Zakat for Local Businesses in Saudi Arabia
As stated in Article (21) of the Main Law of Governance, one of the basic functions of the state is to collect and pay Zakat to the recipients. Article (7) of the treaty stated that the state is responsible for overseeing Islamic Shari'ah requirements in general, including the imposition of Zakat and its distribution to the intended beneficiaries, as follows, Governance in the Kingdom of Saudi Arabia derives its authority from the Holy Quran which govern this Law and all the laws of the State.
To substantiate this, during the reign of the founder King Abdul Aziz, Royal Decree No. (178634/28/2/) dated 291370/6/H (equivalent to 6 April 1951) was issued, which included the order for the levying of Zakat. This was emphasized in a number of subsequent royal decrees, implementing ministerial decisions, interpreting regulations, and circulars, including Royal Decree No. (M/40), dated 21405/7/H and its Implementing Regulations for Zakat Levy issued under Ministerial Decree No. (2082) dated 11438 6/H (28 February 2017) and the Implementing Regulations for Zakat Levy issued under Ministerial Decree No. (2216) dated 71440/7/H corresponding to (14 March 2019), which will apply to all Zakat payers for the Zakat years beginning on January 1, 2019, except for those who are accounted for on a presumed basis in line with section 4 of the Regulations, whose declarations will be subject to the regulations after December 31, 2019.
As a result, the Zakat Levy Implementing Regulation released on 71440/7/H [14 Mary 2019-] will not apply to financial years earlier to this date. Prior years must be evaluated according to the regulations and directions in effect prior to that date.
The Zakat Levy Implementing Regulations have concentrated on the Zakat collection regulations in commercial activities other than other Zakatable funds, as well as the requirements for filing Zakat declarations, the assessment, examination, and payment procedures, and their time limits.
According to Royal Decree No. 161/5/ dated 51383/1/H, the Zakat collected by ZATCA shall be put in the Social Security Account, which shall distribute it to the poor and needy (28 May 1963). "Zakat shall be collected in full from all joint stock firms and businesses and people susceptible to Zakat," it stated that all money collected shall be donated to the Social Security Fund.
The state calculates the Zakat of money subject to the Zakat, collects the funds from Zakat payers, and transfers the proceeds to the Social Security Agency for payout to social security beneficiaries.
The state's goal is to collect zakat. Every year, the Prophet (peace and blessings of Allah be upon him) would send messengers to all Muslims to collect Zakat. It is currently carried out on behalf of the state by The General Authority of Zakat & Tax, in compliance with the appropriate laws, regulations, and rules. The Authority has created regulations and guidelines controlling the Zakat levy, as well as providing high-quality services to Zakat payers in order to assist them in fulfilling their obligations.
The Zakat, Tax, and Customs Authority (the Authority), formerly known as the General Authority of Zakat & Tax, is the Saudi Arabian organization tasked with collecting Zakat in line with Royal Decree No (178634/28/2/), dated 291370/6/, which mandates the collection of Zakat from Saudi nationals.
It was established as one of the government bodies under the Ministry of Finance by Ministerial Resolution No. (394), dated 71370/8/H, and was tasked with the job of levying Zakat.
The levying of Zakat in full and transferring or paying it to the Social Security Organization was ordered by Royal Decree No. (61) dated 51383/1/H.
Following that, other royal decrees and ministerial decisions regulating Zakat collection activities were published, including Royal Decree No. (M/40) dated 21405/7/H, which included the directive to collect Zakat in full from all corporations, institutions, and others who are liable to Zakat. The Royal Decree (M/40) Implementing Regulation was then adopted under Ministerial Resolution No. (2082) dated 11438/6/H.
The General Authority of Zakat & Tax was established on 201438/7/H, following the adoption of the Authority's statute and organization by the Council of Ministers Resolution No. (465).
Functions of ZATCA
The following are the functions of the Zakat, Tax, and Customs Authority, as outlined in Article (3):
- Collect Zakat and taxes from Zakat payers according to applicable regulations, rules, and instructions.
- Provide high-quality services to Zakat payers in order to assist them in fulfilling their obligations.
- Follow up with the Zakat payer and take the required steps to guarantee that the dues are collected.
- Work to increase Zakat payer knowledge, enhance their voluntary commitment, and ensure that they follow the Authority's instructions and rules in their jurisdiction.
- Within the Authority's jurisdiction, cooperate and exchange expertise with regional and international bodies and organizations, as well as specialist expertise organizations both inside and outside the Kingdom.
- Represent the Kingdom in regional and international organizations, bodies, forums, and conferences concerning the Authority's jurisdiction.
Payor of Zakat
A natural or legal person who engages in an activity that is subject to Zakat levy under the Regulation, whether it is a sole proprietorship, a company, or anybody who engages in commercial activity under the authority of a competent authority.
A Zakat payer who obtains a certificate stating that he or she is not subject to Zakat levy in accordance with the Authority's procedures.
Zakat payer's responsibilities
In general, the Zakat payer's duties diminish the Zakat payer's base by not adding them to the base, according to the Authority's procedure. Short-term and long-term obligations, on the other hand, are treated differently in accounting.
Short-term liabilities that have financed a deductible asset will be added to the Zakat base components, whereas liabilities that have not financed a deductible asset will not. Long-term commitments are added to the base components, but the overall obligations must not exceed the value of the deductible assets. This is done to ensure that the Zakat funds are not used to pay off debts. Even if it did not fund such assets, the debts are secured by fixed assets and equal deductible assets to maintain balance and avoid double deduction. As a result, the surplus amount's Zakat base is reduced by long-term responsibilities.
Declaration of Zakat
Each Zakat payer must fill out and submit a form supplied by The General Authority of Zakat & Tax, which contains a number of parts and objects. The declaration and its submission have the goal of indicating the entity's Zakat basis and allowing the Authority to assess the entity based on the declaration data. The following are examples of declarations:
- Type I: A declaration by a Zakat payer who keeps commercial books and statutory accounts and issues financial statements in accordance with the law.
- Type II: A declaration made by a Zakat payer who is accounted for on a presumed basis and does not keep commercial or statutory books.
- Type III: Information Declaration for Zakat payers who are exempt from Zakat levy, or a subsidiary that has been consolidated (consolidated) and zakat has been paid according to the holding company's consolidated declaration, or consortium consortia. Such a Zakat payer is required to make a declaration that involves the disclosure of its personal information.
Returns on Zakat for a given financial period must be submitted (including transaction pricing forms). On the Authority portal, your declaration will be ready for submission on time. Take note of the following requirements:
- Create an account on the Authority's e-portal.
- Company's financial statements.
- Ensure that the kind of declaration and the financial period are both valid.
- Model for transaction pricing.
Procedures for Zakat declaration:
- Log in to your authority e-portal account.
- Choose the Tax Return Service option.
- Select the tax return that is necessary.
- Read the instructions and follow them.
- Choose the declaration you'd want to send.
- Fill it with your company's financial information.
- Acceptance of the information's legitimacy and accuracy. Please click here to learn more (Submit).
- An acknowledgement of receipt of your tax return will be sent to you. You will be notified of your submission by SMS and email.
Zakat Calculation for Companies
Zakat is determined in one of two ways for current businesses:
- Direct method (net of Zakat able assets method).
- Using an indirect method (sources of funds method).
The procedures for each method change, as do the things utilized to calculate Zakat, but the end result is the same for both (Zakat base). If both procedures are used correctly and with the same standards and criteria, they will produce the same outcome.
This approach is done by subtracting the value of the commitments that funded the Zakat assets from the total of the entity's Zakatable assets, including accounts receivables for the Zakat payer.
The Zakat payer's Zakat base is the result of this formula.
This approach is made up of two essential steps:
- External funds used for the deductible component from the base, such as long-term liabilities and obligations that are known to have financed deductible assets. These obligations are added to the limit, but not to the point where the deductible assets are exceeded.
- The entity's internal funding sources (capital, retained earnings,).
- Adjusted net profit for the audited fiscal year.
- The value of the entity's non-Zakatable assets should be deducted in accordance with the Regulations' terms and conditions
- The value of Zakatable assets held by other entities, such as: (investment in Saudi Arabian stock companies).
The Zakat payer's Zakat base is the result of this formula. The following procedure is used by the ZATCA.
Date to pay Zakat
The date your wealth meets or exceeds the Nisab should be the start of your Zakat year. Zakat is due if your wealth equals or exceeds the Nisab after one lunar year (also known as Hawl). This date will be used again the next year in this case.
You will not have to pay Zakat if your wealth does not match the Nisab after one year. You'll also wait to see if your fortune catches up to or surpasses Nisab's.
Due date for Zakat
The moment your wealth meets or exceeds Nisab, a new year for Zakat will begin. After a year, you'll be able to tell whether your wealth equals or exceeds the Nisab. This is referred to as your 'Zakat due date' or 'Zakat anniversary.'
Zakat is due on the anniversary of your Zakat. If you're not sure when this is, or if you're paying for the first time, figure out when you first held wealth above the Nisab level or you can use an estimated date. This becomes your Zakat anniversary once you've paid your Zakat once.
Zakat can be paid in advance of the Zakat anniversary. This is to urge people to devote more time to prayer and to take advantage of special occasions such as Ramadan or the first ten days of Dhul Hijjah. If you pay early, you must still calculate your Zakat owing on your Zakat anniversary to ensure that you have paid the correct amount.
Zakat payment during Ramadan
It is not necessary to pay Zakat during Ramadan, yet offering charity during this month garners higher blessings.
Zakat in monthly payments
Scholars believe that once Zakat is due, it must be paid without delay unless there is a valid reason to do so.
If a person is unable to pay the Zakat all at once, he or she may pay in installments as long as the complete amount owed is paid. Scholars believe that Zakat can be paid monthly as long as it is paid before the due date.
Zakat payments management
You can predict how much Zakat you will be expected to pay and save throughout the year in order to pay your Zakat when it is due. This is something that scholars believe is necessary.
When paying in monthly installments or saving monthly amounts, you should always bare in mind that it is for your Zakat.
If a person's wealth exceeds the value of the Nisab, he or she must pay Zakat. Such a person is considered wealthy according to Sharia. Both the Qur'an and the Sunnah impose Zakat, and the Prophet himself named Zakatable articles and the monetary rates to be charged on them. Exemptions and prescribed requirements for Zakat, Zakatable products, and general Zakatability were also provided by the Prophet. Everything has been written for us and handed to us, and it is our responsibility as sincere Muslims to follow what we have been told.
Zakat must be imposed on wealth if the following conditions are met:
- Complete control
- Wealth has the potential to grow and expand.
- The Nisab has been reached.
- After obtaining the Nisab, a lunar year passes.
Zakat is intended to aid the poor without impoverishing the wealthy; after you reach the Nisab barrier, you just have to pay 2.5 percent of your Zakatable assets. In other words, we must offer a bit from a lot without causing financial harm to ourselves and giving stability for those in need.
History of Zakat
The third pillar of Islam is zakat. It mandates Muslims to give 2.5 percent of their qualified wealth to support the needy in a variety of ways each year. Zakat is a spiritual obligation as well as an important aspect of the Islamic social assistance system. It's a one-of-a-kind religious social welfare program that helps the entire community.It is a symbol of Islamic law's supremacy, as it is a defining element in the struggle against poverty and alleviation of the poor's suffering. A crucial component in developing social cohesion.
As an indication of the great status of Zakat in Islam; the government is entrusted with administering and supervising the collection of Zakat on declared funds and its distribution to its beneficiaries. The government is authorized to collect the Zakat on the declared funds and distribute it to the eligible beneficiaries, by entrusting some workers (employees engaged for zakat collection purposes) to go through the owners of funds, throughout the country, and calculate the amount of Zakat, and then collect it from them, and oversee the disbursement and distribution to eligible persons. Authority's staff, until the issuance of the final Zakat certificate, including the investigation of any objections raised by the Zakat payer with regard to the Authority.
The Zakat, Tax, and Customs Authority (the Authority), formerly known as the General Authority of Zakat & Tax, is in charge of levying and collecting Zakat. All procedures relating to the Zakat payer's Zakat account, from registration to the process of calculating the amount of Zakat, which includes supervising the submission of Zakat declarations, payment procedures, examination of data provided, and verification by the Authority's staff, until the issuance of the final Zakat certificate, including the investigation of any objections raised by the Zakat payer with regard to the Authority.