Deduction of the investee company's share in dividends paid by the investee company. In addition, unlike the equity method, the investment company's share of the subsidiary's dividends is recognized in the income statement (income statement). No adjustment of the result of the activity with the share of the company (X) in the distributions of the company (Y) in the amount of SAR 15,000 (SAR 25,000 x 60%) recognized in the income statement.
Associates and Joint Ventures Associates
The investment value must be included in the deductions from ZB (at cost price) of SAR 200,000. Both Company (X) and Company (Y) use the equity method to account for the investment in the joint venture. Added to the investment account balance in the statement of financial position against recognition of the share in.
Investment Value
The verification process of the deduction controls must include that the company in which it is invested is subject to the zakat collection provisions of the Kingdom of Saudi Arabia and is registered with ZATCA and must submit zakat returns (or) that zakat is due for this purpose. in the case of foreign investments. In the event that an investment in an associated company or joint venture can be deducted from ZB, the investment deduction mechanism is summarized as follows:.
Activity Result
Investments in Equity or Shares Instruments in Companies Handled under IFRS 9 These investments come in the form of an equity instrument or shares in an entity (such
- Other Issues Pertaining to Zakat on Investments .1 Investment Trading Control
- Misclassification of Deducted Investment from Components of ZB
- Real Estate Investments
- Cases of Certified Public Accountant’s Approval of Foreign Investments
Deduction of the book value of the investment shown in the taxpayer's audited financial statements. During 2020 AD, Company (X) invested in 10% of the shares of Company (Y) traded on the Saudi Stock Exchange (Tadawul). Such investments are recognized and classified in the company's books and financial statements as investments at fair value through other comprehensive income.
Accordingly, the amount of the increase in fair value of SAR 40,000 was recorded in the statement of other comprehensive income (equity). During 2020 AD, Company (X) invested in 8% of Company (Y) shares traded on the Saudi Stock Exchange (Tadawul). Such investments are recognized and classified in the books and financial statements of the company as investments at fair value through other gains or losses.
Also, the result of the activity is not modified by the results of the change in fair value, which is recognized in the statement of profit or loss. This treatment applies to the case of unrealized gains (positive changes in fair value) that are recognized in the statement of profit or loss. Company (Y) is a joint stock company domiciled in the Kingdom of Saudi Arabia and is subject to the provisions of the Executive Regulations for Collection of Zakat in the Kingdom of Saudi Arabia.
This concept is one of the basic concepts when handling investments in accordance with the provisions of the regulations. In the event that the investment is not deductible based on this method, the effect shall apply to the assets of the investment portfolio included in. These investments are included in the long-term assets of the Arab company's books.
OTHER FORMS OF INVESTMENTS
- Financial Derivatives
- Investment Funds
- Digital Currencies
- Investments in Other Special Joint Arrangements Joint Venture Companies
The financial derivatives included in the annual accounts are not regarded as deductible items of the components of ZB, because the Regulation did not deal with financial derivatives in the provisions regarding the items that can be deducted in article (5) of the Regulation. Therefore, the positive value of the financial derivative recognized as an asset in the annual accounts is not considered as a deduction from the ZB components. The positive value of financial derivatives included in the assets is treated as non-zakat assets for the part due after one year or more (this treatment does not apply to the rest of the taxpayers as this item is not considered as one of the deductions on the assets). ZB).
The Fund is subject to the provisions of the Executive Rules for Collection of Zakat in the Kingdom of Saudi Arabia. In the event that the above conditions are not met, investments in mutual funds cannot be deducted when calculating ZB by the taxpayer. As for the partner in the joint venture, his/her investment in such arrangements is not visible to the public.
What distinguishes these agreements from other contractual agreements in the form of joint ventures is that the latter (has an independent legal personality, is recorded in commercial documents and has other official documents) which are accounted for and processed in the books of the joint venture. participant according to the equity method. It is noted that such arrangements require the parties to the agreement to acknowledge their share in the assets of the controlled activity and its liabilities. In terms of zakat, it is necessary to read the deduction controls included in the regulations provided in this manual.
That is, if such companies are registered with ZATCA and submit their zakat declarations, the investment can be deducted in the books of the founding company of ZB.
CONTROLS FOR DEDUCATING FOREIGN INVESTMENT
- Introduction
- Investments in Stakes of Facilities outside the Kingdom of Saudi Arabia
- Holding Investments for Non-Trading Purposes
- Calculating and Paying Foreign Investment Zakat according to a Certified Public Accountant Licensed in the Kingdom of Saudi Arabia
After checking the form of investment discussed in Section 4.1 above, the taxpayer must check the additional check, namely that the investment is held for non-trading purposes, as discussed in the previous Section. The company owns 25% of the shares of Company (Z) over which it exercises significant influence over its decisions and operating policies. Company (X) also has investments of little relative significance in diversified investment portfolios, which the company holds for the purpose of achieving short-term profits.
After calculating the zakat of the taxpayer's share in a foreign investment in accordance with the provisions of the regulations, the task of confirming such a calculation is entrusted to a certified public accountant in the Kingdom of Saudi Arabia to issue a certificate in accordance with the audit requirements. valid standards in the Kingdom of Saudi Arabia, which belong to insurance services.
Proposed Illustrative Form for a Limited Assurance Report Certifying the Calculation of Zakat]
- Minimum Amount for Calculating Foreign Investment Zakat
- Calculating ZB according to the Regulations
- Modification of Activity Result
- Zakat Base (ZB)
- Other Considerations Regarding Calculating Foreign Investment Zakat
- CHANGE TO CLASSIFICATION OF DEDUCTIBLE INVESTMENTS AND ITS IMPACT ON ZAKAT HANDLING
- ILLUSTRATIVE EXAMPLE OF HANDLING INVESTMENTS AND CALCULATING ZB
- I LLUSTRATIVE E xAMpLE OF H ANDLING I NVESTMENTS AND C ALCULATING ZB
- S ECTION ON C ALCULATING ZB FOR T AxpAYERS wHO M AINTAIN R EGULAR A CCOUNTS A DDITIONS TO ZB
Articles: 4 (Zakat Basis), 5 (Permissible Deductions), 6 (Zakat Basis - Other Considerations), 8 (Permissible Expenses), 9 (Non-deductible Expenses) and 14 (Zakat Rates) of the Regulations as interpreted of Management. The preliminary annual accounts for the invested companies, which consist of statements of financial position and total income. We have compared the individual items in the table with the interim financial statements of the invested companies.
Attached to the certificate are all the requirements necessary for the calculation of ZB of the foreign invested company. Example(15): The Arab Company, a resident company, owns %90 of the shares of the Gulf Company's ownership in Kuwait. The balance of the investment in the accounts of the Arab Company at the end of the year amounted to SAR 46 million, and the Arab Company deducted the value of the said investment from ZB in 2020 AD.
There are no changes in the equity statement, apart from the profit for the year. Requirements: In accordance with the requirements of the Arab Company to the provisions of the Regulations, the Company would like to pay zakat for its investment in Kuwait, accordingly; it is necessary to identify the zakat management. Such a change may result in a change in the classification of the nature of such investment from an accounting point of view.
Example(16): The financial statements of the Saudi Company, a company incorporated in the Kingdom of Saudi Arabia and registered with ZATCA, showed the following financial statements for the year ended December 31, 2020 AD. The cumulative balance of the change in the fair value of the investments amounted to SAR 900, as of December 31, 2020 AD. The result of the activity has not changed with regard to the accounts relating to such investments, which are included in the income statement, namely the company's share in the results of the activities of subsidiaries, branches and joint ventures.
D EDUCTIONS FROM ZB
- F OREIGN I NVESTMENT
- I NVESTMENTS INSIDE THE K INGDOM
- C HANGES TO FAIR VALUE
- C ERTIFIED p UBLIC A CCOUNTANT ’ S C ERTIFICATE I SSUED FOR C ALCULATING Z AKAT ON F OREIGN I NVESTMENTS
- ZAKAT HANDLING OF KEY ITEMS IN THE STATEMENT OF FINANCIAL pOSITION RELATED TO INVESTMENTS
- ZAKAT HANDLING OF EQUITY INVESTMENT PROFITS
- FAQS
- WHAT TYPES OF INVESTMENTS ARE DEDUCTIBLE FROM ZB FOR TAXPAYERS WHO MAINTAIN REGULAR ACCOUNTS?
- IN THE CASE OF HOLDING INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS, IS THE RESULT OF THE ACTIVITY REQUIRED TO BE ADJUSTED FOR CHANGES TO FAIR
- DOES THE CHANGE TO THE INVESTMENT CLASSIFICATION HAVE CONSEQUENCES OR IMPACT ON THE EXTENT TO WHICH THE INVESTMENT MAY BE DEDUCTED FROM ZB?
- A RESIDENT COMPANY INVESTS IN OTHER COMPANIES OUTSIDE THE KINGDOM OF SAUDI ARABIA. THE FOREIGN COMPANY APPLIES THE ZAKAT COLLECTION LAW, SO IS
- A RESIDENT COMPANY FOLLOWS THE COST METHOD TO ACCOUNT FOR ITS INVESTMENTS IN THE SUBSIDIARIES AND ASSOCIATES THAT IT CONTROLS. HOW ARE
- HOW TO HANDLE THE PROVISION FORMED AS A RESULT OF DERECOGNITION OF INVESTMENTS ARISING FROM RECURRING LOSSES IN EXCESS OF THE BALANCE OF
Non-deductible from ZB, together with the application of the exceptions set out in the Ministerial Decree No. The realized profit (results of the associated company's business during the year) is considered part of the income. It is considered as one of the other comprehensive income components, which will affect the value of the equity.
According to the provisions of the regulation, the deductible investments are those represented in the ownership of shares in local or foreign companies in accordance with the controls defined in paragraphs (4) and (5) of article (4). IN THE CASE OF HOLDING INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS, THE RESULT OF ACTIVITY IS ADJUSTED FOR CHANGES IN FAIR VALUE IS THE RESULT OF ACTIVITY THE VALUE RECOGNIZED THROUGH PROFIT OR LOSS. Regardless of whether these changes are positive or negative, it does not require adjusting the result of the activity with unrealized gains or losses.
THE FOREIGN COMPANY APPLIES TO THE LAW OF COLLECTION OF ZAKAT, SO IS THIS INVESTMENT ALLOWED TO BE CONSIDERED AS ZAKAT FOR REGULATORY PURPOSES AND DEDUCT FROM ZB. According to the provisions of the Regulation, the resident company is required to calculate and pay zakat to ZATCA (in the Kingdom of Saudi Arabia) according to the certificate of a chartered accountant in the Kingdom of Saudi Arabia, regardless of whether these investments are zakat at home or not. After verifying the checks of deductions defined in the Regulation, the taxpayer deducts the value of the investment recognized at cost without modifying the result of the activity according to distributions (if any), which are recognized in the statement of profit or loss.
If the nature of this item is an obligation to which the conditions of the provisions do not apply, it must be handled in accordance with the provisions of Article (4) with the application of the limits of additions.
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