Corporate Zakat in Saudi Arabia is mandatory for a range of establishments and companies, and it is calculated using specific methods to determine the payable amount.

In today’s article, we will explore the subject of Corporate Zakat according to Saudi regulations and understand how it is assessed—keep reading.

Corporate Zakat in Saudi Arabia

Zakat is one of the pillars of Islam, and the Zakat, Tax and Customs Authority in Saudi Arabia is responsible for collecting zakat from companies and establishments.
Visit the official website of the Zakat, Tax and Customs Authority

Saudi Arabia imposes zakat on establishments according to clear guidelines. This includes both Saudi and non-Saudi entities. The application of zakat is as follows:

• Saudi establishments: Zakat is applied.

• GCC establishments: Zakat is applied if residency conditions are met.

• Non-Saudi establishments: Subject to income tax.

• Mixed-ownership establishments: Zakat is applied to the Saudi share of capital, while income tax is levied on the non-Saudi share.

Non-profit organizations and registered charities are exempt from zakat, provided they meet the following conditions:

• The charity must be officially licensed and have specific objectives.

• Funds must not be allocated to specific individuals.

• Financial returns must be directed towards charitable purposes.

Zakat and Income Calculation for Institutions

To determine the zakat, amount due, the company must submit a zakat return. The authority calculates the Corporate Zakat base (zakat base) accordingly.

Companies can submit their zakat return electronically by following these steps:

1. Log in to the Zakat, Tax and Customs Authority portal.

2. Select the “Returns” option.

3. Choose the type of return to be filed.

4. Fill in the form with the required information.

5. Submit the return once completed.

A confirmation message will be sent via email or SMS upon successful submission.

You can also contact Business Pillars Company, certified accountants and auditors, to handle this process on your behalf.

Corporate Zakat in Saudi Arabia and Accounting Methods

Continuing our discussion on Corporate Zakat in Saudi Arabia, let’s explore the accounting methods used for zakat calculation.

There are two main methods used:

1. Simplified Method

Also known as the Net Working Capital method, it follows the formula:

(Current Assets - Current Liabilities)

The result is the net working capital, and zakat is calculated as:

Net Working Capital × 2.5%

2. Compound Method

Also known as the Net Invested Capital method. Here, zakat is calculated using:

Zakat Base × 2.5%

The Corporate Zakat base is calculated using:

(Company Capital + Owner Current Account + Retained Reserves + Retained Earnings + Net Annual Profit + Accrued Provisions)

Note: Depreciation provisions are excluded, and non-current assets are deducted to arrive at the final zakat base.

We’ll now delve deeper into the components of this zakat base.

Zakat Base for Companies

The zakat base is a portion of wealth that, upon reaching the minimum threshold (nisab), is subject to zakat and distributed to eligible recipients.

As discussed, the Corporate Zakat base includes the following elements:

• Company’s core capital.

• Designated reserves and retained earnings, provided they have completed a full fiscal year.

• Previous profits that have not been distributed.

• Undistributed declared profits for joint-stock companies.

• Loans, including those from government or other financing funds.

• Adjusted annual net profit from operations, excluding certain expenses.

By covering these elements, we have reached the conclusion of our article on Corporate Zakat in Saudi Arabia and how it is calculated.

We highlighted the main accounting criteria for zakat and shed light on the structure of the zakat base for companies.

Read also:

Value Added Tax Calculation in Saudi Arabia

Accounting and Auditing Firms in Saudi Arabia

Electronic Invoice: Its Requirements and How to Verify It

Submitting the Income Tax Return and How to Pay the Tax