Zakat General

It is one of the key pillars by which the Muslim community differs from others and a manifestation of the supremacy of Islamic law. The collection of zakat and its payment to the beneficiaries is one of the fundamental tasks of the state, as stipulated in the Basic Law in Article 21, which reads: (Zakat is collected and paid according to its payment channels).

ZATCA’s Tasks

The Zakat proceeds collected by ZATCA are received and deposited into the Social Security Account, which is responsible for disbursement to the poor and needy in accordance with Royal Decree No. 161/5/) dated AH corresponding to (May 28, 1963 AD), where the first paragraph states: "Zakat is collected in full from all joint-stock companies and others and individuals who are liable for zakat.". Then, in accordance with ministerial resolution no.

ZATCA’s Tasks

About this Manual

Zakat, Terms, and Calculation Methods

The “Regulations”

Collection of Zakat
Taxpayer
Taxpayer not subject to Zakat
Resident
Non-resident
The “Zakat Year/ZY”

The fiscal year of the taxpayer, whether Hijri or Gregorian, is short or long, at the beginning or end of the activity. In the founding agreement, it is stipulated that the first financial year begins from the date of issue of the trade register and ends on 31 December 2019.

Calculation of Elapse of One Year

Business activities

Provisions of obligations and their impact on Zakat

Zakat declaration
Assessment
Commercial Books

Unlike those that are not funded in a decision, they will not be added to the components of the pot. The purpose of the declaration and its submission is to indicate the amount of the zakat base for the business and to enable ZATCA to make the assessment according to the declaration data.

ZATCA's method for calculating the Zakat base

The estimated calculation method

When this is not achieved, ZATCA will determine a zakat basis for the taxpayer, according to the information available to him, with ZATCA's right to modify this basis in the event of the emergence of data or information that does not was known at the time the assessment is made. ZATCA uses the estimated method when the taxpayer does not meet the time limits for submitting the declaration or when there are problems related to the ZATCA's confidence in the validity of the data provided by the taxpayer, according to its records , in order to get as close as possible to its correct base.

Basis of Zakat Calculation

Economic Activity and Registration for Zakat Purposes

Registration for Zakat Purposes

Saudi Arabian individuals resident in KSA and .. those treated as citizens of the Gulf States. Make senior management decisions related to the management of the company's functions, such as: Decisions of the CEO and his deputies in the KSA.

Those Subject to Zakat

Concept of Residency
Application for Registration and Registration Effective Date
How to register
Registration Certificate
Registration for consolidated zakat declaration purposes
Determining the zakat base for the taxpayer who maintains commercial books

Zakat Base Items (Additions)

A copy of the partners ID (Saudi or Gulf ID of individuals, commercial register and unique number for Saudi companies, copy of the commercial register of the Gulf company). A copy of the partners ID (Saudi or Gulf ID of individuals, trade registration and unique number of Saudi companies and copy of the trade register of the Gulf company).

Reasons for the addition to the zakat base

Concepts related to Additions

ZATCA's method of calculating the zakat base is based on a list of all internal sources of funds and what financed deductible assets from external funds. Long-term liabilities (considering the maturity of the debt), such as: (Loans with a maturity of more than 354 days).

Items added to the zakat base

Items not added to the zakat base

Cases of adding capital to the zakat base

They are added to the balance at the beginning of the period, if the balance remains until the end of the year, and if the balance is disposed of during the year, such as cash distribution etc., the part that was disposed of must. not added to the base. If the reserves are transferred to an equity account, they must be added to the zakat base for the entire period within the equity. They are added to the zakat base in the opening balance minus the dividends paid during the zakat year.

Controls for adding the reserve to the zakat base

Dividends, the owners of which do not apply for receipt and are formed in separate bank accounts, are considered dividends paid to shareholders.

Controls for adding the retained earnings to the zakat base

Controls for adding the obligations of the taxpayer

As for the short-term loan, it is fully added to the zakat base on the basis that the zakat year is not interrupted by the restructuring of the debt with the creditor himself. An amount of SAR 2,000,000 is not added because it is a short-term loan and it was not used in a deducted financing. An amount of SAR 1,000,000 is not added as long as it is a short-term loan and is used in several liabilities in the activity and does not include deductible financing.

Provisions

Zakat Base Items (Deductions)

Deduction-related Concepts
Controls for Deduction from the Zakat Base
Other General Controls related to the Zakat Base
Application Examples

The company is entitled to deduct the SAR project cost from the zakat base for this year. The company is entitled to deduct the cost of setting up the SAR hotel from the zakat base for this year. For zakat purposes, the revaluation results will be considered according to the fair value reflected in the financial statements.

Modification of Activity Result

Deductible Expenses
Non-deductible Expenses

If the value of the import declared by the taxpayer is greater than its declared value in the customs declaration, the difference must be added in full to the net profit. If the value of the import declared by the taxpayer is lower than its declared value in the customs declaration, a profit will be calculated for this difference in accordance with the procedures established by the Authority. Import difference × the percentage established by the Authority, not less than the ratio of the total profit of the declaration to the income of the activity × 2.5% = Zakat value.

Calculation of zakat by the estimated method

ZATCA shall account, in the estimated method, every taxpayer who does not have commercial books that reflect the reality of its activity and is not obligated

Zakat Accounting Rules

Beginning of the fiscal year
Zakat Percentage
Consolidated Accounts for Zakat Purposes
Change in Equity or Legal Form of the Taxpayer
Transactions between Related Parties

Zakat Declarations of those who maintain Commercial Books

Zakat Declaration Completion Instructions

Background Information and Taxpayer Particulars
Income Statement
Additional Data
Statement of Financial Position
Statement of Financial Position

Declaration Submission Controls
Zakat Payment

ZATCA will include the zakat declaration form in the taxpayer's account in the ZATCA electronic system (Erad), through which the taxpayer must complete the zakat declaration and pay the zakat no later than one hundred and twenty (120) days. from the end of the zakat year. Reminders will be sent during (120) days, reminding the taxpayer to file his tax year return. The taxpayer will have (120) days to submit the zakat declaration after the end of the fiscal year (the last day of the period is the appointed day).

Notification of Submission Invoice

Once completed, the taxpayer should carefully print and review the final form of the return and ensure that the information contained therein is correct. The taxpayer must stamp and sign the statement and attach the signed copy of the form with a copy of the audited financial statements in Arabic and upload it to Erad System. The Erad system will send an electronic invoice notification immediately after filing the return, including the payment number and the total amount of zakat due under the return.

Declaration Adjustment

Maintaining Commercial Books

The burden of proof for the correctness of the items and any other information in the tax return lies with the taxpayer himself. In the event that the taxpayer is unable to prove the correctness of the elements included in his tax return, ZATCA has the right not to approve the elements contained in his tax return or to make an estimated assessment based on his position in the light of the circumstances and facts relating to the case and the information available to it. The taxpayer subject to the provisions of the Executive Regulations for the collection of zakat shall keep his own records for not less than (10) ten years.

The records to be kept and submitted to ZATCA if requested by the taxpayer

ZATCA’s Tasks

The ZATCA's Right to Request Data
The ZATCA's Right to the Examination
Assessment Procedures
Reassessment
Correction of Errors and Obsolescence
Confidentiality of Information and Documents

ZATCA may correct the misapplication of any of the provisions of the regulations or laws within (5) five years from the date of expiry of the deadline for submitting the zakat declaration. Likewise, ZATCA may correct errors resulting from calculations (addition, subtraction, multiplication and division), or placing an incorrect number instead of the correct number and the like, within (10) ten years from the date of expiry of the deadline for submitting the zakat declaration. Within (5) five years from the end date of the deadline for submitting the zakat declaration.

Objection and Appeal Procedures

Submitting an Objection
Controls for Accepting Objections

The taxpayer will pay the amounts due on the non-objectionable items in full during the statutory objection period.

Objection or Appeal Submission Form

Objectionable Items

Grievance Before the Relevant Committees

The Executive Regulations for the Collection of Zakat provide that the working rules of the committees for adjudication and appeal in tax violations and disputes are contained in Royal Decree No. The taxpayer who wishes to appeal the final decisions of ZATCA must submit the objection directly to the Adjudication . committee within (30) thirty days from the date of issuance of the notice of reassessment or rejection of the objection, or if (90) ninety days elapse from the date of filing of the objection without ZATCA having decided thereon. In the event that the taxpayer or ZATCA objects to the decisions of the Disputes Committee, the dispute will be submitted to the Appeals Committee, whose decisions are final, binding and irrevocable.

Dispute Settlement

Accordingly, the competent judicial authority to which the taxpayer may appeal the decisions of ZATCA is the Committee for Adjudication on Tax Violations and Disputes and the Committee for Appeal Tax Violations and Disputes, which are two separate committees of ZATCA. When the taxpayer submits a request to issue a settlement decision to the settlement committee, the request must contain at least the points of dispute and the reasons for objecting to the board's decision, in addition to the appendices that support his/her point of view. . In the meantime, the formal appeals proceedings before the Review Committee or Appeals Committee shall be suspended as a result of a request to go to the Dispute Resolution Committee until the conciliation request has been rejected or the Committee has refused to consider it.

Cases of Rejection of Settlement

Collection Procedures

Payment of the Amounts Due
Installment of Amounts Due

Final Zakat Dues

Considering the Zakat Dues Final
Property Seizure

Excess Amounts

Carrying forward the Excess Amount
Excess Recovery

Correspondence and Notifications

Methods of Communication used in Correspondence and Notifications
Update the Taxpayer‘s Contact Information

Cessation of Activity

Serving a notice of cessation of activity
Cessation of Activity for Liquidation Purposes

ZATCA‘s right to coordinate with government entities
Glossary of Zakat Accounting Terms
Zakat year
Zakat Base
Internal sources of funding
External sources of funding
Non-deductible Assets (Zakat Assets)
Deductible Assets (Non-Zakatable Assets)
Double Deduction
Retained Earnings from Previous Years
Dividends
Profits in Distribution (Profits declared for distribution)
Adjusted Net Profit
Adjusted Net Loss
Holding Company
Subsidiaries
Carried Forward Losses
Used Provision
Holding Investments for Non-Trading Purposes
Deferred Tax Assets
Fair Value
Capital Expenses
Final Zakat Due
Permanent Establishment
Resident Establishment
Cost Basis
Equity
Net profit
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The taxpayer shall pay the additional amounts due under the unobjectionable assessment within (60) days from the date of the ZATCA's assessment .33. The Saudi customs appeals to seize the taxpayer's imports within the limits of the zakat due. The sale of the taxpayer's property is suspended during the administrative or judicial period.

Annex: FAQs

If there are several establishments owned by the same partners, nay such establishments submit a consolidated Zakat declaration?
How is the taxpayer accounted for if the first fiscal year is a short fiscal year?
How is the taxpayer accounted for if the first fiscal year is a long fiscal year or a Gregorian year?
May the establishment deduct the employee›s share of the regular retirement funds from the zakat base such as the pension fund, social insurance or savings and provident funds?
What are the expenses that may be deducted from the zakat base?
Is it permissible for an establishment to deduct bad debts from ZB? What are the controls for that?
May the establishment owner deduct his salaries and allowances from the zakat base?
How is the cash increase during the year calculated in the capital that was not known to have financed deductibles?
Can zakat be paid to one of the official charitable institutions in the KSA, so that ZATCA is provided with supporting documents, and only pays to such entity?
Should a company that owns several subsidiaries completely outside the KSA include the results of such establishments› business in the calculations of the parent company?
What are the establishments subject to zakat?
The method used by ZATCA for calculating zakat for establishments that have regular accounts is (the method of sources of funds), on the basis of which the fixed assets are
What activities are subject to zakat upon goods?

Salaries and allowances of the owner of the establishment, whether a sole trader, investment company or partnership, as well as the remuneration paid to the chairman of the partners in the establishment, his deputy and members of the board of directors, are among the expenses that can be deducted. Provided that the wages and allowances of the bar owner are recorded in the social insurance and that the benefits are within the limits of the amounts paid to independent persons. To know that donations to such official charities in the Kingdom of Saudi Arabia are among the expenses that can be deducted from the zakat base of a taxpayer who maintains regular accounts, as long as supporting documents are provided.