi Arabia or GCC countries with a tax treaty in force.
- Business Purpose: The transfer should be for a valid commercial reason, not solely for tax benefits.
- Non-Cash Settlement: Often, transfers are completed without cash consideration, using share swaps or internal adjustments.
- Asset Type: Applies to tangible, intangible, and certain financial assets used in the business.
📄 Documentation Requirements
To claim the no-gain-no-loss treatment, businesses should maintain:
- Corporate ownership structure charts proving group relationship.
- Board resolutions approving the asset transfer.
- Detailed asset valuation reports.
- Evidence of the asset’s original acquisition date and cost.
- Supporting contracts and legal agreements.
💡 Practical Example
Company A (wholly owned by ParentCo) transfers a production facility to Company B (also wholly owned by ParentCo). Since both companies meet the ownership and residency conditions, the transaction qualifies for no-gain-no-loss treatment. Company B records the asset at Company A’s original cost base, and no immediate corporate income tax is payable.
- Failing to maintain 75% ownership for the required post-transfer period.
- Not obtaining proper valuation reports for transferred assets.
- Using the exemption for transactions lacking genuine commercial purposes.
- Incorrectly applying the exemption to transactions involving unrelated third parties.
🔍 ZATCA Compliance and Post-Transfer Monitoring
ZATCA may audit intra-group transfers to ensure compliance with the exemption rules. Businesses should:
- Retain documentation for at least 10 years.
- Monitor ownership levels to avoid disqualification.
- Ensure consistent treatment in both parties’ tax filings.
🏁 Conclusion
The no-gain-no-loss exemption is a valuable tax relief for corporate groups in Saudi Arabia, allowing for efficient asset reorganizations. By meeting the ownership, residency, and documentation requirements, companies can avoid unnecessary tax liabilities while optimizing group structures.
