Implementing Regulations for Zakat Collection in Saudi Arabia

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The Implementing Regulations for Zakat Collection in Saudi Arabia, issued by the Zakat, Tax and Customs Authority (ZATCA), outline the rules and procedures for the collection of Zakat in the Kingdom. These regulations are designed to ensure compliance with Islamic principles and to promote fairness and transparency in the collection process.

Let’s understand the key provisions of the regulation.

Applicability

These regulations are applicable to specific persons, viz.

1.       Resident Saudi person, who practices an “activity” within KSA under a license;

2.       Sole corporation owned by a Saudi person and established in KSA;

3.       Company owned by a Saudi person and established in KSA, the share held by a Saudi partner/shareholder in resident companies, and the shares held by Saudi government agencies and authorities as well as their equivalents;

4.       Finance funds licensed by the Capital Market Authority;

5.       State-owned resident companies and public investment fund-owned resident companies; and

6.       Stock exchange except for the shares held by non-Saudi founders.

The regulation further provides the criteria for determining the residential status of a natural and a legal person.

Persons subject to the Income Tax Law and the shares of the legal persons, which are subject to income tax are excluded from the purview of these Regulations. Further, resident capital companies are also not subject to these Regulations with respect to the shares directly or indirectly owned by persons engaged in the production of oil and hydrocarbons.

Besides, charitable associations and other entities which are engaged in carrying out public benefit activities can be excluded from these Regulations by making an application to the authorities.

Registration Requirements:

Both individuals and businesses obligated to pay Zakat are required to register with ZATCA. Registration can be done online or in person.

Zakat Base and Rates:

The standard Zakat rate remains at 2.5%.

The Zakat base is calculated based on the net value of assets and income of the taxpayer. Specific rules apply to different types of assets and income as detailed in the Regulations.

Certain expenses can be deducted from the Zakat base, including:

1.       Investments in an enterprise or investment fund within KSA or a facility outside KSA;  

2.       Investing in direct and indirect financing funds;

3.       Net fixed assets and intangible assets;

4.       Materials not intended for sale and raw materials;

5.       Investment in deeds and bonds, statutory deposits; and

6.       Deferred tax asset.

Zakat Compliance:

Zakat payers are required to maintain accurate records and provide any necessary documentation to ZATCA. ZATCA may conduct audits to verify compliance with Zakat regulations.

Zakat payments must be made within the specified deadline. Payments can be made online or in person. Late payment penalties may be imposed if Zakat is not paid by the due date.

The Regulations provide for detailed guidelines on assessment.

Conclusion

The Implementing Regulations for the Collection of Zakat in Saudi Arabia provide a comprehensive framework for the collection of Zakat in the Kingdom. By following these regulations, individuals and businesses can ensure that they are fulfilling their Zakat obligations in accordance with Islamic law and the requirements of the Saudi government.