1Issue 2 | May 2026

3. Purchasing goods or products, or collecting information, for the non-resident only. 4. Carrying out other activities of a preparatory or auxiliary nature for the benefit of the non- resident. 5. Preparing contracts for signature relating to loans, supply of goods, or technical services. 6. Carrying out any combination of the activities referred to above. The Law further provides that a non-resident partner in a resident partnership shall be deemed to own a Permanent Establishment in the Kingdom in the form of an interest in the partnership. 3. Exempt Income from Income Tax in the Kingdom Under the Income Tax Law in the Kingdom, the income subject to tax is determined in accordance with the provisions of Article 8, Paragraph 1 of the Law. Tax exemption is one of the most significant advantages available to the taxpayer under the Income Tax Law in the Kingdom, in accordance with the exemptions set out in Article 10 of the Law and Article 7 of the Regulations. These exemptions are intended to encourage investment and trading in the Saudi financial market. Accordingly, income shall be exempt from Income Tax if it falls under any of the following categories: 1. Capital Gains Realized from the Disposal of Securities Capital gains mean gains realized as a result of the disposal of certain assets of the establishment, including assets or securities, or the disposal of ownership interests by the partners. However, the exemption under the Law applies only to capital gains realized from the disposal of securities traded on the financial market in the Kingdom, whether through sale, trading, or similar transactions, and is subject to a number of conditions. Capital gains shall be exempt provided that all of the following conditions are met: a. The gains are realized from the disposal of securities that are: y Traded on the Saudi financial market; or y Traded on a foreign financial market, provided that such securities are also traded on the Saudi financial market. b. The investments disposed of were not held prior to the effective date of the Income Tax Law and its Implementing Regulations(3), which entered into force on 13th Jumada Al- Akhirah 1425H/30th July 2004G(4). This exemption applies provided that the disposal is carried out in accordance with the Capital Market Law and its Implementing Regulations, where the security is traded in the Kingdom, or in a foreign financial market where the security is also traded on the Saudi financial market.t 2. Gains Resulting from the Disposal of Properties Other Than Business Assets Any gain realized from the disposal of any property owned by the taxpayer shall be exempt from Income Tax, provided that such property does not constitute part of the business assets used in carrying out the taxpayer’s activity. Where the disposed properties form part of the business assets that are, by their nature, essential for carrying out the taxpayer’s main activity, such gains shall not be exempt from tax. 3. Cash or In-Kind Distributions Due from Investments of a Resident Capital Company in Other Companies Companies may, upon realizing profits, distribute such profits to their shareholders pursuant to a resolution of the Board of Directors. Such distribution whether cash or in kind shall be exempt from Income Tax under the Law if they arise from the investment of a resident capital company(5) in other companies, whether resident or non-resident. (3) The effective date of the Law and its Implementing Regulations has been determined in accordance with Article 74 of the Regulations. (4) The Implementing Regulations added an additional condition for the applicability of the exemption, namely the date of the investment’s inception, in accordance with Article 7 of the Regulations. (5) The concept of residency is clarified in Section 2.3 of this Guideline.