The legal framework for zakat in the Kingdom of Saudi Arabia
Companies in the Kingdom of Saudi Arabia are subject to the Zakat Collection System issued by Royal Decree No. M/40 dated 7/2/1405 AH. This system specifies the legal basis for imposing and collecting zakat on companies. According to this law, all Saudi and Gulf companies operating in the Kingdom are obligated to pay zakat, with the exception of companies operating in the oil and gas sector.
Calculating the zakat base
The zakat base is calculated in accordance with the executive regulations for collecting zakat. The main components of the zakat base include capital, reserves, retained earnings, and long-term debt. Companies must submit their annual zakat return within 120 days of the end of the fiscal year, attaching audited financial statements and other supporting documents.
Compliance and penalties
The General Authority of Zakat and Tax imposes fines on companies that are late in submitting their returns or providing incorrect information. These fines range between 5% and 25% of the value of the zakat due, depending on the length of the delay and the nature of the violation.
Practical procedures for calculating and paying zakat by companies
Determine the zakat base
To calculate zakat accurately, companies must first determine the zakat base. This includes all assets subject to zakat, such as cash, inventory and receivables. Fixed assets and long-term investments are excluded. It is important to review the financial statements carefully to ensure that all qualifying items are included.
Calculating the amount of zakat
After determining the zakat base, a rate of 2.5% is applied to the total amount. This percentage is fixed according to Islamic law. However, the exact method of calculation may vary based on the type of business and business model. Businesses are advised to consult a zakat expert or qualified accountant to ensure accuracy.
Submitting the declaration and paying zakat
Companies must submit a zakat declaration annually to the Zakat, Tax and Customs Authority. This process can be completed electronically through the Authority’s portal. It is necessary to adhere to deadlines to avoid fines. After reviewing the declaration, the authority will issue an invoice for the amount due, which must be paid within the specified period.
