1Second Edition | April 2020

Introduction to the Ministerial Resolution Requiring State-Owned Companies to be Subject to Zakat Collection Ministerial Resolution No. (57732), dated 3 Dhul-Qa‘dah 1443 AH (corresponding to 3 June 2022), was issued prescribing the provisions and conditions related to companies wholly owned by the State subject to Zakat collection. The Ministerial Resolution by which the Implementing Regulation for Zakat Collection was issued, No. (1007) dated 19 Sha‘ban 1445 AH (corresponding to 29 February 2024), also confirmed the continued application of Ministerial Resolution No. (57732), dated 3 Dhul-Qa‘dah 1443 AH (corresponding to 3 June 2022). Resolution No. (57732) sets forth the general rule under which companies wholly owned by the State are subject to Zakat collection in accordance with the provisions of the Regulations. It also outlines exceptions under which such companies may be exempt from Zakat, subject to specific conditions and conditions defined in the said Resolution. The Resolution further prescribes additional requirements that State-owned companies must comply with when submitting a request for exemption from Zakat Collection. It is emphasized that the application of Ministerial Resolution No. (57732) extends to fiscal years beginning on or after 8 Jumada II 1444 AH (corresponding to 1 January 2023), with no exceptions for retroactive application 3.2.2. Zakat Liability of State-Owned Companies Engaged in Commercial Activity Companies wholly owned by the State shall be subject to Zakat Collection where the following conditions are met: 1. Possession of a Commercial Registration; that is, the company was established in the Kingdom pursuant to a notarized Articles of Association and engages in a licensed activity under a commercial registration issued by the Ministry of Commerce in the Kingdom. Such company is subject to the same laws and regulations applicable to other companies in the Kingdom, unless otherwise provided. 2. The company’s activity could be assigned to the private sector; that is, based on the company’s Articles of Association, its founding contract, or any other statutory instrument, the company’s activity could be assigned to another company in the private sector. In other words, any non-State-owned company operating in the private sector could carry out the same activity under an official license issued by the Ministry of Commerce in the Kingdom or by the competent authorities. For this section, commercial activities may be classified into two categories: Commercial Activity that can be assigned to the private sector Commercial Activity that cannot be assigned to the private sector These are activities registered with the Ministry of Commerce for which a license application can be submitted by any person, whether the company is state-owned or operates in the private sector. These are activities that the state undertakes by establishing a wholly state-owned company in the Kingdom for that purpose. It should be noted that other private sector companies-not owned by the state-cannot apply for and obtain a license for the same activity. Result These companies shall be subject to the provisions of the Regulation unless the exceptions set out in Ministerial Resolution No. (57732), Paragraph (Second) apply. These companies fall outside the scope of private sector competition and may apply to ZATCA for approval of exemption from Zakat Collection. Example 1: Company (X) is a company wholly owned by the State. It holds commercial registration in accordance with the commercial laws issued by the Ministry of Commerce and other relevant regulations in the Kingdom. Referring to the company’s founding contract and Articles of Association, the nature of its licensed commercial activity is such that it may be assigned to the private sector. Question: Determine whether Company (X) is subject to Zakat Collection. Answer: Company (X), wholly owned by the State, is subject to Zakat collection because it holds a commercial registration issued by the Ministry of Commerce and carries on a commercial activity that may be assigned to the private sector. Example 2: Company (X) is a company wholly owned by the State. It holds commercial registration in accordance with the commercial laws issued by the Ministry of Commerce and other relevant regulations in the Kingdom. Referring to the company’s founding contract and Articles of Association, the nature of its licensed commercial activity is such that it may NOT be assigned to the private sector. Question: Determine whether Company (X) is subject to Zakat Collection. Answer: Company (X), wholly owned by the State, is NOT subject to Zakat Collection because it carries on a commercial activity that may not be undertaken by the private sector.