Launching a venture in the Kingdom? Here’s a Saudi corporate taxpayer guide to classifying start-up costs, choosing between full expense vs. amortisation, managing VAT at 15%, and aligning with ZATCA from day one. Packed with SEO-friendly keywords for visibility: Saudi corporate income tax (CIT), Zakat, VAT input recovery, pre-operating costs, reverse charge, e-invoicing, withholding tax (WHT), loss carryforward, and documentation.
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Start-Up Expenditures: What They Are (Saudi Lens)
Start-up or pre-operating expenditures are costs incurred to bring the business to the point it is ready to trade in Saudi Arabia. Typical buckets:
- Formation & licensing: legal fees, CR, SAGIA/MISA, municipal, sectoral permits.
- Market entry: feasibility studies, strategy/market research, branding, pre-launch marketing.
- Set-up & systems: ERP/IT implementation, software subscriptions, cybersecurity, office fit-out.
- People costs: recruitment, onboarding, training, relocation packages.
- Professional services: tax/TP advisory, audit readiness, e-invoicing integration.
- Capital items: machinery, leasehold improvements, vehicles, servers (usually capitalised and depreciated).
Deductibility Rules: Full Expense vs. Amortisation
Saudi practice distinguishes between revenue-nature start-up costs and capital-nature investments:
- Revenue-nature start-up costs that are wholly and exclusively for the business can generally be deducted in computing taxable income. In many cases, taxpayers may opt to expense in the first year of operations or amortise systematically over a reasonable period consistent with benefits.
- Capital-nature items (property, plant & equipment; certain intangible assets such as licences or software) are typically capitalised and recovered via tax depreciation/amortisation under applicable schedules.
- Mixed-ownership entities should split the deduction between CIT (foreign portion) and Zakat (Saudi/GCC portion) using clear ownership records.
Practical tip: Document your accounting policy (expense vs. amortise), apply it consistently, and maintain a start-up register (date, nature, vendor, rationale, tax treatment).
Quick Classification Matrix (Saudi Corporate Tax)
| Cost Type | Typical Treatment | Saudi Notes |
|---|---|---|
| Legal & licensing fees | Expense or amortise | If linked to ongoing operations, deduction generally supportable; keep approvals/permits. |
| Feasibility & market studies | Expense or amortise | Show business nexus and use; avoid personal/project selection costs not tied to the KSA entity. |
| Recruitment & training | Expense | Payroll/HR documentation; align with Saudization and GOSI records. |
| Branding & pre-launch marketing | Expense | Avoid capitalising unless creating separable intangible. |
| Software licences & ERP | Capitalize & amortise (often) | Implementation fees may be split: configuration (capex) vs. training (opex). |
| Leasehold improvements & equipment | Capitalize & depreciate | Follow tax depreciation schedules; retain contracts, BOQs, handover reports. |
VAT at 15%: Pre-Registration & Post-Registration Recovery
- Pre-registration input VAT: Certain VAT on goods/services acquired before registration can be recovered after registration if used to make taxable supplies and statutory conditions are met (e.g., invoices in the start-up’s name, goods/services still on hand or benefited the business).
- Post-registration input VAT: Recoverable when costs relate to taxable activities; maintain valid tax invoices and e-invoicing compliance.
- Blocked input VAT: Entertainment, employee personal perks, and certain passenger vehicles are typically non-recoverable.
- Imported services (RCM): Reverse charge VAT due by the Saudi recipient; claim as input VAT if eligible.
Ensure FATOORA e-invoicing readiness early (master data, QR/IRN, integration) to avoid mismatches with VAT returns.
CIT vs. Zakat: Start-Ups with Mixed Ownership
In Saudi Arabia, foreign ownership is generally subject to CIT (20%), while the Saudi/GCC share is subject to Zakat. For mixed-ownership start-ups:
- Ring-fence start-up expenses in the GL and allocate between CIT and Zakat shareholders.
- Track losses and basis by segment; maintain shareholder registers and cap tables.
- Consider incentives (e.g., regional projects) that may affect the effective rate; keep eligibility files.
Loss Carryforward & Interest/TP Interactions
- Operational losses from deductible start-up costs may be carried forward subject to statutory limitations; maintain continuity and support schedules.
- Transfer pricing (TP): Intercompany services/royalties during build-up require benefit tests, agreements, and benchmarking.
- Interest deductions: Ensure any financing used for set-up passes thin-capitalisation/interest-limitation style tests where applicable.
Documentation That ZATCA Likes to See
- Start-up register with vendor contracts, invoices, payment proofs, and business purpose.
- Accounting policy memo (expense vs. amortise) + consistency evidence.
- Fixed asset register, depreciation/amortisation schedules, handover/acceptance reports.
- VAT pack: valid tax invoices, pre-registration recovery analysis, RCM workings, e-invoicing exports.
- TP support for related-party services, SoWs, timesheets, and pricing.
- Board minutes approving budgets, capitalization thresholds, and go-live date.
Illustrative Examples
| Scenario | CIT/Zakat Treatment | VAT Result | Notes |
|---|---|---|---|
| Legal & government fees to obtain licences | Expense or amortise (policy) | Input VAT recoverable if taxable activity (check invoice validity) | Keep approvals/receipts; align to business start date. |
| ERP licence + implementation | Capitalize licence; expense some training | Input VAT recoverable (business use) | Split costs: licence/config (capex) vs. training (opex). |
| Recruitment agency fees for key hires | Expense | Input VAT recoverable | Link to job offers and onboarding docs. |
| Imported advisory services (non-resident) | Expense or amortise (if enduring) | RCM: self-assess 15% VAT; claim input if eligible | Contracts, SoWs, deliverables, and RCM workings. |
Month-Zero Control Pack for Founders & CFOs
- Define capitalization threshold (e.g., amounts above SAR X become fixed assets).
- Decide expense vs. amortise policy; configure ERP accounts and tax mapping.
- Enable e-invoicing and VAT from first taxable transaction; collect valid tax invoices.
- Create a start-up cost GL, attach evidence, and reconcile monthly.
- If mixed ownership, build an allocation model for CIT vs. Zakat with audit trail.
Key Saudi Deadlines & Filings (High-Level)
- VAT: Monthly or quarterly returns depending on turnover; payment via SADAD.
- CIT/Zakat: Annual return—commonly due within about 120 days after fiscal year end (check your licence/return for exact date).
- WHT: Monthly returns for payments to non-residents; due by the 10th of the following month.
- Record retention: Keep tax, accounting, and e-invoicing records for at least 10 years.
FAQ: Saudi Start-Up Tax Treatment
Can I deduct start-up costs if the company hasn’t generated revenue yet?
Typically yes if costs are wholly and exclusively for the business and relate to preparing to trade; maintain evidence and a go-live date.
Is amortisation mandatory?
Not always. Many revenue-nature pre-operating costs may be expensed; capital items are capitalised and recovered over time.
How do start-up losses work?
Losses may be carried forward subject to Saudi rules; track basis, ownership changes, and ring-fencing.
