14- Manual of Zakat Handling of Investments

Introduction The provisions of Paragraph (5) of Article (4) of the Regulations dealt with the controls for deducting foreign investments, as follows: Such investments shall be in stakes in facilities outside the Kingdom of Saudi Arabia. The purpose of holding such investments shall be non-trading. Zakat shall be calculated according to a certified public accountant licensed in the Kingdom of Saudi Arabia, and paid to ZATCA. Key Procedural Controls Set by the Regulations: The minimum for such investments shall be the taxpayer’s share of the Adjusted profit according to the financial statements of the foreign investment. In this Section, an in-detail discussion is provided about each of the aforementioned deduction controls, in addition to providing comprehensive examples covering the foreign investment deduction mechanism. 4.1.1 Investments in Stakes of Facilities outside the Kingdom of Saudi Arabia As discussed in the previous Section, such investments may exclusively take one of the following forms:
 Investments in affiliated entities.
 Investments in associate entities or joint ventures.
 Investments in equity or shares in companies handled under IFRS 9. Technically, the said investments must meet the other controls set forth in the Regulations to check for the realization of the deduction terms. 4.2 Holding Investments for Non-Trading Purposes After checking the form of investments discussed in Section No. (4.1) above, the taxpayer shall check the additional control, which is that the investment is kept for non-trading purposes, which was discussed in the previous Section. Example (16): Company (X) had the following investments during 2020 AD: Company (X) invests 75% of the equity in Company (Y). Company (X) classifies its investment in (Y) as an affiliated entity as a result of its control over Company (Y). 2. The company owns 25% of the shares of Company (Z) over which it exercises significant influence on its decisions and operational policies. Company (X) classifies said investment as an investment in an associate entity. 3. Company (X) also has investments of little relative significance in diversified investment portfolios, which the company maintains with the aim of achieving short- term gains. The company classifies said investments as current assets. Nature of Company investment (X) Type of Investment Held for trading Deductible from Zakat Base components Investment of 75% of the equity of company (Y) Affiliated entity No Yes, provided other deduction criteria are met Investment of 25% of the equity of company (Z) Associate No Yes, provided other deduction criteria are met Equity instruments in companies whose shares are traded in a public market Investment in Financial Instruments (Equity) YES No