What is Deferred Tax Asset?
A deferred tax asset (DTA) is the amount of income tax recoverable in future periods because of deductible temporary differences, the carry-forward of unused tax losses, or unused tax credits. It is recognised only to the extent that future taxable profits will probably be available to use it.
How It Works
- Identify deductible temporary differences (carrying amount of an asset lower than its tax base, or liability higher than its tax base) and any tax losses carried forward.
- Multiply the differences by the enacted tax rate expected to apply when the asset reverses.
- Assess probability of future taxable profit to support recognition.
- Reassess each reporting date and write down any portion no longer recoverable.
Saudi Context
Saudi entities subject to corporate income tax (typically foreign or mixed-ownership companies) apply IAS 12 deferred tax. Pure-Saudi-owned companies pay zakat instead of corporate income tax, so deferred tax assets mainly relate to non-Saudi shareholder portions. ZATCA accepts IAS 12 treatment for the income tax portion.
Example
A foreign-owned subsidiary in Riyadh has SAR 2 million tax losses carried forward and expects to earn taxable profits in the next 3 years. At a 20% corporate income tax rate, it recognises a SAR 400,000 deferred tax asset.