Zakat is a pillar of Islam and a simultaneous religious and legal obligation for Saudi companies and businesses owned by Saudi citizens. The Zakat, Tax and Customs Authority (ZATCA) oversees the collection of Zakat from companies in accordance with Islamic Sharia provisions and specific accounting mechanisms. Preparing Zakat returns accurately and complying with requirements necessitates specialized expertise that combines Islamic jurisprudence with legal accounting knowledge.
1. Who is Obliged to Pay Zakat Among Companies?
Zakat is mandatory for:
- Fully Saudi Companies: Companies 100% owned by Saudi nationals.
- Mixed Companies: Zakat is calculated only on the share of Saudi partners' profits and wealth.
- Saudi Individual Partners: In Limited Liability Companies (LLC) and General Partnerships.
Note:
Foreign companies fully owned by non-Saudis are not subject to Zakat, but rather to Income Tax at a rate of 20%.
2. How is Corporate Zakat Calculated?
A. Zakat Rate
The Sharia-mandated rate for Zakat is 2.5% of the Zakat base (equivalent to one-fortieth).
B. Methods for Calculating the Zakat Base
ZATCA adopts one of the following two methods:
- The First Method: Net Assets Method
The Zakat base is calculated through: Equity + Long-term Liabilities - Fixed Assets - Long-term Investments. - The Second Method: Adjusted Net Income Method
Calculated based on accounting net income with specific standard adjustments made by ZATCA.
C. Sharia Quorum (Nisab)
The Zakat base must reach the Sharia Nisab (equivalent to approximately the value of 85 grams of gold) and one lunar year must pass for Zakat to be mandatory.
SSH Tip:
Choosing the appropriate method to calculate the Zakat base can significantly impact the amount due. The SSH team assists you in selecting the optimal method according to your company's specific circumstances.
3. Deadlines and Procedures for Filing Zakat Returns
A. Official Deadlines
- Filing Deadline: Within 120 days from the end of the company's fiscal year.
- Payment Deadline: On the same date the return is submitted.
- Extension: An additional 60-day extension can be requested in documented cases.
B. Submission Method
The Zakat return is submitted electronically via the ZATCA portal (zatca.gov.sa) after logging in and selecting "Zakat Return."
Warning:
Delay in submitting the Zakat return exposes your company to a late filing penalty of up to 25% of the Zakat due.
4. Common Challenges in Zakat Calculation
- A. Complexity of Corporate Structures: Companies with complex structures (holding companies, subsidiaries, joint ventures) face challenges in determining Zakat-liable shares accurately.
- B. Distinguishing Between Recognized and Unrecognized Expenses: ZATCA does not recognize all accounting expenses as deductions from the Zakat base, creating discrepancies between accounting profit and the Zakat base.
- C. Disputes with ZATCA: In cases of dispute with ZATCA regarding Zakat assessments, there are formal appeal procedures requiring specialized legal and accounting expertise.
5. Zakat Services Provided by SSH
- Initial Zakat Consultation: Determining your company's Zakat liability and estimating the expected amount.
- Zakat Return Preparation: Calculating the Zakat base and submitting the return accurately and on time.
- Settlement with ZATCA: Following up on assessment procedures and responding to inquiries.
- Zakat Dispute Management: Representing the company in cases of appeal against Zakat assessments.
- Zakat Planning: Developing legitimate accounting strategies to optimize the Zakat position.
SSH Tip:
Advance Zakat planning at the beginning of the fiscal year enables you to know your expected Zakat obligations and prepare for them financially.
6. Difference Between Zakat and Income Tax in Saudi Arabia
- Zakat: Applies to Saudi shares in companies, at a rate of 2.5% of the Zakat base.
- Income Tax: Applies to the profits of foreign shares in companies, at a rate of 20%.
- Mixed Companies: Subject to both based on the ownership percentage of each party.
7. Religious and Legal Benefits of Paying Zakat
In addition to fulfilling a religious duty, paying Zakat correctly:
- Enhances the company's legal standing before regulatory bodies.
- Improves the company's reputation as a socially responsible entity.
- Opens doors for government facilities and partnerships with official entities.
- Enables obtaining certificates of compliance necessary for some government contracts.
To obtain specialized Zakat services and ensure full compliance with ZATCA requirements in a timely manner, contact the SSH Strategic team. Contact us now for a free consultation.