1Issue 1 | September 2024

Upper and Lower Limits for the Zakat Base The Implementing Regulations for Zakat Collection regarding the rules for calculating Zakat for financing activities included an (upper) limit and a (lower) limit for the Zakat base, depending on the operational results of the Zakat payers subject to the financing activities rules, according to the financial statements audited by a licensed auditor in the Kingdom, as follows: a. If the Zakat payer achieves a net profit according to the audited financial statements (see Section 3.3.1). b. If the Zakat payer does not achieve a net profit according to the audited financial statements (see Section 3.3.2). 3.3.1 When the Zakat payer Achieves a Net Profit If the Zakat payer achieves a net profit according to the audited financial statements, the Zakat base must not be less than the lower limit (four times the net profit) as at the end of the year, and shall not exceed eight times the net profit as at the end of the year: Lower Limit Upper Limit 4 × Net Profit 8 × Net Profit For the purposes of applying these rules of the Implementing Regulations, net profit means: the profit after excluding the effect of the Zakat provision charged to the net profit appearing in the financial statements at the end of the Zakat Year. 3.3.2 When the Zakat Payer Does Not Achieve a Net Profit If the Zakat payer does not achieve a net profit according to the audited financial statements, then for the purposes of calculating the Zakat base according to the provisions of the Regulation, the following shall be considered: If the Zakat payer does not achieve a net profit (i.e., a loss) from its operational results according to the audited financial statements, the gross profit is considered as the basis for calculating the lower and upper limits of the Zakat base, as follows: First: Lower Limit Upper Limit 40% of Gross Profit 80% of Gross Profit For these rules, gross profit means the establishment’s income realized from the activity after deducting direct expenses. Secondly: If the Zakat payer does not achieve a gross profit according to the audited financial statements: The Implementing Regulations for Zakat Collection stipulate that in cases where the Zakat payer has not achieved a gross profit at the end of the Zakat Year, the base shall have no upper or lower limit, and the Zakat payer must calculate the Zakat base and Zakat based on the result of the previously mentioned formula. The limits of the Zakat base, according to these rules, can be summarized as follows: Lower Limit / Upper Limit In case of achieving a Net Profit In case of not achieving a Net Profit but achieving a Gross Profit In case of not achieving Net Profit or Gross Profit Lower Limit 4 × Net Profit 40% of Gross Profit No lower or upper limit Upper Limit 8 × Net Profit 80% of Gross Profit No lower or upper limit