14- Manual of Zakat Handling of Investments

Modification of Activity Result Deducted: Activity Cost Expenses Non-Deductible shall be added: Accrued from Provisions During the Year Hospitality Expenses during the Year unsupported by documentation Net Profit Adjusted for Zakat Purposes 22. Zakat Base (ZB) By comparing the calculated zakat with the minimum, the zakat payable for external investment shall be SAR 192,386. 4.4. Other Considerations Regarding Calculating Foreign Investment Zakat When the taxpayer calculates the external investment zakat, it is likely that this external investment (the foreign company) owns several other investments outside the Kingdom of Saudi Arabia, and the chain of such foreign investments may extend beyond the company’s state to the foreign country, so the resident company shall consider the zakat of such investments in accordance with the provisions of the Executive Regulations for Levying Zakat. Additions to ZB Amount Net Profit Adjusted for Zakat Purposes Working Capital at Start of Year First of Year Reserve First of Year Retained Earnings Partners’ Current Account Provisions (First of Year Minus Payments during Year) Total Additions (1) Deductions from ZB Property and Equipment Total Deductions (2) Total (1 - 2) ZB (Adjusted Net Profit or ZB, whichever is Higher) Company’s Share in ZB is 90% (Approx. Zakat) Currency Conversion to SAR 5. CHANGE TO CLASSIFICATION OF DEDUCTIBLE INVESTMENTS AND ITS IMPACT ON ZAKAT HANDLING In practice, it is necessary for taxpayers of companies investing in other companies to adjust their investment shares during the year, either by increasing or decreasing. Such an amendment may result in a change to the classification of the nature of such an investment from an accounting point of view. For example, in cases where the investing company owns small non-controlling stakes in the shares of a company by increasing the value of its investment so that such an investment becomes a significant influence on the policies of the invested-in company. The nature of this change will result in a modification in the nature of the classification of such an investment from the accounting point of view, which requires a re-examination of the effects of the process in terms of zakat. Investment reclassification may take one of the following non-exclusive forms:
 Equity investments at fair value through profit or loss or other comprehensive income to an associate entity or an affiliated entity when the overall influence or control over the said forms of investment is demonstrated, respectively.
 Investments in associate entities or affiliated entities handled in accordance with IFRS 9 (investments atfair value through profit or loss or other comprehensive income).
 Investments in affiliated entities or affiliates to assets held for sale in accordance with IFRS 5. In view of the change to the classification of the investment due to the occurrence of a circumstance/event, which affects the nature of the ownership of the investing company in the invested-in company, the basis for zakat handling is determining the purpose of owning such an investment after the change of classification. For example, the loss of significant influence in an associate entity may result in the re-recognition of that investment under the scope of IFRS 9 (Financial Instruments), and thus the company classifies them as investments at fair value.