c. The asset is used by the business activity and contributes to the making or    maintaining of income.
d. The asset is of depreciable nature as a result of use, wear and tear.
e. Depreciation should be in accordance with the rules set in Article 17, depreciation, of Income Tax Law and with the following groups and rates:

Repair Expenses:
Repair or improvement expenses of depreciable assets are allowed deduction provided such an expense does not exceed 4 percent of the balance of the group value where the asset(s) fall(s). Excess amount of such an expense will be added to the balance of the group.

- Royalties
Royalties paid or accrued are an acceptable business deduction.

- Insurance premiums
Insurance premiums are deductible.

- Charitable Contributions
Charitable contributions are deductible provided the following conditions are met:
   - Recipients are licensed public or philanthropic organizations in the Kingdom.
   - Recipients are non-profit organizations.
   - Recipients’ Articles of Association allow receiving such contributions.

- Bad Debts
Bad debts are deductible provided the following conditions are met:   

 - The deduction is connected with goods or services that have been sold where

    income from such sale was previously included in income subject to tax of the

    year when accrued.
   - It is not a debt on a related party.
   - Serious efforts have been exerted by the taxpayer to collect the debt with no

      success, and a proof of un-collectible status.
   - A decision was made by the taxpayer’s Board of Directors approving the write

      off of the debt confirmed by deleting it from the taxpayer’s records. Providing

      a certificate by the taxpayer’s chartered accountant certifying the writing off of

      the debt from the taxpayer’s books and records.
   - Undertaking by the taxpayer to reinstate as income any written off debts if

     ever collected in the year of collection.

- End of Service awards
Actual payments of end-of-service benefits according to the Kingdom’s labor regulations are allowed as a business deduction; provisions are not allowed.

- Other Expenses
Payments for services provided from outside Saudi Arabia but which are directly attributable to the operations within the Kingdom (e.g., rental of equipment employed, royalties, management fees, and insurance premiums) are deductible. Recipients of such payments are subject to withholding tax provisions.

- School Fees
School fees paid by taxpayers to their employees’ children are deductible expenses provided that they are paid to local schools and are provided for in the employment contracts.

- Loss Carry-Forward
Operational losses incurred in past years may be carried forward to up-coming years until fully recovered under the following:
   - Operational loss is allowed deductions in excess of taxable income during the 

      year.
   - The profit that may be used to offset carried over loss should not exceed

      25 percent of the year profit per the taxpayer’s return.   

   -  Loss carry forward provision may be used only by taxpayers who keep legal

      accounts and who are subject to tax.
   - Loss carry forward provision may be applied only after the expiry of a tax 

      holiday. No loss incurred during a tax holiday is allowed to be carried

      forward.
   - Loss carry forward provision is applicable to financial years ending after

      5/1/1421 H ( April 10, 2000) which is the issuance date of the resolution that

      stipulated the loss carry forward provision.
   - Where there has been a change of 50 percent or more in the underlying 

     ownership or control of a capital company, no deduction is allowed for pre- 

     change loss carry-forward in taxable years following the change.