Zakat is an essential part of Islamic finance and one of the Five Pillars of Islam; hence it is a mandatory religious tax for Muslims who have a specific financial requirement. The General Authority of Zakat and Tax in Saudi Arabia collects Zakat and ensures its proper amount for the needy and for societal development. BMS Auditing is here to help individuals and businesses with the right calculation, submission, and payment of Zakat to ensure that they are completely Sharia-compliant.
What is Zakat Tax in Saudi Arabia?
Zakat is a compulsory payment made to help the poor and destitute, orphans, individuals suffering with debt, and other purest forms of charity based on some principles of Islam. The Zakat tax does not consider the basis of income but the net worth of a person or business. It takes into consideration cash, gold, silver, and any other investments into account. The rate of Zakat is fixed at 2.5% on every individual's or business's net worth.
Zakat vs Income Tax in Saudi Arabia
Zakat is a religious obligation, while Income Tax is a public duty levied by the government. Zakat is calculated annually and paid based on unused wealth for the year. Income Tax, on the other hand, is levied on monthly earnings and paid regularly throughout the year. Zakat is charitable in nature, while Income Tax is mainly to support public finances.
Zakat is mandatory for every Muslim who is capable of financially managing their resources and its amount will depend on the fact whether the taxpayer's wealth crosses the minimum level called nisab or not. But Income Tax has a much broader application scope. It includes residents who are non-Muslim and has monthly income-based calculations.
How Zakat is Calculated
Zakat is computed at 2.5% of the total value of a person's or entity's zakatable assets, which includes cash, investments, and other qualifying assets. It is calculated based on the rules of Islamic law and submitted for review by the Zakat Authority. Some necessary and business-supportive expenses can be deducted; however, personal expenses cannot be deducted. For example, a company can deduct operational costs from its zakat base, but the capital expenses associated with assets would be dealt with separately.
Is Zakat Mandatory?
Zakat is a mandatory payment for all adult Muslims residing in Saudi Arabia who are above the minimum financial standards of Sharia law. The payer is liable to legal repercussions if they do not pay Zakat. Zakat payment in Saudi Arabia is not optional; it is different from other Muslim-majority countries where the people can pay Zakat as a matter of choice. The purpose of collecting Zakat funds is to alleviate poverty and cater for needy people.
How Do You Pay Zakat Tax?
Zakat is paid annually. Payments must be done via the GAZT, which is on the SADAD payment system. Individuals and businesses must pay Zakat in full on time. Payment delays are not allowed. An ATM service and online banking can be used to pay using a SADAD number.
Zakat Accounting and Tax Service in Saudi Arabia
BMS Auditing offers Zakat accounting and tax services for both individuals and companies in Saudi Arabia. Tax consultants at BMS Auditing help them to calculate the exact amount of Zakat that one has to pay, and payment at the right time. Moreover, BMS Auditing provides expertise to understand the Zakat calculation process, through which any business can get in line as per the GAZT.
Zakat is, therefore, one of the major religious and societal obligations in Saudi Arabia. Collection of Zakat is controlled by the GAZT. It is a method of assisting those who are in need and of ensuring social welfare. As a person or as a business organization, you would need to be aware of how Zakat collection works and gain professional advice for the correct filing of Zakat.
Looking to keep all your Zakat compliances in check? BMS Auditing is only a call away!
