Common zakat questions in Saudi Arabia for the year 2023 AD

The article on Common zakat questions in Saudi Arabia for the year 2023 AD includes the most important and prominent frequently asked questions from the Zakat, Tax and Customs Authority.

This guide represents the Authority’s concept and interpretation regarding the application of the executive regulations for collecting zakat issued pursuant to Ministerial Resolution No. (2216) dated 7 Rajab 1440 AH.

We at CFOONLINE have prepared this guide in an easy, simple and concise manner, as our office is distinguished by providing various accounting and financial services with the best specialized accountants in the Kingdom.

Common zakat questions in Saudi Arabia for the year 2023 AD

Here is an article that brings together the most important zakat questions with answers in a brief manner, first with regard to the general concept of zakat:

• The general concept of zakat

1. How is the taxpayer held accountable if the first fiscal year is a short fiscal year or a long fiscal year?

According to Article (14) of the regulations issued by Ministerial Resolution No. (2216) dated 7 Rajab 1440 AH, it is:

“If the taxpayer’s fiscal year differs from the Hijri year, then zakat is calculated in days, by dividing (2.5%) by the number of days in the Hijri

year multiplied by the number of actual days of the taxpayer’s zakat year, except for the adjusted net profit, which is subject to a rate of (2.5%) for any financial period.” .

On this basis, zakat is calculated for the long or short Gregorian financial period at the beginning of the activity, when the financial year is modified, or when ownership of the individual establishment is transferred.

2. How is zakat calculated for the fiscal year if it differs from the Hijri year by (354) days?

Zakat is calculated for the fiscal year according to the following equation:

2.5% / number of days in the Hijri year * number of actual days for the assigned zakat year

This excludes the adjusted net profit, which is subject to zakat at a rate of (2.5%) for any financial period.

3. How is the taxpayer held accountable if his fiscal year is a Gregorian year that begins on January 1 and ends on December 31?

The calculation is done according to the following equation:

2.5% / number of days in the Hijri year * number of actual days for the assigned zakat year

This excludes the adjusted net profit, which is subject to a rate of (2.5%) for the same period.

4. When does the taxpayer’s fiscal year on which he is held accountable for collecting zakat begin?

According to Article (13) of the regulations, the taxpayer’s first zakat year begins from the date of issuing the commercial register, obtaining the first of the necessary licenses, or the date of depositing the capital,

whichever is earlier, unless the taxpayer specifies another date for the start of his activity based on documentary evidence accepted by the Authority.

5. Is it possible to pay zakat to one of the official charitable institutions located within the Kingdom, where the Authority is provided with supporting documents, and payment to that entity is sufficient?

Zakat cannot be paid to any party other than the Zakat, Tax and Customs Authority, as it is the authority entrusted with collecting zakat from establishments subject to it.

The Authority deposits the Zakat amounts in the account of the Central Bank of Saudi Arabia, which is owned by the Ministry of Social Security Affairs, to disburse it to those entitled to it.

6. If there are several establishments owned by the same partners or a holding company, and their affiliated establishments are owned by the same ownership percentages, directly

or indirectly (100%), is it permissible for those establishments to submit a unified zakat return?

Yes, according to Article 15, establishments owned by the same partners, the holding company and its subsidiary establishments owned by the same ownership percentages may submit a unified zakat declaration.

This is with the obligation of each of the subsidiaries to submit an annual declaration for the purpose of information within the statutory period stipulated in Article

(17) of the regulations and to obtain approval from the Authority in the event of submitting a unified declaration.

7. Must a company that owns several subsidiary facilities entirely outside the Kingdom include the results of those facilities’ operations in the parent company’s accounts?

The holding company and its wholly-owned subsidiary facilities, whether the subsidiary facilities are registered inside or outside the Kingdom,

and whether this ownership is direct or indirect, may submit consolidated accounts and a unified zakat declaration.

It is calculated on the basis of what its results show, with one zakat base, in accordance with what was stipulated in Article (15) of the regulations.

• Subject to the collection of zakat

As for the frequently asked questions for those subject to zakat collection, they were mentioned in our article Common Zakat Questions in Saudi Arabia for the year 2023 AD as follows:

1. Who are subject to the collection of zakat?

Article Two of the regulations mentions those subject to the collection of zakat from those who practice the activity, and it includes:

• Saudi natural persons residing in the Kingdom, and those treated as citizens of the Gulf Cooperation Council countries.
• Companies residing in the Kingdom for the shares of Saudi partners and those treated as citizens of the Gulf Cooperation Council countries,
• and everyone who practices the activity based on a license issued by a competent governmental or administrative authority in accordance with the controls set by the Authority.
• The shares of non-Saudi partners in companies residing in the Kingdom listed on the Saudi Stock Exchange from non-founders who replace them in accordance with the articles of incorporation or regulatory documents, and the shares of Saudi government bodies and institutions.
• The permanent establishment owned by non-resident Saudis and those who are treated as such if the conditions of the main management of the permanent establishment are identical as stipulated in the regulations.

2. What is the method used by the Authority to calculate Zakat for companies that maintain regular books and records?

The method used by the Authority to calculate zakat for companies that have regular accounts is the “funds sources method.”

It is the subjection of debts and the like in accordance with Paragraph (3) and Paragraph (10) of Article Four of the Executive Regulations to the collection of Zakat with the maximum deductions,

and the subjection of anything else in accordance with Article Four of the same regulations.

3. What activities are subject to zakat on trade goods?

According to Article Two of the Executive Regulations for Zakat Collection, every activity intended to earn money or work is subject to Zakat, including, but not limited to:

• Commercial activity in all its forms, including: trading in goods and services.
• Investment activity in all its forms, including: investment in securities, whether long-term or short-term, internal or external, as well as investment in goods, services and commercial contributions.
• Industrial activity in all its forms, including: factories, laboratories, and workshops.
• Service activity in all its forms, including: financial services, liberal professions, crafts, leasing, leasing, brokerage, and agencies.
• Financial activities in all their forms, including: banking activities, insurance activities, and financing activities.

4. When are companies wholly owned by the state subject to the collection of zakat in accordance with Ministerial Resolution No. (57732) issued on Dhul-Qi’dah 3, 1443 AH?

• Wholly state-owned companies are subject to zakat collection when the following controls are met:
• The company has a commercial register or a license issued by a competent authority.
• The company’s work must be one that can be assigned to the private sector.
• This is with specific exceptions as stated in Ministerial Resolution No. (577832) issued in this regard.

5. What are the exceptions to the fact that companies wholly state-owned are not subject to Zakat collection in accordance with Ministerial Resolution No. (57732)?

Companies wholly owned by the state are excluded from being subject to Zakat collection for the fiscal year in which any of the following controls are met:

1. All investments of the state-owned company must be outside the Kingdom.
2. The company’s budget must be funded from the state treasury, and the following conditions must be met:

• The nature of the company’s work must be service.
• The company’s purpose is to support government agencies in performing their work.
• Most of its clients are government agencies.
• The purpose should not be to achieve commercial profit.
• Its sales to the private sector should not exceed (10%) of total sales.

6. In the case of wholly state-owned companies that invest entirely outside the Kingdom, what are the types of investments mentioned and referred to in Ministerial Resolution No. (57732)

and the rules for the purposes of applying the exception contained in the decision?

For the purposes of applying the exception mentioned in the above decision.

It means any types of investments that may take the form of investments in the equity of other companies or investments in other financial instruments such as sukuk, bonds, investment fund units, and other forms and types of investment.

7. What is the mechanism for submitting a request not to be subject to zakat collection for wholly state-owned subsidiaries, and is it permissible to submit a unified request not to be subject to zakat collection?

Each subsidiary must submit a non-submission application independently to the Authority on an annual basis, as the Authority reviews applications annually and for each company separately.

8. To whom are the rules that the owned taxpayer is not subject to a moratorium on the collection of zakat applied in accordance with Ministerial Resolution No. (37981)

dated 9 Jumada al-Thani 1444 AH?

The rules apply to taxpayers subject to the regulations who own, directly or indirectly, one or more endowments, provided that the endowment is established in the Kingdom and documented by legal means.

In continuation of the above, the rules explicitly stated the conditions for not being subject to Zakat collection as follows:

• The endowment document must stipulate that all of the endowment’s expenditures are for public purposes, and that there is no expenditure on a specific person,

or there is a expenditure on a specific person on the condition that it does not exceed (10%) of the total revenues – the endowment’s yield – taking into account the following:

1. All that is spent on the donor, his descendants, or any specific person or person described in a description that deviates from the descriptions of general charity, or the entities associated with the endowment, shall be included in the account of the bank on a specific person.
2. All annual revenues of the endowment must be included in calculating the endowment’s yield, including asset returns, income and profits from investments and companies, donations, and the like.
3. The calculation of the percentage of the disbursement over a certain amount – in the event that more than one endowment is shared in the ownership of the taxpayer – must be in proportion and ratio between these endowments.
4. Proof of determining the percentage of disbursement to a specific person – if the endowment document stipulates disbursement to a specific person – must be through the audited financial reports of the endowment or a report from a licensed public accountant in the Kingdom.

9. If the Endowment fully owns more than one company, whether directly or indirectly,

is it permissible to submit a unified request not to be subject to zakat for all companies, or for the Endowment to act on behalf of these companies to submit a unified request not to be subject to zakat?

According to the rules, the company to which the rules of non-subjection to zakat collection apply must apply separately for non-subjection and it is not permissible to submit a unified application for all companies.

10. What are the fiscal years to which Ministerial Resolution No. (37981) issued on 9 Jumada al-Thani 1444 AH applies,

regarding the ownership of taxpayers not being subject to a moratorium on the collection of zakat?

This decision applies to fiscal years beginning on or after January 1, 2023 AD.

It may, upon the taxpayer’s request, be applied to the fiscal years to which the executive regulations for collecting zakat issued by Ministerial Resolution No. (2216)

dated 7 Rajab 1440 AH apply, and in which no final decision has been issued by the Authority to comply.

11. What are the entities and establishments that are subject to the provisions of the rules regarding non-subjection of associations, civil society institutions, and training units to the collection of zakat?

The following are subject to the provisions of these rules issued by Ministerial Resolution No. (61600) dated Shawwal 14, 1444 AH:

• Non-profit associations and institutions.
• Establishments wholly owned by non-profit associations and institutions.
• Training units established in accordance with the regulatory rules for establishing non-profit training units in the field of technical and vocational training.

12. What are the conditions for non-profit associations, civil society institutions, wholly owned establishments, and training units not to be subject to any of them?

Non-profit associations and institutions, establishments wholly owned directly or indirectly by any of them, and training units are not subject to the collection of Zakat, if the following conditions are met:

• Its revenues must be allocated to be spent on public charitable purposes or society, and not for specific persons.

This excludes private institutions if they have a specific expenditure that does not exceed (10%) of the net profit of the institution, taking into account the following:

1. The designated bank must be specified within the organization’s objectives in its bylaws, bylaws, or founding document.
2. All that is spent in a manner other than that of public charity or society should be included in the bank’s account on a certain basis.
3. All returns and gains from assets, investment income and profits, donations, gifts, and the like should be included in the organization’s revenues.
4. The calculation of the bank’s percentage over a specific entity – in the event that more than one institution participates in the ownership of the taxpayer – must be in proportion and proportionality between these institutions.
5. Proof of determining the bank’s ratio to a particular entity must be through the institution’s audited financial reports, or a report from a licensed public accountant in the Kingdom.

• It must be licensed by the competent authorities in the Kingdom.
• It must be documented by regular methods.
• It must have financial statements audited by a licensed public accountant in the Kingdom or documents accepted by the Authority.
• The training unit must have a final license – a non-profit training facility.

• Registration with the Authority

In our article, we now review the common zakat questions in Saudi Arabia for the year 2023 AD. The common questions about registration with the Authority:

1. How mandatory is registration with the Authority for Zakat purposes?

Every taxpayer subject to the provisions of the Executive Regulations for Zakat Collection must register with the Authority before the end of his first fiscal year.

2. When must the taxpayer register with the Authority?

The taxpayer is obligated to register during his first fiscal year, as the last date for registration is the last day of his first fiscal year.

3. Does the registration certificate have a validity period?

Yes, upon completion of the registration process and approval by the Authority, the system issues a registration certificate and issues a unique number to the taxpayer.

The certificate is valid from the date of its issuance until (120) days from the end of the first fiscal year.

4. What are the basic requirements for registration with the Authority for Zakat purposes?

The taxpayer must submit the following documents and information at a minimum:

• Commercial register or licenses.
• Articles of incorporation in the case of a taxpayer who has a legal personality.
• Fill in the activity details.
• The national identity or residence of the authority holder or the taxpayer’s authorized representative.
• Fill in the financial data details.
• Fill in the shareholders’ details.
• Fill out the details of the first financial year.

• Modifying the result of the activity

In our article, common zakat questions in Saudi Arabia for the year 2023 AD, we will review the most important questions about amending the activity result.

1. What expenses may be deducted from the zakat base?

Article 8 of the regulations stipulates that it is permissible to deduct all regular and necessary expenses necessary for the activity,

whether paid or accrued, up to the net result of the activity, provided that the following controls are met:

• It must be an actual expense supported by supporting documents or other evidence that enables the Authority to verify its authenticity, even if it relates to previous years.
• It must be related to the activity and not related to personal expenses or other activities.
• It should not be of a capital nature. If an expense of a capital nature is included among the expenses, it is adjusted as a result of the activity and added to the fixed assets and consumed according to the statutory rates.

2. Is it permissible for the establishment to deduct the employee’s share in regular retirement funds from the zakat base,

such as the retirement pension fund, social insurance, or savings and savings funds?

Paragraph (4) of Article Nine stated that the employee’s share in retirement funds and savings funds may not be deducted from the net accounting profit for purposes of zakat.

3. Is it permissible for an organization to deduct its bad debts from the Zakat base? What are the controls for that?

Paragraph (3) of Article Eight stated that bad debts may be deducted from net accounting profit for purposes of zakat, in accordance with the following conditions:

• It must have been previously declared as part of the establishment’s revenues in the year the revenues are due.
• The bad debts must be the result of the activity.
• The establishment must submit a certificate from the certified public accountant stating that these debts have been written off from the books by a decision of the authority holder.
• The debts should not be owed to parties related to the taxpayer.
• The entity’s obligation to declare obligations included in its income whenever they are collected.

4. Is it permissible for the owner of the establishment to deduct his salaries and allowances from the zakat base?

The salaries and allowances of the owner of the facility, whether it is an individual institution, a financial company, or a company of persons,

are considered, as well as the remuneration paid to the chairman of the board of directors of the partners in the facility, his deputy, and members of the board.

It is one of the expenses that may be deducted provided that the facility owner’s salaries and allowances are registered in Social Insurance, and the rewards are within the limits of what is paid to freelancers.

5. What is the minimum amount of evidence and documents to prove the permissibility of deducting the expense for zakat purposes?

The regulation did not mention an exclusive list of these documents.

However, the taxpayer is expected to keep the minimum of these documents, which are, but are not limited to: a contract, invoice, proof of payment and other documents that support incurring the expense for the purposes of the activity.

6. If there are differences in foreign purchases according to the customs report and the zakat declaration, what are the supporting documents that must be kept to prove the nature of these differences?

In these cases, the taxpayer must make the necessary adjustments supported by documents and evidence to prove the nature of these differences.

Therefore, the taxpayer must keep what was stated until the Authority examines the declaration to provide evidence of the nature of these differences if the Authority requests it.

The Authority has the right to evaluate the validity of the settlements and documents submitted when examining the declaration.

7. Are there any guidelines for depreciation of fixed assets for zakat purposes?

No, the regulations leave it up to the taxpayer to depreciate the fixed assets and record this depreciation expense in the books,

taking into account that the depreciation expense is within the reasonable and customary limit in the practical reality applicable in the market.

This is in addition to adhering to what is recorded as consumption expense in the taxpayer’s books for the purpose of disclosing it in the zakat return without any differences.

8. What is the zakat treatment of changes in the fair value of items in the statement of financial position recognized as part of the activity result?

In line with the provisions of Article (12) and Paragraph (6) of Article Six of the regulations.

Changes in the fair value are taken into account when calculating the zakat base, and therefore positive or negative changes in the fair value remain within the result of the taxpayer’s activity without modification.

9. If dividends are received from resident or non-resident companies, listed or unlisted, how are they treated for zakat purposes if they are recognized in the income statement – as a result of activity -?

In cases where the taxpayer receives dividends from his investments in other companies and is recognized in the income statement as part of the activity result, this does not require an adjustment to it.

These distributions are therefore subject to zakat as part of adjusted net income for zakat purposes.

Among the most important related articles:

_The executive regulations for collecting zakat, the most prominent 4 amendments

_Collection of Zakat Ministerial Resolution No. 58705

_ Types of zakat and its conditions 2023

_Conditions for the obligation of zakat 9. Learn about them

In conclusion of our article on Common zakat questions in Saudi Arabia for the year 2023 AD,

we have provided answers to the most common questions. For further inquiries, you can contact us at CFOONLINE and obtain financial services and free consultations.

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