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What is the zakat base?
Zakat vessel, in English, is a term used in Islam to refer to the vessel or fund in which the money and financial resources allocated for zakat are collected and accumulated.
Zakat base calculation form
You need to follow specific procedures to calculate your Zakat pot accurately.
Here is a simple model for calculating the zakat base:
- Asset Account:
- Value of cash: This includes your cash in the bank and cash at home.
- Investments: The value of stocks, bonds, and other investments you own.
- Real estate: The value of the properties you own, whether for investment or residence.
- Gold and Silver: The value of the gold and silver you own.
- Liabilities account:
- A – Debts: Any amounts you owe to others.
- B – Other financial obligations.
- Zakat base calculation:
Zakat base = (assets – liabilities)
- Calculating the zakat percentage:
The zakat percentage depends on the type of assets and usually amounts to 2.5% of the zakat base.
- Calculating the amount of zakat:
Zakat amount = (Zakat base x Zakat percentage)
After calculating the amount of zakat, you must pay this amount to charities or recognized institutions to ensure that zakat reaches the needy and poor in accordance with the provisions of zakat in Islam.
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Yemeni zakat base calculation model
There are specific laws and regulations for calculating zakat in Yemen, and these regulations may differ from one country to another according to Islamic law and local laws.
Therefore, you should always check the current laws and regulations in Yemen and consult with local zakat officials or competent religious scholars.
The model above represents a general model of the zakat base, whether in Yemen, Saudi Arabia, Egypt, or other Arab countries.
You should always review local regulations and consult with local zakat officials to ensure compliance with the applicable laws and regulations of the desired Arab country.
How is the zakat base calculated?
The zakat base is the amount that Muslim individuals must allocate annually for zakat, which is a certain percentage of the monetary wealth and financial assets that a person owns.
The zakat percentage depends on the type of assets and money the individual owns and is calculated based on Islamic Sharia rules and provisions.
Here is how the zakat base is generally calculated:
- Zakat assets account:
- Money and currencies: This includes your cash in the bank and foreign currencies that you own.
- Gold and silver: The price of your gold and silver is calculated and added to your zakat assets.
- Investments: Zakat is calculated on profits and financial investments you own, such as stocks and bonds.
- Debt Calculation:
If you have outstanding debts, they are deducted from your zakat assets. These debts must be repayable and not used for other investments.
- Calculate necessary expenses:
Basic and necessary life expenses can be deducted from zakat assets, such as rent, food and clothing costs.
- Calculating the net zakat base:
After calculating the zakat assets and deducting the debts and necessary expenses, you will get the net zakat base.
- Calculating the zakat percentage:
The zakat percentage varies depending on the type of assets. For example, zakat on cash and profitable investments is 2.5% (1/40) of net worth.
- Calculating zakat:
The Zakat amount is calculated by multiplying the percentage (Zakat percentage) by the net Zakat base.
- Sadaqat al-Fitr is another type of zakat and is usually paid towards the end of the holy month of Ramadan. This charity is paid based on a specified quorum and its value varies depending on the region and local traditions.
Zakat base for companies
Calculating the zakat base for companies depends on the type of company and the type of assets and profits it owns. Zakat is applied to the funds and assets owned by the company after fulfilling the conditions and Sharia rules.
Calculating the zakat base for companies
Here are general steps for calculating the zakat base for companies:
- Zakat assets account:
The value of the zakat assets owned by the company must be calculated. These assets include cash, investments, real estate, and any other assets owned by the company.
- Debt Calculation:
Debts due for payment can be deducted from zakat assets. These debts must be repayable and related to the company’s business.
- The profit and loss account:
The company’s net profits and losses from its trading and investment activities must be calculated.
- Zakat calculation:
The percentage of zakat on corporate funds varies according to the type of assets and profits. In many cases, the percentage of zakat on corporate funds is 2.5% of the net worth after deducting debts and necessary expenses.
- Paying zakat:
After calculating the zakat due, the company must pay this amount to the competent authorities or distribute it to the poor and needy in accordance with Sharia principles.
Estimated zakat base
The estimated zakat base is an estimated amount used to estimate the amount of zakat due on assets, which may be difficult to estimate with absolute accuracy.
This estimated base is used if there is not enough information to accurately calculate zakat on zakat assets.
For example, if you have a complex business that includes various assets such as:
- Stocks
- And investments
- And fixed assets
And you do not have accurate information about the value of each of them at the present time, you can use the estimated zakat base based on your estimates.
- General steps for using the estimated zakat base include:
- Determine the zakat percentage: Based on local or international Sharia laws and regulations, determine the required zakat percentage. In most cases, the zakat rate is 2.5% of net worth.
- Estimating values: Estimate the value of the zakat assets you own to an extent that is closest to reality. You can search for general information about similar assets or refer to reported financial estimates if available.
- Calculating the estimated base: Multiply the zakat percentage by the estimated value of the assets to obtain the estimated zakat base.
It is important to note: The use of the discretionary zakat base should be exceptional and only be done if it is necessary due to the lack of accurate information.
Individuals and companies should always strive to verify the true values of their assets and fully comply with applicable Sharia and tax provisions and regulations.
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
Zakat base items
The items of the zakat base vary depending on the type of assets and wealth owned by the person or company.
Here is a general list of items in the zakat base:
- Money and Currencies: Includes cash in the bank, paper currencies, and coins.
- Gold and Silver: The price of your gold and silver is calculated.
- Investments and stocks: includes stocks, bonds, and any other investments in companies or real estate.
- Land and real estate: The current value of the lands and real estate you own is calculated.
- Financial derivatives: include futures, options and commodity derivatives.
- Money stored in current accounts: The money you hold is held in bank accounts.
- Debts due for payment: The debts that you must pay are deducted from the zakat assets.
- Personal property: includes cars, jewelry, and other valuables.
- Annual profits and profits: Annual profits and profits are calculated from trading and investment activities.
- Amounts due for collection: These include amounts that you are due to collect in the future.
- Other Assets: Includes any other assets you own that are considered subject to zakat.
Components of the zakat base
Components of the zakat base include:
- Assets and property that are counted and included in the Zakat calculation.
What is the difference between the zakat base and the tax base?
Here is a table showing the difference between the zakat base and the tax base:
| Section | Zakat base | Tax base |
|---|---|---|
| the purpose | Religious – related to zakat and charity | Financial – relating to taxes and revenues |
| Type | Fixed – Calculated based on existing wealth | Variable – depends on revenues and expenses |
| the law | Religious law – based on Islamic law | Financial law – based on tax laws |
| the goal | Achieving social justice and helping the poor | Financing government activities and public services |
| The ratio | Fixed – usually 2.5% of zakat wealth | Variable – depends on applicable taxes and tax bracket |
| Exemptions | Varies according to Islamic law and countries | Varies depending on tax laws and tax considerations |
| Additional directions | Muslims obligated to pay zakat must pay it | Individuals and businesses can use tax minimization strategies to reduce tax liability |
| Disposal of funds | Zakat is distributed to the poor, needy and charitable projects | It is used to finance government expenditures and public services |
| Estimation and calculation | It requires carefully and accurately valuing assets to calculate zakat | Requires accurate estimation and disclosure of income and expenses to account for taxes |
| Universal application | Medium – applied in Muslim majority countries | Universal – applied in most countries in the world |
Zakat base PDF
To download the zakat bowl in PDF format, you can do so through the following link: Press here
The most important frequently asked questions about additions to the Zakat base
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Additions to the zakat base
- If machines are purchased on credit from a supplier, is the supplier’s balance added to the zakat base at the end of the year? Note that the balance will be paid within a period of less than (354) days?
Machinery is one of the items deducted from the zakat base, and based on the regulations, the supplier’s entire balance is added to the zakat base because it financed an item of the deductibles.
- If an enterprise obtains a new loan in exchange for paying other obligations, is the loan amount added to the pool?
Based on the executive regulations, obtaining a new loan in exchange for paying other existing obligations is considered part of replacing the obligations with other obligations or sources of financing.
It finances what these obligations were financing, and thus the loan balance is added to the pool in accordance with the provisions of Paragraph (3) of Article Four of the regulations.
Taking into account Paragraph (10) of the same article, if this loan is financed, a deduction from the zakat base.
- A taxpayer announced the distribution of dividends before the end of the zakat year without paying them to the partners, and they remained with the company until the end of the year.
How is the item of profits under distribution treated in this case, which are usually recorded in current liabilities after deducting them from the balance of remaining profits in the statement of equity?
This item is added to the zakat base as an item of property rights – that is, it is returned to its origin as part of the remaining profits at the beginning of the year to be zakat –
Unless it is proven that these profits under distribution are deposited in a separate account that prevents them from being disposed of and the partners have not yet come forward to receive them,
in accordance with Paragraph (8) of Article Four of the Executive Regulations for Zakat Collection.
- What is the zakat treatment of changes in fair value recognized in the financial statements as a result of reevaluating some financial statement items?
In accordance with accounting standards in force in the Kingdom, changes in fair value may be recognized either in the income statement or within equity.
Accordingly, the zakat treatment in this case is as follows:
- If changes in fair value are recognized in the income statement, the result of the activity is not modified, whether the change is negative or positive.
- If the change in fair value is recognized in equity, it is taken into account either by adding it to the base in the event of a positive change or deducting it in the event of a negative change.
2. Deductions from the zakat base
- How are spare parts held in inventory treated in order to carry out periodic maintenance on machinery and equipment owned by the company and other fixed assets owned by the company?
According to the regulations, spare parts kept for purposes other than trading or selling are included in the deductions from the Zakat base,
and the corresponding obligations that financed the deductible spare parts are added, if any.
- In some cases, the taxpayer may contract with suppliers to purchase fixed assets by making advance payments before receiving the asset from the supplier. How are these payments processed?
In accordance with paragraph (1/b) of Article Five of the executive regulations for collecting zakat, the taxpayer may deduct the balance of payments made to suppliers from the zakat base.
If it is proven that these payments are advance payments on account of the purchase of fixed assets not intended for sale, they will be used in the activity subject to zakat.
- A taxpayer has real estate investments, which are buildings rented to others. The taxpayer evaluates
these investments at fair value in accordance with the requirements of accounting standards in force in the Kingdom.
What is the mechanism for deducting these investments?
Real estate investments evaluated at fair value are deducted from the zakat base at the end of the period if the intention is to retain the proceeds to obtain their proceeds.
- Is it permissible to deduct the statutory deposit for insurance and reinsurance companies?
Yes, it may be deducted in accordance with Paragraph (10) of Article Five of the regulations, provided that the taxpayer retains proof of the value of the statutory deposit as a certificate of authentication from the Central Bank.
- What types of investments qualify as a deduction award from the Zakat base for taxpayers who hold regular accounts?
According to the provisions of the regulations, eligible investments are those represented in owning shares in local or foreign companies in accordance with the controls mentioned in the fourth and fifth paragraphs of Article Four.
These investments may take one of the following forms:
- Investments in subsidiaries: These are companies controlled by other companies.
- Investments in associated companies: These are those companies in which the investing company has an important influence on the investee company, that is, the ability to participate in the company’s financial and operational policy decisions.
- Joint venture investment: shared control with another party over the investee company.
- Investments in equity instruments at fair value through profit or loss or other comprehensive income: These are investments that the investee company owns in other listed or unlisted companies and the investing company does not exercise any form of significant influence or control.
- Does the change in investment classification have consequences or impact on the extent to which the investment is permissible to be deducted from the zakat base?
The decisive factor in evaluating the permissibility of the deduction is that it be in equity instruments or shares in companies, in addition to the fact that these investments are kept for a purpose other than trading.
Therefore, the change in classification in itself may not affect the purpose of keeping these investments.
Example: A company may own 25% of another company classified as an associate company as a result of exercising significant influence over it.
Such investments are essentially non-trading. However, the investing company may lose this important influence, which may require…
Recognize them as investments at fair value, while keeping the intention to hold for non-trading the same. Therefore,
the change in accounting classification does not affect the zakat treatment, assuming other factors remain constant.
- What are the indicators that may indicate that the investment is held for the purpose of trading that could affect its permissibility to be deducted from the zakat base?
Among the indicators that may indicate that the taxpayer maintains investments in financial instruments for the purpose of trading are the following:
- The company purchases these assets and holds them for a short period of time, usually less than a year.
- Within this time frame, the investing company’s expectation is to see the value of the investments rise and sell them for a profit.
- The concept of trading coincides with other financial or business terms such as speculation, which means buying and selling securities or investments with the aim of making a profit within a short period.
- Such portfolios or investments are usually subject to frequent fluctuations during the year, requiring additional purchases or sales.
- Such types of investments are classified as current assets in the financial statements according to the company’s method of managing its financial assets, or what is called the company’s business model, which documents management’s intention to retain investments.
- One of the resident companies follows the cost method to account for its investments in subsidiaries
and associates that it controls. How are these investments deducted from the Zakat base?
After verifying the deduction controls mentioned in the regulations, the taxpayer deducts the value of the investment recognized at cost without modifying
the result of the activity through distributions (if any) recognized in the statement of profits or losses.
- How are investments in investment funds established within the Kingdom treated?
In accordance with the rules for collecting zakat from investors in investment funds issued pursuant to Ministerial Resolution No. (29791) dated 9 Jumada al-Awwal 1444 AH,
The taxpayer has the right to deduct his investments in these investment funds if the purpose of keeping these investments is for purposes other than trading and that:
- The taxpayer calculates his share in the zakat base of the investment fund and pays it to the Authority.
- He shall disclose the mechanism for calculating his share in the above pool within the clarifications to the taxpayer’s financial statements or according to the certificate of a licensed public accountant in the Kingdom.
- Is the investment fund obligated to calculate and pay the zakat due?
No, according to the decision and rules, investment funds, including investment funds that take the form of a special purpose entity licensed by the Capital Market Authority, are not subject to the collection of zakat.
Rather, zakat is collected from the taxpayers subject to the rules from unit owners in the investment funds.
- If a company owns 100% of the units of an investment fund and chooses to submit a unified zakat declaration, is it necessary to submit an information declaration for the fund as well?
In the event that a consolidated zakat declaration is submitted by the taxpayer, the Fund is obligated to submit an information declaration for the purpose of information and data within (120) days from the end of the Fund’s fiscal year,
regardless of whether consolidation has occurred for the purposes of Zakat or not.
- How is the zakat on the fund’s investments accounted for by the taxpayer if the fund’s fiscal year differs from the unit owner’s fiscal year?
In accordance with Paragraph (4) of Article Four of the Rules, the taxpayer, the owner of the investment unit,
must rely on the latest audited financial statements of the Fund and the details of the zakat base calculation based on them in accordance with the information declaration submitted in light of the aforementioned financial statements.
- Does the Fund have any other regulatory requirements under the relevant provisions regarding the provisions of the income
tax system or the transaction pricing instructions currently in effect in the Kingdom?
Unless the decision or rules stipulate otherwise, the same applies to the Fund as applies to the rest of the taxpayers with regard to any other legal requirements stated in the aforementioned regulations.
- Is the taxpayer, the unit owner, required to calculate the zakat on his investments in the funds according to a disclosure in the financial statements or according to the certificate of a chartered accountant?
The rules gave the taxpayer the option, in this case, to calculate the zakat on his investments in funds in one of the two ways mentioned above.
- Are taxpayers who own units in foreign funds established outside the Kingdom subject to the rules?
The rules apply to investment funds registered under the rules and regulations of the Capital Market Authority in the Kingdom. Accordingly, taxpayers who own units in foreign funds established outside the Kingdom are not subject to these rules.
However, such investments are dealt with in the books of taxpayers dealing with foreign investments in accordance with the provisions of Paragraph (5) of Article Five in the regulations.
- How identical are the rules for those individuals – natural persons – investing in investment fund units?
It is noteworthy that the decision and rules apply to the taxpayers mentioned in Article Two of the regulations, including:
Saudi natural persons and those treated as citizens of Gulf Cooperation Council countries.
- Are the debts of the taxpayer that are classified as long-term, such as long-term notes receivable, permissible to be deducted from the zakat base?
Notes receivable are considered debts of the taxpayer, and they are zakat assets that are not deductible from the base.
Related articles:
_ Conditions for the obligation of zakat 9. Learn about them
_Zakat calculation in Saudi Arabia 1444 AH
_ Common zakat questions in Saudi Arabia for the year 2023 AD
Conclusion:
Ultimately, our office’s primary role as a certified financial office in the Kingdom (CFOONLINE) is to support businesses and individuals in achieving their financial goals with confidence and transparency.
We are committed to providing our services with the highest level of professionalism and quality,
as we work side by side with our clients to help them make the right decisions and succeed in the ever-changing business environment.
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