1Issue 1 | September 2024

Calculation of the Zakat Base for Financing Activities The provisions of the Implementing Regulations for Zakat Collection related to Zakat calculation for financing activities are mandatory for banks and refinancing companies licensed by the Saudi Central Bank, and financing funds licensed by the Capital Market Authority in the Kingdom of Saudi Arabia, for fiscal years beginning on or after 1st January 2024G, as previously noted in Section 3.1 of this Guideline. Accordingly, a Zakat payer engaged in financing activities is required to calculate the Zakat base in accordance with the prescribed formula, based on the sources of funds determined by the rules as a ratio of Zakatable assets to total assets: Zakat Base for Financing Activities =Zakatable Sources of Funds ×(Zakatable Assets ÷Total Assets) It should be noted that there are maximum and minimum limits for the result of the above formula (see Sections 2.3.3 and 3.3.3). Zakat Rate Zakat is calculated at a rate of two and a half percent (2.5%) of the Zakat base for the Hijri year. If the Zakat payer’s fiscal year differs from the Hijri year (354 days), Zakat is calculated on a daily basis as follows: Example 5: A financial leasing company licensed in the Kingdom calculated its Zakat base in accordance with the rules for financing activities for the period from 1st January 2024G to 31st December 2024G, amounting to SAR 200,000,000. What is the zakat amount due on this base? Based on the above data, the company’s financial period is a full Gregorian year (365 days). Accordingly, the rate shall be calculated on a day-count basis as follows: Number of days: 366 Zakat rate = (2.5% ÷ 354) × 366 = 2.578% Zakat due = 200,000,000 × 2.585% = SAR 5,170,000 Consolidation of Financial Statements for Zakat Purposes Article 16, Paragraph 1 of the Implementing Regulations stipulates that a holding company and its wholly owned subsidiaries, or companies owned by the same shareholders, may submit a consolidated Zakat return based on consolidated financial statements and pay the Zakat due, provided that the subsidiaries submit an information return to ZATCA based on their separate financial statements. After obtaining approval from ZATCA to submit a consolidated return, the holding company and its subsidiaries may issue financial statements showing the full results of the group’s operations, based on which the Zakat payer prepares the return in accordance with the rules outlined in the Regulations. In line with the rules for consolidating financial statements according to the Implementing Regulations issued in 1445H/2023-2024G regarding the rules in Article 16, with a specific exception for Zakat payers engaged in financing activities as follows: When a financing activities Zakat payer is owned by a Zakat payer that is not subject to the financing activities rules and submits a consolidated Zakat return, the financing activities Zakat payer shall not be assessed according to Section 1, Chapter 7, Part 2. Based on the above, the permissibility of consolidating the Zakat return for Zakat payers subject to the regulation can be clarified in the following cases: Case Consolidation of Financial Statements for the Purpose of Submitting a Zakat Return According to the Rules for Financing Activities Zakat payers A financing activities Zakat payer owned by another Zakat payer subject to the rules applicable to financing activities Zakat payers Permissible A financing activities Zakat payer that owns partners or other companies wholly owned and not subject to the rules applicable to financing activities Zakat payers Permissible A financing activities Zakat payer owned by another Zakat payer not subject to the rules applicable to financing activities Zakat payers Not permissible Adoption of Values and Amounts Appearing in the Audited Financial Statements of Zakat payers To calculate the Zakat base for a financing activities Zakat payer by determining the Zakat-subject sources of funds, the values appearing in the audited financial statements at the end of the Zakat Year shall be adopted on a net basis, when calculating the Zakat base of a financing activities Zakat payer.