A guide detailing the full step-by-step Zakat calculation in Saudi Arabia is critical for businesses to understand the fundamentals of calculating the payable Zakat. The Zakat calculation considers the business’s assets and liabilities to compute the Zakat base. The Zakat rate is applied on this Zakat base amount to calculate the total tax payable. Zakat is an essential tax in Saudi Arabia that Saudi-operated businesses must pay to the ZATCA (Zakat, Customs and Authority). The collection and expenditure of Zakat are entirely based on the Islamic Shari’ah.
Eligibility criteria for Zakat
Zakat applies to resident businesses owned by GCC and/or Saudi nationals, irrespective of the ownership structure, provided the residency conditions are consistent with GCC establishments. Even mixed-ownership companies are required to pay Zakat, with the Saudi portions paying Zakat (levied on the Saudis’ share of capital) and the non-Saudi portions paying income tax in accordance with ZATCA specifications.
Steps to calculate Zakat in KSA
The Zakat calculation in Saudi Arabia involves the following steps.
Step 1: Identify Zakatable assets
A business’s Zakatable assets include cash and bank balances, inventory, investments, and trade receivables. The non-Zakatable assets include equipment used in operations, fixed assets, and property.
Step 2: Identify deductible liabilities
A business must identify its deductible liabilities, which include the outstanding invoices, payables due (within 12 lunar months), current taxes, and current utility bills. Businesses with long-term liabilities and those with upcoming expenses should consider that these expenses are non-deductible unless the payments must be made within 12 months.
Step 3: Compute the Zakat base
The Zakat Base is calculated by subtracting deductible liabilities from Zakatable assets.
Zakat base = Zakatable assets – Deductible liabilities
Step 4: Compute Zakat payable
The Zakat rate (in percentage) is applied on the Zakat base to calculate the Zakat payable as follows. The flat Zakat rate in KSA is 2.5%.
Zakat Payable = Zakat Base x 2.5%
Example of Zakat calculation
A company in Saudi Arabia is owned by GCC nationals. It has Zakatable assets as follows: inventory valued at SAR 400,000, SAR 600,000 in cash, and SAR 100,000 in investments. Its liabilities are outstanding payables of SAR 200,000.
According to these details, the Zakat Base and Zakat payable can be calculated as follows.
Zakat base = Zakatable assets - Liabilities
Zakat base = (400,000 + 600,000 + 100,000) – 150,000
= SAR 950,000
Zakat Payable = Zakat base x Zakat rate
= 950,000 x 2.5%
= SAR 23,750
Zakat payment
The Zakat payer must first register with the Ministry of Commerce before the end of the first fiscal year. Even people who are exempt from paying Zakat must register to ensure compliance. Once successfully registered, the Zakat payer must log in to their account, then go to ‘E-Services’ and select ‘Zakat, Tax and Customs Services’. Then they must register on the ZATCA website. The next step is to complete the registration form, file the declaration, including the attachments, as prescribed. This includes submitting all the approved forms along with the Zakat payment within 120 days from the end of the Zakat year.
ZATCA in the KSA oversees Zakat payments and returns. Zakat is an important socioeconomic tax levied on taxable businesses. By calculating the Zakat base and applying the Zakat rate, businesses can easily compute the payable Zakat for the fiscal year. It is vital for businesses to pay Zakat on time to ensure compliance. Taxpayers must first register on the Ministry of Commerce website and then on ZATCA to pay the amount online through ZATCA’s portal.
