What is Deferred Tax Liability?
A deferred tax liability under IAS 12 is the amount of income tax payable in future periods in respect of taxable temporary differences. It arises when accounting income exceeds taxable income because of timing differences.
How It Works
- Identify all taxable temporary differences from the balance sheet.
- Apply the enacted (or substantively enacted) tax rate expected in the period of reversal.
- Recognise the resulting deferred tax liability without discounting.
- Update the liability as temporary differences change and as tax rates change.
- Disclose the liability composition and reconciliation in the notes.
Saudi Context
Saudi entities with corporate income tax exposure — mostly foreign-shareholder portions — recognise deferred tax liabilities under SOCPA-adopted IAS 12. The standard 20% corporate income tax rate is the typical rate used.
Example
Accelerated tax depreciation on equipment creates a taxable temporary difference of SAR 1M. At a 20% tax rate, the company recognises a SAR 200K deferred tax liability on the balance sheet.