14- Manual of Zakat Handling of Investments

Investment Trading Control The concept of trading is a key issue that requires attention and understanding, because it has a fundamental impact on the way investments are handled in terms of zakat. This concept is one of the basic concepts in handling investments in accordance with the provisions stipulated in the Regulations. When a company purchases financial investments such as equity and other instruments held for trading purposes, this refers to specific events or decisions made by the company in managing its financial assets, key of which are:
 The company buys such assets and holds them for a short period of time, usually less than a year.
 Within this time-frame, the investing company’s expectation is to witness the investment rise in value and sell it for a profit.
 The concept of trading coincides with other financial or business terms such as speculation, which means buying and selling securities or investments with the aim of making a profit within a short period of time.
 Such portfolios or investments are usually subject to frequent fluctuations during the year, which calls for additional buying or selling.
 Such types of investments are classified as current assets in the financial statements according to the company’s way of managing its financial assets, or the so-called business model of the company that documents the management’s intention to hold the investments. Accordingly, the concept of trading in investments or securities can be summarized as a process of buying or selling securities for the purpose of making quick profits depending on the correctness of the investing company’s expectations of future price movements. It must be noted that such investment portfolios are subject to frequent fluctuations and movements of buying and selling within a short period of time. It is worth noting that the classification of investments as trading requires them (not) to be included in the deductible items from the components of ZB, regardless of any other controls, whether they are achieved or not. In addition, in cases in which the company invests in securities classified for trading purposes and has been held for more than one year, the zakat handling shall remain unchanged, meaning that such investments are not deducted from the components of ZB (they are deemed trade offers in which zakat is due regardless of the retaining period). * In the event that the investment is not deductible based on this methodology, the effect shall apply to the assets of the investment portfolio included in this investment. ** “Listed for Saudi Investments”: means that it is listed in the Saudi Stock Exchange, and “Listed in Foreign Investments” means: means that it is listed in the financial market, or ownership shares can be easily exchanged therein. Is the invest in equity shares? Not deductible * No No No No No No No Yes Yes Is the nature of the taxpayer’s activity speculation and trading in investments? Is the investment managed by someone other than the taxpayer, such as: a brokerage firm, or a specialist in the investment field who is not an employee of the establishment? (“managed” means: s/he makes the decision of buying or selling). Is the investment rated high on the taxpaer’s list of current assets? Is the investment listed** for trading in the financial market? Is there more than one transaction (buying/ selling) on the investment during the year? Is there a decision or intention from the taxpayer to dispose of the investment, whether at a specific price or a limited period? Therefore, the investment is deemed for non- trading purposes, and it may be deducted if the other conditions of the Regulations are met. Yes Yes Yes Yes Yes