The authority collects Zakat in Saudi Arabia annually from individuals and companies as per the Sharia Law for the economic development of the country. BMS Auditing offers Zakat tax & accounting services and can help you prepare all the necessities to file zakat. Our tax consultants can assist you with yearly Zakat & Tax calculation and payment. Here's all you need to know about the Zakat.
As a governmental agency, the General Authority of Zakat & Tax (GAZT) is responsible for the negligence of tax collection and evaluation, which includes the religious tax called Zakat and VAT in Saudi Arabia. The Dispute Resolution Committee(DRC) determines tax conflicts between GAZT and taxpayers.
What is Zakat Tax in Saudi Arabia?
Zakat is an Islamic tax that is mandated by the Quran and is one of the Five Pillars of Islam. In Saudi Arabia, Zakat is a mandatory charitable contribution that is collected by the government and used to help the poor and needy.
The funds collected through zakat are distributed to various categories of recipients such as the poor, orphans, and those in debt. Additionally, it is also used to support Islamic institutions and the overall development of society.
what is the Zakat Tax Rate?
Zakat is payable at a rate of 2.5% on the company's Zakat basis. Zakat base is the entity's net worth as estimated for Zakat purposes. Investors and the citizens of the GCC regions pay Zakat, a religious wealth tax based on the net worth of the taxpayer, but not the income; which is 2.5% of the net worth of the individuals and 2.5% of the total capital of the resources.
Although the income tax is charged at 20% income from certain activities is affected by various rates. These are the activities charged differently:
- Oil and hydrocarbon production is charged between 50% and 85%
- Tax base of an individual working in natural gas company should be independent of the tax base concerning other activities
Note that there are no local, state, or municipal government taxes on income, apart from the regular income tax or Zakat.
Is Zakat Mandatory in Saudi Arabia?
Zakat is a liable payment required from Muslims as per the sharia law, forming one of the five pillars of Islam. Zakat is an important part of Islamic finance and is considered a religious duty for all Muslims who meet the requirements. In most Muslim countries, it is the individual’s choice to pay Zakat. However, in Saudi Arabia, paying Zakat is mandatory for all Muslims who are financially able to do so. Failure to pay Zakat can result in legal penalties.
Zakat in KSA is evaluated in Saudi and GCC countries and on companies with complete ownership by those nationals or equity interest in companies with foreign (non-Saudi/GCC participation).
Who pays Zakat in Saudi Arabia?
Zakat is believed to be a promise that must be fulfilled for those in need. When one gives their zakat through Islamic relief, it is said to be powerful, and effective, and its prospective multiplies. Zakat helps to provide:
- Emergency food
- Shelter for the needy, such as refugees
- Job-based Training
- Medication and related purposes
- Other help based on Islamic rules
Every adult of the Muslim religion meeting the nisab and hawl requirements in a calendar year is liable to pay Zakat for a specific year. There are certain conditions requiring others, for instance- a Wali or a guardian of a minor should also pay zakat. For clarification, you can consult an Imam or a scholar regarding the zakat payment.
Did you know? Saudi Arabia has introduced Value Added Tax (VAT), a tax apart from Zakat or income tax and increased it from 5% to 15%. Companies have to register for VAT Saudi if they have business activity in KSA. Our VAT Services in KSA help you determine your payable tax as per the VAT Rates in KSA.
Difference between Zakat and Income Tax in Saudi Arabia
You will understand that Zakat and Income Tax are not the same. Let us look at the differences between Zakat and Income Tax:
Difference between Zakat tax and Income Tax
Zakat refers to charity or helping those in need.
Income Tax is a financial charge that must be mandatorily paid
It is paid by Muslims or individuals, based on a certain minimum amount of yearly wealth
Every member or individual of the country based on the monthly income has to pay their Income Tax
Zakat: by religion- A religious duty, which is mandatory as per the Islamic Law: Shari’ah), the 3rd Pillar
It is a Public duty, mandated as per the governmental laws
Zakat is settled as per the Holy Quran and cannot be changed.
Settled based on the financial regulations, and could change according to the annual public budget
Zakat is paid individually, to the final beneficiary, or to particular institutions
In the case of Income Tax, the employer calculates and reduces the income tax amount from the gross salary, paid on the state’s budget on behalf of the employee
Zakat is paid yearly- applied to unused wealth for a year
Income Tax is paid monthly- applied on an individual income- certain exceptions to a minimum amount of pensions
How is Zakat calculated in Saudi Arabia?
Zakat is calculated based on the value of a person's assets, including cash, gold, silver, and other investments. The amount of Zakat that must be paid is 2.5% of the total value of these assets. The Saudi Arabian government collects Zakat through the Zakat and Income Tax Authority (ZITA). These are the steps involved in calculating Zakat:
- Determine the modified profit by adding the non-zakat expenses and deducting zakat expenses
- Evaluate the frame by adding and subtracting elements
- Evaluate the value of zakat by multiplying with 2.5%
Determine the average profit
Begins from the value of the profit from the statement of income then adjusted to get the changed profit approved by the Zakat Authority
Determine the frame
- long-term liabilities within the limits of the value of fixed assets within the limits, if it matures in 345-365 days
You may note that the authority seeks the relationship in connecting with the deducted items, and need to link and review details and the potential of documents.
Procedures for calculating zakat using the zakat formula: Zakat base = sources of funds x [zakatable assets ÷ total assets]. The sources of funds employed by the Zakat payer in his zakatable assets.
The percentage of Zakat is 2.5% divided by (354 days) * (number of days of the actual ending year)
E.g, A-frame comprises 10,000 riyals for 2020.
Value of Zakat “Hijri”= 10000 * (2.5% / 354) * 366 = 2584 riyals
Here it shows 366 days, not 365, as 2020 is a leap year with 29 days in February.
Is Zakat Deductible?
You can make a Zakat deduction based on your liability from the prior tax year. For instance, if your Zakat is due today, you can deduct the tax that you must pay for the following tax year. There are some expenses that may be paid, still payable for any necessary are deductible from Zakat if they satisfy the following requirements,
1. It must be a genuine expense supported by supporting documents or other proofs that allow GAZT to approve it, even if it is related to prior years.
2. It should be related to the company's activity and not to personal expenses or other interests.
3. It should not be of the capitalist type. If capital expenditures are included in the expenses, the result of the business activity will be modified, and the capital expenditure will be added to the fixed assets and addressed using the usual percentages.
How do you pay Zakat Tax?
All the payments due are paid to the General Authority of Zakat and Tax (GAZT) through a SADAD payment system using the code (020). You may not that you are not allowed to delay the payment of Zakat dues.
Payments due are paid either through online banking or via ATM with a SADAD number on receiving the SADAD invoice.
Zakat Accounting and Tax Services in KSA
The experts and professionals at BMS Auditing Saudi Arabia provide a complete range of international tax consultancy services to enable clients with tax frameworks and require authority across the world. The whole concept of our expertise enables us to serve clients of all types, for international growth strategies and overseas functions.
BMS is the top accounting firm in KSA that has a team of accountants and tax specialists to offer the best Zakat Accounting and Tax Services in Saudi Arabia. Tax advisors assist you with zakat calculations.
For further assistance, call BMS Auditing in Saudi Arabia.